the imf institutecourierJanuary 2002•vol 4

he Second AfricaForum on PovertyReductionStrategies, orga-nized by the IMFInstitute and the

World Bank Institute, washeld in Dakar, Senegal,September 10–13, 2001.The forum gathered 270participants from govern-ment agencies, civil society,the private sector, and par-liamentarians from 32countries and 140 partici-pants from donor agenciesand multilateral and region-al institutions. Whereas thefirst forum, held inYamoussoukro, Côted’Ivoire, in June 2000,focused on the design of

poverty reduction strategies,

also in this issue... A Course to Remember Geraldine Anita Joseph Page 4

Providing economics training to officials of IMF member countries and IMF staff

What MakesJVI’s AEP CourseUnique?Irina AlbegovaPage 6

Role of DonorFinancingSusan Jones andDonogh McDonaldPage 7

Research in theIMF InstituteAndrewFeltensteinPage 9

New RegionalTraining Centerfor LatinAmericaMercedes DaCostaPage 11

El Niño, La Niña,and WorldCommodityPricesAllan D. BrunnerPage 12

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Alicia Jiménez

his interview first appeared in the Decem-ber 10, 2001 issue of the IMF Surveyand is reprinted here with permission. Itsummarizes Professor Jorgenson’s lectureat an October economics training seminar

organized by the IMF Institute for Fund staff.

JIMÉNEZ: Can we identify a year or a timeperiod and a place where the information tech-nology (IT) revolution started?

JORGENSON: If I had to identify one year andone place, it would be the year 1947 and theplace would be Bell Labs. What took place at thattime was the invention of the transistor. Thetransistor is a switch and can be used to encodeinformation in binary form—a string of ones andzeroes. This was the beginning of digitization andbecame an economic revolution when transistorswere combined into integrated circuits or com-puter chips.

JIMÉNEZ: In terms of its impact on the econ-omy, how would you compare the information

See page 3

Interview with Dale JorgensonRevolution in Information Technology Requires a Revolution in Economic Thinking

See page 3

Senegal’s President Abdoulaye Wade (right) and IMF Institute Deputy DirectorSaleh M. Nsouli discussing the New African Initiative on occasion of the SecondAfrican Forum on Poverty Reduction Strategies.

Africa Forum Focuses on theChallenges of Reducing Poverty

Roland Daumont

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he terrible events of September 11 broughtemotional and economic shockwaves thatwere felt worldwide. Although the IMFInstitute was removed from the epicenter ofthe attacks, the ripples from the shock-

waves affected us nevertheless. At the time, morethan 100 country officials were in Washington,participating in three IMF Institute courses: twoFinancial Programming and Policies (FPP) courses,one in Arabic and one in English, and a Macroeco-nomic Management and Financial Sector Issues(MMF) course in Spanish. Moreover, several over-seas courses were planned to begin in the daysand weeks immediately following the attacks.While the safety of our participants was never indoubt, the events tested the Institute’s logisticalprocedures and emergency responses in ways wehad not imagined.

With airports closed, flights cancelled, and theMMF course due to end September 14, our firsttask was to make alternative travel arrangementsfor our Spanish-speaking participants and to

ensure continued accommodations until they were able to return to their respective countries.Our second issue was ensuring the safe return home of participants from Arabic-speaking coun-tries whose course was due to end September 20. In this case, the emergency procedures notonly included making alternative travel arrangements and issuing “letters of introduction” toensure each participant’s smooth departure from airports, but in one case making visa arrange-ments and providing accommodations in a third country for a participant awaiting the openingof the border to his country. Most important, our task was to ensure that our participants hadaccess to around-the-clock information and emotional support while they waited out the emer-gency. Further, while we had to cancel the impending overseas courses, to the disappointmentof the participants, we rescheduled them soon after. In all of these tasks, the IMF Institute’sAdministrative Division spearheaded the contingency efforts, and did so very successfully. TheDivision was aided by the quick response and hard work of the Fund’s Security Office, the Trea-surer’s Department, the Transportation Section, The Concordia (IMF’s hotel for guests andcourse participants), and the American Express Travel office. One measure of our success inhandling the emergency was participant response. Although we gave participants the option toreturn early, few chose to leave, opting instead to stay to complete their training.

The tragedy of September 11 will be with us always, changing each of us in ways large andsmall. We at the IMF Institute have changed as well, at a minimum, in reinforcing the prioritywe give to the safety of our participants at headquarters and overseas.

Mohsin S. KhanDirector, IMF Institute

from the director

ORDERING INFORMATION:

The IMF Institute Courier is published semi-annually bythe International Monetary Fund. It is distributed toformer participants, participant sponsors, and membergovernment agencies and institutions throughout theworld at no charge. Address all correspondence to:

EditorIMF Institute, Room IS3-1300, International Monetary Fund,Washington, D.C. 20431,U.S.A.E-mail: insinfo@imf.org or call 202-623-6660

CREDITS

Editor: Farah Ebrahimi

Editorial Assistant: Gisela Schneck

Design: Luisa Menjivar-Macdonald

Illustration: Massoud Etemadi

Composition: Julio R. Prego

Photography: Denio Zara, Padraic Hughes, Pedro Marquez, and Michael Spilotro.

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the 2001 meeting centered on the implementa-tion of the strategies.

The forum addressed the following keyquestions: has poverty reduction become thecentral focus of government policies in Africa?What are the main challenges presented bythe Poverty Reduction Strategy Paper (PRSP)initiative, particularly in managing and facili-tating effective participation, identifying poli-cies for pro-poor growth, setting up adequatesystems for public expenditure management,and establishing relations with the interna-tional community? And how are these chal-lenges being dealt with? Discussions wereorganized around four broad themes: owner-ship, governance, and accountability; eco-nomic policies for pro-poor growth; measuringand monitoring poverty; and relations withdevelopment partners.

The forum’s approach was to have Africancountry participants at center stage, sharingtheir experiences on the implementation ofpoverty reduction strategies. The results of the

forum are providing critical input for the com-prehensive review of the PRSP initiative.

In the opening session, Soumana Sako,Executive Secretary of the African CapacityBuilding Foundation and Chair of the forum,emphasized the crucial role of capacity build-ing in the design and implementation ofpoverty reduction strategies. Speaking onbehalf of the sponsoring institutions, Saleh M.Nsouli, Deputy Director of the IMF Institute,outlined the challenges posed by poverty,highlighted the key steps in the progression ofeffective development strategies, and intro-duced the main themes of the forum. CheickhSoumaré, Senegal’s Minister Delegate incharge of the budget, used the example ofSenegal, one of the first countries to preparean interim PRSP, to provide a vivid renderingof one country’s efforts to enhance economicgrowth and reduce poverty.

President Abdoulaye Wade of Senegaladdressed the forum. In introducing him,Nsouli indicated that President Wade hadbeen at the source of the Omega EconomicPlan for Africa, a plan that had been inte-grated into the New African Initiative adopted

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African Forum........from page 1

technology revolution with, say, the inventionof electricity?

JORGENSON: Information technology hasbeen more pervasive, more highly decentral-ized, and has developed at a truly incrediblespeed. The progress of information technol-ogy, measured in terms of transistors on achip, has been in the range of 35–45 percenta year. If you measure the spread of powergrids and electrical devices, the comparablerate of progress would have been 2–3 percenta year.

