IMF Communique - September 26th 1999
Press Release No. 99/46
September 26, 1999
International Monetary Fund
700 19th Street,
NW
Washington, D.C. 20431 USA
Communiqué of the Interim Committee of the Board of Governors of the International Monetary Fund
1. The Interim Committee held its fifty-third meeting in Washington, D.C. on September 26, 1999, under the Chairmanship of Mr. Gordon Brown, Chancellor of the Exchequer of the United Kingdom. The Committee expresses its appreciation to the outgoing Chairman, Mr. Carlo Azeglio Ciampi, formerly Minister of the Treasury of Italy and currently President of Italy, for his invaluable contribution to the Committee's work.
Global Economic and Financial Conditions
2. The Committee welcomes the improvement in global economic and financial conditions since the beginning of this year. It has reviewed the challenges required to ensure that the recovery is sustained.
In many emerging market economies and developing countries, raising growth rates on a lasting basis will require not only sustained growth in industrial countries, but also key structural reforms. These include banking reform, corporate restructuring, tax reform and tax administration, establishment of effective legal systems, protection of property rights, and improved governance.
Recovery is taking hold in crisis-affected
countries in Asia, aided by supportive fiscal policies,
accommodative monetary policies, and a return of financial
market confidence. Financial sector restructuring is
generally moving ahead, but further efforts are needed to
complete the task. In addition, corporate restructuring and
institutional reforms should be accelerated. Indonesia's
recovery has been interrupted by structural and political
problems that will need to be resolved speedily in order for
economic recovery and reform to resume. China and India have
weathered the crisis relatively well and economic
performance has been sustained, but significant challenges
in some areas remain to be addressed.
In Russia, the
Committee welcomes the efforts of the IMF to work with the
Russian authorities to encourage macroeconomic
stabilization, the continuation of reforms, and the further
integration of Russia into the global economy. While
acknowledging the recentinitial measures to restructure the
banking system, strengthen the integrity of financial
policies and institutions, and improve governance and
transparency, the Committee stresses the urgent need for
further progress. It calls on the IMF to work with the
Russian authorities to strengthen reforms in these and other
areas that are important for economic growth.
In
Brazil, strict implementation of the Fund-supported program
has restored confidence, and the outlook for some other
countries in Latin America has also improved. In many other
countries in this region, adjustment and reform efforts
still require further strengthening.
In the Middle
East and Africa, countries that have benefited from the
improvement in commodity prices, particularly for oil, have
a renewed opportunity to accelerate progress on fiscal
consolidation and diversification of their economies.
Heavily-indebted sub-Saharan African countries should
take full and prompt advantage of the opportunity offered by
debt relief under the enhanced HIPC Initiative to intensify
and press ahead with reforms, including allocating
additional resources for, and improving the efficiency of,
spending aimed at poverty reduction. Outward-oriented
strategies and peaceful resolution of armed conflicts are
critical for sustaining economic development and higher
growth.
The tragic events that took place in Kosovo
this year have had severe negative economic effects on other
countries in the region. Coherent stabilization and reform
policies supported by the international financial
institutions are important for further economic development
in the region. Therefore the Committee calls upon the IMF to
continue its strengthened support in the form of programs
and technical assistance to the countries involved.
A sustained pickup in domestic demand in Europe and Japan, together with medium-term growth in the U.S. in line with potential, will help to achieve a more balanced pattern of growth among the major industrial countries.
The
Committee welcomes the continued strong performance of the
U.S. economy that has been critical in supporting global
activity. Policies should continue to be directed to
sustaining growth on a long-term basis by maintaining a
strong fiscal position and increasing national saving.
The Committee welcomes the growth of the Japanese
economy in the first two quarters of 1999, which was
supported by a rebound in consumer demand. Given that the
prospect for continuing recovery in private demand remains
uncertain, however, it urges the authorities to maintain a
supportive stance of fiscal and monetary policies through a
supplementarybudget of appropriate size while, in the
context of their zero interest rate policy, providing ample
liquidity until deflationary concerns are dispelled. It is
also critical to continue efforts to strengthen the banking
system and foster corporate restructuring in order to
achieve sustained growth in Japan, which should facilitate
needed medium-term fiscal consolidation.
The Committee
is also encouraged by the pickup in growth in Europe in the
context of price stability. While monetary conditions in the
euro area are accommodative and should remain supportive,
further efforts toward fiscal consolidation and structural
reform, especially regarding the tax system and the labor
and product markets, would improve prospects for sustained
growth and a further reduction in unemployment.
