Globalization and International Cooperation

Article Submitted By Dr. Zia-Ur-Rehman | 28-Jul-2012 | Views: 945

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Much of the recent strength of the global economy has been due to gains from free trade in goods and services. Market-driven specialization, supported by the global deployment of investment, has boosted productivity, raised living standards around the world, and lifted millions of people out of poverty. As the process has unfolded, the position of many emerging markets, especially here in Asia, has changed dramatically-and for the better.

Some have become major sources of demand as well as supply in the world economy. These changes have been made possible not only by new technologies but also by increased reliance on market forces, and by governments and central banks managing their economies with a more medium-term perspective. But if we are to continue to reap these benefits, we must confront the challenges of globalization. We must work together to reduce the risks from large and persistent payments imbalances. We must work together to reduce the risks of capital account crises. And as Chairman Bernanke has stressed, we must work together to make sure that the benefits of global economic integration are more widely shared, especially with the citizens of low-income countries. The Significance of IMF Reform The Fund is committed to help our members meet these challenges. This is the vision that is at the heart of the Medium-Term Strategy. Over the past year, we have begun a comprehensive process of reform, to better meet the needs of all our members. I have already talked about our progress on reform of quotas and voice. Let me now talk about two other areas: reforms of surveillance, and measures to strengthen crisis prevention, especially in emerging markets. First, surveillance. This work-monitoring the global economy, advising individual members on their economies and assessing their policies-is perhaps the greatest single service that the Fund provides. To improve this service, we are sharpening our focus on exchange rates and intensifying our work on capital and financial markets. One of the lessons we all learned from the Asian crisis is that nasty surprises in the financial sector can lead to even nastier surprises in the real economy. Effective financial sector surveillance is critical if we are to avoid such surprises in the future. Another important step towards improving surveillance is a new tool: Multilateral Consultations. The first of these focuses on narrowing current account imbalances while maintaining robust global growth. The consultation has begun, and we are making progress. I hope the consultation will produce a common understanding on policies designed to produce actions in several countries together, and also on the role the Fund can play as a forum for implementing the common approach. A second key area of our reform program is centered on crisis prevention, especially for emerging markets. At the moment, times are good in financial markets. But financial crises have not disappeared from the face of the earth. And the time to prepare for them is now. The best defense against financial and economic crisis is good policies at home. Emerging markets all over the world-in Eastern Europe, in Latin America, and here in Asia-know this very well. Many have acted to reduce their vulnerability. Some could go further-by reducing public debt, strengthening financial systems and enhancing the flexibility of their economies. The international community, through the Fund, should also be prepared. We should ask ourselves whether we need new instruments to make sure that the financial support we provide is sufficiently predictable, flexible and substantial to enable us to meet the challenges our members could face. With your help, we will be working on this important issue over the coming months. Let me now say a few words about the position of low-income countries. Many countries are making progress: growth in Africa over the last two years is the highest it has been in a decade, and average inflation is the lowest in a quarter of a century. But many low-income countries have yet to achieve integration into the global economy. Doing so is critical for their future prosperity. And a look at the conditions in which many people in low-income countries live shows that there is still a very long way to go. The Fund is fully committed to helping low-income countries meet the Millennium Development Goals. We will be most effective if we focus on what we do best, and on tasks where we can make the greatest contribution. In doing so, we will work in partnership with the World Bank and other development agencies. The Fund and the Bank both took an important step in the past year, in implementing the Multilateral Debt Relief Initiative. In the Fund's case, this wiped out debt owed to us by 22 poor countries. Now we need to help countries reap the benefits of higher debt relief and higher aid. One critical task is to avoid a new buildup of unsustainable debt. I believe that creditors share with debtors not only a responsibility but also an interest in this. The Fund can help both creditors and debtors by assessing debt sustainability. But the Fund's assessments will be most useful if all creditors provide information on lending, and make it available to the Fund and the Bank, and I call on them to do so. This is an area where we must not allow history to repeat itself.For their part, low-income countries must continue to implement good policies and structural reforms. Donors must turn the promise of higher aid into a reality, and make their aid more predictable, and less subject to an array of different conditions.

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