Economic historians have begun to realizethat the IT revolution has had a far greaterimpact than any previous economic revolu-tion. It really stands by itself. That’s why it isso important for economists and for institu-tions like the IMF to grasp the breadth andthe speed of the IT revolution.

JIMÉNEZ: What will it take for the eco-nomic profession to gain a better understand-ing of the IT revolution and modify itsanalytical framework accordingly?

JORGENSON: IT is not hard to compre-hend, but will require that we economists

rethink our understanding of how growthworks. We conceptualize the growth processin terms of the neoclassical growth model thatJan Tinbergen developed in the 1940s andRobert Solow refined in the 1950s. This modelis based on a very significant and highly fruit-ful simplification: we think about growth interms of a single commodity—output or GDP.

This simplification allows us to understanda great deal about economic growth. Weabstract from many of the complexities inorder to focus on the determinants of growthrates. This abstraction is now a barrier to ourunderstanding of the impact of IT. Why?Because the tremendous advances in IT addone further degree of complexity. We have tounderstand the implications of falling pricesfor information technology relative to theprices for all other outputs in the economy.

This additional degree of complexity means,unfortunately, that we will have to rework theconceptual apparatus we have built aroundthe Solow growth model. We have to disaggre-gate GDP, carve out a separate role for infor-mation technology, try to understand howthat affects the composition of output, and,most important, gauge how it affects

Interview with Dale Jorgensonfrom page 1

See page 14

See page 15

Geraldine Anita Joseph

he IMF Institute’s always popularFinancial Programming and Policies(FPP) course is conducted four timesannually in Washington, D.C. The lastFPP course for 2001 took place fromAugust 27 to October 19, and was con-

ducted in English by the Institute’s EuropeanDivision. Here, Geraldine Anita Joseph, acourse participant from Malaysia, shares herexperience.

It all commenced with breakfast, after whichwe were given a short orientation on the Fundand the Institute; then our photos weresnapped for our IDs, and we were given ourliving allowance for our eight-week stay inWashington. At the breakfast table, amidst thejostling for croissants, fruit, and coffee, I sud-denly realized that I was facing a richly diversegroup of coparticipants: 40 people from asmany countries from almost every region ofthe world. In such an international environ-ment, the first day was exciting in itself as thegetting-to-know-you and getting-to-know-the-IMF facets were accorded priority. We alsowere handed two gargantuan files containingprimary and supplementary papers and sev-eral books that were to serve as reading mate-rials for the entire course! A few of us, fearingexhaustion from lugging the two binders,opted for a cab ride back to the Fund’s Con-cordia Hotel, which under normal circum-stances is only a short walk from the Institute.

Our classes began at 9:30 a.m., continuingall day, often till well past 5 p.m. Respite wasprovided through half-hour breaks in the

mornings and afternoons when participantsgathered to chin-wag over chocolate-coatedbiscuits and tea and coffee. From day one, werealized we would be immersed in work andwould have to digest large chunks of informa-tion. Fortunately, lectures were set out sys-tematically, one building upon the other,making the economic links clear. The maincontent comprised forecasting of the real sec-tor, balance of payments, and the fiscal andmonetary sectors. In addition, a gamut ofother issues, such as the financial structureand financial crises, inflation stabilization,exchange rate regimes, international capitalflows, international trade, labor marketadjustment, and poverty reduction, were pre-sented to augment participants’ understand-ing of macroeconomic links. And, yes,quantitative methods were also covered, intro-duced by Institute instructor Gene Leon,whose humor and enthusiasm helped many ofus through our initial fear of the subject. Witheach lecture the theories and findingsmounted, refreshing my rusty memory. Aftertwo weeks, I swear I saw some of the eco-nomic terms in my sleep.

Lectures aside, four workshop groups of 10participants each were organized, each underthe supervision of an Institute counselor.Group participants met at scheduled periodsto work on assignments, which basicallyrevolved around a hypothetical baseline andprogram scenario for Turkey in 1996. Theworkshops lent pragmatism to the lectures,allowing us to apply what we were learning,and the group spirit was fully apparent in allfour teams as everyone worked furiously tosubmit the required data sheets before thedeadline.

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A Course To Remember

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5

Author (far left) taking a coffee break with fellow participants. IMF Institute Division Chief Eric Cliftonlecturing in one of the sessions, and FPP participants studying and relaxing.

Thankfully, late nights became a norm onlytoward the end of the course, when eachgroup raced to revise and refine its projectionsfor the Turkish economy. The collective hardwork created close-knit friendships that spilledover into spirited dinners at nearby restau-rants. (I am proud to mention that theMalaysian café ‘Kopitiam’ on MassachusettsAvenue was a hit with some participants.)Indeed, because of equal distribution of workamong group members and proper time man-agement, we were able to cope with the workpressures and have time for some delightful

weekend sightseeing and shopping trips. Also,a dinner and dance hosted by the Institute atthe Concordia (the Fund’s hotel for guests andcourse participants) was a welcome wisp ofchange from the rigors of the workshops.

At the end, by hook or by crook, the workgot done and participants saw the light at endof the tunnel! On October 18 the four groupsdisplayed their programs to the entire class.While some earned accolades, others cameaway with suggestions from IMF lecturers onhow they could further improve theirprograms.

The tragic events of September 11, whileresulting in the disruption of the course onthat day, did not undermine the productivityof the course in the time that remained. In the

aftermath, only two participants chose toreturn home, while the rest of us continueddespite the uncertainty that shrouded thecountry. Staff of the Institute’s AdministrativeDivision went all out to allay our fears and doall they could to make our stay in Washingtonpleasant. The ebullient Eugenia Leonard wasalways ready to assist us. The planned trips toBaltimore and Alexandria, led by umbrella-tot-ing guides, took place, as did our city tourduring the first week. We also visited the Fedshortly after September 11, where we wereimpressed with the dexterity by which the flow

of funds was managed in the wake of thetragic events.

The course ended on October 19, with a cer-tificate ceremony and a sumptuous luncheon.The event was tinged with a note of sadness,however, as we said goodbye. Although theshock of September 11 will stay with us, thelogic of global integration through sound eco-nomic management remains compelling, as doIMF organized courses that help strengthencountry officials’ understanding of global eco-nomic issues.

The author, on behalf of all participants, wishesto put on record our appreciation to Eric Clifton,Chief of the European Division, and CarylMcNeilly, Course Coordinator, for an extremelywell designed and well-managed course.

“I suddenly realized that I was facing a richly diverse group ofcoparticipants: 40 people from as many countries from almost every

region of the world. In such an international environment, the first daywas exciting in itself as the getting-to-know-you and getting-to-know-the-

IMF facets were accorded priority.”

✒

Irina Albegova

ince 1993, the Joint Vienna Institute(JVI) has offered training in appliedeconomic policies to officials fromtransition economies through itsComprehensive Course in Market

Economics and, subsequently, its AppliedEconomic Policy Course (AEP), as it is nowknown. Targeted to junior officials, the 14-week AEP is the longest course conducted bythe JVI, but what makes it unique is the col-laborative manner in which it is taught. JVI’ssponsors send staff members to teach the dif-ferent segments of the course. Because theselecturers work daily on the policy issues beingtaught, they are able to combine theory withreal lessons of experience. In the eight yearssince the course was started, the JVI hastrained close to 1,300 officials under the ageof 35, many of whom now occupy high-level

policy positions in central banks, finance min-istries, trade ministries, and the like.

