March 1, 2002
The United States should be a locomotive of global economic growth and a champion of economic development in poor countries, Treasury Secretary Paul O'Neill says. Testifying before the House Financial Services Committee February 28, he said that the foundations for development, including good governance and education and the rule of law, are beyond the reach of some countries because they do not have money, know-how or incentives to pursue right policies, or are encouraged to pursue wrong polices by the "sometimes perverse incentives our international assistance programs have created."
O'Neill cautioned against trying to pressure developing countries to adopt others' solutions to their problems because, he said, only lasting commitment to the implementation of economic policies can bring real results.
Outlining the Bush administration's approach to reform of the International Monetary Fund (IMF) O'Neill said the IMF needs to narrow the focus of its involvement in member countries. Attempting to address areas outside of its core mission where it does not have enough expertise, he added, diminishes the fund's effectiveness in pursuing more central objectives.
While O'Neill complimented the IMF for making progress in this respect, he said that it still needs to do more to focus its support on countries doing the most to help themselves. He pointed to greater use of "prior actions" -- conditions that countries must meet before a financial support is approved and disbursed -- as an important mechanism for identifying such countries.
And "we need to make clear that there are limits on official support to countries in unsustainable situations -- that they will not be 'bailed out' despite a history of bad policy choices and a lack of commitment to reform," O'Neill said.
The principle of having the right fundamentals as a condition of international support applies to multilateral development banks (MDBs), including the World Bank, as well, he said. That is why, O'Neill added, the United States has worked with its partners to concentrate assistance on countries with sound economic polices and good governance practices. He warned that when the next replenishment for the World Bank's International Development Association (IDA) comes, 17 countries will have their IDA lending allocations significantly reduced due to poor governance ratings.
O'Neill said that the United States has been pressing MDBs to concentrate on operations that boost productivity growth, such as improving education and health and promoting the rule of law and private enterprise.
The Bush administration has also encouraged MDBs to pay more attention to improving the effectiveness of their assistance, he said. An upcoming World Bank study of development effectiveness will be a major element of discussions at the March Financing for Development conference in Monterrey, Mexico, he added.
While the United States and European countries have not reached agreement on the U.S. proposal to convert 50 percent of IDA's concessional loans to grants, O'Neill said, "we are making progress." He emphasized the need to restore momentum to global trade liberalization, especially in financial services, and improve international cooperation and coordination on tax matters.
O'Neill commented also on fighting terrorist financing, U.S. economic bilateral relations with Russia and Mexico and the reconstruction of Afghanistan.
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