The Hindu Business Line : Reforms making nations more resilient: IMF chief

THE Managing Director of the International Monetary Fund, Mr Rodrigo de Rato y Figaredo, has urged countries to take advantage of the economic recovery and stay on the path of reforms as well for the reason that the macro-economic strengthening and structural reforms have gone the distance in making the international system "more resilient."

Mr de Rato was speaking to a small group of newspersons on a number of issues and challenges facing the global community including the present and future growth rates, debt relief and the impact of the sudden spurt in oil prices.

Mr de Rato was asked by this correspondent to comment on the concept of "reform fatigue" as raised in the World Economic Outlook Report of the Fund, which has been released ahead of the Annual Meetings of the World Bank and the IMF later this week.

"Reform has proven useful. One of the consequences we see right now is the world economy as a whole and a number of countries have become more resilient. In that respect we are seeing that macro-economic strengthening and structural reforms are paying off...certainly in Latin American countries, in Asia, Africa and in also developed countries," Mr de Rato replied.

"We have been facing some very important shocks - from the scope of the new terrorist threat to the crisis of the stock market in 2001 to scandals of 2002 to the big and quick increases in oil prices to the change in the monetary policies of the US," Mr de Rato remarked going on to say that all these in previous times "will have damaged the circumstances of the economic recovery".

The fact that the developing countries had been able to absorb the shocks in a "much stronger way" shows that the efforts made in strengthening the financial system in a number of ways has increased the capacity, he added.

"We urge countries to take advantage of the recovery, to take advantage for those who are in the situation of the new oil revenues to strengthen their position and to reduce their vulnerabilities because even if we have come some way we still have vulnerabilities - global vulnerabilities in the current account balances and that has to be corrected by the action of no one single country.

"Certainly the US has to reduce its budgetary deficit; certainly Europe has to address the slow growth performance of the last one decade; and certainly Asia has to get a more flexible exchange rate environment which will not only help the world economy as a whole but also help the Asian countries to be more resilient to external shocks," Mr de Rato said.

On the subject of debt relief which is likely to be one of the major topics of debate in this Meeting of the Bank and the Fund, Mr de Rato took the position that this was more in the hands of the government than that of the IMF which could give only technical advice to both donors and recipient countries.

There are two issues on the issue of aid, the top IMF official noted: the need for more aid; and the need for better aid, which should be "more sustainable, more predictable and less costly".

Mr de Rato stressed that aside from the debate on "new sources of revenue" for aid, one would have to keep on with the traditional way - increasing aid by allocating for more aid in the budget. Further more aid should not mean that it would be at the expense of existing programmes.

On oil prices, which are having its share of impact on the global economy, Mr de Rato pointed out that the price hike is not a supply shock but demand driven both in the developed and developing countries; and the spare capacity is the lowest in history.

Keeping the geo-political concerns as a backdrop, from an economic point of view there is the need for oil producing countries to increase spare capacity and oil-consuming nations have to re-address their energy policy - "not only oil policy... but also look for a more comprehensive energy policy....", Mr de Rato said.