Reflecting the Key Policy Challenges ofTransition

The AEP course program reflects the experi-ence of 10 years of transition in nearly 30countries. It presents policies that work andthose that fail. As the new experiences of thesuccesses and failures in economic policy-making have become available, the course hasbeen modified and enriched with more exam-ples and case study materials. However, themain building blocks of the course remain thesame. The structure of the course providesthe logic for understanding how an economyworks, with a focus on the key challenges oftransition. Specifically, the curriculum coversthe following:

• staying within the limits of responsiblemacroeconomic (monetary and fiscal) policies(taught by staff of the IMF).

• enforcing prudent banking and promoting ahealthy financial sector (taught by staff ofthe Bank for International Settlements).

• supporting the external balance in a new,open, and mutually interdependent worldeconomy (taught by staff of the World Bankand the World Trade Organization).

• maintaining socially coherent societies intransition while preserving the macroeco-nomic discipline (taught by staff of theOrganization for Economic Cooperation and Development).

• improving governance, fighting corruption,and fostering new institutions to enablerestructuring of transition economies andsupporting private sector development(taught by staff of the World Bank).

• changing institutions and policies for the newintegrated Europe (taught by staff of theEuropean Commission and the AustrianGovernment).

• managing the challenges of transition asthey arise in real life, simultaneously andunder severe constraints (taught by theWorld Bank, with contributions from theIMF and other sponsoring organizations).

Who Are the AEP Participants?As Figure 1 shows, during 1999–2001,

almost every country in transition sent a par-

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What Makes JVI’s Applied Economics Policy Course Unique?

s

0 5 10 15 20 25

Armenia

Romania

Ukraine

Belarus

Russian Federation

Vietnam

Kyrgystan

Moldova

Uzbekistan

Bulgaria

China

Georgia

Poland

Kazakhstan

Mongolia

Albania

Tadjikistan

Azerbaijan

FRYOM

Czech Republic

Slovakia

Estonia

Slovenia

Latvia

Lithuania

Cambodia

Number of AEP Course Participants by Country (1999–2001)

ticipant to the AEP course. The figure alsoshows that representation was, among somecountries, highly uneven. During the pasteight years demand for the AEP has changedsubstantially, as countries in transition havestrengthened their economic capacities: theshare of participants from the CIS countrieshas increased (although not evenly), while theshare of more advanced Central and EasternEuropean countries has decreased. One ofthe challenges of future AEP courses is tobroaden participation from countries thathave until now had limited representation.

Recipe for SuccessThe AEP program offers comprehensive

training to demonstrate the links between dif-ferent policies within a unifying economicframework. Thus, all participants must have agood grasp of economics in order to absorbthe considerable amount of information onthe concepts, ideas, and facts presented dur-ing the AEP, some of which may not haveimmediate applications, but will be importantfor the future responsibilities of theparticipants.

Individual readiness of an applicant toattend and learn from the AEP course isassessed in the selection process, which takesinto consideration the applicant’s education,professional experience, and command ofEnglish. Selection procedures are beingimproved through applicant interviews byteleconferencing.

In their evaluations, participants have con-sistently praised the mix of training methodsused in the AEP, including lectures, work-shops, case studies, policy paper presenta-tions, and team assignments. Participantsparticularly highlighted the teamworkrequired in the workshops as extremely help-ful for developing the managerial skills neces-sary to succeed in a public sector career. Infact, one of the key reasons for the success ofthe AEP is that it helps the careers of partici-pants. After completing the AEP, many partic-ipants have become visible actors in economicpolicymaking, often achieving senior positionsas a result. Another positive outcome hasbeen the establishment of an internationalnetwork of alumni who remain in contact andinformed of each other’s progress through theJVI newsletter.

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✒

Susan Jones and Donogh McDonald

hile the IMF pays for all costsrelated to IMF Institute coursesheld in Washington D.C., thecosts of overseas courses havetraditionally been borne in part

by the host organization or government—acontribution that can range from providingstaff to carry out local administrative tasks tocovering all costs other than those of the IMFstaff involved. Host contributions are also fre-quently supplemented by financing providedby the donor community in support of IMFoverseas training.

Over the past decade, the financing of IMFoverseas courses from non-IMF sources hasrisen markedly and, combined withincreased resources from the IMF, has facili-tated a large expansion of training activities.The establishment of six IMF regional train-ing programs, in which program hosts andother international organizations share in

the costs, has played a central role in thesedevelopments (see table). (These programshave been covered in detail in previousCourier articles). In some cases, the hostinstitution represents the countries thatdirectly benefit from the training (for exam-ple, the Arab Monetary Fund). In other cases(for example, Austria and Singapore) thecontribution is in the nature of donorfunding.

Funding from other donors also increasedsubstantially, providing additional support forIMF activities at the regional programs, aswell as the delivery of courses outside theregional centers. While the Institute’s overseastraining strategy has been to concentrate onits regional programs, it has continued todeliver courses in collaboration with otherregional training institutions and in countriesthat have large training needs.

The Government of Japan has played aprominent role since 1990, providing substan-tial annual grants to the Fund in support oftechnical assistance. The Institute has used

The Role of Donor Financing in the IMFInstitute’s Overseas Training

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its share of these grants to help finance par-ticipant costs and consultants, with the majorpart going to support the training of officialsfrom developing and transition countries inAsia. Japanese contributions have been usedto help cover costs related to Asian partici-pants at the Joint Vienna Institute and partic-ipants at selected training events in Asia,including those organized in conjunction withthe Japan Center for International Financeand under the Joint China-IMF Training Pro-gram, and in support of long-term consultantsinvolved in training activities in Asia. Theremainder of the Japanese funding is devotedto training activities in Africa, especiallyevents organized in collaboration with regionaltraining institutes, such as the West AfricanInstitute for Financial and Economic Manage-ment (WAIFEM) and the Macroeconomic andFinancial Management Institute of Easternand Southern Africa (MEFMI).

Since 1996, the French Government hascofinanced a series of Institute courses andseminars, focusing especially on Africa.Among the activities that have benefited areworkshops and courses in Senegal andCameroon, held in collaboration with the Cen-tral Bank of West African States (BCEAO) andthe Bank of Central African States (BEAC),courses for Portuguese-speaking countries inAfrica, organized in collaboration with the

Bank of Portugal, and high-level seminars andregional courses held at the Joint Africa Insti-tute in Côte d’Ivoire. In 2001, French cofi-nancing was also used to help fund trainingworkshops related to the Poverty ReductionStrategies for countries in Africa, Asia, andLatin America.

The United Nations Development Programme(UNDP) provided significant support for Insti-tute training from 1992 until 2000,with theEuropean Union and the governments ofFrance and Portugal also contributing throughthis channel. These funds were used largely fortraining officials from Africa and transitioncountries in Asia and Europe.

In 2001, the Government of the United King-dom established an account at the IMF forsupport of IMF technical assistance. In 2002,the account will be used to finance three addi-tional Institute training courses for officials ofAfrican countries, two of which will be dis-tance-learning courses. A technical assistanceaccount has also recently been established bythe Government of Australia in support of IMFtechnical assistance, including training.

