WASHINGTON, DC – As the world struggles with the most serious financial turmoil of the post-war era, attention has focused on the advanced and emerging-market economies most immediately affected. But the impact on poor countries is far more severe.
Weak global growth is shrinking export markets, and many commodity prices are plunging. The combination of tighter credit conditions in the advanced economies and dimmer economic prospects in low-income countries is hitting investment flows.
And workers’ remittances, which now eclipse aid as the biggest financial flows to low-income countries, are also falling.
Sub-Saharan Africa depends heavily on commodity exports, so it is especially vulnerable to the global downturn.
Many African countries have used the past decade to put in place sound and sustainable economic policies that have delivered robust growth and low inflation.
Together with debt relief, these policies have resulted in low levels of public debt, relatively sound financial systems, and – most important – rising living standards.
These gains are now at risk. The high food and fuel prices that prevailed until recently have taken a heavy toll on the finances of many African economies. Now they face a second blow from the global recession.
The priority for Africa and the international community must be to ensure that the continent weathers the global financial storm, preserves the significant achievements of the past decade, and continues to make decisive progress in combating poverty.
This is not the time to take a break from efforts to achieve the United Nations’ Millennium Development Goals. How to help Africa meet this challenge – including by learning from the lessons of past success – will be the goal of a major conference sponsored by the IMF and President Jakaya Kikwete of Tanzania, to be held in Dar-es-Salaam this March.
This discussion of Africa’s prospects will involve not only official policy makers, but also representatives of the private sector and civil society, which, as we all recognize, have a key role to play.
Clearly, the responsibility to implement sound economic policies rests with African countries themselves. But the international community must stand ready to help.
My view is that strong policies on the African side, with strong support from the international community, offer the best prospects for sustained growth and poverty reduction in Africa.
Here are three priorities that should guide us:
• First, while there may be scope for fiscal stimulus in some countries, in many countries it is limited; hence, the region as a whole must protect its hard-won low level of public debt. When the storm has passed, low levels of public debt and sustainable public finances will be crucial to preserving spending that helps the poor and to bringing back the international investors who are indispensable for Africa’s future growth;
• Second, falling international prices create an opportunity to bring inflation back down from uncomfortably high levels caused by the global food and fuel price crisis early last year. This does not mean imposing rigid inflation targets. But a predictable monetary policy aimed at delivering medium-term price stability – with a flexible exchange rate where appropriate – benefits both the private sector and, most importantly, the poor.
• Third, the international community is obliged to deliver on its commitment to increase aid. This is not the time to renege on those commitments. It is equally important to restart global trade talks and bring the Doha Round to a successful conclusion – not least in order to protect Africa from the risk of rising protectionism.
The IMF stands ready to do its part. We are working closely with our 53 African members on crafting the appropriate policy response. We have increased our financing to the countries most heavily affected by food and fuel shocks.
And we stand ready to provide additional support – including under a new financing mechanism for countries hit by exogenous shocks – to help those whom the global financial crisis has affected most severely.
We are also stepping up our technical assistance to strengthen economic policy making in Africa, and opening two new regional technical assistance centers.
At the conference in Tanzania, we look forward to feedback and ideas about how the Fund can do even more – and differently.
As Africa and its partners navigate the financial storm together, we must ensure that the most vulnerable are not forgotten.
We must also ensure that solutions for strengthening financial stability and avoiding future turmoil – the focus of April’s G-20 summit – are discussed with all countries concerned.
All eyes are focused right now on the immediate crisis. But we must not lose sight of the longer-term challenges that will remain after the storm abates.
The Tanzania conference will allow us to assess what we have learned from past successes, as well as what needs to change in the future.
Our shared objective is clear: to ensure that Africa not only weathers the immediate storm, but emerges from it stronger.
Dominique Strauss-Kahn is Managing Director of the International Monetary Fund.
Copyright: Project Syndicate, 2009.