Brown: Horst Köhler and I are delighted to be able to report on the progress that we have made in the IMFC. The approach to the slowing of the world economy is that we would be both forward looking and outward looking. There was a general recognition of our shared interests as a global community. We recognized that we should not retreat from cooperation but indeed should strengthen it, and we found a shared approach in the decisions and the recommendations we made. That we should, in facing economic events, be vigilant, but we should be forward looking in creating the conditions for growth, in maintaining the momentum for economic reform in our own national economies, and in continuing the pace of reform in the international financial architecture. And I believe that people will be interested also in the section on trade where we call for the resumption of the multilateral trade talks as important to the development of the world economy.
We also looked at the international development targets and the HIPC [Heavily Indebted Poor Countries] Initiative, and the developing countries and their position, and we agreed about the importance of moving forward with both education and health initiatives in these areas.
On the world economy, we said that while we recognized that the short-term prospects for global growth have weakened significantly since September 2000, we consider it likely that the slowdown will be short-lived, though we noted that the downside risks had increased. Underlying inflationary pressures in general remained subdued. We went on to say: “We will continue to promote international economic cooperation and work together, adopting a forward-looking approach to meeting our common objectives of open trade for greater global prosperity, maintaining the momentum for reform in the international financial system, strengthening our economies through structural reform, maintaining sound macro-economic conditions for strong noninflationary growth, and encouraging poverty reduction and growth in the poorest countries.” And that is the basis of the shared approach that was adopted by all countries today.
On trade, we urged all countries, developed and developing, to find common ground for the launch of new multilateral trade negotiations this year. The committee is unanimous in its view that recourse to protectionism would be the wrong response to the global economic slowdown and the attendant difficulties in particular sectors. We said that we looked forward to the joint meeting of the Development Committee and the IMFC. We welcome the cooperation of the IMF and the Bank on the international development goals, addressing the importance of delivering on the commitments made at Dakar on education, and the need for global action on health to addresses diseases such as the HIV/AIDS epidemic.
We also made a number of decisions, ratifying the very positive reforms that Horst Köhler is proposing for improving the crisis prevention mechanisms of the IMF in the world community and improving measures for crisis resolution. We paid particular attention this morning to financial sector reforms.
This was a constructive meeting. There was a shared approach, not simply on the need to be vigilant but also on the conditions that are necessary for growth. This was a positive meeting, which makes me cautiously optimistic about the prospects for the world economy given the reforms and the changes that we are all agreed to make.
Köhler: I fully agree with the Chancellor that this has been a most productive meeting, thanks in no small part to his chairmanship. I would just add that I am very pleased with the outcome. The meeting of minds on policies in the face of the current slowdown should bolster confidence that global growth will be strengthened and the risks contained. I would like to add that IMF Economic Counsellor Michael Mussa, with an excellent presentation, made a good contribution to this strengthening of the consensus about what to do. It was gratifying that the committee strongly welcomed both our recent moves to refocus the IMF and the work program outlined in my progress report “The IMF in the Process of Change.” This will hasten our progress toward an IMF that is more effective, especially at crisis prevention and promoting financial sector stability. I hope that I, speaking under the authority of the Chair of the IMFC, can say the IMF is strengthened by these discussions.
Our joint meeting later today with the Development Committee will focus on our work in poor countries, but I would emphasize that the interests and concerns of these countries and other developing and emerging market countries also featured prominently in the discussions in the IMFC meeting.
I am also pleased that during these meetings we have reached agreement in principle to support Turkey and Argentina. Both countries have substantially strengthened their policies, and they deserve support. The remaining details of the programs will be sorted out in a few days. I also think that the handling of these two cases strengthens the IMF and has the support of its shareholders.
I am also particularly grateful that the good cooperation with the World Bank and Jim Wolfensohn was appreciated and endorsed by the Committee. In fact, this meeting for me has again shown how important the IMFC is. It is a forum of truly global economic cooperation, focusing on how the IMF and its members can work to ensure that globalization works for the benefit of all. As you know, that is my vision.
Köhler: We are now handling these cases. I am sure that, for instance—and I am reminded of this in our discussions—we would have been more ambitious to include systemically important countries in our Financial Sector Assessment Programs. If Turkey had been included in this program, maybe the crisis there would not have happened.
Brown: The Committee did discuss this issue. Let me just read to you what we decided: “The Committee underscores that money laundering is an issue of global concern, requiring strengthened policies and concerted action on the part of government and a range of institutions. Effective anti-money-laundering measures at the national level are important for all IMF members, especially those with large financial markets. In this regard, the Committee generally agrees with the recognition of the FATF [Financial Action Task Force] 40 Recommendations as the appropriate international standard for combating money laundering, and agrees that work should go forward to determine how the recommendations can be adapted and made operational in the IMF’s work. It endorses the proposed closer collaboration of the IMF and the World Bank with the FATF and other anti-money-laundering groups in reviewing standards and codes in this area. In this regard, the Committee notes that, to be consistent with the Reports on Observance of Standards and Codes process, assessments should be undertaken on a uniform, cooperative, and voluntary basis. Action by the IMF to combat money laundering should aim to promote a more effective regulatory and supervisory environment and thus help prevent financial crime and money laundering. The IMF, in collaboration with the World Bank, should, if requested, also provide more technical assistance in this area to member countries to strengthen their economic, financial, and legal systems.” So we are both taking seriously this issue and acting together to improve procedures.
