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> Supachai Panitchpakdi’s speeches
and closing remarks by the Director-General and General Council Chairman
by the Director-General
Members of the Council, and Dr Supachai.
I’m delighted to be here this morning. I greatly appreciate the invitation
to attend this meeting and the opportunity it provides for me to discuss
with you some of the ways in which the International Monetary Fund is
seeking to support the Doha process.
My presence here today, and your original invitation, underlines the
closeness of our two institutions. The Co-operation Agreement signed in 1996
has, I believe, been a great success. We have different responsibilities, of
course, but a shared objective—the expansion of world trade and the rapid
growth and rising living standards that this will bring. The more we can
work together, the better the chance of realizing our goal.
As Ambassadors to the WTO, you are all much closer to the negotiations
currently under way; and consequently better informed than I am. But I think
that I have managed to come to Geneva at a propitious moment. There are
clear signs of renewed commitment to a successful Doha round outcome: and
that commitment is essential for a deal to be struck.
Of course, there are many hurdles still to be overcome. But in his remarks
to the meeting of the International Monetary and Financial Committee in
Washington last month, Dr Supachai spoke of the intensive consultations
under way; and of the constructive and determined manner in which those
consultations were taking place. Reports of developments since then have
continued to be positive, and there is a real prospect of completing the
framework agreements by the summer.
On behalf of the Fund, let me urge all of you to continue the work in this
constructive spirit. But lest you think I am here simply as a cheerleader,
let me also spell out why we in the Fund think a Doha deal is so important;
and where we think we might be able to play a modest role in assisting the
The benefits of free trade
This is hardly the place for me to rehearse
the benefits to be had from free trade. After all, you are,
collectively, the embodiment of the multilateral trading system that has
served us so well for nearly sixty years. The rapid growth of world
trade in those decades was accompanied by rapid sustained economic
growth, rising living standards and poverty reduction. Never before have
so many people escaped from poverty. And driving that rapid growth in
trade was the process of multilateral trade liberalization.
Launching the Doha round was intended to maintain the momentum
established by previous trade rounds and to press on with the lowering
of tariff and non-tariff barriers to trade. And the ambitious Doha
program went further than previous negotiating rounds in the commitment
made to developing countries—indeed, we refer to it as the Doha
To succeed, Doha needs the support of all WTO members. It deserves this
support. A successful Doha round would provide the foundation for rapid
and sustainable growth around the world, bringing rising living
standards and reducing poverty.
Trade liberalization should be embraced enthusiastically. No country has
achieved rapid and sustained growth over a long period—with all the
benefits that brings—without trade liberalization. Doha offers the
opportunity to free many more people from poverty: indeed, it is vital
if we are to have any chance of meeting the Millennium Development
Goals. It is a win-win situation for all countries—although, as I shall
discuss in a moment, there can be some short-term adjustment costs for
But, as the communiqué of last month’s IMFC meeting pointed out,
successful completion of the Doha round is a shared responsibility. The
developed countries have obligations, especially with respect to market
access and to the reduction of trade-distorting subsidies. But
developing countries must play their part, too. The developing world has
by far the most to gain from a Doha agreement. The World Bank estimates
that around two thirds of the gains would accrue to developing
But it is important to remember that most of these gains will come from
trade liberalization by and among the developing countries. Trade
barriers between developing countries are significantly higher than
those imposed by developed countries.
The role of the Fund
I noted earlier that the Fund’s role in the
promotion of global trade is different from that of the WTO. But we do
have an important role. It is a responsibility we take very seriously.
Trade cuts across many aspects of our work. We firmly believe that trade
liberalization can be most effective, and bring the greatest benefits,
when carried out in a multilateral framework. But even unilateral trade
liberalization brings benefits for the country that undertakes such
Our surveillance work provides us with a good opportunity to encourage
our member countries to adopt trade policies that are in their best
interests. We conduct what we call Article IV consultations every year
with most of our members, marginally less frequently for the remainder.
Trade liberalization is often an important part of these consultations
because it can help achieve the objectives which all our members
share—macroeconomic stability, sustainable growth and rising living
When needed, we can also provide technical assistance to those countries
that need practical help in creating the right economic framework to
encourage growth through trade. We can, for instance, advise on how to
replace revenue from import tariffs with revenue from less distorting
tax regimes. We now have several regional technical assistances centers,
able to provide or marshal more focused advice.