With member countries’ rising demand foroverseas training, the IMF’s capacity to con-tinue to meet this demand is more than everinfluenced by continued support from coun-tries and organizations that generously con-tribute to the Fund’s economics training. ✒

IMF Institute Regional Training Programs

Regional Date Location Cosponsors Target Program Established Countries

IMF-AMF 1999 United Arab Arab Monetary Member countriesRegional Training Emirates Fund of the Arab Program Monetary Fund

IMF-Singapore 1998 Singapore Government of Developing andRegional Training Singapore transition countriesInstitute in Asia and the Pacific

Joint Africa Institute 1999 Côte d’Ivoire African Development Bank, African countriesWorld Bank

Joint China-IMF 2000 China Peoples Bank of China ChinaTraining Program

Joint Regional Training 2001 Brazil Government of Brazil Latin American Center for Latin countriesAmerica

Joint Vienna Institute 1992 Austria Government of Austria,Bank for Transition International Settlements, countries in European Bank for Reconstruction Europe and Asiaand Development, Organization for Economic Cooperation and Development, World Bank, and World Trade Organization.1

1A number of other European governments and the European Union, although not formal sponsors of the JVI, contribute to its financing.

BooksO. Havrylyshyn, and S. M.Nsouli, (eds.), A Decade of Tran-sition: Achievements and Chal-lenges, proceedings of aconference held in Washington,D.C. (International MonetaryFund).

A.K. Fosu, S. M. Nsouli, andA. Varoudakis (eds.), Policies toPromote Competitiveness inManufacturing in Sub-SaharanAfrica, proceedings of a jointseminar with OECD, the IMF,and the AERC.

9

Andrew Feltenstein

he primary function of the IMFInstitute is to provide training to offi-cials of member countries on impor-tant aspects of economic management.This teaching often has an academic

flavor in that issues are examined using recentinnovations in economic analysis. Thus, evenrelatively elementary courses reflect the cur-rent thinking of the economics profession,which, as in universities in general, can bemaintained only by the involvement of instruc-tors in research.

Institute courses in financial programming,for example, have recently covered such topi-cal issues as inflation targeting, bank runs,and the role of capital controls. At the sametime, Institute economists have been carryingout research on these and other issues of theday, helping to improve the content of Insti-tute courses. Research has also made it easierto attract high-caliber economists and talentedteachers to the Institute. Hence, to ensure thetopicality of its course contents and the qual-ity of its training, the Institute has been plac-ing greater emphasis on the research efforts ofits economists, with dramatic results inresearch output.

Most of the research projects in the IMFInstitute focus on international finance, publiceconomics, trade and development, and mone-tary economics. Several economists are work-ing on banking crises and correspondingpolicy responses. A related topic, bank super-vision and monitoring, is also being investi-gated. The general topic of fiscal policycoordination, in particular in the context ofthe European Union, is being studied at boththe empirical and theoretical levels. Instituteeconomists are also working on issues of fiscaldecentralization, corruption and correspondingfiscal remedies, and rent seeking.

Several ongoing projects focus on monetarytheory and policy. Work is being done, for

example, on monetary unions and the generaltopic of the new financial architecture. Severalapplied papers are also being written on theestimation of money demand models, whileother applied work is being done on the bene-fits of inflation targeting by central banks.There is also ongoing research on the issues ofdollarization and currency boards, with relatedwork on exchange rate policies. Instituteeconomists, for example, are examiningexchange rate policies and the impact of thesechanges on capital flows, as well as the deter-minants of exchange rate crises.

Empirical work is being undertaken in anumber of areas: the macroeconomic implica-tions of stock market liberalization and stockmarket volatility, country-specific researchpapers on such topics as Russian agriculturalreform and Russian decentralization policies.There is also work being carried out on anumber of topics of immediate relevance toIMF policy work, such as Fund conditionalityand country ownership of Fund programs.Additional work is being carried out on debtrelief and the effects of Fund programs onpoverty alleviation.

Institute economists have recently publishedor have forthcoming papers in a number ofeconomic journals, among them: IMF StaffPapers, Journal of Public Economics, Journal ofInternational Money and Finance, Journal ofMonetary Economics, Journal of Money, Creditand Banking, Journal of International Eco-nomics, Review of Economic Dynamics, Journalof Banking and Finance, and Economic Journal.Staff have also produced a number of workingpapers that are available on the IMF researchwebsite. Finally, along with the internal eco-nomics training seminars, the Institute runs aweekly seminar series in which staffeconomists, and at times academic speakers,present work in progress. A list of this year’sand upcoming seminars are given on the Insti-tute’s website.

Research in the IMF Institute

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IMF Institute Books and Research Papers, 2001

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Articles in BooksHakura, Dalia, and F. Jaumotte, “The Role

of Trade in Technology Diffusion,” in Policiesto Promote Competitiveness in Manufacturing inSub-Saharan Africa, ed. by A.K. Fosu, S.M.Nsouli, and A. Varoudakis (Washington: IMF)

Hernandez, Leonardo, P. Alba, and D.Klingebiel, “Financial Liberalization and theCapital Account: Thailand 1988–97,” in ThePolitical Economy of the East Asian Crisis andIts Aftermath: Tigers in Distress, ed. by A.J.Lukauskas and F.L. Rivera-Batiz, (Chel-tenham, United Kingdom; Northampton, Mas-sachusetts: Edward Elgar).

Articles in JournalsBikhchandani, Sushil, and Sunil Sharma,

“Herd Behavior in Financial Markets,” IMFStaff Papers, Vol. 48, No. 3, pp. 279–310.

Chami, Ralph, C. Fullenkamp, and T.Cosimano, “Capital Trading, Stock Trading,and the Inflation Tax on Equity,” Review ofEconomic Dynamics, Vol. 4, No. 3, pp.575–606.

Choi, Woon Gyu, and S. Oh, “The Demandfor Money with Uncertainties and FinancialInnovations,” Korean Journal of Money andFinance, March.

Debrun, Xavier, “Bargaining EMS vs. EMU:Why Might the ECB be the Twin Sister of theBundesbank,” The Economic Journal, Vol. 111,No. 473, p. 566.

Feltenstein, Andrew, and S. Ball, “BankFailures and Fiscal Austerity: Policy Prescrip-tions for a Developing Country,” Journal ofPublic Economics, Vol. 82, No. 2, pp. 247–70.

Hakura, Dalia, “Why Does H-O-V Fail? TheRole of Technological Differences Within theEC,” in Journal of International Economics,Vol. 54, No. 2; pp. 361–82.

Khan, Mohsin S., and Abdelhak S. Sen-hadji, 2001, “Threshold Effects in the Rela-tionship Between Inflation and Growth,” IMFStaff Papers, Vol. 48, No. 1, pp. 1–21.

Tanner, Evan, 2001, “Exchange MarketPressure and Monetary Policy: Asia and LatinAmerica in the 1990s,” IMF Staff Papers, Vol.48, No. 3, pp. 311–33.

Working PapersAdedeji, Olumuyiwa, “Consumption-Based

Interest Rate and the Present-Value Model ofthe Current Account—Evidence from Nigeria,”WP/01/93.

Adedeji, Olumuyiwa, “The Size and Sus-tainability of the Nigerian Current AccountDeficits,” WP/01/87.

Black, Stanley, “Obstacles to FasterGrowth in Transition Economies—The Mongo-lian Case,” WP/01/37.

Chami, Ralph, “What is Different AboutFamily Businesses,” WP/01/70.

Chami, Ralph, and T. Cosimano, “MonetaryPolicy with a Touch of Basel,” WP/01/151.

Choi, Woon Gyu, and Y. Kim, “Has Inven-tory Investment Always Been Liquidity-Con-strained? Evidence from Panel Data,”WP/01/122.

