The World Economy

The directors of the six IMF area departments assess the current situations in their regions, the challenges these regions face, and their opportunities for growth in the coming years.

Africa

Goodall Gondwe, Director, African Department

Sub-Saharan Africa has made considerable economic progress in recent years, as reflected in lower inflation and consistently higher real GDP growth, which has averaged more than 4 percent a year since 1994. These improvements have resulted from better macroeconomic policies (that is, stronger fiscal policies and a cautious monetary policy) and far-reaching structural reforms to improve overall economic efficiency. These reforms have included price liberalization, public enterprise restructuring and privatization, agricultural sector reforms, the rationalization of regulations governing economic activity, civil service reform, and the liberalization of foreign exchange and trade systems.

Sub-Saharan Africa needs much higher and more sustained growth to reduce its pervasive poverty. However, growth performance is still constrained by inadequate infrastructure, poor public services, persistent weaknesses in regulatory and incentive systems, and low savings, all of which discourage investment and adversely affect productivity. Policies must therefore aim to increase the level and efficiency of investment and stimulate substantially higher domestic and foreign saving. Moreover, the process must be led by the private sector. If the private sector does not take off, these countries will have difficulty achieving sustained growth. The policies necessary to achieve these objectives are not new, but they do bear repeating. For these policies to be successful, however, there must be an environment of peace, characterized by political stability and democratic, participatory forms of government; it is necessary to dispel Africa's negative image and encourage domestic and foreign investment.

First, macroeconomic stability is critical for economic growth. To foster investor confidence, sub-Saharan Africa must continue to adhere to sound fiscal and monetary policies and, where necessary, strengthen them. Fostering confidence will also require complementary efforts to promote good governance and combat corruption, including the development of a modern and efficient legal framework.

Second, sub-Saharan African countries must act decisively to remove the remaining impediments to economic efficiency, productivity, and competitiveness. Reforms in the financial sector should boost domestic savings and channel resources to the most efficient uses. The legal and regulatory frameworks should be rationalized to reduce the high costs of doing business. To increase the efficiency of production, national authorities must pay more attention to rehabilitating and extending transport and communications networks and to modernizing the energy and water sectors, while continuing to restructure and privatize major public enterprises.

Third, African countries need to accelerate the opening up of their economies to competition and deepen their integration into the world economy. Further liberalization of exchange and trade regimes is essential. Regional cooperation can be an effective stepping-stone for broad-based external liberalization. It provides a useful framework in which countries can create common regulatory frameworks, harmonize fiscal policy, reduce tariffs, and liberalize multilateral trade, as well as cooperate in developing infrastructure and preventing and resolving conflicts.

Fourth, government activity should be concentrated on extending the provision of key public services-including basic health care and primary education-and improving their quality and on building up the economic infrastructure, an area where sub-Saharan Africa still trails other developing regions. This will entail strengthening public institutions, including the framework for policy formulation and implementation, and reforming the civil service to instill a sense of professionalism and commitment.

Finally, African countries must focus their adjustment efforts more tightly on reducing poverty. Each country must define a comprehensive strategy to reduce poverty that takes into account the links between macroeconomic, structural, and social policies.

Africa's policy agenda at the start of the next century must build on the improvements of the past few years through further structural reform and a strengthening of the foundation for high and sustained growth. This is essential if African countries are to accelerate their social and economic development and participate as equal partners in the global economy. This is particularly true of the poorest among them that stand to benefit from far-reaching debt relief under the Initiative for the Heavily Indebted Poor Countries (HIPC Initiative), launched by the IMF and the World Bank.

Asia and Pacific

Yusuke Horiguchi, Associate Director, Asia and Pacific Department

Asia has made substantial progress in recovering from the unprecedented macroeconomic and financial market crisis that swept the region in 1997-98. The most severely affected countries-Indonesia, Korea, Malaysia, the Philippines, and Thailand-have shown remarkable rebounds in activity; Japan seems to be emerging from a decade of stagnation, which is especially encouraging given its importance to the regional economy; and economic prospects in most...