Global Policy Forum

By Horst Kí¶hler

Globalization has provided enormous opportunities for economic growth, investment and transfer of know-how and technology. But extreme income inequalities between nations are threatening to become a major source of political instability.

That about half the world's population has to get by on less than $2 a day is unacceptable. Globalization must work for the benefit of all. There will not be a good future for the rich if there is no prospect of a better future for the poor.

In the last three months I have visited 15 developing and emerging market countries in Latin America, Asia and Africa. Overall there is broad recognition that there are serious homemade conflicts, including disregard for the rule of law, corruption and armed conflicts, and that the main responsibility for tackling such problems lies with the countries themselves. I have had to listen to a lot of critical questions about the IMF. But on the whole there was no doubt that the emerging market and developing countries value its advice and support. They want the fund to focus on its traditional functions and areas of responsibility - that is, to promote macroeconomic stability and growth.

They endorse the view that stability fosters growth, and that growth is indispensable to reduce poverty. They would like to see effective cooperation between the IMF and the World Bank, but also a division of labor, with the bank taking the lead in the direct fight against poverty. A real breakthrough in combating poverty can be achieved only if the poor countries build up the fundamentals for growth and gain access to the investment capital of the international markets. To achieve this will inevitably be an arduous and often lengthy process. But I do not see a sensible alternative.

The IMF's Poverty Reduction and Growth Facility offers concessional loans to the poorest countries. My visit to Africa has confirmed that this approach of focused poverty alleviation and encouragement of self-help is having an impact there. It helps to break the ground for a new culture of good governance, sound macroeconomic management and the building of necessary institutions.

The facility is also an important vehicle to help make the initiative for enhanced debt relief for the poorest countries successful. Together with the World Bank, the IMF is working to hasten the process of bringing half of the 41 eligible countries to decision point by the end of this year.

Debt relief is an important element in a comprehensive strategy to fight poverty. There are countries that do not have the capacity to repay. But there are others for which debt reduction would give the wrong signal because in principle they have the potential to repay if they implement better policies.

This means that we have to differentiate. But there should be no confusion in one respect: Debt relief will contribute to lasting improvements only if it is combined with better policies and better governance. Trust in creditor-debtor relations is indispensable for the long-term stability of financial systems.

In the end, trade is better than aid. Estimates of the potential welfare gains for developing countries from a 50 percent worldwide reduction in barriers to trade range from $110 billion to $140 billion a year. If the willingness of the developing countries to help themselves could be combined with bold debt relief and a bold initiative by industrial nations to open their markets, the objective of the United Nations to halve the number of people in poverty by 2015 could become a reality.

Mr. Kí¶hler is managing director of the International Monetary Fund. This comment was adapted by the International Herald Tribune from an address to the National Press Club in Washington on Aug. 7.

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