The Fund's role in low-income countries. Low-income countries present the international community with some profound challenges. Over a billion people live on less than a dollar a day, and hundreds of millions are affected by disease. Addressing the HIV/AIDS pandemic, in particular, will be critical for growth and poverty reduction in many developing countries. Achieving durable economic growth in these countries—which is essential for lasting poverty reduction and reaching the Millennium Development Goals—will therefore require a strong social framework as well as sound economic policies. On our part, the IMF can help countries put in place policies and systems to effectively manage the increased and large inflows of aid that could be forthcoming in response to the HIV/AIDs crisis.
Importantly, lasting poverty reduction can only be achieved with stable and sustained growth. The IMF, with our mandate in promoting economic stability, can help countries to put in place strong macroeconomic frameworks that will lead to economic expansion and debt sustainability. As in everything else that we do, we must ensure that our assistance to low-income countries continues to fit their particular needs and circumstances. Some issues which may warrant closer examination include:
* Ensuring that resources in the Poverty Reduction and Growth Facility—our main lending instrument for developing countries—remain adequate to meet future demands;
* New ways to help low-income countries deal with economic shocks;
* In the case of low-income countries which do not need or want IMF lending, how to enhance the IMF's role in signaling to others the strength of these countries' policies;
* The role of the Fund in supporting low-income countries' poverty reduction strategies; and
* Our relationship with donors and aid agencies.
As a partner of the 2002 Monterrey Consensus, the IMF is committed to supporting countries in their efforts to reduce poverty and reach the Millennium Development Goals. Our unique position gives us the potential to contribute to building both pillars of the Monterrey Consensus. On one side, we can work with countries to design policies and build institutions that will help them grow out of poverty. On the other, we can advocate for more and better international support, and help with its coordination. Nevertheless, examining the issues highlighted earlier will help frame a better understanding of the areas of low-income country work for which the IMF can take responsibility, and those that will fall to other institutions and actors. It would be helpful to have greater definition in this area as we approach the U.N. Millennium Summit in September.
The IMF's internal governance and management. To maintain the IMF's effectiveness, it is essential for our membership to resolve the difficult issues that have been raised about our own governance—notably, the voice and participation of emerging market economies and developing countries in our institution. All members countries should have adequate voice and participation in the IMF's decision-making, and the distribution of our quotas should reflect developments in the global economy. In this connection, the ongoing 13th general review of IMF quotas provides an opportunity to make progress on this front.
Further, given the demands placed on the IMF by its members, it is clear that the institution's resources must be commensurate with the tasks it is asked to perform. This ongoing strategic review will help us to identify needs, define priorities, and consider possibilities to redeploy resources from lower-priority areas. Regardless of the outcome, IMF management, and our Executive Board, are committed to making the most effective use of resources entrusted to them by our membership. Efforts must therefore continue in the search for greater efficiency gains. One important aspect of this concerns the cooperation and division of labor between the IMF, the World Bank, and other international organizations. This is an issue which may bear revisiting, and I am very much looking forward to working with President Wolfowitz, and to learning his views and vision for the Bank.
On surveillance, both the IMF's Executive Board and the IMFC share my vision that a central task of the Fund lies in a stronger and better-focused surveillance process. IMF surveillance provides the foundation for cooperation among our members in the promotion of stability and growth in the global economy. With increased trade and financial linkages among nations, and strong connections between economic performance, poverty, and security issues, such cooperation to address shared problems is now more important than ever. For instance, the IMF has repeatedly pointed to the need to address current global imbalances, so as to reinforce the basis for more balanced and sustainable global growth. The existing relatively benign global outlook provides an excellent window of opportunity to do that, and the IMF serves as a ready vehicle through which to cooperate on the necessary actions.
With respect to individual countries, we should continue working to strengthen the bilateral surveillance process. While focused on the country at hand, it would be important that bilateral surveillance be fully-informed by regional and global perspectives as well. Systemically important countries will clearly continue to deserve special attention. Operationally, our respective country teams will remain the focal points for our activities in individual members. At the same time, country teams will continue to draw upon specialized expertise where necessary, from both inside and outside of the Fund. To maintain overall coherence, it would be important for efforts to continue in the integration and sharing of information among country teams and specialized experts.
Our work in financial sectors and capital markets. The IMF is the one international organization capable of carrying out financial sector surveillance universally and comprehensively. Further efforts will be needed to realize this potential, not least by deepening the IMF's role in anticipating sources of instability in national and global financial markets, and in generating timely action to address them. The IMF will continue to help countries strengthen their financial sectors, including in following up on the findings of the Financial Sector Assessment Program (FSAP) exercises. One important aspect of this will be to help members adapt their prudential and administrative frameworks to benefit more from private capital flows.
As national financial sectors become increasingly integrated and interdependent, another top priority for us must be to strengthen our understanding of the factors that drive global capital asset allocation, and the reasons for capital flows across sectors and national borders. Early identification and assessment of capital flows will help us evaluate vulnerabilities in a timely manner, as well as enhance countries' ability to address them. The effectiveness of our bilateral and multilateral surveillance activities will also be strengthened as a result. For members who wish to access international capital markets and integrate their economies more fully into the global financial system, we can provide advice on the appropriate sequencing of measures, such as how to strengthen their financial sectors and reduce their vulnerability to shocks as preparatory steps.
IMF financing and lending. The Fund's traditional role of providing financing to help smooth the adjustment of temporary current-account imbalances remains vital for many countries. For others, our main task is to help prevent, or mitigate, capital account crises and their cross-border contagion effects. To succeed in these roles, the IMF must be able to exercise selectivity in supporting only those adjustment programs that will put the relevant members firmly on the path to external viability. The existence of robust domestic institutional frameworks, and strong national ownership of programs, would be key. Building on these principles, we will continue working towards a clearer consensus on the appropriate circumstances and scale for IMF lending, the possible need for additional financial instruments, and the adequacy of the present framework for the orderly resolution of sovereign debt problems.