DUBAI, 25 September 2003— The International Monetary Fund and World Bank ended here yesterday a joint annual meeting that urged greater exchange rate flexibility and structural reforms to consolidate the global economy’s nascent recovery.
The two-day meeting also urged richer countries to increase aid to the developing world and to lower agricultural subsidies in order to allow poor countries to increase exports, which would contribute to a more “balanced” world.
About 16,000 people, including finance ministers, central banker governors, bankers, institutional investors and journalists flocked from 184 countries to the meeting, held for the first time in an Arab state.
“First, the economy, which is central to any issue of development, appears to be stronger, and that was the general opinion,” World Bank President James Wolfensohn told reporters. The concluding WB-IMF press conference was, however, dominated by the Middle East crisis in general and the Iraq crisis in particular. Wolfensohn and IMF Managing Director Horst Kohler answered journalists’ questions.
When asked about hopes for improving living conditions for the Iraqi people in the coming year, the IMF managing director said, “World leaders have now set aside their disputes over Iraq and formed a consensus that the international community can really unite and the World Bank and IMF and other can go to Iraq and work together with the Iraqi people.”
Ministers from the US-backed Iraqi government came as “special invitees.” They unveiled a program of economic reforms allowing for 100-percent foreign ownership in all sectors except oil and other natural resources, and said they needed assistance of around $70 billions for reconstruction.
According to Wolfensohn, there are three basic issues in Iraq that the World Bank is concerned with: running the country, basic reconstruction needs and security. When asked if Iraq’s debt, estimated at some $300 billion, would be forgiven by international donor agencies, Kohler said that debt relief must be and should be the part of a comprehensive effort to help in reconstruction.
While answering questions about the humanitarian crisis in Palestine, Wolfensohn said that the bank had been in Palestine for ten years and continued to raise funds which are now close to $10 billion. He said that though Palestine is not an official member, the bank is trying to assist the country with both construction and reconstruction.
Wolfensohn reaffirmed that the Bank had followed the same policy in Timor, Bosnia and Kosovo. In response to another question, he said that the Bank was not involved in the political situation in Palestine but was acting along the lines of unofficial mediation.
In its semi-annual World Economic Outlook, released ahead of the meeting, the IMF said the global economic outlook had brightened since the April end of major combat in Iraq, but the recovery from the sluggishness of the past two years remained fragile. It noted that the United States was the main engine of global growth, thanks to massive spending, while Europe was struggling to turn the corner.
The IMF pegged global economic growth at 3.2 percent for 2003 and 4.1 percent for 2004. But it warned against risks arising from the ballooning current account and budget deficits in the United States.
The IMF backed a call by the Group of Seven leading industrial powers on Saturday for more “exchange rate flexibility”, which was seen by markets as a veiled call to China and Japan, to allow their currencies to rise. The dollar plunged to a 33-month low against the yen on Monday, while China brushed aside the G-7 statement, insisting that “stability” of the yuan is beneficial to its economy, the region and the world.
Koehler said “we should not over interpret the first reaction of markets,” predicting they would calm down again. The World Bank focused the debate during the meetings on rising poverty in developing countries and international trade talks, supporting the poor nations’ demands that the rich lower subsidies to agriculture.
“There was a sense of realism as we approached the issues of trade and aid, debt relief ... I think we picked up from Cancun the fact that the voices of the developing world needed to be more equal,” said Wolfensohn, referring to the failed trade liberalization talks in Cancun, Mexico, earlier this month. Wolfensohn warned that the world was facing great “imbalances” as rich countries were spending $56 billion a year on assistance to the poor, compared with $300 billion they spend on agricultural subsidies and $600 billion on defense.
—Additional input from agencies
