Ditchley Foundation Annual Lecture XLII
7 July 2006
Balancing Society and Market: Public Policy and Growth for Africa
The Honourable Trevor A Manuel, MP. Minister of Finance, Republic of South Africa
As Sir John has said today of course is a special day in the history of this country. It marks the first anniversary of what some people are now wrongly calling 07/07 those terrible events in London last year.
But it is also a very special day in my life because on the 7th July 1988 I was released after two years in detention without trial and then promptly re-arrested again ten weeks later.
This year marks the tenth anniversary of my tenure as minister of finance of the Republic of South Africa – but it’s been a period where we have seen a number of financial crises. Two years earlier, of course, there was the Mexican crisis and since I becamee Minister we have had the Asian crisis and the Russian crisis and it flared up again in 2001. But more importantly right now we are faced with global imbalances like the world has never seen. The United States right now has a balance of payments deficit of $804 billion and China has a surplus of $180 billion. These are enormous by any measure and these imbalances will continue to dominate because we are seeing on the one hand this huge gathering of savings in some parts of the world; we are seeing oil prices around the $70 dollars a barrel mark likely to remain in that ballpark for the foreseeable future and so the division between countries that have and don’t have that horrible black stuff will continue to present the world with the kind of imbalances that we are seeing at the moment and it is important that we pause and consider the impact of those imbalances on the poorer parts of the world and the ability to formulate development policy going forward. So in the discussion around the formulation of development policy clearly I want to venture into the difficult terrain for governments. To touch on some of the challenges that confront people in governments all over the world, my perspective would be largely an African one, where the constraints to policy formulation are stark with the division between countries that have commodities that are present that benefiting from this price cycle and those that don’t, and the impact on all of us. Clearly I want to make a case that’s cognisant and sensitive to the responsibilities of national government and the power of the state in the face of these enormous risks of globalisation.
The key challenge I think that confronts us, and I think something like that convenes all of us together here today is the human condition. What can we do to improve the quality of life of people all over the world? What are the powers, who do we surrender these powers to, what are the likely outcomes for regional formations, for the international financial institutions and where do states fit into all of this? Now I continue to serve in government believing that those few words expressed by our former President Nelson Mandela “A better life for all” is what continues to present us with a challenge. It’s that responsibility that we have to deliver democracy close to the lives of our people. Economics and finance are, of course critical areas of public policy and human welfare has increased as a result of the application of economics to social organisation as well as relations and wide variety of other public issues. Nonetheless, we need to remain conscious of the temptation to too fully apply the logic of the market to all human endeavours.
We live in a time when the virtues of ‘economic man’, and that is advisedly a non-sexist term for the discussion are lauded above most other facets of humankind – often to the detriment of our fully comprehending and ensuring the role of community and state in public policy. This has implications for how state and market are organised at the domestic level and the institutions that give life to both, for regional initiatives to create cross-border economic activity and for what we do as an international community to address poverty through aid and the international financial system. Professor Ngaire Woods has just been part of an evaluation of one of these IFIs and I would like to talk about that later.
In the 1940s Karl Polanyi wrote about another period in our history where we allowed economics to over-determine social relations. He described how the radical liberalism of the 19th Century denied the “reality of society” and enabled an unprecendented creation of wealth in the hands of elites. In his view, the unemployment and destitution that was an integral part of that wealth creation, and the shift from agricultural to industrial societies, resulted eventually in the misery of fascism in Europe. History’s lesson was of the need to prevent an aggregation of social and economic power in the hands of too few, by regulating economic power in a way that maximises the freedoms of those without power. Regulation of markets and making them reasonably competitive (or possible to enter) became a critical element of a public policy that sought to steer in a sustainable way between the rights of the individual and those of community and society.
From a practical point of view, such balances that Polanyi emphasises are exceedingly difficult to achieve. In a range of European countries in recent decades, the challenges presented by inflation, unemployment and globalisation have made many people question the basic social balances achieved in the post-war era. Offshoots of that questioning include the difficulties experienced in the banlieues around Paris last year, and in the ongoing struggle of people from the poorest part of the African continent to migrate to Europe in the most adverse and abject of circumstances.
For most developing countries, the articulation and implementation of a balanced public policy is an ongoing and relatively recent endeavour. For many African countries, policy is addressed in an environment of extreme deprivation, skills shortages and weak public institutions. Overcoming those constraints requires broad-based economic growth alongside the imposition of short-term costs that can be alleviated by policy. These ‘core and periphery’ challenges remain profound for countries that have no public systems for providing the sort of financial or in-kind transfers required to address the needs of those people too old, too young, or too poor to adapt to change. And I should add to that sometimes too educated and with marketable skills, to remain in the circumstances of poverty that afflict where they have grown up and normally live.