Choi, Woon Gyu, and Y. Kim, “MonetaryPolicy and Corporate Liquid Asset Demand,”WP/01/177.

Dabla-Norris, Era, and P. Wade, “RentSeeking and Endogenous Income Inequality”WP/01/15.

Debrun, Xavier, R. Beetsma, and F.Klaassen, “Is Fiscal Policy Coordination inEMU Desirable?” WP/01/178.

Dolinskaya, Irina, “Explaining RussianOutput Collapse: Aggregate Sources andRegional Evidence,” WP/01/16.

Epaulard, Anne, and A. Pommeret,“Agents’ Preferences, the Equity Premium, andthe Consumption-Saving Trade-off: An Appli-cation to French Data,” WP/01/117.

Epaulard, Anne, and A. Pommeret,“Recursive Utility, Endogenous Growth, andthe Welfare Cost of Volatility,” WP/01/5.

Feltenstein, Andrew, and R. Murphy, “Pri-vate Costs and Public Infrastructure: TheMexican Case,” WP/01/164.

Feltenstein, Andrew, and Saleh M.Nsouli, “Big Bang” Versus Gradualism in Eco-nomic Reforms: An Intertemporal Analysiswith an Application to China,” WP/01/98.

Galetovic, Alexander, and B. N. Anand,“Investment Banking and Security MarketDevelopment: Does Finance Follow Industry?”WP/01/90.

Gershenson, Dmitry, “Sanctions and CivilConflict,” WP/01/66

Hakura, Dalia, and E. Choudhri, “Interna-tional Trade in Manufactured Products: ARicardo-Heckscher-Ohlin Explanation WithMonopolistic Competition,” WP/01/41

Hernandez, Leonardo, and P. Montiel,“Post-Crisis Exchange Rate Policy in FiveAsian Countries: Filling in the ‘Hollow Mid-dle’?” WP/01/170

Hernandez, Leonardo, and R. Valdés,“What Drives Contagion: Trade, Neighborhood,or Financial Links,” WP/01/29

Hernandez, Leonardo, P. Mellado, and R.Valdés, “Determinants of Private CapitalFlows in the 1970s and 1990s: Is There Evi-dence of Contagion?” WP/01/64

10

Juan-Ramon, Hugo, R. Randall, and O. Williams, “A Statistical Analysis of Bank-ing Performance in the Caribbean CurrencyUnion in the 1990s,” WP/01/105

Khan, Mohsin S., and S. Sharma, “IMFConditionality and Country Ownership of Pro-grams,” WP/01/142

Khan, Mohsin S., B. Smith, and A. Sen-hadji, “Inflation and Financial Depth,”WP/01/44

Le Gall, Françoise, and S.M. Nsouli, “TheNew International Financial Architecture andAfrica,” WP/01/130

Leon, Hyginus, and D. Worrell, “PriceVolatility and Financial Instability,” WP/01/60

Ley, Eduardo, “Whose Inflation? A Charac-terization of the CPI Plutocratic Bias,”WP/01/59

Matovu, John, D. Chen, and R. Reinikka,“A Quest for Revenue and Tax Incidence inUganda,” WP/01/24

Scandizzo, Stefania, “Counterfeit Goodsand Income Inequality,” WP/01/13

Scandizzo, Stefania, “Intellectual PropertyRights and International R&D Competition,”WP/01/81

Tan, Ling Hui, “Rationing Rules and Out-comes: The Experience of Singapore’s VehicleQuota System,” WP/01/136

Wong, Chorng-Huey, E. Clifton, and H.L.Leon, “Inflation Targeting and the Unemploy-ment-Inflation Trade-off,” WP/01/166

Xie, Dangyang, P. Kongsamut, and S.Rebelo, “Beyond Balanced Growth,”WP/01/85

Zoli, Edda, “Costs and Effectiveness ofBanking Sector Restructuring in TransitionEconomies,” WP/01/157

11

Mercedes Da Costa

he Brazilian government, through theEscola de Administração Fazendária—ESAF (the Ministry’s training center inBrasilia), and the IMF, through itstraining department, the IMF Insti-tute, established a Joint Regional

Training Center for Latin America (BTC),located at the headquarters of ESAF inBrasilia. The BTC’s objective is to strengthenthe institutional and technical capabilities ofgovernment officials from Latin America andto provide a forum for authorities to discusscurrent issues of relevance for the region. Forcertain events, participants from Portuguesespeaking African countries are also invited.

The training program comprises two-weekcourses and two-day high-level seminars on avariety of topics, including macroeconomicanalysis and adjustment policies, financialprogramming, financial sector issues, publicfinance, trade and exchange rate policies, andstatistics. The courses at BTC are conductedmainly in Spanish, with interpretation intoEnglish and Portuguese as needed.

The BTC operates at the campus-like facilitiesof ESAF, located in the outskirts of Brasilia.These facilities include 18 classrooms withexcellent audiovisual capabilities, an auditoriumfor 360 people, and a printing facility. During

their training, participants are provided with anapartment and have access to the ESAF’s dininghall and extensive sport facilities.

During May-December 2001, 75 partici-pants from several Latin American countriesparticipated in the three courses offered atthe BTC. All of the courses included presenta-tions by Brazilian officials from the CentralBank, the Ministry of Finance, and the Brazil-ian Stock Exchange Commission on such pol-icy issues as the Brazilian adjustmentprogram, inflation targeting, exchange ratepolicy, payment system, banking supervisionand regulation, and corporate governance.

The first course, delivered in June 2001, wason Financial Programming and Policies (FPP). Itincluded lectures on policy and the basicframework of financial programming, withworkshops in which participants worked ondeveloping a financial program. In July 2001,the BTC conducted a course on Trade andExchange Rate Policies (TEP), which in additionto including lectures and workshops, requiredparticipants to produce a research projectapplicable to related issues in the region.

A course on Macroeconomic Managementand Financial Sector Issues (MMF) was offeredin the fall and covered such topics as sources ofeconomic growth, stabilization policies, financialliberalization and reform, asymmetric informa-tion and financial market structure, the eco-

The Joint Regional Training Center for Latin America

t

nomic functions of a payment system, capitalmarket development, deposit insurance, andbanking and currency crisis, culminating in ashort research project. The research papers pre-pared by participants in both the FPP and MMFcourses are eligible to be considered for publica-tion in Cadernos de Finanças Públicas, ESAF’sbiannual economic journal.

For 2002, the BTC program comprises acourse on Public Finance in Portuguese, aone-week seminar on Indirect Taxation, athree-week course on Monetary and FinancialStatistics, and a two-day seminar for seniorofficials, in addition to the three courses deliv-ered in 2001 (FPP, TEP, and MMF).

The Public Finance course will be deliveredin early February. It is designed to give partici-pants a better understanding of how fiscalretrenchment programs implemented at vari-ous government levels fit into the broader con-text of the macroeconomic adjustment effort. Inprevious years, the IMF Institute, in collabora-tion with ESAF, delivered the course to Brazil-

ian Federal and State Government Officials.But in 2002, the course will be opened to par-ticipants from Angola, Cape Verde, Guinea-Bis-sau, Mozambique, and Sao Tome and Principe.

The seminar on Indirect Taxation will bedelivered in late April by the Fund’s FiscalAffairs Department; it will cover the modernapproach for the taxation of goods and ser-vices, in particular, the design of a tax systemthat minimizes distortions on relative pricesand improves efficiency in tax collection. TheMonetary and Financial Statistics course,which will be offered in November 2002 by theStatistics Department, aims at strengtheningparticipants’ knowledge and understanding ofthe Fund’s methodologies and techniques incompiling monetary and financial data.

