“Stability and Growth for Poverty
Reduction”
By Christine Lagarde, Managing Director,
International Monetary Fund
Bretton Woods Committee Annual Meeting
Washington DC, May 15, 2013
It is a great pleasure to be here with
this distinguished audience, and to host the Bretton
Woods Committee Annual Meeting at the IMF.
Let me thank Bill Frenzel and Richard Debs for their welcome.
“Ending poverty in a generation” is the
theme of this year’s meeting. I want to commend President Kim for staking this
high ground, and to salute the courage of his commitment to end poverty by
2030.
I am pleased also to see my dear friend
Jim Wolfensohn. Jim’s intellectual leadership transformed the World Bank and he
helped put tough issues like corruption and debt relief on the global agenda.
Thank you, Jim, for continuing to lend us your indispensible energy and wisdom.
For 30 years, the Committee has played a
key role supporting the work of the IMF, Bank and other institutions. Your
efforts to promote understanding of our mandate and your strategic guidance
have helped us adapt to new realities. I want to express my profound
appreciation for your support.
Back to poverty: we should first
acknowledge that the world has seen major progress. As you know, the Millennium
Development Goal to “halve the proportion of the world population” living in
extreme poverty by 2015 was met five years early.
Moreover, in the three-speed global recovery
now underway, the developing countries are leading the pack. After Asia, Sub-Saharan Africa is currently the second-fastest
growing region.
However, we cannot pat ourselves on the
back just yet. There are still 1.3 billion people living under $1.25 a day; and
over 2 billion people living under $2 per day.
Also, while numbers are important in
themselves, they are not enough. It is ultimately about enriching human lives
and enabling human potential.
Today I would like to discuss the role of
the IMF in this effort. I have three messages:
1) Economic stability is essential for
poverty reduction.
2) Growth and equity are mutually
reinforcing, and necessary for sustainability.
3) Fiscal policies can improve equity and
lower poverty.
1. Economic stability: essential for
reducing poverty
I will begin with the over-riding
importance of economic stability. We have learned that output declines caused
by economic crises are the biggest source of long-lasting welfare losses among
developing countries. For this reason, the first best contribution that the IMF
can make to reducing poverty is to help avoid crises.
On average, it takes 6-12 years for
developing countries to return to pre-crisis per capita GDP levels after an
initial output drop.
Moreover, this is not only an issue for
developing countries. In the United
States, for example, per capita GDP in 2012
was estimated to be about 9 percent lower than what it would otherwise have
been without the global crisis.
Job losses are another huge cost of crises.
Today, over 200 million people are still unemployed. This has immense economic
and human costs.
So, first principle: economic stability is
paramount for poverty reduction.
For this, the Fund’s role is clear:
helping members build policy frameworks that minimize booms and busts, avoid
home-made crises, and strengthen countries’ resilience in the face of external
shocks.
In recent years we have stepped up efforts
to help low-income countries cope with crisis. We significantly increased the
resources available to low-income countries, upgraded our lending instruments
and, crucially, we continue to charge zero interest on all concessional
lending.
2. Growth and equity: mutually reinforcing
and necessary for stability
Let me turn to my second point—growth and
equity. I have been talking about preserving the total size of the economic pie
by avoiding crisis. What about expanding the pie and making sure it is
distributed more fairly?
Rising income inequality is a growing
concern for policymakers around the world. Over the past 25 years, income
inequality has increased in most advanced and developing countries, though it
started to decline after 2000 in some regions.
This has not gone unnoticed: the Arab
Spring and “Occupy movement”, though very different, were motivated in part by
discontent with these trends. Let’s look at some numbers:
The top 0.5 % of the global population
holds over 35% of global wealth.
In some countries like Canada, South
Africa, the United Kingdom, and the U.S,
inequity has soared in the past 25 years. In the U.S., the share of pre-tax income
of the richest one percent of the population rose from 8 percent to 18 percent
of the total.
What does this type of steep income
pyramid mean for access to education for those in the lowest income quartile?
What might it mean for social stability or growth?
The IMF has started to look more closely
at this. Recent work has shown that prolonged periods of steadily rising output
are associated with more equality in income distribution. In other words, more
equal societies are more likely to achieve lasting growth.
So, equality is good for growth, but is
growth good for equality? It may be a necessary condition for reducing poverty,
but it has not always reduced inequality.
There is solid evidence that social
policies targeted to reducing poverty and promoting human development can have
a powerful impact. For example, conditional cash transfer programs in Brazil and Mexico contributed to about 20
percent of the decline in inequality over a ten year period.
3. Fiscal Policies to reduce poverty
This brings me to my third point. What
more can the Fund do to advance this kind of “inclusive” growth?
