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World: Income Inequality Growing, Says IMF Official

Washington, 9 June 1998 (RFE/RL) -- A top official of the International Monetary Fund (IMF) says there is increasing evidence that inequality of income is rising everywhere in the world, including in the nations in transition from centrally planned systems.

IMF First Deputy Managing Director Stanley Fischer says that while Latin America and Sub-Saharan Africa have long been plagued by high levels of inequality of incomes, the phenomenon has spread to most developing countries, taking on a regional dimension where average incomes in urban areas are significantly higher than in rural areas.

The problem is showing up increasingly in the G-7 major industrial nations as well, he says.

Fischer spoke in Washington on June 8 at the opening of a two-day IMF conference on economic policy and equity.

He said assessing just how widespread this increase in income and consumption inequality actually is and how it should be handled is one of four goals the fund has set for the gathering of academic, economic, religious and political leaders.

He said the question of whether the trend toward a globalized economy has increased or reduced inequality within countries also needs addressing because debates on its impact are becoming heated in many nations.

"To a large extent, globalization is simply the continuation of the trend toward greater international economic integration that has been under way for the last 50 years," said Fischer. However, he said, the question is, is it actually the opening up to trade that is causing the problems or is it the changing technology that is hurting many people?

Another question to be addressed is whether policies designed to redistribute incomes actually slow economic growth, as has long been believed by economic theorists. Perhaps there aren't serious trade-off's between income equality and growth, he said, or perhaps they are far worse than most have believed.

Finally, Fischer said the fund would like the experts' ideas on what policies are most effective in promoting income equity.

He said the fund already has basic policies designed to support macroeconomic stability and growth while reducing poverty and inequality, the most important of which is the implementation of a fair and efficient tax system.

Fischer did not specifically mention Russia, but said a fair tax system, easily administered with broad bases, moderate rates, and a minimum number of exemptions, is the key to any country's hope for economic growth and equity.

Other aspects, he said, are reducing unproductive expenditures -- such as excessive military outlays -- focusing government programs to promote increased equality of opportunity and reducing income inequality, and carefully targeting social safety net programs to protect the poorest and least able to cope.

Fischer said the IMF has also increased its emphasis on what are called "second generation" structural reforms, such as promoting the rule of law, dismantling monopolies, and reforming labor markets.

Defining precisely what constitutes a fair distribution of income raises important arguments, said Fischer, but the IMF accepts the view that poverty in the midst of plenty is not socially acceptable.

But as importantly, he said, the IMF believes the push for equity is economically sound because adjustment programs that are equitable and have growth that is equitable are more likely to succeed.