Köhler: I think that is the substance, and the IMF Executive Board will take up this process, and we are certainly ambitious to have progress.
Brown: We said the prospects of emerging market countries depend critically on investor confidence, which the Committee agrees will require pursuing prudent macroeconomic policies and pressing ahead with corporate, financial, and institutional reform. That was our general view about emerging market economies.
“Instead of retreating from global cooperation, we are strengthening it, and it is by strengthening global cooperation that we are better placed to deal with difficulties as they arise.”
As far as Argentina is concerned, the Committee welcomed the recent comprehensive set of measures being implemented by the Argentine government to improve the underlying fiscal position and provide a strong basis for the sustained recovery of the economy in line with the objectives of the IMF-supported program that is in place. It considers that these measures are an important and decisive step to boost their confidence.
Köhler: Minister Cavallo, very impressively, particularly outlined how Argentina came to a culture of stability, of respect for property rights, and to growth and private sector investment. First, this basic approach is the best guarantee that his policy will succeed and also deserves the support of the IMF. I have talked to him. He confirmed to me that Argentina will come back on track with regard to the fiscal arrangement with the IMF. That is good. Second, it is clear that the basis of all this is the convertibility law. This is right. And third, the IMF is prepared to look at how we might be able to rephase, on the basis of the existing program, our disbursement to help Argentina.
Brown: There has obviously been a slowdown in activity. It is a slowdown in activity in the United States, but it has wider repercussions. It was reported to us about what was the likely position in Europe as a whole. On Japan there is a general view about the banking and structural reform that is necessary there. But I am cautiously optimistic because, first, many of the foundations that were not in place on previous occasions are in place, and inflation is relatively low. The fiscal positions of the major economies are relatively sound. I am also optimistic because a common view is developing—a shared approach—as to the need to maintain the momentum of reform, to continue with the pace of changing the international financial architecture, to make us better prepared to deal with difficulties as they arise. There was a determination today to push forward with the trade talks as important for avoiding any resort to protectionism—indeed, showing we are outward looking in the face of these difficulties and forward looking, as well as vigilant in relation to macroeconomic policy. And it is on that basis that we are—with a shared approach—ready to move forward in the key areas where people are looking to us. That, I believe, allows us to be cautiously optimistic.
And the answer to those people who have criticized globalization and global institutions is: Instead of retreating from global cooperation, we are strengthening it, and it is by strengthening global cooperation that we are better placed to deal with difficulties as they arise.
Köhler: I was particularly pleased that Chancellor Brown pointed to the fact that in the global economy of today, things are interconnected. And the discussion about these interdependencies will certainly raise awareness about what is needed to bring the global economy back to growth with new momentum.
Brown: Should you believe what I said yesterday or what I said today? I am saying the same things on both days. If you look at the Group of Seven communiqué and the first section of the IMFC communiqué, you will see the commonality and the shared approaches that are taken. When we say we will continue to promote international cooperation, we will work together. We will adopt a forward-looking approach; we have common objectives for greater prosperity. These involve reform, action on trade, action on the macroeconomic conditions, and it is our view that if we can take these measures, the slowdown will be short-lived. We remain vigilant and forward looking. This is very much in the spirit of all the countries represented here today, including the countries of the Group of Seven. What is very interesting about what happened today is that the approach is shared right across the world about how we must be both vigilant and forward looking. I see no difference between what we said yesterday as the Group of Seven—indeed, what Mr. O’Neill said yesterday about the long-term optimism that he has about the possibilities for growth in the world economy—and what I am saying today. The meetings have been constructive, and they show that we can act together to deal with common problems.
Köhler: I am also guardedly optimistic, and I am saying this based particularly on the sober analysis of Michael Mussa, because this triggered a very frank discussion among the ministers. It made clear this connection between the regions. It made clear that European monetary policy will be even more vigilant, and it also made clear that Japan has a particular responsibility to do its job to bring the country back to growth.
Köhler: This program received the unanimous support of ministers. It is a good policy, and there is a good chance that, based on a market economy, based on openness through the international economy, the Turkish government will emerge from this mess. We know that every case has its particular problems; I think this program, with the $10 billion of financing, is the right answer, the appropriate answer in the specific situation of Turkey.
Köhler: I think it will work because the policy is right. It is a policy based on growth orientation, investment, and competitiveness. That is what counts, and what markets are going to reward. We are prepared to support this. If there is a need for rephasing our disbursements, we are prepared to do that. We are not bureaucratic. We are working with Minister Cavallo in a very close and productive relationship.
Köhler: Surely, the responsibility for this lies first and foremost with the government of Turkey. It is their program. It is not the prescription of the IMF. We have heard from the Turkish Economy Minister, Kemal Dervis, that this program is very highly regarded in the polls—I think with 65 percent or something like that. It is their responsibility, but we are making our contribution to it, that it can really succeed.
Brown: The statement says, “the Committee welcomes the comprehensive strategy of bank restructuring, fiscal consolidation, and structural reform initiated by the Turkish authorities.” And then it goes on to say it merits the support of the international community and the private sector. And that is the agreed statement of the IMFC.