3. The Committee emphasizes the importance of open and competitive markets as a key component of efforts to sustain growth and stability in the global economy. The proposed launch of new trade negotiations in Seattle later this year is an important opportunity to make further progress in this direction. Further broad-based liberalization in a strengthened rules-based multilateral trading system will help underpin global growth and stability. To ensure that the benefits of liberalized trade and investment are fully realized and shared, the Committee encourages the Fund to work with the Bank and the WTO to strengthen their programs of work to achieve better coherence in global policy making. It recognizes that coordinated programs of support for developing countries, including targeted technical assistance and policy advice, will support them in meeting WTO commitments and implementing current agreements.
4. The Committee notes that, in fostering economic growth through appropriate macroeconomic policies and structural reforms, the IMF in close cooperation with the World Bank and consistent with their mandates, must also take into account the direct social consequences of adjustment and reform efforts as well as the complementarity of macroeconomic and social policies for long-term growth and improved social indicators.
Poverty Reduction Initiatives
5. The Committee endorses the proposed replacement of the Enhanced Structural Adjustment Facility (ESAF) by the new Poverty Reduction and Growth Facility, which aims at making poverty reduction efforts among low-income members a key and more explicit element of a renewed growth-oriented economic strategy. The cornerstones of the new approach, which should continue to be based on sound macroeconomic policies, are as follows:
A
comprehensive Poverty Reduction Strategy Paper (PRSP) will
be prepared by each country, with assistance from the World
Bank and the IMF, and with strong country ownership based on
public partnership, to guide the design of programs; the
PRSP will need the approval of both Bank and Fund
Boards.
Social and sectoral programs aimed at poverty
reduction will be taken fully into account in the design of
economic policies for promoting faster sustainable
growth.
Greater emphasis will be accorded to good
governance, in particular in all government activities,
through greater transparency, effective monitoring
procedures, anti-corruption initiatives, accountability, and
the involvement of all sectors of society.
High
priority will be accorded to key reform measures critical to
achieving governments' social goals.
6. The Committee takes note of the crucial role to be played by the World Bank and other relevant international organizations in helping governments develop and monitor the implementation of their poverty reduction strategies. It endorses the proposal that PRSPs, as they are developed, provide the basis for all IDA and Poverty Reduction and Growth Facility lending operations and closer Bank-IMF collaboration.
7. The Committee welcomes the joint meeting of the Interim and Development Committees, held earlier today, on the enhanced HIPC Initiative. The proposals made by the Bank and the IMF to this end, which build upon wide-ranging comments from civil society and the international community, are aimed at providing faster, deeper, and broader debt relief and strengthening the link between debt relief and poverty reduction.
8. The Committee welcomes the agreement on the financing of the IMF's participation in the HIPC Initiative and continued concessional lending by the IMF for growth and poverty reduction in its low income member countries. It highly appreciates the financial support provided by a wide cross-section of the IMF's membership through bilateral contributions and endorses the decision adopted by the Executive Board for the Fund's participation. The Committee considers that the off-market transactions of up to 14 million ounces of fine gold by the IMF that are envisaged will be a one-time operation of a highly exceptional nature. This is part of a broader financing package to allow the IMF to contribute to the resolution of the debt problems of the HIPCs at the turn of the millennium and to the continuation of concessional operations to support countries' efforts to achieve sustained growth and poverty reduction. The Committee endorses the Executive Board's recommendation that the Board of Governors adopt a Resolution to this effect.
Architecture
9. The Committee welcomes the progressive translation of broad principles into concrete actions in developing and monitoring standards of importance to the international monetary and financial system.
The Committee encourages the IMF to continue its
collaborative efforts with the World Bank and other relevant
organizations to complete work on the Financial Stability
Forum's compendium of standards.
The Committee urges
all 47 Special Data Dissemination Standard (SDDS)
subscribers to continue to enhance their statistical
practices, and to report data on international reserves and
related liabilities according to the agreed reserves
template by March 2000. It encourages further work by the
Fund on the SDDS, including on strengthening external debt
data and developing macro-prudential indicators. It looks
forward to the launch of the operational phase of the
General Data Dissemination System (GDDS) early next year.
The Committee also urges the IMF and member countries to
press ahead with efforts to improve the timeliness and
comprehensiveness of data on capital flows. The IMF should
provide technical assistance to enhance the quality and
timeliness of data. Country authorities and relevant
international organizations should also take urgent action
to improve data on social spending and social
indicators.
