Information about Europe Europa

2 Welcoming Remarks

Ved Gandhi
Published Date:
June 1996
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Margaret Kelly

It is a great pleasure for me to welcome you to the IMF Seminar on Macroeconomics and the Environment. Most of you are from Washington, but some guests have come from as far away as Canada, England, India, Norway, and the Philippines. As we received your responses to the invitations, we also received a number of expressions of curiosity—even surprise—that the IMF would be holding an academic seminar on environmental issues. To some extent the curiosity is understandable. We are a monetary institution, not an environmental one. Our basic mandate, as spelled out in Article I of the IMF Articles of Agreement, is to promote international monetary cooperation and exchange rate stability and to help member countries solve their balance of payments problems. Moreover, the timeframe for our work—whether surveillance or programs—is typically short term, while environmental problems, unlike exchange-rate and balance of payments crises, tend to be long term.

But the matter of the Fund’s involvement with the environment is not quite so clear cut. For example, a member country that exhausts its natural resources may become a prolonged user of Fund resources. The country, therefore, must make every attempt to develop a sustainable development strategy, including a strategy to have a viable balance of payments in the longer run.

By way of background, the IMF began its examination of environmental issues in November 1990 when the staff presented a paper on the topic to the Executive Board, asking its guidance on how to respond to growing environmental concerns at the national and international level. The Board held a number of discussions on the topic in early 1991. It decided that the Fund should not ignore environmental preservation in promoting balanced and sustainable growth. It also stressed the need to develop a better understanding of the links between macroeconomics and the environment. Toward this end, the Board charged the staff with

  • monitoring the environmental research of other specialized organizations, such as the World Bank and the OECD
  • developing an understanding of how public policy instruments, especially tax and public expenditure policies, affect the environment.

In 1992, worldwide interest in the concept of sustainable development was stimulated by the Earth Summit in Rio de Janeiro. At the Summit, IMF Managing Director Michel Camdessus referred to high-quality growth as the Fund’s ultimate objective. He also met with leaders of environmental nongovernmental organizations, promising them that the Fund would continue the dialogue back in Washington. The Fund followed through on this promise, when it invited 20 leading environmentalists in May 1993 to a seminar with staff members.

What does the Managing Director mean by high-quality growth? He has defined this term to cover “growth that is sustainable, growth that reduces poverty and distributional inequalities, that respects human freedom and national cultures, and protects the environment.” And, of course, monetary stability provides part of the foundation for this high-quality growth.

In keeping with the wishes of the Executive Board, the Fund staff has worked to increase their awareness of environmental issues in a number of ways. The Fund continues to examine the links between macroeconomics and the environment. It is ready to integrate the financial and fiscal implications of National Environment Action Plans and Sustainable Development Strategies into policy discussions. It actively participates in a number of multilateral fora on the environment, including the United Nations Commission on Sustainable Development, which is responsible for monitoring the implementation of the agreements reached at the Earth Summit, the Inter-Agency Task Force on Environment Statistics, and the World Trade Organization, which has a committee on trade and the environment.

However, I should also add a note of caution. Given the competence of the World Bank and other specialized agencies dealing with the environment, the Executive Board and many Fund staff members worry that the Fund’s active pursuit of environmental objectives would overlap with that of other agencies. Moreover, if it spread itself too thin, the Fund may even dilute its efforts in the area of its primary mandate—monetary and exchange stability—where it has comparative advantage.

We would like to continue the dialogue and the education process that was begun at the seminar in 1993, which is why the External Relations Department and Fiscal Affairs Department have decided to hold this seminar. Our objective is to improve staff understanding of the links between macroeconomic policy instruments and conditions and the environment in the hope of enabling the most effective design of macroeconomic policies. We are inviting you to join us in a frank exchange of views and a sharing of experiences.

In the four sessions of the seminar over the next day and a half, we hope to touch on a number of vital questions. Let me just mention a few of them. In Session 1, we look at the two-way relationships between the macroeconomy and the environment.

  • How, and under what conditions do macroeconomic policy instruments, particularly those related to monetary, fiscal, and exchange rate policies, have an impact on the environment?
  • How, and to what extent, do deteriorating environmental conditions influence macroeconomic conditions? This would include the impact of pollution on labor productivity, or the depletion of the natural capital base on the development of some economies.
  • How far are we from quantitative models that can estimate and explain changes in environmentally adjusted economic activity as a result of changes in macroeconomic policies? And how essential are these models for policymaking?
  • How much of a toll in human terms has environmental degradation taken through ill health and premature mortality, forgone GNP, and the erosion of the natural capital base on which the development of many economies depends?

In Session 2, we look at green accounting.

  • How far are we from integrated environmental and economic accounts, given the remaining methodological and measurement difficulties? This question arises both in developed countries, with their strong databases, and developing countries, many of which are still struggling with providing basic national income account data.

In Session 3, we focus less on theory and more on country experiences.

  • What are the practical difficulties of integrating macroeconomic and environmental policies? For the developed countries, we look to lessons from Norway—a pioneer on this front. For the developing countries, we must look at the case studies of over a dozen countries carried out at the World Bank.

Finally, in Session 4, we try to draw conclusions and lessons that are relevant to the work of the Fund.

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