We exchanged views on the role and functioning of the international financial institutions. In the context of the changing global financial landscape, in particular the increasing importance of private global capital markets, it is appropriate for the international community to continue to examine the role and functioning of the international financial institutions. In this context:
• We underscored the central role of the IMF in advancing macroeconomic stability as an important precondition for sustainable global growth and emphasized the need for the IMF to continue to evolve to meet the challenges of the future. Our discussions of IMF reform highlighted a number of key principles and measures taken to date, as well as our aspirations going forward. In particular, we agreed that the IMF is a universal institution and must be transparent to the public and accountable to its members. It must work in partnership with all its member countries, based on their shared interests, to promote financial stability and growth. Crisis prevention and response should be at the core of the IMF’s work, with IMF surveillance strengthened so as to foster strong policies, reduce countries’ financial vulnerability to crisis, and encourage the implementation of internationally agreed codes and standards. IMF financial operations should be adapted to reflect better the realities of global capital markets—encouraging countries to take preventive measures to reduce vulnerabilities and providing temporary and appropriately conditioned support for balance of payments adjustment and medium-term finance, in defined circumstances, in support of structural reform while avoiding prolonged use. The IMF should take appropriate steps to involve the private sector in both forestalling and resolving crises, which should help promote responsible behavior by private creditors. The IMF must continue to provide concessional assistance for the poorest countries to foster macroeconomic and financial stability, with the aim of reducing poverty.
• We reaffirmed the critical role of the World Bank and regional development banks in carrying out their core mission of promoting development in developing and emerging market economies. Moving forward, we believe it is important to pursue reform of these institutions further to focus their activities on the following core objectives: supporting sound and comprehensive poverty reduction efforts and improving the effectiveness of development assistance; actively participating in the HIPC [Heavily Indebted Poor Countries] Initiative with the aim of reducing poverty and promoting growth in the poorest countries; enhancing their role in the provision of global public goods, particularly by the World Bank; focusing their efforts more tightly in emerging market economies on the key systemic and structural constraints to poverty reduction, including investing in human capital, leveraging private capital, helping to cushion the effects of exceptional shocks on the poorest and most vulnerable groups, and institution building, including in the financial sector. We recognize that a large number of the world’s poor still live in these emerging economies and that Bank assistance in poverty reduction will continue to be critical to raising their standard of living. Achieving these objectives will require strong ownership by recipient countries based on the principles of good governance, effective coordination, and cooperation with other bilateral and multilateral donors as well as the IMF, and an enabling international environment. We asked our deputies to identify proposals for implementing these objectives in the World Bank and regional development banks.
We agreed to continue to work together and with the wider membership of the institutions on these core issues and look forward to exploring this agenda further.
We also agreed to continue our work to implement fully the wide range of measures to strengthen the international financial architecture endorsed at the Cologne summit [in June 1999], including promoting appropriate private sector involvement. Private external creditors, including bond holders, have contributed to the financing of several recent programs of policy reform and recovery. This has confirmed the importance of making operational the framework ministers laid out in their report to heads [of state] in Cologne, which provides for flexibility to address diverse cases within a framework of principles and tools. In this context, we agreed that the IMF should consider whether private sector involvement is appropriate in programs. The IMF should play a central role in deciding if private creditors should contribute to any program financing, while taking duly into account the specific circumstances of individual cases. The IMF should also review the results of the country’s efforts to secure financing from private creditors. We agreed on the further steps to put this approach into operation.
We welcomed the reports of the Financial Stability Forum Working Groups on Highly Leveraged Institutions, Capital Flows, and Offshore Financial Centers, as well as the Task Force on the Implementation of Standards, and agreed to promote progress in their implementation. We supported the recommendations for better risk management by highly leveraged institutions and their counterparties; better disclosure practices among financial institutions, including enhanced disclosure requirements for highly leveraged institutions and their creditors; improved oversight of creditor institutions; and enhanced national surveillance of financial market activity in view of concerns about systemic risk and market dynamics caused by highly leveraged institutions’ activities. We will review these measures and their implementation to determine whether additional steps are necessary. We also welcomed recognition of the importance of managing country risks and, in this regard, urged prompt development of guidelines for public debt and reserve management, with special attention to the risk created by short-term foreign currency liabilities and taking account of countries’ vulnerability to capital account crises, including those vulnerabilities arising from the liabilities of the private sector. We also welcomed the work on the potential threats posed to the international financial system by those offshore centers that do not adequately meet international standards. We support the identification of priority jurisdictions and the focus on improvements in transparency and international cooperation. We call on the IMF to play its part in implementing the various recommendations of the Financial Stability Forum Working Groups. Finally, we look forward to additional work by the forum on promoting regulatory and market incentives for implementation of standards, as well as further development of guidance on deposit insurance schemes.
Enhanced HIPC Initiative
We note the progress achieved in the implementation of the Cologne debt initiative and reaffirm the importance we attach to bringing countries quickly to the point where they can benefit from debt relief. We strongly support the efforts of HIPC countries to develop poverty reduction strategy papers, in the context of a sound policy framework. We look forward to further work to strengthen these strategies, so that the resources freed up by HIPC relief are used effectively to reduce poverty and boost economic growth. We urge the IMF, the World Bank, and eligible countries to cooperate closely to secure the implementation of the HIPC Initiative with the aim that the eligible countries reach their decision points by the end of 2000, in line with the Cologne target. It is critical to secure over time the needed financing for the enhanced HIPC Initiative. We welcome the progress that has been made in this respect, and note that some bilateral contributions to the HIPC Initiative have been made, including to the HIPC Trust Fund, but some require legislative approval. We call upon those international financial institutions that have not yet finalized the basis for their participation to do so quickly, including the maximum use of their own resources. We urge all bilateral creditors that have not yet done so to take action to deliver their share of debt relief under the Initiative as participation of all creditors is key to its success. We reiterate our willingness to actively contribute to the success of the enhanced HIPC Initiative and its more general goal of reducing poverty. To this end, we have committed ourselves to grant, on a bilateral basis, additional debt relief on top of that provided for under the HIPC Initiative by increasing to 100 percent the debt reduction on commercial claims eligible for treatment in the framework of the Paris Club. We urge other creditors to follow the same route.