Fiscal policy is key. The good news is
that, in advanced economies, fiscal policy has played a major role in reducing
inequality in the past 30 years. The bad news? This impact has been declining
since 2000.
Why? Because many countries have adopted
reforms that have reduced progressivity in the tax and spending mix, that is,
reduced the generosity of social benefits and lowered income tax rates,
particularly at top brackets.
In developing countries, fiscal policy has
generally been less effective at reducing income inequality. This is because
tax and spending levels, as a share of output, are much lower, sometimes half
the level of advanced countries. In addition, tax systems are often less
progressive because of a lower tax base and greater reliance on indirect taxes.
Yet there are fiscal policies that can
help divide the pie more fairly.
On the revenue side, these are policies
that help build stronger, more reliable revenue bases by reducing exemptions,
combating tax evasion, and strengthening administration.
On the spending side, the Fund will
continue to push for high-quality public goods and services. A priority has
been protecting and augmenting social spending to reduce poverty and exclusion.
For example, despite this long global crisis, two-thirds of sub-Saharan African
countries have been able to expand public spending on health and education in
real terms.
Reform of energy and other generalized
subsidies is also critical. In 2011, energy subsidies represented about US$2
trillion in fiscal resources worldwide —2.5 percent of global GDP.
In developing countries, much of these
subsidies benefit the middle and upper classes. On average, the richest 20
percent of households in developing countries capture 43 percent of total fuel
product subsidies compared to 7 percent by the poorest 20 percent—six times
more! These subsidies are not reaching the poorest households and are diverting
public resources away from spending on health and education.
In addition, removing these subsidies
would benefit the planet, reducing CO2 emissions by an estimated 13 percent.
Conclusion: institutions and governance
Let me conclude with a word on
institutions and governance. As you know, strong institutions and
accountability go hand in hand with economic stability, sustained growth, and
human development. The book “Why Nations Fail” by Daron Acemoglu and James
Robinson made a very convincing case for this.
Institutions must be accountable to
taxpayers and citizens; otherwise, striving to reduce poverty is like building
a house on a bed of sand.
Good governance also matters at the IMF.
In an ever-changing world, we must mirror our evolving membership. So we are
pressing ahead with our quota and governance reforms. We have made very good
progress but the leadership of our largest shareholder is a critical element.
As you may know, the U.S.
authorities recently submitted the 2010 package of reforms as a supplement to
the budget. We welcome this and hope for prompt approval.
I would like to thank the Bretton Woods Committee for your support on this issue in
the past.
***
To sum up, I am fully behind President
Kim’s goal to end extreme poverty by 2030, and I pledge to work together with
him on this.
With the right partnerships and the right policies,
we can indeed see the end of poverty in our generation.
Nobel Prize-winner Muhammad Yunus said
“Once poverty is gone, we’ll need to build museums to display its horrors to
future generations. They’ll wonder why poverty continued so long in human
society – how a few people could live in luxury while billions dwelt in misery,
deprivation and despair.”
I truly look forward to that day.
Thank you.
Christine Lagarde
Christine
Lagarde is a managing director at the International Monetary
Fund (IMF), and attended George Soros’s 2013
wedding reception.
Note: Timothy
F. Geithner was a director of policy development & review for the International Monetary Fund (IMF), the secretary at the U.S. Department of the Treasury for the Barack Obama
administration, and an overseer at the International
Rescue Committee.
George Soros
was married in 2013, Christine Lagarde
attended his wedding reception, the chairman for the Foundation
to Promote Open Society, and is a member of the Bretton
Woods Committee.
Foundation
to Promote Open Society was a funder for the International
Rescue Committee, the Aspen Institute (think
tank), the Brookings Institution
(think tank), the Carnegie Endowment for
International Peace (think tank), the New America
Foundation, and the Committee for Economic
Development.
Morton
I. Abramowitz is an overseer at the International Rescue
Committee, and a member of the Bretton Woods Committee.
Madeleine
K. Albright is an overseer at the International Rescue
Committee, and a member of the Bretton Woods Committee.
W.
Michael Blumenthal is an overseer at the International
Rescue Committee, and a member of the Bretton
Woods Committee.
Maurice
R. Greenberg is an overseer at the International Rescue
Committee, and a member of the Bretton Woods Committee.
Henry A. Kissinger
is an overseer at the International Rescue
Committee, a member of the Bretton Woods Committee,
a director at the American Friends of Bilderberg
(think tank), and a 2008 Bilderberg conference
participant (think tank).
Colin L.
Powell is an overseer at the International Rescue
Committee, and a member of the Bretton Woods Committee.
Felix G.