And we can, where appropriate, provide financial assistance through
The need for a new initiative
But can we do more? In the past year or so we
have been reflecting on this as we became more keenly aware that there
was antipathy in some developing country members to the potential costs
to them of a Doha round settlement.. In some countries there is concern
about the economic impact of preference erosion; or of changes in the
terms of food trade resulting from liberalization in export markets and
reforms of the subsidy regimes of other countries. In other countries,
there is concern about the elimination of quotas on textiles and
clothing. Although agreed under the Uruguay Round, this will only come
into full effect at the end of this year.
I suppose the doctrinaire response to such concerns is to dismiss them,
and to reiterate that free trade is beneficial and desirable.
But that would be wrong. It would also ignore the Fund’s traditional
practice. We always take the concerns of all our members seriously. If
we judge those concerns to be misplaced, it is our duty to explain
why—to the satisfaction of our members.
Based on experience with previous trade rounds—and we are going back
fifty years or so—there is no question that the overall impact of an
ambitious Doha agreement would be positive—and large, for the global
economy as a whole and, over the longer term, for virtually all
countries. This conclusion is supported by our own research, and that of
But some of the concerns expressed by individual countries are
understandable, and we have been studying ways to address these. A
minority of WTO members might need some assistance initially as they
adjust to a more liberal multilateral trading system. They might, for
instance, have to cope immediately with the elimination of preferences
that affects them disproportionately; and there could be delays before
the benefits that flow from a more liberal trading environment start to
In keeping with our mandate, we have focused on the possible balance of
payments implications of further multilateral liberalization. We have
examined the possible impact of preference erosion and we expect this to
be overwhelmingly concentrated in a small number of products—above all,
sugar, bananas and textile products. If we assume an ambitious Doha
outcome, we reckon that no more than two dozen countries would
experience a decline in export values of 2% or more from preference
erosion. In most instances, at least some part of this decline would be
offset by increased exports resulting from improved market access for
It is harder to predict the impact of agricultural subsidy reform on
changes in the food terms of trade. But the experience of the Uruguay
Round suggests this is not likely to be very large. The consequences of
a more competitive environment for textiles exports are even more
difficult to judge: but a range of estimates suggest that the impact
could be significant for a small number of countries.
But let me be clear. For the vast majority of countries, the benefits of
a Doha agreement would be, as they would be for the global economy as a
whole, overwhelmingly positive even in the short term. In the great
majority of cases, we would expect any balance of payments shortfalls to
be small and temporary. Just to take one example: a decline in export
income from certain products that currently enjoy preferential market
access would not necessarily mean an equivalent impact on the balance of
payments: other exports will benefit from the more liberal trading
And even for those members who might be adversely affected in the early
stages of implementation of a Doha agreement, the impact is unlikely to
last long. In most cases, the phasing-in of Doha liberalization would
take place over several years and so allow time for smooth adjustment.
And it is important to remember that all countries will gain from the
expansion of trade and the consequent impact on global economic growth.
Countries that are in need of temporary assistance would still, of
course, have access to all the usual forms of assistance the Fund
provides as a matter of course. But we recognize that this, along with
the assurances I have spelled out, might not be enough to provide
reassurance for governments where there is concern about the economic
adjustment needed to benefit from a more liberal world trading system.
The Trade Integration Mechanism
It is to address those concerns that we have
developed the Trade Integration Mechanism, or TIM. I first announced
this initiative at the Ministerial meeting in Cancun last September.
Since then we have been working to flesh out the proposal. I am pleased
to say that the mechanism was formally approved by the Executive Board a
few weeks ago. I’d like briefly to spell out how it will work.
Countries expecting short-term balance of payments difficulties in
coping with the effects of a liberalization in third country
markets—either under a Doha agreement or other non-discriminatory
liberalization that has similar effects—will be able to request
assistance under the TIM They can do this within the context of an
existing Fund-supported program (such as under a standby arrangement, or
a program under the Poverty Reduction and Growth Facility) if they
already have one. Or they could seek financing under a new Fund
Once a request has been received, the next step would be for our staff
to make an assessment of the likely size and timing of any adverse
economic impact. This “baseline” figure would be used to calculate how
much financial assistance might be needed; or, if a country already has
a Fund-supported program, how much extra assistance should be provided.