Microeconomic policies to facilitate the shifting of people from old and non-competitive industries to new industries and new forms of economic activity are clearly important. Such policies entail assertive re-skilling, high quality education, and access to social and other forms of capital to help and enable individuals to take advantage of new economic opportunities.
But such policies also entail the movement of people out of established and older communities and livelihoods into new ones – repeating the conditions of social dislocation and misery that Polanyi spoke of in a different period, which involved enclosure and the movement of people from rural to urban settings. And, if there is one thing we know about societies it is that few of them embrace change as a way of life. Economic and social dislocation is experienced in the present, while the rewards of growth are only counted in the future.
The distress of African economies and societies mean, moreover, that the universal political calculus of assessing who reaps the rewards and suffers the costs of policy change is insufficient. A further delicate calculus is required to assess just how much instability an already fragile economic and social fabric can withstand. Will the political reaction to a reform confound the reform process in its entirety?
Now one of the elements of good news and it’s the result of intensive work by many academics, policy makers from around the world is that economic reform need not follow the standard Washington Consensus approach. Even though most of the policies entailed in it are good for growth in themselves, the point is simply that since the 1980s, research on growth has generated lots of heat but also interesting perspectives. As Dani Rodrik has highlighted, institutional development in an economy need not follow one model, but is more likely to be successful if it respects and adapts to local characteristics. And many of the instances where countries have successfully and sustainably increased the rate of economic growth, they frequently did it by targeting particular constraints to growth through quite limited reforms.
Clearly, the state has an active role to play in most aspects of economic development, particularly in the ongoing effort to ensure that markets are efficient. But to be able to fulfil that regulatory role, Africa’s states need to radically increase their capacity to define appropriate policies and to implement them. Institutional development is a prerequisite for policy definition and even more so for implementation. Regulatory systems and public institutions require the consistent application of skills, and the intellectual capacity to implement them and to sustain them. These are resources that are in short supply in developing countries, and in Africa in particular – suggesting the importance of the sustained provision of financial assistance and other means of freeing up resources for development.
Kermal Dervis, who is currently the Head of the United Nations Development Programme between having been Minister of Economic Development in Turkey and taking this job, wrote a very interesting book called A Better Globalisation, and he argues at this point, he says:
“As hard as it is to achieve, the world urgently needs a combination of substantial foreign aid in the form of grants, perhaps at least twice the amount that is currently available, with a mechanism to ensure that these resources are actually put to good use. There is really nothing that automatically leads to the inclusion in the world economy of countries that have been marginalised by history, geography, civil war, governance failures, and/or foreign power struggles on their soil. Globalisation does not “work” for these countries. China and India can use the apparatus of the nation-state to “create” linkages between their own prosperous regions and their poor regions. Somalia and Sierra Leone can do very little on their own to create equivalent linkages between themselves and the dynamic parts of the world economy.”
Developing appropriate and effective state institutions will help developing countries to better address their international challenges. Yet many deplore the risks associated with globalisation – with economic integration and international finance – despite the potentially dramatic and positive implications for economic development.
I have suggested that the development of domestic markets is needed in African economies but it is also true that African economies are small. There are 53 countries the lines were drawn all of 120 years ago in Berlin. The South African economy with a GDP of about US$235 billion constitutes three-quarters of the GDP of Sub-Saharan Africa. Now, just pause for a moment and consider the revenue of the Citigroup in 2005 were $83.6 billion. It gives one a sense of the scale of just how difficult this developmental challenge on the African continent would be over the next few years. For that reason, regional and continental integration of markets is critical to market development, growth in nascent industries, and for diversification. Without serious advances in trade integration, Africa’s economies will remain at the mercy of destabilising terms of trade shocks and other asymmetric shocks that can set development back by decades.
Yet to address those shocks and enable more appropriate trade regimes in Africa, related public institutions and systems again require extensive development. Most African economies retain fairly high trade barriers because of weaknesses in revenue collection from other forms of taxation. Reducing trade barriers, therefore, needs to be achieved alongside the development of effective revenue administration. Which comes first and how do you sequence these changes remains the most important policy element driving the changes. Financial shocks emanating from the cessation or sudden resumption of foreign aid are also often destabilising, especially for African economies, because even small imbalances can disrupt thin markets, and because the adjustment process is often impeded by the policy response itself.
