*{The Challenges of National Economic Policy in a Global Era [http://www.weforum.org/site/knowledgenavigator.nsf/Content/The%20Challenges%20of%20National%20Economic%20Policy%20in%20a%20Global%20Era?open&topic_id=300250000&theme_id=300]

            26.01.2001

            Annual Meeting 2001}

            At a time when globalization is a reality that rich and poor nations alike have to deal with, the critical question is: how can governments design effective policies and achieve broader policy coordination in a global environment? Moderator Caio Koch-Weser, Secretary of State of Finance of Germany, listed three key issues before national governments. First, how can governments design national policies at a time of globalization? Second, how can governments achieve broad policy coordination on a global scale? Here the role of international financial institutions such as the WTO, World Bank and the IMF comes into play. Finally, how can national governments be sure of striking the right balance?

            Stanley Fischer, First Deputy Managing Director of the International Monetary Fund (IMF), said that it has become a cliché to suggest that globalization makes nations powerless. He pointed out that globalization creates new opportunities and challenges for countries as they attempt to benefit from the process and move to minimize the risks. Constraints imposed by financial markets on national governments, penalizing those that pursue bad policies, are a powerful incentive for countries to stay on the path of reform. Countries should manage their financial system and foreign debt on prudent lines. It is no accident, he added, that the crises that have beset emerging markets in recent years were in countries that had pegged exchange rates. One of the scandals of the international system, Fischer added, is the continued support to agriculture by the rich nations.

            Francisco Gil Diaz, Secretary of Finance of Mexico, quoted Aldous Huxley who once said that, ‘’one of the lessons of history is that we don’t learn from the lessons of history.’’ Mexico, Gil Diaz said, had witnessed so many economic shocks over the past few decades that even ordinary people in the country had become expert economists who all knew how to interpret the variables. The key lessons that Mexico has learned from the crises are the role played by exchange rate policies, the importance of understanding how interest rates behave in a crisis and the importance of free trade. Mexico bounced back strongly from the 1995 crisis mainly because exports took the slack and bolstered the recovery process, he said.

            Trevor Manuel, Finance Minister of South Africa, said the challenge faced by his country--a small, open economy with a high level of inequality--is that its pool of domestic savings is limited and the country has to rely on foreign funds to boost investment. While South Africa complies with all the international standards and codes, however, there should be a mechanism to ensure that these rules also apply to rich nations, particularly on non-tariff barriers. The IMF must step in and make sure that rich nations are following good policies such as trimming agricultural subsidies. 

            Yashwant Sinha, Minister of Finance of India, cited one example of the inequities in the international system. Starting from 1 April, he said, India is lifting all quantitative restrictions on trade under guidelines from the World Trade Organization. However, rich nations will only abolish quotas on textile imports from developing nations in 2005. "Under international arrangements, nations surrender part of their sovereignty to build a global community. However, if this process is inequitable, it creates problems for the less developed nations," Sinha cautioned.

            Laurent Fabius, Minister of Economy, Finance and Industry of France, noted that countries face a new challenge: turning around public opinion, which appears to be against globalization. Otherwise, it could dilute public trust in elected governments, particularly on important issues such as free trade and foreign investment.                  

                  *{Contributors:       Fabius Laurent
                  Fischer Stanley
                  Gil Díaz Francisco
                  Koch-Weser Caio
                  Manuel Trevor
                  Sinha Yashwant}