This is an archived USAID document retained on this web site as a matter of public record.
Remarks of Kelly Kammerer
International Governmental Financial Management Conference
Arlington, VA, October 2, 1997
U.S. Agency for International Development
Thank you for the opportunity to appear today, it is a
pleasure to be here. It is difficult to imagine any force -- since the
invention of the pocket calculator perhaps -- that has had a
greater impact on public financial management than the
globalization of the international economy. Not a day passes
when we do not witness the tremendous influence of the
international economy on the public administration of countries
large and small, developed and under-developed.
We live in a time whose most powerful trend is the
increasing mobility of capital, labor and technology throughout
the world. Globalization is opening up markets that were once
largely closed and prompting about a huge volume of trade in
commodities, services, financial instruments and ideas on a very
competitive basis.
Globalization is CNN, e-mail, the fax machine, intranets,
the internet, cheap airfares and the hybridization of language and
cultures. To see MTV in a hotel in Asia, to watch footage of the
MIR, and to watch campesinos in Latin America following what's
going on with the Standard and Poor's Index is to understand the
globalization is a force that no public manager can ignore.
In recent weeks we have seen compelling examples of the
promises and dilemmas of public finance and the global economy.
In Malaysia and Thailand we have seen an accelerating downward
elevator ride as international investors lost confidence in the
transparency and fitness of these markets. Ministers in these
nations were left to complain about the "nefarious" influence of
currency traders such as George Soros and their ability to shift
investment in and out of their countries with breathtaking speed.
Some of these Ministers suggested the cure for their problems
was not economic reform but outlawing currency speculation.
Investors, for their part, simply argued that if these countries
wanted money for development and infrastructure they would not
be exempted from the rules of the market.
In this country, we have seen the debate over fast track
authority heat up. On one side we have the Administration and
supporters of free trade arguing that without expanding our free
trade arrangements our economy will suffer -- an argument which
I agree with. On the other side, we have opponents of fast track
who are decidedly uneasy with the pace of globalization and fear
that competition will not always be free and fair. It is easy to
appreciate the unease over global competition.
Change is coming fast and furious, and unless public
financial managers take aggressive steps to meet the future, they
risk coming out on the short end of the stick. A strong case can
be made that globalization has had, and will have a long-term
positive effect on both social and capital expenditures. The
underlying issue is what expenditures a country must make to stay
competitive in a globalized economy.
Every day in Tokyo, Bonn, London and New York,
investment bankers, stockbrokers and speculators make strategic
decisions about the six trillion dollar world economy. These
financiers make decisions about where they will put their money,
how much they will invest, and what the chances are for lasting
growth in any country or business. These financial gurus do not
make their decisions through guess work or chance.
I would argue today that, financial flows and
decision-making in today's global economy are rational and
practical.
Would you advise a company to invest in a country that does
not have fair business codes?
Would you be comfortable holding stock in a nation's
companies when that country lacked viable commercial banks and
reasonable tax standards?
Would you be attracted to the long term prospects of
investing in a nation ruled by an unstable, authoritarian regime?
The answer in each case is clearly no. Trade and investment
levels are determined by a country's economic policies, its
adherence to the rule of law, the transparency of its financial
markets, the stability of its political system and by the willingness
of a nation to invest in an educated and well trained workforce.
The experience of the past fifty years demonstrates that
economies that remain open to the world, that invest in their
people and unleash the creativity of market forces can
substantially improve their standard of living. Globalization
requires better performance by government, particularly in the
area of financial management. It requires countries to strengthen
and improve their legal, regulatory and institutional frameworks.
It requires attention to the composition and cost effectiveness of
public expenditure and how it is financed, to make the benefits of
globalization and its opportunities broadly accessible to the
population at large.
For many developing countries, increasingly globalized
capital markets are potentially rich sources of funding to drive the
engine of social and economic progress. Private investment is
already a larger source of funds compared to foreign assistance.
But private investors are choosy. The policy environment must be
business and investment friendly. There must be opportunities.
This means that many developing nations need to embrace notions
such as tax reform, privatization, adequate physical infrastructure,
trade liberalization and improved internal and external debt
management to attract that investment.
That is why I believe USAID's role is so important, even
though our resources are dwarfed by the private sector. That is
why USAID is helping nations liberalize their markets. That is
why we have launched initiatives to remove institutional and legal
barriers to trade. That is why we are fostering trading cultures
that are receptive to foreign investment. And that is why we are
supporting programs that create broad-based economic growth in
developing countries.
And that is why we work in partnership to improve human
resources. This means increasing economic productivity, and
investing in people through programs in education, health care,
family planning and child survival.
It also means helping nations manage their natural resource
base soundly so that economic growth can endure. All these
endeavors help create markets that have the desire and the capital
to engage in trade.
In Zambia, USAID has helped the government eliminate all
price controls and subsidies. In Bulgaria, Slovenia and Poland,
the agency provides support to strengthen bank supervision and
tighten commercial bank performance requirements. In Bolivia,
USAID helped establish a local management consulting firm -- a
firm that is now completely self-sufficient -- that provides
management training to about 10,000 Bolivians a year.