In particular, the adjustment processes usually place the burden of adjustment on politically under-represented social groups, leading to an increase and perpetuation of poverty. Some marginalised groups become permanently locked out of the economic opportunity, distorting the distribution of income, reducing the potential growth of the economy, and giving rise to political instability.
Many of these sorts of political economy challenges would be made more tractable if the global trading environment supported production and exports from developing economies. But as we saw in Geneva last week at the WTO meeting, intended to deliver a developmental round, we are still stuck in exactly the same place. Subsidies and protection perpetuates the dependence of African economies on colonial-era trading relationships and undermines the independence that most countries need to sustain development.
One means of addressing the dependence problem would be for Africa to coalesce national economic demands into politically sound regional economic institutions. This would provide Africa greater institutional leverage to address the need for a fairer global trade regime, some capacity to address the impact of capital flows, and reform of global economic governance.
To get some sense though that we are not looking at an Africa that is static in economic management terms the average inflation rate for sub-Saharan Africa from 1995-2005 was 18%; by 2005 this had fallen to 11% and is expected to be about 8% in 2007. Now, this notwithstanding the fact that some countries some not too far from where we live have four digit inflation. So in aggregate terms I think you are looking at a very positive picture. The budget balance is expected to be a surplus of 2.1% this year and average GDP growth for 2005 was 5.5 percent and is expected to be 5.8 percent this year. Greatly improved macroeconomic performance will translate into rising employment and income over time, but remains insufficient to address the enormity of the poverty problems affecting the region. Roughly half the population continues to survive on less than $1 a day and when one looks at reality of significant improvements in the quality of life of people, we remind ourselves again that economic and social dislocation is experienced in the present, whilst the rewards of economic growth are only in a future timeframe.
So while the developing world has largely embraced the need to shift to open economies, greater competition, and the risks associated with getting policy right or wrong, the developed world continues to flirt with the opposite. Non-tariff barriers, such as phytosanitary criteria, stifle production in developing countries. The lack of progress on the current Doha round reflected a disturbing level of insecurity about the economic future in developed economies.
Multilateral trade relationships also require a change of focus. But one of the big, big problems that holds back all of development is the quality of public infrastructure. One of the big campaigns that we as Africans have to take up is for a more aggressive alignment of infrastructure with the evolution of population centres, rather than to retain the relics of antiquated and obsolete colonial economic relationships. Take a map of Africa you look at railways and railways is part of what we are talking about, in South Africa it is very easy – if there is a problem with the railways we blame Maria Ramos she runs transport. But if you look at a map of Africa basically it is from where things are mined to nearest port. The roads don’t look significant and pipelines are exactly the same, regardless of the length.
In the Commission for Africa report we argued that poor infrastructure remains a severe impediment to more rapid growth and poverty reduction. I’d like to take a few lines from the report:
In some regions of Africa, farmers lose as much as half of what they produce for lack of adequate post-harvest storage. Across the region, women and girls currently walk an average of six kilometres to collect water. The life of those living in urban slums is made still worse by the lack of infrastructure – only seven percent have access to sewerage services for example, leading to economic costs in terms of health and lost work hours.
A different report done by the African Development Bank with the OECD released two months ago dealt quite extensively with the issues of infrastructure and people who were interviewed in the process of compiling this report talk about their marginalization as a consequence of their distance from everything. Distance from the fields, distance from the markets, distance from schools, from health facilities; distance remains the biggest challenge to development really. So infrastructure needs have become more pressing as China, the US and other major world economies focus their attention ever more on Africa as a provider of raw materials. African countries need market development, efficient and fair public institutions and leadership, and major communications and transport infrastructure that reflects African economies, not just the needs of the world’s greatest commodity importers. Africa’s development and welfare depends in part on how commodity wealth is used to create intellectual, cultural and social wealth – and in part on how African states align policy for economic development beyond the production of commodities. In addition to institutions and markets, another key area of work is addressing the challenge of international finance, to which I now turn.
Some of the basic concerns raised by Polanyi (and just a reminder, I think the book was published in 1946) about the role of public policy in national economies have regained their former importance because of the expansion of financial and capital markets.
Not unlike the 19th Century, free flows of capital today play a major role in determining what happens in national and regional economies. And although most of the developed world has moved to floating exchange rates to create room for manoeuvre relative to the international financial and capital markets, interaction with those markets remains largely mediated by fixed exchange rate policies in most of the developing world. We should refresh our understanding of the burden of fixed exchange rates on policy orientation and the internal functioning of developing economies.