The Committee adopts the attached Code of
Good Practices on Transparency in Monetary and Financial
Policies: Declaration of Principles as a guide for members
to increase transparency in the conduct of these policies.
The Committee urges all members to implement the new Code as
well as the previously agreed Code of Good Practices on
Fiscal Transparency.
The Committee welcomes the
assessments of the implementation of the Basel Core
Principles that have been made in the course of IMF
surveillance and technical assistance, and urges that these
be embedded into regular surveillance activities. It notes
the work under way by the Basel Committee on Banking
Supervision to review the 1988 Capital Accord and urges the
Basle Committee to complete that review. It encourages the
IMF to continue to support this process.
10. The Committee encourages the IMF, in cooperation with other standard-setting bodies, to continue to experiment with assessments of members' observance of international standards and codes of good practice and invites the Executive Board to consider whether to integrate such assessments into the surveillance process.
11. The Committee reiterates the importance of greater transparency in policy-making. With respect to IMF practices and members' policies, it strongly welcomes the steps taken:
The
widespread release of Public Information Notices (PINs), for
which there is an agreement on presumption of publication;
the public release of many IMF policy papers and the
associated summaries of Board discussions; and the release
of the external evaluators' reports on IMF surveillance and
economic research activities;
The decisions of 46
countries that have already volunteered to participate in
the pilot program for the release of Article IV reports,
with 15 reports already available on the IMF
Website;
The agreement to establish a presumption in
favor of publication of Letters of Intent, Memoranda of
Economic and Financial Policies, and Policy Framework
Papers, and the widespread release of documents that has
occurred since the policy of greater transparency was
adopted; and
The efforts to ascertain the views of the
private sector on the experimental transparency
reports.
12. The Committee encourages further actions to make IMF practices and members' policies more transparent without compromising the IMF's role as confidential advisor.
13. Experience in a few cases has highlighted the importance of promoting transparency and accountability especially when IMF resources are being used. In this connection, the Committee notes that the implications of corruption and money laundering raise important issues for the credibility and effectiveness of IMF programs, and calls on the IMF to perform an authoritative review of its procedures and controls to identify ways to strengthen safeguards on the use of its funds and to report at its next meeting. The Committee considers that further actions for strengthening governance at the national and international levels are crucial. In the financial area, governments must maintain strong internal financial controls and tighten supervision and regulation of domestic financial institutions and off-shore banking centers, including measures to deter money laundering. The Committee urges the IMF to enhance its support for members' efforts in these areas, building on its guidelines and other international standards for fostering good governance and transparency in all member countries, including through the application of the codes of good practice that the membership has established in the fiscal and monetary areas.
14. The Committee welcomes the progress made in financial sector reform and banking system restructuring in the context of IMF surveillance, technical assistance, and programs. It looks forward to the continued collaborative work of the IMF, the World Bank, and other institutions, including on the pilot Financial Sector Assessment Program that should facilitate early detection of financial system weaknesses and support a better coordinated dialogue with national authorities. The Committee encourages countries that have not done so to participate in the pilot program.
15. The Committee welcomes the recent independent, external evaluation of IMF surveillance and research activities, and encourages the Executive Board to examine the recommendations of the former further in the context of the next internal review in late 1999. The Committee also reaffirms the importance of independent evaluations of the Fund's operations and policies.
16. The Committee reiterates the importance of ongoing efforts to involve the private sector in forestalling and resolving financial crises, and notes the progress achieved in securing the involvement of the private sector in individual cases. In this connection, the Committee considered that the balance of the various considerations reflected in the report by G-7 Finance Ministers to the Köln Economic Summit provides a helpful framework within which the international community can work to address individual cases that may arise. The Committee asks the Executive Board to build on this framework and to report at the Committee's next meeting on the ways in which the broad principles have been implemented.
17. The Committee considers that increased mobility of capital has raised the requirements, in terms of both policy adaptability and institutional preparedness, for maintaining a fixed exchange rate regime. That said, members should be able to choose a regime that is appropriate to their particular circumstances and longer-term strategy. The choice of exchange rate regime and the implementation of supporting policies are critical for countries' economic development and financial stability, and in some cases potentially for the world economy. In all cases, IMF programs and surveillance should further focus on consistency between macroeconomic and other policies and institutional arrangements with the chosen exchange rate regime. The IMF should assist members to adapt to a world of global financial flows. The Committee encourages the Executive Board to continue to consider these matters, and to report to the Committee on its work.