Rohatyn is an overseer at the International Rescue
Committee, and a member of the Bretton Woods Committee.
John C.
Whitehead is an overseer at the International Rescue
Committee, and a member of the Bretton Woods Committee.
James
D. Wolfensohn is an overseer at the International Rescue
Committee, and a co-chair, member of the Bretton
Woods Committee.
Madeleine
K. Albright is a trustee at the Aspen Institute (think
tank), and a member of the Bretton Woods Committee.
John
Brademas was a lifetime trustee at the Aspen Institute (think
tank), and is a member of the Bretton Woods Committee.
William
T. Coleman Jr. was a lifetime trustee at the Aspen
Institute (think tank), and is a member of the Bretton
Woods Committee.
Marvin
H. Edwards is the VP for the Aspen Institute (think
tank), and a member of the Bretton Woods Committee.
Henry
Louis Gates Jr. is a trustee at the Aspen Institute (think
tank), and a member of the Bretton Woods Committee.
Daniel
R. Glickman is a director, Congressional Program for the Aspen Institute (think tank), and a member of the Bretton Woods Committee.
Jacqueline
Grapin was a lifetime trustee at the Aspen Institute (think
tank), and is a member of the Bretton Woods Committee.
Henry A. Kissinger
was a lifetime trustee at the Aspen Institute
(think tank), is a member of the Bretton
Woods Committee, and a 2008 Bilderberg
conference participant (think tank).
David
H. McCormick is a trustee at the Aspen Institute (think
tank), and a member of the Bretton Woods Committee.
Michael
K. Powell is a trustee at the Aspen Institute (think
tank), and Colin L. Powell’s
son.
Colin L.
Powell is Michael K. Powell’s father, and a
member of the Bretton Woods Committee.
Solomon
D. Trujillo was a lifetime trustee at the Aspen
Institute (think tank), and is a member of the Bretton
Woods Committee.
Paul A.
Volcker was a lifetime trustee at the Aspen Institute (think
tank), his special assistant was E. Gerald
Corrigan, and is a member of the Bretton
Woods Committee.
E.
Gerald Corrigan was Paul A. Volcker’s
special assistant, and a member of the Bretton Woods Committee.
Mortimer
B. Zuckerman was a trustee at the Aspen Institute (think
tank), and is a member of the Bretton Woods Committee.
William
T. Coleman Jr. is an honorary trustee at the Brookings
Institution (think tank), and a member of the Bretton
Woods Committee.
Bart
Friedman is a trustee at the Brookings Institution (think
tank), and a member of the Bretton Woods Committee.
Henry
Louis Gates Jr. was an honorary trustee at the Brookings
Institution (think tank), and is a member of the Bretton Woods Committee.
Lee H.
Hamilton is an honorary trustee at the Brookings Institution (think
tank), and a member of the Bretton Woods Committee.
Vernon E. Jordan Jr. is an
honorary trustee at the Brookings Institution
(think tank), Valerie B. Jarrett’s
great uncle, a director at the American Friends of Bilderberg (think tank), a member of the Bretton
Woods Committee, and a 2008 Bilderberg
conference participant (think tank).
Donald L.
Kohn is a senior fellow at the Brookings
Institution (think tank),
and a member of the Bretton Woods Committee.
Daniel H.
Yergin is a trustee at the Brookings Institution (think
tank), and a member of the Bretton Woods Committee.
James D. Wolfensohn
was an honorary trustee at the Brookings
Institution (think tank), a co-chair, member for the Bretton Woods Committee, a director at the American Friends
of Bilderberg (think tank) and a
2008 Bilderberg conference
participant (think tank).
John C.
Whitehead is an honorary trustee at the Brookings
Institution (think tank), and a member of the Bretton
Woods Committee.
Strobe
Talbott is the president of the Brookings
Institution (think tank), and a member of the Bretton
Woods Committee.
Lawrence H. Summers
was a trustee at the Brookings Institution
(think tank), a member of the Bretton Woods Committee,
and a 2008 Bilderberg conference
participant (think tank).
Ralph S.
Saul is an honorary trustee at the Brookings
Institution (think tank), and a member of the Bretton
Woods Committee.
John
Edward Porter was an honorary trustee at the Brookings Institution (think tank), and is a member of the Bretton Woods Committee.
Ngozi
Okonjo-Iweala was a visiting fellow at the Brookings Institution (think tank), and is a member of the Bretton Woods Committee.
Jessica Tuchman Mathews
is a member of the Bretton Woods Committee,
was an honorary trustee at the Brookings
Institution (think tank), a board member at the International
Crisis Group, a director at the American Friends of Bilderberg (think tank) and a 2008 Bilderberg conference participant (think
tank).
