Birgir Ísleifur Gunnarsson: Improving the world economy
Statement by the Hon Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central
Bank of Iceland and Governor of the Fund for Iceland on behalf of Denmark, Estonia, Finland, Iceland,
Latvia, Lithuania, Norway and Sweden, at the 2003 IMF/World Bank Annual Meeting, Dubai,
24 September 2003.
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Mr. Chairman, I am honored to address the 2003 Joint Annual Meetings on behalf of the Nordic-Baltic
Constituency consisting of Denmark, Estonia, Finland, Latvia, Lithuania, Norway, and Sweden as well
as my own country, Iceland. Let me begin by thanking the authorities of the United Arab Emirates for
hosting the Annual Meetings in this vibrant city of Dubai.
Prospects in the World Economy
The world economy has been showing signs of a modest recovery and further strengthening is
projected for 2004. Economic growth, however, remains unbalanced. Restoring sustainable growth is
one of the most important economic policy challenges that lie ahead. Current accommodative policies
are appropriate until a global recovery has been consolidated. Some economies have, however, now
reached the point where little scope remains for traditional fiscal and monetary initiatives.
Consequently, it is necessary to press forward in other areas such as by accelerating structural
reforms, promoting good governance, increasing transparency, and harmonizing standards. Another
important task involves enabling low-income countries to enjoy the full benefits of a globalized
economy. An orderly unwinding of external imbalances also poses a major challenge. To resolve this,
fair-burden sharing will be necessary among leading economies and different regions.
Structural Reforms
Economic recovery will continue to be restrained unless countries speed up structural reforms. An
effective way to improve long-term economic prospects is to address structural rigidities that weigh
down the efficiency of labor markets. It must be recognized that demographic challenges such as the
aging of the population add pressure on the labor market and public finances. Increased labor market
participation and restructuring of benefit schemes are therefore needed. Authorities and labor market
participants have to work together in this effort. Other structural rigidities in financial and product
markets are of no less importance, and removing such obstacles is conducive to growth.
Many economies are burdened with government deficits in the midst of the global economic
slowdown. Automatic stabilizers have been allowed to operate in order to support growth. This may be
prudent and appropriate; however, care should be taken that public finances do not become
unsustainable. Policy makers are responsible for planning both for the short and the longer term and
we encourage governments to consolidate their fiscal positions in order to enhance their nations'
competitiveness. The Fund should continue to monitor closely structural deficiencies and advise
accordingly.
Good Governance
Economic integration has brought increased prosperity to those who have been part of the
globalization process. Increased globalization also implies intensified competition in most areas. Good
governance is, therefore, more important now than ever because it fosters confidence and growth,
without entailing much additional economic cost. All empirical studies confirm that much can be gained
by embracing good governance and it is an essential component of crisis prevention efforts.
Good governance is equally vital in both the public sector and the corporate world, and its merits are
relevant in all countries. Recently, corporate governance issues have been prominent on the world
economic agenda as financial markets have been recovering from scandals that came to the fore
following a period of excesses in equity markets. In order to increase confidence in the markets, it is
imperative that the corporate world adhere to the principles of good governance. Good governance in
the public sector is also an essential tool for strengthening institutional capacity, which is fundamental
for economic and social development. The Fund has an important role to play in this field and we
welcome the increased emphasis it has given to the issue of governance.
Transparency and International Standards
With the world economy having suffered a confidence crisis, it is important to continue to promote
greater transparency and accountability. Various studies have demonstrated that transparency and
adherence to international standards lead to easier market access and lower borrowing costs. There is
much to gain by applying these simple principles.
It is also important to continue developing international standards and codes that enhance
transparency and facilitate comparison between countries and regions. The Fund has invested
considerable efforts in promoting transparency and developing standards and codes in cooperation
with the World Bank, the Bank for International Settlements and other organizations. Remarkable
progress has been made in this area but we realize that broad implementation of these standards will
take time, although this is time well spent as improved practices and comparability will increase the
stability of the international financial system.
We believe that the next steps should be to harmonize accounting standards at world level. The
Nordic-Baltic Constituency encourages all member countries to support the efforts of the International
Accounting Standards Board to reach a consensus on accounting standards and principles.
Furthermore, we welcome the new steps taken to increase the Fund's transparency, especially the
policy of moving to presumptive publication of all Article IV reports and the required publication of
documents in exceptional access cases.
Promoting Economic Progress among Low-Income Countries
One of the greatest challenges of our time is to win ground in the battle against poverty. All parties
must be fully engaged in this campaign. Many initiatives in recent years have borne fruit but there is
still a long way to go and the international community must do better in order to achieve the Millennium
Development Goals (MDGs). Here, I would like to focus on trade and its importance for development.
Greater market access will be an essential instrument for improving the economic conditions of those
living in poverty and I welcome the recent initiative taken by the Fund and the World Bank aimed at
supporting the Doha round. At this stage, the global momentum towards trade liberalization must
continue effectively, yet there is reason for concern over the way that the current international trade
negotiations are proceeding. Progress has been slower than was previously hoped, especially in light
of the disappointing result of the WTO meeting in Cancun. Another worrying aspect is the trend of
bilateral trade agreements instead of multilateral agreements.
To support low-income countries, the industrialized nations should reduce their overall levels of
support for agriculture and textiles and direct the remaining subsidies away from trade-distorting price
support towards income support. The advantages of trade liberalization are greater than the risks
associated with it. Reforms in these areas will benefit both the industrial and the low-income countries.
There might, however, be temporary or transitional difficulties as increased liberalization can entail a
reallocation of labor between sectors. Governments should be ready to inform and educate their
citizens and prepare safety nets to make the transformation more acceptable, both domestically and
internationally. High-income countries ought to be prepared to assist developing countries in such
undertakings. Low-income countries must also open up their markets in order to increase the volume
of trade between each other as well as with industrialized countries.
Bilateral and regional trade agreements have become increasingly common in recent years. However,
the multilateral route is a better channel for delivering the dynamic benefits of increased global
economic integration. Bilateral agreements can fragment and complicate multilateral negotiations such
as the present WTO round. Moreover, small and underdeveloped economies are more likely to be left
out and their ability to participate in the global economy is therefore disadvantaged. We encourage the
Fund to continue to use surveillance in promoting open world trade.
Concluding remarks
Ladies and gentlemen, improving the world economy is a task that demands the participation of every
nation. We must press forward with structural reforms, promoting good governance, increasing
transparency, and harmonizing standards. This task must also include efforts to integrate the
lowincome countries into the global economy. The current circumstances provide good reasons for
addressing these issues.
The International Monetary Fund has been at the center of world economic cooperation since its
establishment. The Fund should continue to play a crucial role in strengthening the areas I have
emphasized through its surveillance and its lending activities.