The BTC has been quite successful duringits first year of operation. Participants haveexpressed satisfaction with the training, andpolicymakers are supportive of the program asa venue for strengthening the economic train-ing of public officials in the region.

12

Allan D. Brunner

esearch by IMF Institute staff hasbecome an important part of theInstitute’s program and covers a widerange of topics of importance to Fundpolicy work. Below is a summary of aresearch paper, “ENSO and World

Primary Commodity Prices: Warm Water orHot Air?,” by Institute economist Allan D.Brunner, which will appear in the February2002 issue of The Review of Economics andStatistics.

Primary commodities are used to producefinal goods, and many developing countriesrely extensively on such commodities for exportearnings. The movement in commodity pricescan signal future changes in prices of finalgoods, affecting in particular the revenues ofdeveloping countries. My analysis suggests thatthe influence of the weather patterns of ElNiños and La Niñas on commodity prices ismuch greater than previously believed.

How do El Niños and La Niñas arise, andhow do they affect the world’s weather?

During normal seasons in the tropicalPacific, there is a persistent high pressuresystem off the west coast of South Americaand a persistent low pressure system off the

east coast of Australia. As a result, the pre-vailing surface winds are “easterlies” andtend to push warm surface water toward Asiaand Australia, providing those regions withprecipitation that is useful for both agricul-ture and industry (such as hydroelectricpower and waterway transportation). In theeastern regions of the Pacific, cold, nutrient-rich water from below rises to the surface,displacing the warmer water, sustaining theSouth American fishing industry. Periodically,these patterns are disrupted by anomalousshifts in atmospheric pressures and sea sur-face temperatures in the Pacific. Occasion-ally, during a La Niña, the high and lowpressure systems intensify, causing the pre-vailing easterlies to become stronger andocean temperatures to plummet. At othertimes, during an El Niño, the low and highpressure systems actually switch positions,causing the easterly winds to weaken, fre-quently becoming westerlies. When this hap-pens, warm surface water accumulates, oftengetting pushed toward the Pacific coasts ofthe Americas. These complex, cyclical interac-tions between the atmosphere and the oceanin the Pacific are known as the El Niño-Southern Oscillation (ENSO).

Although ENSO events arise in the PacificOcean, they have far-reaching effects on the

rEl Niño, La Niña, and World Commodity Prices

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world’s weather and, hence, on the world’s pro-duction of primary commodities. El Niños gen-erally have harmful effects on commodityproduction. They are associated with very dryconditions in Asia, Central America, easternregions of South America, and (occasionally)Africa. But in the western and southern regionsof the United States and the western regions ofSouth America, El Niños usually bring excessrainfall. La Niñas, on the other hand, produceopposite climate anomalies and generally havefavorable effects on commodity production.

Some of ENSO’s effects on commodity pro-duction are direct. During a typical El Niño,extensive rainfall washes away rice crops inEcuador and floods copper mines in Chile andPeru, and drought parches Australian wheatand results in forest fires in Indonesia. ElNiños have important indirect influences aswell. Excess moisture can lead to pestilentialattacks on California vegetables. Droughts

can shut down the mining industry in Indone-sia (which relies on hydroelectric power andwaterway transportation) and can preventheavy ships from passing through thePanama Canal (which relies on water innearby lakes to raise and lower ships).

To determine how important ENSO eventsare to commodity production and prices, Icompared commodity prices during the past40 years with measures of ENSO intensity. Iused a statistical framework (called a vectorautoregression model) in which ENSO events(measured by sea surface temperatures andatmospheric pressures) can affect world aver-age measures of commodity prices, grossdomestic product, and inflation. The resultsshow that ENSO events tend to account forabout 20 percent of overall commodity pricemovements. I found this proportion to be sur-prisingly large given the many other factorsthat likely affect commodity prices, such asfluctuations in world economic activity.

El Niños generally lead to commodity priceincreases, whereas La Niñas typically result inlower commodity prices. The 1982–83 El Niñohad the most dramatic effect on commodityprices recorded, raising commodity prices awhopping 30 percent. By contrast, the 1970–71and 1988–89 La Niñas appear to have loweredcommodity prices only about 10 percent.

Much of the correlation between the ENSOcycle and commodity prices is accounted forby the food component of the overall index.Indeed, during a typical El Niño event, grain,vegetable, and oilseed prices rise sharply. Thisincrease occurs for at least two reasons. First,agriculture is the economic sector that is mostsensitive to weather. Every stage of the pro-duction process—planting, germination, mat-uration, and harvesting—is dependent on acomplex interaction of temperature and pre-cipitation. Second, unlike many other eco-nomic sectors, the world agricultural sector isnot characterized by significant excess capac-ity; hence it can take several years to makeup lost agricultural production. In recentyears, it has become increasingly difficult toboost the amount of acreage devoted to viablecrop production (even in developing countries)because of residential and industrial demandsfor land.

Because of its influence on commodity pro-duction and prices, the ENSO cycle also hasimplications for world economic activity andprices of final goods. First, ENSO events havecertain redistributive effects on world trade.For example, U.S. wheat exports increase dur-ing an El Niño, as Australian wheat exportsfall because of poor yields. Conversely, Aus-tralian wheat exports surge following LaNiña’s benefits to Australian production. Sec-ond, since primary commodities are used toproduce final goods, higher (or lower) rawmaterial prices mean higher (or lower) pricesfor some final goods. However, a large changein commodity prices is likely to produce only asmall change in final goods prices, becausefor most final goods, the cost of raw materialsaccounts for only a fraction of the total cost ofproduction.

ENSO events are predictable to some degree,and many Pacific Rim countries are devotingsubstantial resources to further improve theirability to forecast them. It is likely, then, thatcommodity price forecasts can be improved byincorporating ENSO forecast information.These improvements will be useful to commod-ity producers in deciding on production levels,to final goods producers in making risk man-agement decisions, and to policymakers inconstructing economic forecasts.

13

“El Niños generally lead to commodity price increases, whereas La Niñastypically result in lower commodity prices. The 1982–83 El Niño [raised]commodity prices a whopping 30 percent. By contrast, the 1970–71 and1988–89 La Niñas . . . lowered commodity prices only about 10 percent.”

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by the African Heads of State earlier in 2001.President Wade noted that the New AfricanInitiative was set according to the key princi-ples of African ownership, leadership, andaccountability with a view to eliminatinghomegrown obstacles to sustained growth.The Initiative considers the PRSP process asan essential instrument for integrating conti-nentwide priorities into national povertyreduction programs and for coordinatinginternational support.

Since a key goal of the forum was for partic-ipants to learn from one another, officials andrepresentatives of the African countries, par-ticularly those with full PRSPs, played a piv-otal role as chairpersons and speakers in allplenary and breakout sessions. The mainmessages that emerged during the four daysof the forum are summarized below.

Ownership, Governance, andAccountability

Country delegations expressed a strongsense of ownership for the PRSP process andnoted that broad participatory processes werebecoming an integral part of the strategy set-ting. They underscored the importance of goodgovernance in reducing poverty and in theeffective design and implementation of povertyreduction strategies. They agreed that coun-tries needed to institute mechanisms forensuring accountability and maintaining aclear definition and separation of functionsamong the executive, legislative, and judicialbranches of governments.

