Conference Participants Agree on Key Issues

• Author: Vito Tanzi
• Position: Director of the IMF's Fiscal Affairs Department

On June 8-9, 1998, the IMF held a conference on economic policy and equity at its headquarters in Washington. Despite a diversity of views that made for lively discussions, the participants agreed on a number of key policy issues.

AT THE CONFERENCE, which was organized by the IMF's Fiscal Affairs Department, senior policymakers, academicians, religious leaders, and labor representatives from around the world (see box) discussed the operational issues faced by governments seeking to formulate and implement equitable policies. A number of policy lessons emerged from the discussions and, despite the broad range of views presented, there was substantial agreement-and even consensus-on a number of important issues.

Solid, sustainable macroeconomic policies are a necessary condition for effectively promoting equity over the medium and long run.

This point was stressed by Eduardo Aninat, Chile's Minister of Finance, who pointed out that fiscal restraint had been a crucial element in Chile's reform program, allowing Chile to repay its debt, reduce interest payments, and, over the years, provide more resources to finance equity-oriented social expenditures. Professor Grzegorz Kolodko, former deputy prime minister and finance minister of Poland, noted that robust growth made it easier to promote equity: sharing the burden in a stagnant economy is more contentious than sharing the gains in a growing one.

More equity need not hamper growth

Until recently, greater income inequality was thought to be a necessary precondition for faster growth-that is, overall savings would increase, making more resources available for investment, only if a large share of a country's total wealth were held by a small number of individuals. And, as Professor Kolodko noted, it may be necessary to tolerate increased income inequality temporarily while a country firmly establishes itself on a high-growth path. But the consensus among the conference participants was that more equity would not dampen long-term growth but that it could indeed reinforce it. Deputy U.S. Treasury Secretary Lawrence Summers noted the strong negative link between a highly unequal distribution of assets and subsequent rates of growth.

The main focus of equitable policies should be to increase the prospects of the least fortunate.

As Professor Amartya Sen noted, "the greatest relevance of ideas of justice lies in the identification of patent injustice, on which reasoned agreement is possible, rather than in the derivation of some precise formula for determining how the world should be run."...