Ernst Welteke: The global economic situation
Speech by Mr Ernst Welteke, President of the Deutsche Bundesbank and Governor of the IMF for
Germany, at the 2003 IMF/World Bank Annual Meeting, Dubai, 23 September 2003.
* * *
I.
I am pleased that the IMF and the World Bank are holding their annual meetings in the United Arab
Emirates this year. For the first time, these meetings are being hosted by a country in this region.
I am sure that the IMF and the World Bank have made an excellent choice in selecting Dubai as the
venue. I thank the United Arab Emirates for their warm hospitality and their splendid organizational
performance.
II.
The economic situation in many parts of the world has improved. The IMF's latest forecasts indicate
that an upswing is under way. While we broadly share this view, we see, however, still a number of
risks.
In this context, I wish to mention three problems:
First, there are widespread concerns that the large current account deficits and surpluses are not
sustainable.
Reducing trade restrictions and internal imbalances would mitigate the risk of disorderly exchange rate
adjustments. However, measures distorting exchange rates, trade, or capital movements are
counterproductive. Global economic problems require multilateral resolutions.
Second, despite some progress in consolidating government budgets, the risks associated with large
budget deficits have by no means been averted: This is not least reflected in the recent rise in
longterm interest rates. Therefore, fiscal consolidation must be continued. This is a particular challenge in
periods of insufficient growth. A medium-term fiscal framework could help to overcome these
problems.
Third, monetary policy makers are currently facing an unfamiliar situation: For several years now, both
inflation rates and nominal interest rates have been at their lowest level in decades. At the same time,
there is ample liquidity which is still growing. New bubbles must be avoided. Therefore, central banks
must remain vigilant. As a central bank Governor, I am particularly keen on making that point.
III.
Ladies and Gentlemen, despite these risks, the economic upswing will broaden and gain strength.
This will provide an opportunity which must be seized to fully implement the ongoing reforms. We all
know that reforms may be painful in the short run. However, they provide the basis for higher growth in
the long term for the benefit of all.
IV.
We have to make sure that the economic upswing stabilizes and broadens in a sound financial
environment. The IMF and the World Bank have an important role to play with regard to crisis
prevention and crisis resolution.
I welcome the progress made in this area:
The IMF's surveillance will be further strengthened.

Transparency will be enhanced.

More and more countries are realizing the benefits of the Financial Sector Assessment

Program.
 And the rules governing access to the Fund's financial resources in capital account crises
have been strengthened.
Going forward, the focus should be on implementing these measures.
V.
Ladies and Gentlemen, the World Bank and the developing countries are facing major challenges too.
Let me begin with the Doha round. I find it inappropriate that industrial countries spend

hundreds of billions of dollars each year to protect their own products. These subsidies are
several times larger than the amount of development assistance. This makes it difficult to
exploit the virtues of globalisation for the benefit of all. It would be extremely unfortunate if
the failure of the Cancun negotiations would lead to trade conflicts. Again, there is no
reasonable alternative to the multilateral approach.
Second, the "Millennium Development Goals" reaffirmed at Monterrey are a guideline for

German policy. Achieving these goals requires joint efforts. Well-targeted financial aid to
developing countries can only be successful if combined with good governance and sound
institutions.
Last but not least, a remark on quotas and voting rights. I know that many countries are

seeking higher voting shares. Yet, the proper functioning of the IMF and the World Bank as
financial institutions requires that a strong link is maintained between member countries'
quota shares and their capacity to contribute to the financial resources as reflected by their
economic weight. However, I believe there is certainly some justification for an increase in
basic votes.
Thank you for your attention.