The forum emphasized the need for localgovernments to be engaged in the design,implementation, and monitoring of povertyreduction strategies, as well as the importanceof ensuring local accountability, notablythrough elections. Although the role of parlia-ments varied widely across countries, partici-pants recognized that parliamentarycommittees on poverty reduction and financemust be kept well informed to strengthen theirwork and to increase their technical capacity.

Civil society groups, nongovernmental orga-nizations, and local research institutes hadfavorable views of their engagement in thepoverty reduction strategy process. They notedthat they could play an important role in hold-ing governments and elected officials account-able at the local and national levels. The mediawere also considered of major importance togood governance and accountability throughtheir role in disseminating information andfacilitating genuine debate, provided thatnational conditions allowed access to informa-tion and freedom of expression.

Pro-Poor PoliciesParticipants agreed that while more targeted

social services could improve the lot of thepoor, pro-poor economic growth was the keyingredient in reducing poverty over time. Pro-poor growth required sound fiscal, monetary,and exchange rate policies, along with struc-tural reform. In addition, complementary poli-cies were needed to strengthen education,

health, and infrastructure—the three key sec-tors for poverty reduction. Discussionsrevealed that human development outcomesfell short of expectations because educationand health services often failed to reach thepoor. In this respect, efficiency, rather thanspending, had to increase, although a betterunderstanding of the impact and efficiency ofeducation and health expenditures in reduc-ing poverty was still required.

Infrastructure services in energy, telecom-munications, transportation, and water andsanitation were considered crucial for con-necting the poor to markets and for increasingtheir productivity. A more balanced mix ininfrastructure spending between the urbanand rural sectors, as well the involvement oflocal governments in decisionmaking, wereconsidered critical for reaching the poor.

If the goal of reducing poverty in Africa by halfby 2020 was to be met, participants consideredit essential to factor in the regional dimensionsof growth and poverty with a view to increasingthe effectiveness of domestic policies. In linewith President Wade’s call for a New African Ini-tiative, participants noted that some of the areas

14

African Forum........from page 3

“The forum emphasized the need for local governments to be engagedin the design, implementation, and monitoring of poverty reductionstrategies, as well as the importance of ensuring local accountability,

notably through elections.”

investment incentives and what impact it hason productivity growth.

In one sense this is a small step, but itmeans challenging the way economists havebeen thinking about growth for almost half acentury. This will require a revolution in eco-nomic thinking.

JIMÉNEZ: Prices of IT have declined veryquickly, especially in the semiconductor sec-

tor. How is this price decline linked togrowth?

JORGENSON: IT contributes to growth intwo ways—through investment (growth ofinput) and productivity growth (growth in out-put per unit of input). For investment, thestory is simple. In response to rapid pricedeclines, decision-makers throughout theworld are finding it economical to substituteinformation technology for existing technolo-gies. This is happening in services, industrial

15

for cooperation included the creation of anAfrican regional market, the adoption of com-mon policies to improve institutional andhuman capacities, the coordination of economicpolicies, and the buildup of infrastructure.

Monitoring Policies and ProgramsThe discussions made clear that substantial

progress had been made across countries inestablishing systems and in building capacityto analyze and collect information on povertyoutcomes. There was also an increasing focuson extending poverty indicators to include thegender and governance dimensions of relatedpolicy outcomes. Participants recognized, how-ever, that establishing monitoring systems andbuilding their capacity was not simple. Suchsystems relied on timely information on thepolicy actions taken and on the lead indicatorsof poverty reduction. The systems needed to gobeyond the traditional household surveys andparticipatory assessments that, although effec-tive in producing reliable data on impacts, didso with a time lag and without immediate pol-icy relevance. Participants underscored theimportance of integrating data collection onpoverty and analysis, particularly the socialimpact analysis of macroeconomic and struc-tural reforms in the PRSP process.

The Evolving Role of DevelopmentPartners

Nationally owned and broadly endorsedpoverty reduction strategies provide an oppor-tunity to change the culture and practice ofdevelopment assistance in Africa. Participantswidely recognized that donor practices had toshift to empower governments once nationalconsensus on national priorities and objec-tives had been reached. Country delegationsemphasized the need for harmonization andgreater transparency of donor policies and

procedures. Moreover, they noted that coun-tries needed to articulate their policies moreclearly, take the lead on donor coordination,and hold themselves accountable for usingresources and achieving their strategy targets.Within discussions of these broad topics, sev-eral specific issues emerged—notably thatconditionality needed to be less intrusive andmore focused on outcomes than on policyintentions. Participants emphasized the needfor greater predictability of medium-termfinancing plans and commitments fromdonors. For their part, donor representativesindicated that their institutions were shiftingfrom project to sector assistance, but theystressed the need for clear political commit-ment and domestic accountability mecha-nisms to be put in place, notably in publicexpenditure management.

Throughout the discussions, capacity build-ing and utilization were recurring themes. Thecapacity of countries to develop their ownsolutions and strategies and to implementpolicies was viewed as central to the success ofpoverty reduction strategies. Yet weak capacityand the inability of countries to effectively useexisting capacity remained important con-straints. Rather than to rely on conventionaltechnical assistance, several countries stressedthe importance of progressively building theirown, more modest, capacity over time.

Overall, the forum helped participatingcountries and donors to share experiencesand to bring about a common understandingof the achievements and the challenges thatlie ahead. At the closing, several PRSP countrygroups took the initiative to set up a system ofelectronic exchange of documents and ideasto sustain the “spirit of Dakar,” a testament tothe candor, openness, and constructive spiritof the discussions.

Interview with Dale Jorgenson........from page 3

See page 16

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processes, and even in how we manage ourhomes.

The rate of productivity growth in IT pro-duction has been stupendous and is increas-ing! But IT applications are increasinglyimportant in a whole range of products. ITnow represents about 20 percent of the valueof automobiles; within the next 10 years, thatfigure is likely to double.

What does this mean for IT’s contributionto the U.S. growth rate? Investment accountsfor about two-thirds of this contribution, andproductivity accounts for about one-third. Thecomposition of IT’s contribution to growthvaries from country to country, depending onthe relative importance of IT production andIT applications.

JIMÉNEZ: How does IT impact the sourcesof business cycles, the duration of businesscycles, and the dissemination of businesscycles?

JORGENSON: It is useful to keep one keyfact in mind: IT production is extremelyvolatile. It has periods of very rapid growth,and periods of rapid pullback or slow growth.Volatility has characterized the industry sinceits inception. Over the past decade, we havehad only one growth cycle in the UnitedStates and three cycles in the IT industry.

As information technology has become moreimportant, it has become a substantial sourceof the economic volatility that leads to businesscycles. It is important for economists, like thestaff of the IMF, to do their best to absorbthese lessons as soon as they can and maketheir understanding available to those who areon the frontline in making policy decisions.

JIMÉNEZ: What percentage ofU.S. growth can be attributed toinformation technology?

JORGENSON: Beginning in 1995,about one-half of 1 percent of the 4percent U.S. economic growth canbe associated with IT productivityand about 1 percent with IT invest-ment. Together, that’s 1.5 percentof the 4 percent growth of the U.S.economy. This means that 7 percentof the economy is responsible forsomething like 40 percent of U.S.economic growth. That is a hugecontribution.

Of course, the next question is “isthis contribution permanent ortransitory?” The growth we saw

during the end of the 1990s—4 per-cent a year—would become perma-nent if we could maintain a two-year

product cycle in IT and a level of investmentand saving consistent with a balance betweenthe growth of capital stock and output.