In Sri Lanka, USAID played an important role in helping
that capital market realize a ten-fold increase in private sector
participation in just three years. We have worked on tax
administration and policy in Russia, Lithuania and Egypt. We
are supporting decentralization in places like Central America and
the Philippines. And the list goes on.
It is vital that governments enhance their responsiveness
through strengthening and giving more local autonomy to lower
levels of government, closer to the people. USAID is trying in
many instances to help governments become more accountable
and responsive to their citizenries by encouraging and supporting
trends to devolution and decentralization as well as improving the
functioning of fiscal federalism. This requires attention to the
fiscal management capabilities of local and other levels of
government.
I also believe that globalization has major implications for
the expenditure side of the government budget, and for what we
normally refer to as domestic expenditures. Lets look at some
examples of the effect of globalization on the expenditure side of
the public budget.
From the point of view of financial management, allocation
decisions raise questions about how to track resources to the point
of expenditure, measuring what was bought or achieved and
measuring results. In the environment of public budgeting and
accounting, measuring results is the central question.
First, look at the "Asian Tigers." We may give them too
much credit for prescience, but as part of their long-term strategy
to become competitive in what they saw twenty years ago as a
globalizing economy, they greatly increased the level of
expenditures for education, and, perhaps more importantly, they
increased the quality of their education -- a real measurement
challenge for financial managers. They concluded that they
needed a more productive workforce. They put their resources
where their mouth was. The emphasis on the importance of
education will only grow as international competition increases.
Two, I am not an expert on NAFTA, but it is a good
example of globalization of not only our economy, but the
Mexican and Canadian economies as well having to deal with
globalization. Central to those discussions were negotiations
about labor rights and labor law, and about environmental
protection -- all such negotiations were intended to keep the
playing field level.
In the context of globalization, NAFTA led directly to
discussions in each of the signatory countries that bore directly on
domestic policies and resource allocations regarding domestic
social programs. We live in a world where domestic and foreign
policy are inexorably intertwined.
Three, physical and institutional infrastructure is a key
ingredient that affects competitiveness. Competitiveness no
longer means just the trading neighbor next door. It increasingly
has a global meaning, even for those countries that specialize in
just primary products. The developing world has lately come to
recognize this issue as a priority. Increasingly, local and regional
governments are looking for new ways to finance infrastructure.
To do so, they have to meet international accounting and
programming standards -- hence, globalization gets close to
home.
A local or regional government in a developing country
needs to think about what the financial systems and lenders in
London, New York, or Hong Kong worry about.
At a more specific level, we can use the member countries
of the Southern Africa Development Council as an example.
SADC, with the best of intentions to meet WTO requirements,
attract new private investment, and present themselves to the rest
of the world as competitive economies must deal quickly with
domestic tax law reform, social security reform, environmental
considerations and labor issues.
The bottom line here is that the physical and social
infrastructure in East and Southern Africa leaves much to be
desired. The region's external debt burden suggests that the
various countries do not have the capacity to refurbish the
existing physical or social infrastructure any time soon, at least
un-aided. Privatization is one route out. And this suggests a
different set of financial management issues from those peculiar
to just the public sector. What happens if the privatization
proceeds go to a dedicated fund to, say, retire domestic debt, or
to a specific trust fund, like for education, or roads, or further
privatization buy-outs?
Debt relief is another route. But from a financial
management point of view, donor and lenders will ask for
borrowing limits, or close accounting of new borrowing after debt
relief, and even closer accounting of the use of borrowed
resources. Here, again, the financial manager has to think
beyond accounting to programmatic, and to global issues. If the
funding problem for new infrastructure is not addressed, East and
Southern Africa will have a major problem dealing with the
global economy.
Fourth, the level and quality of law enforcement and
security also affect decisions on direct foreign investment, and
international trade relationships. Peaceful elections send signals to
the rest of the world, rightly or wrongly, about the security
situation in a country. A country's domestic policies and its
expenditures on such things as voter registration affect these
situations, and their outcomes.
In the absence of the rule of law, and in the absence of
secure civil situations, international conglomerates can make
decisions to locate a plant in a particular place or country, but
they may not get their management to locate there, or attract
labor to the location, for security reasons. Then their investment
is not viable, and the country is not competitive. And the issue
may well be the country's investment in its social or physical
infrastructure, with nothing, or less to do with the country's
international trade policies.
The lesson here is that social instability, or even the
appearance of unrest, can decimate a nation's economic prospects
by scaring off capital. In a world where politicians often exploit
social differences for short term political gain, public managers
need to understand the terrible economic costs that could be
associated with such maneuvers and discourage them to the best
of their ability.
In closing, let me just say that globalization, like most things
in life, will ultimately be what we make of it. If countries
reintrench and turn inward, fail to invest in themselves or hope
for quick fixes, the costs of globalization could indeed be high.
By the same token, if we invest in tomorrow, make smart choices
and work together, we stand to reap real benefits of a world more
closely intertwined than ever before. Thank you.
This is an archived USAID document retained on this web site as a matter of public record.
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Last Updated on: July 18, 2001
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