George Soros
is a board member at the International Crisis Group,
and a member of the Bretton Woods Committee.
Lawrence H. Summers
is a board member at the International Crisis Group,
a member of the Bretton Woods Committee, and a
2008 Bilderberg conference
participant (think tank).
Carla A.
Hills was a board member at the International Crisis Group,
and is a member of the Bretton Woods Committee.
Leslie H.
Gelb was a board member at the International Crisis Group,
and is a member of the Bretton Woods Committee.
Zbigniew
Brzezinski was a board member at the International Crisis Group,
and is a member of the Bretton Woods Committee.
Moises Naim
was a board member at the International Crisis Group,
is a member of the Bretton Woods Committee,
and a senior associate, International Economics Program for the Carnegie Endowment for International Peace (think tank).
Morton
I. Abramowitz is a board member at the International Crisis Group,
a member of the Bretton Woods Committee, and was
the president of the Carnegie Endowment for
International Peace (think tank).
Jessica Tuchman Mathews
was board member at the International Crisis Group,
is a member of the Bretton Woods Committee,
the president of the Carnegie Endowment for
International Peace (think tank), a director at the American Friends
of Bilderberg (think tank) and a
2008 Bilderberg conference
participant (think tank).
Ed Griffin’s interview
with Norman Dodd in 1982
(The investigation into
the Carnegie Endowment for International Peace uncovered the plans for
population control by involving the United States in war)
Richard A.
Debs is an executive committee chairman, member of the Bretton
Woods Committee, and was a trustee at the Carnegie Endowment for International Peace (think tank).
Mohamed
A. El-Erian is a member of the Bretton Woods Committee,
a trustee at the Carnegie Endowment for
International Peace (think tank), and was the deputy director for
the International Monetary Fund (IMF).
Kenneth
S. Rogoff is a member of the Bretton Woods Committee,
and was the chief economist for the International Monetary
Fund (IMF).
Douglas
A. Rediker was the U.S.
alternate executive director for the International Monetary
Fund (IMF), a senior fellow at the New America
Foundation, and a member of the Bretton Woods Committee.
Committee
for a Responsible Federal Budget was housed at the New America
Foundation.
William
E. Frenzel is a co-chair for the Committee for a
Responsible Federal Budget, and a co-chair, member of the Bretton Woods Committee.
Daniel H.
Yergin is a director at the New America Foundation,
and a member of the Bretton Woods Committee.
James
Bacchus is a trustee at the Committee for Economic
Development, and a member of the Bretton
Woods Committee.
John
Brademas is a trustee at the Committee for Economic
Development, and a member of the Bretton
Woods Committee.
Roderick
M. Hills is a trustee at the Committee for Economic
Development, and a member of the Bretton
Woods Committee.
Enrico
A. Lazio was a member trustee at the Committee for Economic
Development, and is a member of the Bretton
Woods Committee.
Peter G.
Peterson is a trustee at the Committee for Economic
Development, and a member of the Bretton
Woods Committee.
Stephen
Joel Trachtenberg is a trustee at the Committee for Economic
Development, and a member of the Bretton
Woods Committee.
George P.
Shultz was a trustee at the Committee for Economic
Development, is a member of the Bretton Woods Committee,
and an honorary director for the Atlantic Council of the United States
(think tank).
Paula Stern
is a trustee at the Committee for Economic
Development, a member of the Bretton Woods Committee,
and was a director at the Atlantic Council of the United States
(think tank).
W.
Bowman Cutter is a trustee at the Committee for Economic
Development, a member of the Bretton Woods Committee,
a director at the Soros Economic Development
Fund, and was a director at the Atlantic Council of the United States
(think tank).
Open
Society Foundations was a funder for the Soros
Economic Development Fund, and the Atlantic
Council of the United States
(think tank).
George Soros
is the founder of the Soros Economic Development
Fund, the founder & chairman for the Open Society
Foundations, and a member of the Bretton
Woods Committee.
Colin L.
Powell is an honorary director at the Atlantic Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
John C.
Whitehead is an honorary director at the Atlantic
Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
Madeleine
K. Albright is an honorary director at the Atlantic
Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
James
A. Baker III is an honorary director at the Atlantic
Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
Lucy
Wilson Benson is a director at the Atlantic Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
Harold Brown
is an honorary director at the Atlantic Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
Frank C.
Carlucci is an honorary director at the Atlantic
Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
Nelson
W. Cunningham is a director at the Atlantic Council of the United States
(think tank), and a member of the Bretton
Woods Committee.
Henry A. Kissinger
is a director at the Atlantic Council of the United States
(think tank), a member of the Bretton Woods Committee,
and a 2008 Bilderberg conference
participant (think tank).
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