The International Monetary and Financial Committee held its fifth meeting in Washington, DC, on April 20 under the chairmanship of Gordon Brown, Chancellor of the Exchequer of the United Kingdom. The committee welcomes the international community’s decisive policy actions, especially following the tragic events of September 11,2001, to maintain financial stability, restore the momentum of world economic growth, and reinvigorate the fight against poverty. We will also sustain our global action to combat money laundering and the financing of terrorism. Our meeting in Ottawa last November emphasized the importance of a collaborative approach for the IMF and its members. Going forward, we will continue to work together for sustained, broad-based growth, creating opportunities for productive employment, reducing vulnerabilities, opening up our economies to trade, and providing resources for durable poverty reduction.
Since the committee’s last meeting, the prospects for the world economy have improved markedly. The challenge now is for governments to help foster the global recovery that is under way. This will require continued vigilance and a further strengthening of medium-term policy frameworks—both to improve prospects for sustainable growth and stability and to reduce vulnerabilities. The committee notes the uncertainties associated with the international security issues around the world and also the deteriorating situation in the Middle East. The committee underscores the importance of stability in oil markets at prices reasonable for consumers and producers.
The advanced economies have a responsibility to promote a strong and sustained world economic recovery. While keeping inflation under control, monetary policies should remain broadly supportive of growth. In countries where the recovery is more advanced, consideration may need to be given in the months ahead to reversing earlier policy easing. Reforms should be pursued vigorously, with the aim of improving economic flexibility and resilience, contributing to high and sustainable world growth, and supporting the orderly reduction of persistent imbalances in the global economy. This process will be helped, in Japan, by decisive action to reform the banking and corporate sectors, along with monetary easing to help end deflation; in Europe, by continued progress with wide-ranging reforms to enhance its growth potential; and, in the United States, by focusing on the efforts needed over the medium term to preserve fiscal balance.
The recovery in industrial countries will contribute to supporting activity in emerging market and developing countries. The committee is encouraged that many emerging market economies have become more resilient through the adoption of sound economic policies—including more sustainable exchange rate regimes. It will, nevertheless, remain crucial to further strengthen fiscal positions and to press ahead with corporate, financial, and institutional reforms to support the emerging recovery and attract foreign direct investment. Improved differentiation and risk assessments by markets have served to limit so far the contagion effects of the Argentine crisis. The committee acknowledges the steps being taken by Argentina to address its difficult economic situation and urges the authorities, in cooperation with the IMF, to move quickly to reach agreement on a sustainable economic program that could receive the support of the international financial institutions and provide the basis for the reestablishment of stability and growth.
The committee strongly welcomes the commitment by the international community, at the UN Conference in Monterrey, to improve living standards and reduce poverty through sound policies and higher and more effective aid. It fully supports the New Partnership for Africa’s Development and its call for strong domestic ownership, sound policies, strengthened institutions, and improved governance. The committee welcomes recent announcements of increased and more effective aid and urges further progress. The Monterrey Consensus will constitute an important input to the World Summit on Sustainable Development in Johannesburg. The committee also welcomes the new initiative to enhance growth and reduce poverty in low-income CIS [Commonwealth of Independent States] countries.
The committee stresses the vital importance of more open trade for a durable economic recovery and for sustained, broad-based growth in the developing countries in particular. It urges all countries to resist protectionist pressures and to continue to lower trade barriers, concluding the Doha trade round successfully and in a timely manner. Enlarging market access for developing countries and phasing out trade-distorting subsidies will benefit both developed and developing countries. The committee welcomes the commitment, reiterated at Monterrey, to work toward the objective of duty- and quota-free market access to the exports of least-developed countries. It also notes the potential for increased opportunities from lowering trade barriers among developing countries.
The PRSP process should continue to be nurtured as the suitable framework for fostering the efforts of low-income countries and their international partners to achieve poverty reduction and higher growth.
Strengthening crisis prevention, resolution
Surveillance remains central to the IMF’s mandate to promote sound economic growth and financial stability and to help prevent crises. The committee is encouraged by the substantial progress in recent years to adapt and broaden the coverage of surveillance in response to a changing global environment while focusing on issues central to economic and financial stability.
The committee calls on the IMF to spare no effort in enhancing the high quality of its policy advice, and on members to implement this advice. Surveillance will be further enhanced by
- strengthened assessments of vulnerabilities, with particular attention to debt sustainability and the private sector’s balance sheet exposure;
- focusing on the global impact of the policies, including trade policies, of the largest economies;
- more candid and comprehensive assessments of exchange arrangements and exchange rates;
- expansion of substantive financial sector surveillance to the entire membership, including to offshore financial centers;
- strengthened coverage of relevant structural and institutional issues;
- on issues outside the IMF’s core expertise, more effective use of the expertise of appropriate outside institutions, in particular the World Bank;
- further integration of multilateral, regional, and country surveillance; and
- deeper coverage of international capital markets.
The committee notes that the process of surveillance should cover effective and timely reassessments of economic conditions and policies. In program countries, this may require a fresh perspective and appropriate distance from day-to-day program implementation issues.
The committee encourages the IMF to press ahead with the range of recent initiatives designed to enhance the effectiveness of surveillance and crisis prevention. These include the Financial Sector Assessment Program and policies on transparency, including encouraging publication of Article IV and other IMF reports. Further work on standards and codes is a crucial item in the forward agenda to strengthen their relevance and contribution to IMF surveillance and to ensure that countries have adequate access to technical assistance. The committee encourages eligible countries to consider applying for the Contingent Credit Lines and looks forward to a review.