U.S. growth during the 1990s was veryunbalanced in that capital stock grew moreslowly than output. It seems paradoxical, butwhile U.S. economic growth was at its postwarpeak, our personal saving rate was becomingnegative. Combined with changes in monetarypolicy that could have been a bit better timed,this led to the end of very rapid growth.

I think the consensus view of a 3.2–3.3 per-cent growth rate for the United States for thenext decade is realistic. All the post-Septem-ber 11 discussion about economic stimuluspackage has centered on stimulating con-sumption, but we need to save and investmore. That’s a radical view, I know, but this iswhat would be necessary to maintain a highergrowth rate. I do not think this will happen.

JIMÉNEZ: What impact will the post-September 11 uncertainties have on the U.S.information technology sector?

JORGENSON: Uncertainty is always bad forinvestment. I am sure that many firms arewaiting until some of the uncertainties areresolved before they move ahead on IT invest-ments. That has undoubtedly worsened the ITdownturn that was already under way.

If you consider the way markets haveresponded to September 11, you can see someareas where the recovery has been very quick.Automobiles, for example, are now headed forpossibly the best year in their history. Auto-mobiles are a major purchase for manyhouseholds, but prices came down and a lotof consumers are very price-sensitive.

16

Alicia Jiménez of the IMF Institute and Harvard Professor DaleJorgenson following the Internal Economics seminar on theeconomic impact of the information technology revolution.

I think you we will see IT stage a similarcomeback. The prices of IT are coming downrapidly. Very strong firms, like Intel andIBM, are going to withstand this pressure,but others will disappear. Some firms thathave been strong, like Hewlett Packard andCompaq, appear somewhat weaker afterSeptember 11, so I foresee some consolida-tion. But the downward pressure on priceswill mean a quick recovery for informationtechnology.

JIMÉNEZ: Economic growth theory suggeststhat poor countries are supposed to growfaster and ultimately converge with the indus-trial countries. Will information technologyaid, or impair, this trend towardconvergence?

JORGENSON: This is a very challengingissue and the core of the ongoing debate onglobalization. If we had a perfectly globalizedworld—one world market, no trade barriers,and a free flow of capital, labor, and commodi-ties, we would expect information technologyto diffuse rapidly and contribute toconvergence.

In the real world there are barriers to tradeand capital movements and these impede

investments in information technology. Thesebarriers undermine the natural tendencytoward convergence because they allow theleading IT-producing countries to move aheadrelative to the others.

More rapid diffusion of IT resulting fromfurther steps toward globalization wouldaccelerate convergence. This puts the IMF inan extremely critical position in dealing withthe spread of IT.

JIMÉNEZ: How can developing countriesbenefit more from information technology?

JORGENSON: Developing countries arealready benefiting from information technol-ogy. The most successful ones—Korea andTaiwan [Province of China]—are participatingvery actively in the production of informationtechnology. IT is a cost-driven business and itis cost-effective for U.S. firms to producesemiconductors in Malaysia or Singapore

because the low cost of packaging and trans-portation make it worthwhile.

As wages rise as a result of the East Asianmiracle, the IT industry is increasingly migrat-ing to China and India. Then the question fordeveloping countries is what do we need to doto attract information technology? The answeris simple—be open to foreign investment, for-eign technology, and foreign capital.

JIMÉNEZ: In the final accounting, whoreally benefits more from information technol-ogy: users because of lower prices, workersbecause of higher wages, or producersbecause of higher profits?

JORGENSON: IT users have benefited enor-mously from lower prices; but workers alsobenefited a great deal from higher wages. Thatwas not so apparent in the United States,where real wages seemed to stagnate for along time. There is no doubt now that realwages rose rapidly in conjunction with the ITboom in the late 1990s.

For producers, however, the picture isdecidedly mixed. Intel, for example, has a veryhigh profit margin. They are a cutting edgefirm and can command rents associated withbeing out in front of everybody else. It’s part

of their corporate strategy, and they do it verywell. IBM, long in the doldrums, is now quiteprofitable too. But others are obviously indecline.

With the acceleration of IT development,Schumpeter’s famous process of “creativedestruction” is now taking place in a highlycompressed timeframe within the IT sector.That is good for producers, but is even betterfor users. The big winners are IT users andthose workers who have upgraded their skillsto make effective use of this technology.

And that is something I’d like to seeeconomists do too. Let me reemphasize myearlier point: Economists need to upgradetheir understanding of IT’s role in the econ-omy so that they can help their clients, theworld’s policymakers, benefit from the ITrevolution. We economists have a long way to go.

17

“The prices of IT are coming down rapidly. Very strong firms, like Inteland IBM, are going to withstand this pressure, but others will

disappear. Some firms that have been strong, like Hewlett-Packard andCompaq, appear somewhat weaker after September 11, so I foresee

some consolidation. But the downward pressure on prices will mean aquick recovery for information technology.”

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18

AppointmentsMr. Arthur Ribeiro da Silva jointed theImmediate Office as Research Assistant inJuly.Ms. Graciela Argerich, Programs Assistant,transferred from FAD to the TrainingAdministration Section, AdministrativeDivision, in July.Ms. Ibilola Aboderin joined the Informationand Facilities Management Section,Administrative Division, as Deputy SectionChief in September.Ms. Margaret Saliba, Staff Assistant(Programs), transferred from OED to theInformation and Facilities ManagementSection, Administrative Division, in October.Mr. Rodney Ramcharan, Economist (EP),transferred from MED to the Asian Division inOctober.Mr. Andres Fuentes, Economist (EP), trans-ferred from WHD to the Western HemisphereDivision in October.

DeparturesMs. Michele Chen, Section Chief,Administrative Division, retired from the Fundin July.

Ms. Stefania Scandizzo, Economist,European Division, resigned from the Fund inJuly.

Mr. Stanley Black, Senior Policy Advisor,ended his assignment in the Immediate Officein August.

Mr. Dmitry Gershenson, Economist (EP),Asian Division, transferred to AFR in October.

Mrs. Carolyn Ragland, Deputy Division Chief,Administrative Division, transferred to theImmediate Office in HRD as Advisor inOctober.

changes

In May and December 2001, the IMF Institute launched its new Internet andIntranet websites, respectively. The Internet site, accessible to the public, allows users to quickly locate informa-tion on the Institute’s courses, seminars, and other activities. The Intranet site is accessible to IMF staff only. Thetwo sites provide important information on the Fund’s training program and offer related links to interested users.They form a core element in the execution of the Institute’s information management strategy. We encourage ourreaders to visit our websites. Your input is important to us as we work to meet your needs. To access the Internet,please go to:<http://www.imf.org/> ( you can get to the Institute site by typing “IMF Institute” in the search box or by going tothe “Site Index.” Please send comments to INSWEB@imf.org <mailto:INSWEB@imf.org>.

IMF Institute Launches New Websites

19

imf headquarters participants

2001.11Financial

Programming andPolicies—Arabic

2001.10Public Finance—English

2001.12FinancialProgramming andPolicies—English

2001.13Advanced Financial

Programming andPolicies—Spanish

20

imf headquarters participants

2001.17Macroeconomic

Management andFinancial SectorIssues—French

2001.16National AccountsStatistics—English

DL 2001.04FinancialProgramming andPolicies ThroughDistanceLearning—English