18. Persistent and sizeable capital inflows can be highly destabilizing particularly if they are intermediated by poorly regulated and unsupervised financial institutions. In this context, the Committee welcomes the IMF's recent work on the appropriate pace and sequencing of capital account opening, which has led to a fuller understanding of the conditions for orderly and sustainable liberalization, and has broadly confirmed earlier conclusions that, over the long term, open capital flows accompanied by appropriate prudential measure will benefit the world economy. The Committee encourages the IMF to build on its examination of individual countries' use and liberalization of controls, paying particular attention to the relationship between capital account liberalization and financial sector stability.
19. The Committee calls on the IMF and World Bank to work together, in cooperation with national debt management experts, to develop a set of best practices in public debt management by the spring to assist countries in their efforts to reduce vulnerability.
20. The Committee encourages all members to continue to work on preventive action and to put in place millennium contingency plans, noting that, although business, financial institutions, and government agencies around the world have made considerable progress in preparing computer systems, a risk remains that Y2K problems will be anticipated or will arise, with potential negative consequences for growth, international trade, and international capital flows. To help forestall, and if necessary resolve, possible balance of payments problems related to the Y2K phenomenon, the Committee endorses the Executive Board's decision to introduce atemporary new facility for providing outright short-term access to IMF resources to members facing identifiable Y2K-related balance of payments needs.
21. The Committee endorses the Executive Board's recommendation that the Board of Governors adopt a Resolution transforming the Interim Committee into the International Monetary and Financial Committee and strengthening its role as the advisory committee of the Board of Governors.
* * *
22. The next meeting of the Committee will be held in Washington, D.C. on April 16, 2000.
ANNEX
INTERIM COMMITTEE ATTENDANCE
September
26, 1999
Chairman
Gordon Brown
Managing
Director
Michel Camdessus
Members or Alternates
Ibrahim A. Al-Assaf, Minister of Finance and
National Economy, Saudi Arabia
Giuliano Amato, Minister
of the Treasury, Budget, and Economic Planning,
Italy
Eddie George, Governor, Bank of England
(Alternate for Gordon Brown, Chancellor of the Exchequer,
United Kingdom)
Antonio Casas González, President, Banco
Central de Venezuela
Peter Costello, Treasurer,
Australia
Dai Xianglong, Governor, People's Bank of
China
Emile Doumba, Minister of Finance, Economy, Budget
and Privatization, Gabon
Hans Eichel, Minister of
Finance, Germany
Roque B. Fernández, Minister of Economy
and Public Works and Services, Argentina
Viktor
Gerashchenko, Chairman, Central Bank of the Russian
Federation
Marianne Jelved, Minister of Economic Affairs,
Denmark
Abdelouahab Keramane, Governor, Banque
d'Algérie
Sultan Bin Nasser Al-Suwaidi, Governor, United
Arab Emirates Central Bank
(Alternate for Mohammed K.
Khirbash, Minister of State for Finance and Industry,
United Arab Emirates)
Pedro Sampaio Malan, Minister of
Finance, Brazil
Trevor A. Manuel, Minister of Finance,
South Africa
Paul Martin, Minister of Finance,
Canada
Kiichi Miyazawa, Minister of Finance,
Japan
Didier Reynders, Minister of Finance,
Belgium
Syahril Sabirin, Governor, Bank
Indonesia
Yashwant Sinha, Minister of Finance,
India
Dominique Strauss-Kahn, Minister of Economy,
Finance and Industry, France
Lawrence H. Summers,
Secretary of the Treasury, United States
Kaspar Villiger,
Minister of Finance, Switzerland
Gerrit Zalm, Minister of
Finance, Netherlands
Observers
Yilmaz Akyuz, Chief,
Macro-Economics and Development Policies Branch,
UNCTAD
Andrew D. Crockett, Chairman, Financial Stability
Forum
Willem F. Duisenberg, President, ECB
Andre
Icard, Assistant General Manager, BIS
Donald J. Johnston,
Secretary-General, OECD
Ian Kinniburgh, Director,
Development Policy Analysis Division, UN
Michael Moore,
Director-General, WTO
Pedro Solbes Mira, Commissioner in
charge of Economic and Monetary Affairs,
European
Commission
Juan Somavia, Director-General, ILO
Tarrin
Nimmanahaeminda, Chairman, Joint Development Committee
James D. Wolfensohn, President, World
Bank
ENDS