The international market forces that national governments contend with today are dynamic and dwarf public resources – daily turnover in global foreign exchange markets increased by nearly 40 percent in real terms between 2001 and 2004 to close to US$2 trillion. The South African Rand share of total foreign exchange turnover doubled from 2001 to 2004, to nearly 1 percent of the global total.
One of the key realisations in the aftermath of the Asian crisis, and reinforced by Argentina, was that different approaches to exchange rates and domestic regulatory institutions and governance matter, not just for prevention of crises, but also for their resolution and the recovery of stricken economies. To get a handle on domestic weaknesses that make economies prone to crises, a range of emerging market economies were invited to the discussions on prevention and resolution and helped in the formulation of new codes and standards, part if the BIS and the Financial Stability forum. We were there but once our views were heard we were thanked and sent on our way again.
All of this has been immensely beneficial for the international financial system, the strengthening of regulatory and oversight functions in national systems, and the spreading of knowledge. Global economic governance, and hence reform of the international financial architecture, however, remains incomplete. We need a multilateral basis for overcoming future bouts of financial contagion – to maintain the connection between developing economies and international capital and goods markets, and enable them to grow and reduce poverty. It was very, very topical in the heat of the Asian crisis of 1998, but I would hazard that given the scale of global imbalances the fact the incomplete work the discussion of architecture without the construction of change is likely to catch us as the imbalances start to take effect over the next few years.
At the same time, the international monetary and financial architecture that we have had since the creation of the Bretton Woods system has not kept pace with developments in these vast international markets. Regulation and systems for addressing market turbulence and failure are not adequate to the task they are confronted with. Neither the World Bank nor the International Monetary Fund has the financial or political clout to prevent financial crises, to limit them when they do occur, or even to materially help national governments to minimise the damage caused to economies by them.
The logical extension of the new role of emerging market economies and other developing countries would have been to reform the governance of multilateral institutions to enable them to take part in the decision making of those countries. Again, from the African perspective we have two significant executive chairs in the boards of the Word Bank and the IMF, the one largely Francophone represents 25 countries and the Anglophone constituency represents 24 countries. Virtually all of the countries represented by these two executive directors have programmes with the banking fund, and when one looks at the array of countries with single country constituencies the very basis of the IMF as argued by Keynes at Bretton Woods for the idea of some kind of cooperative system has been fundamentally undermined. So the challenge for us is to re-examine the World Bank and the IMF and ask the tough questions about the extent to which they have become adjuncts of foreign policy as against their role in maintaining balances and preventing crises to the financial architecture and these crises have arisen, as I have said, so many times in the past decade and right now I think we are sitting on a powder keg once again.
So the issue of the legitimacy of the IFIs becomes ever more salient when the costs and benefits of appropriately overcoming the problems of core and periphery are considered. How do the IFIs ‘sell’ the sort of radical policies that may be needed to help the rural Sahel dweller cope with economic change when their very legitimacy is so easily put into question? How effective is policy advice on the choice to privatise, corporatise, or to nationalise when too often in appears to be driven more by the prevailing political diet rather than a pragmatic assessment of the issues and a clear sense of the long-run public interests?
While the rapid development of international financial capital markets makes life more risky in the sense that more is at stake, they also enable policy choices to be made that in the past were not possible. Policy makers can draw on a much wider array of experiences from more countries and regions of the world than ever before to exercise their responsibilities to pursue economic development in the public interest.
The IMF and the World Bank should, at the very least, be at the forefront of efforts to help emerging market economies and developing countries overcome the constraints they face in accessing international capital or in responding to large and rapid inflows and outflows of capital. Few developing countries can borrow in their own currencies. Borrowing costs can fluctuate greatly, especially for those countries borrowing in Dollars. In the event of a currency crisis, interest payments in foreign currency rise, causing deeper recessions. Estimates by Ricardo Hausmann and Rigobon show that after shocks, debt to GDP ratios in a large sample of developing countries have risen 10-20 percent higher than would have been the case with debt denominated in local currency.
At the same time, foreign debt makes it difficult to improve export growth through real depreciation of exchange rate because the depreciation increases the debt burden and the cost of servicing the debt.
Now, consider the problem of African countries that depend on commodity exports, or any small number of exports that constitute the bulk of export earnings. With commodity prices declining over the past several decades, many developing countries don’t even need to incur more foreign currency debt to become unsustainable – the trend decline in commodity prices does it for them at any given level of debt.