The baseline is important, because if it transpires that the impact is
greater than anticipated by this reference figure, the mechanism can
provide a country with rapid topping-up, of up to 10% of its Fund quota,
without waiting for the regular program review and following simplified
assessment procedures. Any larger unanticipated financing need could be
considered under a regular review.
Of course, this topping-up provision would relate specifically to the
issue of trade liberalization and not to some more general need
reflecting, for instance, problems in implementing the Fund-supported
Let me say a word about conditionality. This would not necessarily be
different under the TIM than under an arrangement that had no TIM
element. But where assistance was provided through the TIM we would be
looking to encourage countries to adopt the policies needed to enable
the economy to adjust as rapidly as possible to the new, more liberal,
global trading system. Any agreed topping-up under the TIM would not
normally involve additional conditions.
Those countries who might want, and be eligible for, assistance under
the terms of the new mechanism will—of course—be interested in the terms
on which such help will be available. Where a program already exists,
the additional help would carry the same terms. Where a new
Fund-supported program is needed, the terms would be those of the
framework under which TIM assistance is provided. So, for example, TIM
support provided to low income countries through a PRGF facility would
usually incorporate a considerable subsidy element.
One important factor to bear in mind, though, is the impact of new
assistance on a country’s external debt burden. In countries with a
precarious debt situation, any non-grant assistance, including under the
TIM, would clearly need to be carefully evaluated.
We confidently expect any balance of payments impact to be temporary,
while the positive changes in the trading environment will, of course,
be lasting. It will be important to structure the help provided under
the TIM in such a way that it does not slow the process of adjustment.
Anything that delayed the time at which a country was able fully to
exploit the undoubted benefits of trade liberalization would be
counter-productive. TIM’s purpose is to make the transition easier—not
to put it off. Ultimately, it is sustainable growth that will bring
poverty reduction, and trade liberalization is an important element in
driving that growth.
The TIM’s purpose is clear. It is to ensure
that the Fund is properly attuned to any need to ease adjustment that
might arise during the initial period when a Doha agreement is being
implemented. A clear focus on potential problems is important for two
reasons: first it should provide reassurance to those governments
apprehensive about how a Doha settlement might affect their economies in
the short-term; and second, to ensure that the Fund is geared to rapid
action both in anticipating needs and in reacting if those needs turn
out to be greater than initially thought. It is, if you like, a way of
exploiting the Fund’s financial resources in a more targeted way in
order to deal specifically with what will be a rapidly changing—and I
should emphasize a rapidly improving—global trade environment.
When we first started to develop this mechanism, we viewed it rather
like an insurance policy. The clear evidence is that only a very small
number of countries will ever need the assistance that the TIM offers.
But if its existence helps provide governments and policymakers with the
reassurance they need, it should make it easier for them to embrace the
Doha Development Agenda, knowing that they will be able to exploit the
opportunities an agreement will provide, while worrying less about the
potential downside risks, however small these are.
Of course, some work remains to be done on the mechanism. In particular,
more work will be needed to ensure that the initial assessment
calculations can be done accurately and speedily. Much of the expertise
for some of this detailed work lies outside the Fund—indeed much of it
is here at the WTO, as well as at UNCTAD and the ITC. It makes sense for
our institutions to work closely together as we begin to implement the
mechanism, and I have asked Fund staff to push ahead as speedily as
possible with their counterparts here and elsewhere.
The encouraging developments of the past few
weeks have given new impetus to the Doha negotiations. We in the Fund
are following events closely. As I said at the outset, we
enthusiastically support the goals of the WTO, the progressive
liberalization of world trade. We were charged with promoting trade in
our original articles of agreement, first set out sixty years ago. Ours
is not the central role, but we are determined to do what we can to
encourage the process and, through the TIM, remove potential obstacles
to a successful outcome.
Ultimately, the fate of the round depends on you. I wish you all