The committee endorses the IMF’s work program to strengthen the existing Prague framework for crisis resolution, in particular to provide members and markets with greater clarity and predictability about the decisions the IMF will take in a crisis. This will involve
- improving debt sustainability assessments;
- clarifying the policy on access to IMF resources for members facing financial crises—with access beyond normal limits requiring more substantial justification, and recognizing that some of these members’ quotas do not adequately reflect their potential financing needs;
- strengthening the tools for securing private sector involvement; and
- examining a more orderly and transparent framework for addressing the exceptional cases in which a sovereign needs to restructure an unsustainable debt, as well as clarifying the conditions under which the IMF would be prepared to lend into arrears.
The committee welcomes the consideration of innovative proposals to improve the process of sovereign debt restructuring to help close a gap in the current framework. It encourages the IMF to continue to examine the legal, institutional, and procedural aspects of two approaches, which could be complementary and self-reinforcing: a statutory approach that would enable a sovereign debtor and a super-majority of its creditors to reach an agreement binding all creditors; and a contractual approach that would incorporate comprehensive restructuring clauses in debt instruments. The committee looks forward to reviewing progress in this area at its next meeting.
IMF’s role in low-income countries
The committee fully endorses the Monterrey Consensus, which has reaffirmed that sound economic policies and institutions, together with strong, broad-ranging international support, are the twin pillars on which to build enduring poverty reduction. It encourages the IMF to work closely with the UN, the World Bank, the regional development banks, and bilateral donors in developing a comprehensive and transparent system to monitor progress toward the Millennium Development Goals.
The committee welcomes the outcome of the recent reviews of the IMF’s Poverty Reduction and Growth Facility (PRGF) and of the poverty reduction strategy paper (PRSP) approach. The PRSP process should continue to be nurtured as the suitable framework for fostering the efforts of low-income countries and their international partners to achieve poverty reduction and higher growth. The substantial progress under PRGF-supported programs in implementing the PRSP approach will be further enhanced by better identifying the sources of sustained growth, strengthening public expenditure management, and using poverty and social impact analysis more systematically. The committee encourages the IMF and the World Bank to continue their collaboration on each of these issues and looks forward to reviewing progress at its next meeting. Capacity building will remain a potent vehicle for ensuring ownership and enhancing the implementation of effective poverty reduction strategies, and the committee looks forward to the review of technical assistance leading to its increased effectiveness. The committee welcomes, in particular, the African Regional Technical Assistance Centers, whose establishment will support the New Partnership for Africa’s Development, and looks forward to the timely financing of this initiative.
The recovery of low-income countries that have been affected by the recent economic slowdown and commodity price shocks will continue to require particular attention. The committee supports the IMF’s continued readiness to respond flexibly and proactively to the financing needs of low-income countries, including by augmenting PRGF financing where necessary. It recognizes that there may be a need to consider mobilizing new PRGF resources if the high demand for PRGF financing continues. While the committee is encouraged by the progress with the implementation of the Heavily Indebted Poor Countries (HIPC) Initiative, it notes that, in a number of cases, debt sustainability remains an issue and calls on the IMF and the World Bank to review the situation. It urges eligible countries to step up their reform efforts to reach their decision and completion points, noting, in this context, the flexibility embedded in the HIPC Initiative framework to accommodate the special circumstances of countries emerging from conflict. The committee notes the application within the current guidelines of the topping-up feature designed to help countries cope with exceptional exogenous shocks. It calls for further efforts to enhance debt management in HIPCs and continued close monitoring of their debt sustainability as they move toward, and beyond, their completion points.
Streamlining conditionality and enhancing ownership
The committee welcomes the initial progress made toward enhancing the effectiveness of IMF-supported programs through streamlined and focused condi-tionality and strong national ownership of economic reforms. It urges further progress, in cooperation with the World Bank, and looks forward to a report on these issues, including on the IMF’s consideration of new conditionality guidelines, at its next meeting.
Combating money laundering and financing of terrorism
The committee underscores that international efforts to counter abuse of the international financial system to finance terrorism and launder the proceeds of illegal activities remain a priority. It is encouraged by the response by many countries to its call last November for all countries to ratify and implement fully the UN instruments to counter terrorism financing, freeze terrorist assets, establish financial intelligence units, and ensure the sharing of information. The committee urges countries that have not as yet done so to fully implement and comply with these instruments. It also welcomes the substantial progress made by the IMF, in close collaboration with the World Bank, in implementing all elements of its action plan to intensify the work to combat money laundering and the financing of terrorism. The committee notes in particular the good start made in assessing gaps in national regimes to fight money laundering and combat the financing of terrorism, and fully supports the provision of technical assistance to help countries identify and address such gaps.
While reiterating the responsibility of national authorities for combating money laundering and the financing of terrorism, the committee stresses that success will critically depend on continued vigilance and timely action at the global level. It calls on the IMF to make further progress on all elements of its work program, consistent with its mandate and expertise. In particular, efforts should now be focused on completing the comprehensive methodology for fighting money laundering and combating the financing of terrorism, based on a global standard covering the Financial Action Task Force recommendations, and the development of assessment procedures compatible with the uniform, voluntary, and cooperative nature of the Reports on the Observance of Standards and Codes process. Enhancing the delivery of technical assistance to combat money laundering and the financing of terrorism will also be crucial. The committee urges the IMF, in cooperating with other international organizations and donor countries, to identify and respond to needs for technical assistance. It looks forward to receiving a full report on progress in this area at its next meeting. The committee calls on members to share information on their own actions in this field.
The committee notes that the Twelfth General Review of IMF Quotas has commenced. Quotas should reflect developments in the international economy. The committee recommends an early implementation of the Fourth Amendment.
The committee welcomes the progress report on the Independent Evaluation Office, and looks forward to receiving regular updates on its activities.