In recent years, the increases in debt predicated on a greater ability to finance repayments as a result of much higher commodity prices merely makes the problem even more pertinent – what will happen in the next few years and certainly when commodity prices fall? From historical perspective, the lessons are evident. Oxfam’s assessment of the effects of declining coffee prices on the Ugandan and Burundi economies is worth reviewing. Burundi depends on coffee for about 80 percent of their total export revenue, so that a cut in prices of 50 percent results in a drop in total export revenue of 40 percent. Over the past year, the price for copper has increased by about 93 percent and by 52 percent since December 2005, vastly increasing the terms of trade of countries like Chile and Zambia and the contribution of copper to national income – but also creating the risk that inappropriate use of the increase in national wealth will once again end in economic disaster. And in many respects the presence of Zambia consolidated copper mines within that economy over the past forty years certainly is a text book case of just the extent to which a price change to a single commodity can have a disastrous effect on quality of life for the people in a country like Zambia.
The dependence created by the inability of developing countries to raise foreign debt in their own currency could be broken in various ways. Some analysts have suggested that the IDA at the world Bank lend to developing countries using an inflation-indexed domestic currency unit of account. This could be created from a basket of developing country currencies in order to spread risk, and would require only a very marginal increase in yields to compensate for the additional risk. In times of economic stress, debt burdens would not rise, GDP would be less volatile, and overall welfare significantly improved.
The African continent in particular is highly vulnerable to shocks, be they a sudden drop in the price of an important export commodity, a drought, or exchange rate devaluation. The frequency and severity of shocks has been growing. The Commission for Africa report background paper pointed out that 44 African countries have suffered natural disasters in the last 10 years. In addition, 28 countries are judged to be potentially vulnerable to aid shocks, due to their high aid dependency ratios, and 24 countries are very vulnerable to export shocks, because they depend on only one product for more than 50 percent of their export revenues. And at least 13 African countries have suffered foreign private capital crises over the past 10 years.
Mechanisms for addressing volatile prices for goods on which many countries’ economic fortunes are largely or wholly dependent would seem to be a useful thing for the International Financial Institutions to focus on, even if the ideas are not especially novel. At the same time, forms of financial assistance to address balance of payments crises of a broader nature – such as those initiated by financial contagion – could be an important aspect of any serious effort to revamp the tools of the IMF.
Let me just pause and touch on the example of South Africa. The last decade has seen repeated efforts to improve the macroeconomic balances. In many respects I think that we are a text book case of reform. As a result of contagion in 2001, I think the rand is trading at about 7.10 to the dollar today but in December 2001 it suddenly depreciated to 13.89 to the dollar. Not as a result of anything we happened to do wrong but it was clearly a result of just living in the wrong neighbourhood. Now, prior to that and it is part of this incomplete discussion about financial architecture there was the idea that countries like South Africa and a number of others that had undertaken extensive economic reform should be entitled to a facility that was different from standby; a contingency credit line, a kind of insurance that would help countries and just bide them out of the difficulties that confronted them and when there was a very sudden and deep depreciation that we witnessed we had to take up discussions with the IMF privately but the CCL had never been approved. The facility has now been completely abandoned so all of the intense effort (and I hope the taxpayers never ask me what we spent to get to the meetings to discuss these issues but all of those discussions have come to nought because when we needed the facility to drive the change, it wasn’t available to us. And these issues I think will continue to dominate discussions as we meet in Singapore for the annual meetings this year. The sense that the IMF and the World Bank are not there to help countries when they need them most I think is a very very important challenge that confronts us.
Let me conclude.
The importance of addressing the international environment has been deepened by globalisation, forcing states to adapt to fulfil their old functions. For African states, to balance the distribution of economic burdens and opportunities requires creativity and active, capable state institutions. Governance reforms and technical capacity building should go hand-in-hand. They need to be inventive and devise new policies and new ways of resolving the problems caused by globalisation – achieving the balances highlighted by Polanyi of providing economic security and income stability at the same time as they encourage economic activity.
Chalmers Johnson’s idea of a ‘developmental state’ – implying conscious proactive policy articulation and implementation is clearly a useful model for most developing countries, in part because of the need to prevent domination of underdeveloped and under-regulated markets by local and international firms and elites with excessive market power.
