1 Opening Addresses

Richard Bart, Chorng-Huey Wong, and Alan Roe
Published Date:
September 1994
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Michel Camdessus

It is my pleasure to welcome you to this IMF Institute seminar, which over the next week offers you the opportunity to discuss in some detail the linkages between structural reform and macroeconomic stabilization. Perhaps the most logical place for me to begin is with the terms being used. Structural reform is a broad term that encompasses those policies aimed at improving market functioning, while macroeconomic stabilization has as its goals low inflation rates, high employment levels, a sustainable external position, and relatively calm financial markets. Recent experience and policy challenges in all parts of the world have demonstrated the interdependence of these two prerequisites to sustainable growth. For without macroeconomic stability, market signals are no longer clear, and restructuring is hampered by uncertainty. Conversely, a lack of structural reform undermines stabilization policies.

Some recent developments in three groups of countries are particularly pertinent to this seminar.

First, the economies in transition from central planning are on everyone’s mind. Most of these countries are undergoing radical transformation, and nowhere is the interdependence of structural reform and macroeconomic stabilization clearer. I am happy to say that several East European countries are showing early signs of success: privatization is well under way, important fiscal reforms are being put in place, substantial progress has been made toward macroeconomic stability, and moderate growth is expected in 1993. But most countries of the former Soviet Union (FSU) still face formidable difficulties. In Russia, as in most other FSU countries, the most urgent task is to lower inflation before instability threatens the entire reform effort. Controlling inflation will require firm monetary policy, reductions in subsidies, financial sector restructuring, and further privatization.

As you know, the IMF has established a new systemic transformation facility (STF) to assist members in dealing with severe disruptions caused by the shift from trade based on nonmarket prices to multilateral, market-based trade. The STF, which should benefit most of the FSU countries and former members of the Council for Mutual Economic Assistance, reflects the recognition that many of the countries concerned need to find a balance between their ability to implement policy and their desire to develop the basic institutions of economic management in a market system. In fact, this facility is designed to assist the authorities in their efforts to strengthen policies and move to full arrangements with the IMF. You will certainly agree that without an effective and credible program to lead an economy toward stabilization and advance the reform effort, any external financial assistance is likely to be wasted.

Second, the situation in the developing countries is a key focus of the IMF’s work. In 1993, growth in developing countries is expected to exceed that in industrial countries for the fifth straight year. This excellent performance is due largely to those Asian and Latin American economies that have pursued broad-based stabilization and structural adjustment programs. The key to the performance of these successful reformers has been strong efforts to shrink fiscal deficits and control inflation. By reducing instability and uncertainty, these countries have not only encouraged investment, innovation, and the adoption of modern technology, but also enabled the private sector to respond promptly to market signals. Equally significant have been policies intended to improve the functioning of market forces. Most of the developing countries have acted to cut subsidies and privatize state enterprises. Outward-oriented trade policies have been introduced to increase competition and expose domestic producers to new products and ideas, and financial sector reforms have made intermediation more efficient.

However, about half the countries of the developing world, including many in Africa, are still experiencing grave difficulties. The IMF’s continuing support of adjustment efforts in these low-income countries remains one of the organization’s most important tasks. It was with such countries in mind that the structural adjustment facility (SAF) and the enhanced structural adjustment facility (ESAF) were introduced. These facilities are an effective mechanism for providing low-income countries with IMF support in implementing comprehensive macroeconomic and structural policy programs. I am pleased to say that the Executive Board has agreed that an ESAF successor should be introduced to provide continuity following the full commitment of resources available under the current ESAF.1 Programs supported by the ESAF successor, which will continue to operate within a three-year framework, will be expected to accelerate progress toward external viability, incorporate firm discipline in financial policies, and focus narrowly on structural reforms (with early attention to important areas in which reforms have proved difficult and slow, such as public enterprises and public expenditures).

Third, the need for stronger noninflationary growth in industrial countries is one of the major problems confronting the world today. Industrial country output is projected to increase by between 1 1/2 percent and 2 percent in 1993, with growth in Europe barely positive. Here again, the need to improve in both macroeconomic and structural policies is evident. Most industrial countries face the difficult task of fiscal consolidation. European countries, whose structural unemployment remains at record levels, must undertake far-reaching labor market reforms to reduce or eliminate rigidities and achieve a better match between labor demand and supply. Failure to tackle this problem could substantially erode the benefits of economic and monetary union and jeopardize fiscal consolidation efforts.

Another area of structural policy that requires urgent action is trade. Large external imbalances and rising unemployment in the industrial countries have contributed to heightened protectionist pressures and a growing interest in managed trade. Reversing these developments and successfully concluding the deadlocked Uruguay Round2 would send clear signals to investors, producers, and traders; improve the global economic climate; and thereby promote world economic activity. Strong growth in the world economy and improved access to markets would, in turn, contribute to structural reform in the developing countries and economies in transition.

Structural reform and macroeconomic stabilization together provide the preconditions for sustainable growth—the central objective of economic policy in all countries and one of the IMF’s primary goals. Many countries have embarked on adjustment programs recently, with varying degrees of success. This seminar offers an excellent opportunity for you and the IMF staff to review the design and implementation of these reform programs. In so doing, you will be able to focus on the coordination of the two aspects of adjustment under discussion, seek ways to improve on what has been done, and add to the growing body of knowledge on this important economic link.

Patrick de Fontenay

Let me also welcome you to this seminar. Since some of you were last here at the IMF, many changes have taken place, both in the organization as a whole and in the IMF Institute. As you know, the IMF has now become a truly universal institution. As a result, it has been confronted with new challenges as it strives to work closely with the countries that have joined over the last two years and, simultaneously, to continue its involvement with long-term members.

The IMF Institute has changed as well, greatly expanding the scope of its activities and assuming a new role as a training institution. Its traditional courses in Washington now represent only about half the Institute’s activities. It also conducts courses and seminars in other parts of the world and at the Joint Vienna Institute, which the Institute opened together with other international organizations to meet the needs of countries in transition in Eastern Europe, the former Soviet Union, and Asia. In addition, the Institute has initiated a scholarship program (with financial help from Japan) and is responsible for internal training for IMF economists.

Let me say a few words about this gathering. As you know, each year the Institute offers a seminar for high-level officials in a policy area pertinent to IMF members’ needs. The word “policy” is important here, because the Institute is not an academic institution like a university, engaging only in theoretical debates. Rather, its seminars have a practical goal: providing a forum where members can share insights into important economic policy issues. This year’s topic, for example, is the coordination of macroeconomic stabilization and structural reform, though not the old and tiresome debate about shock therapy versus gradualism. There has already been too much discussion of this topic. Many countries in Eastern Europe and the former Soviet Union are in a state of shock in both the literal and figurative sense, and the solutions available to them are quite limited. It is fine for academics to engage in theoretical debate about, for example, the benefits of the Chinese approach over the Russian approach, but in practice, such a discussion is not very helpful, because Russia never had the option of developing in the same way as China.

This seminar concerns the links between macroeconomic stabilization and structural reform. There are many such links, which will be discussed throughout the ten days of the seminar. Examples are not hard to come by. If the target of macroeconomic stabilization calls for a reduction in the budget deficit, for instance, an increase in government revenue may be necessary. But to increase revenue, the tax system may have to be reformed or a new tax administration put in place. This one simple example shows how tight the links between macroeconomic policy and structural reform can be.

Many other examples are available. State enterprise reform, whether privatization or another type of restructuring, is often linked to a country’s fiscal situation. Many countries, such as those in Latin America, have managed to improve public sector finances through privatization, because privatized enterprises are no longer a drain on the treasury.

Financial reform, which can be defined as the development of a sound competitive financial system, is indispensable to the conduct of monetary policy through indirect instruments. In turn, such a reform can be successful only in an environment of macroeconomic stability—another clear link.

Finally, trade liberalization has produced significant benefits in many countries. But when those benefits have been realized, it has been in conjunction with solid macroeconomic policies and a sound exchange rate policy. A competitive exchange rate is particularly important if trade liberalization is to succeed.

As these examples show, there are many areas to discuss. The seminar will focus on a few the IMF views as key, some of which I have already mentioned: price liberalization, tax reform, financial reform, external liberalization, and enterprise reform, among others. While many of these are often discussed in the context of the former Soviet Union and Eastern Europe, the seminar is not just about this region; its content is relevant to all transition economies. For example, the transformations that have taken place in Latin America during the last two or three years are germane to this seminar.

As Michel Camdessus has mentioned, the speakers at this seminar are a mix of practitioners, including academics and senior staff of the IMF and the World Bank, who can look at the issues from different angles. Another special aspect of this seminar is its use of case studies, which is standard practice in Institute courses. These studies are intended to keep the discussion focused on the concrete. Finally, plenty of time is allowed here for discussions. One of the main benefits of Institute courses in Washington is that they give participants the opportunity to exchange views on experiences, problems, and successful or not-so-successful solutions. I have no doubt that this group will also find these exchanges of great interest; indeed, they are one of the most important reasons for bringing you together here.


The Executive Board approved the initiation of operations under the enlarged and extended ESAF on February 23, 1994. At the same time, the list of IMF members eligible to receive loans under ESAF was expanded by six.


The Uruguay Round package was approved by 117 participating countries on December 15, 1993.

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