The idea of the developmental state also reminds us of the importance of public services and basic fairness in the interaction between communities and markets – enabling people to engage in economic activity and protecting them from those who would abuse the predisposition of democracies towards freedom. In large part, the means of achieving those aims is by providing certain types of freedoms to all members of the community. As Amartya Sen has put it: “Development can be seen … as a process of expanding the real freedoms that people enjoy,” and by “the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as social deprivation, neglect of public facilities as well as intolerance or over-activity of repressive states.”
State capacity and institutional development also matters for how societies respond to the international environment. Weak states tend to view international economic integration as a threat. But integration, like other policy choices, should be subject to economic cost-benefit assessment. National sovereignty may be enhanced through integration, as economic development creates the resources for better defined and implemented policies and public services in areas that matter more – such as education and health. Globalisation too can be addressed in such a way as to increase the power of states and better reflect the social and economic preferences of their citizens. But getting there requires us to see institutional design and the skills to make institutions effective as a clear and critical need for most developing countries, but certainly, I would say, all of us as Africans.
Within the international system, we need to ensure that our multilateral institutions help African and other developing countries to address these issues. Tying us together as an international community, the Monterrey Consensus forged a partnership to address the economic aspects of our problems. Developing countries were meant to undertake policy and institutional reforms. Developed countries agreed to assist in those efforts and to create an enabling international economic environment. The emphasis in Monterrey was in partnership as we argue NEPAD. the new partnership for Africa’s development is premised on exactly the same kind of partnership.
Tragically, we have made little progress on much of the Monterrey Consensus. Far too many of the policies and practices of developed countries weigh against it: cultural exclusion, economic protection, political manipulation and favouritism have not disappeared with the dismantling of the Berlin Wall. The underlying disorders are generated, mostly unconsciously and indirectly, from the interaction of insecurity and the need for change that come together in national political systems. That they influence the neutral-sounding processes like donor aid, trade negotiations, and international financial architecture that developing countries depend on for their own development remains intensely problematic.
The drive at the international level – from Monterrey through Gleneagles – has been to win agreement that large chunks of new financial assistance are required up front to lay the basis for countries to develop beyond reliance on foreign financial aid. The means for ensuring that funds are used in a transparent and accountable way – one of the primary complaints of donors – are there. Great strides have been made to set out principles by which the present bureaucratic clutter that passes for aid systems can be cleaned up and made transparent. Direct budget support and other channels for aid can be easily monitored to increase accountability. Richard Manning at the OECD has developed this wonderful model for mutual accountability on aid, but it seems as though donor countries don’t want it. It’s too transparent. Stronger government systems for finance, policy development and implementation – will provide the returns to the upfront assistance by directly reducing the dependence of poor countries on assistance in the first place.
At the Gleneagles Summit – which occurred precisely a year ago – the G8 committed to increasing their aid to Africa by US$25 billion per annum by 2010. Preliminary data shows that ODA to developing countries from G8 members increased by US$21 billion in 2005. However, US$17 billion of this went towards writing off debts in Nigeria and Iraq. In its analysis, the DATA report argues that in order to make progress towards the 2010 goal, G8 donors will have to increase their development assistance to Africa by US$4 billion each year for the next 5 years.
Insufficient and badly directed development finance, poor advice on policy, difficult questions of trade protection, and inadequate international financial systems all point to the inadequacy of the current decision-making structures for international economic affairs. Reform is necessary, and in my view, if developing countries had a greater say in the running of these institutions, there would be a greater sense of ownership and legitimacy.
In a world of volatile capital flows, powerful financial markets, and destabilising macroeconomic policy decisions, the major financial contributors to the IMF and World Bank need to recognise the prudential character of reform as the financial costs associated with crises grow ever higher.
That hope, however, is merely a reflection of a more general point: that for too many societies around the world the idea of a reasonably stable international financial and economic order is quickly becoming a remnant of a multilateral past, even as the social and economic implications of our deeper interdependence raise the risks associated with economic integration.
Where poverty is so pervasive, we need to make certain that the touch of globalisation on our most marginalised populations lifts and nurtures rather than condemns. That is the single task confronting us as leaders in the developing world and as members of the international community if we want to support economic integration and to realize the full potential of human development.
A reminder again. There are 184 countries in the World Bank and IMF. Many of them poor as that story told by Kermal Dervais about Sierra Leone and Somalia, too poor to even have development within it. The challenges are real and I trust that we are as a generation capable of responding.
© The Ditchley Foundation, 2006. All rights reserved. Queries concerning permission to translate or reprint should be addressed to The Editor, The Ditchley Foundation, Ditchley Park, Enstone, CHIPPING NORTON, Oxfordshire OX7 4ER, England.