The Interim Committee held its fifty-third meeting in Washington, D.C., on September 26, under the Chairmanship of Gordon Brown, Chancellor of the Exchequer of the United Kingdom. The Committee expresses its appreciation to the outgoing Chairman, 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
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 recent initial 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 IMF-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 Heavily Indebted Poor Countries (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 United States 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 supplementary budget 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.
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 IMF to work with the World Bank and the World Trade Organization (WTO) to strengthen their programs of work to achieve better coherence in global policymaking. 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.
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.
IMF Board of Governors approves transformation of Interim Committee
On September 30, the IMF announced that the IMF Board of Governors had approved the IMF Executive Board’s proposal to transform the Interim Committee. The text of Press Release No. 99/47, which is also available on the IMF’s website (www.imf.org), follows.
The IMF Board of Governors adopted a Resolution approving a proposal of the Executive Board to transform the Interim Committee of the Board of Governors on the International Monetary System into the International Monetary and Financial Committee of the Board of Governors.
In addition to the name change, which adds “and financial” as part of the Committee’s terms of reference, there is now an explicit provision for preparatory meetings of representatives of the Committee members (deputies). The new Committee will continue to advise and report to the Board of Governors with respect to the functions of the Board of Governors in
- supervising the management and adaptation of the international monetary and financial system, including the continuing operation of the adjustment process, and in this connection reviewing developments in global liquidity and the transfer of real resources to developing countries;
- considering proposals by the Executive Board to amend the Articles of Agreement; and
- dealing with sudden disturbances that might threaten the system.
In addition, the Committee shall advise and report to the Board of Governors on any other matters on which the Board of Governors may seek the advice of the Committee.
The members of the International Monetary and Financial Committee are Governors of the IMF, ministers, or others of comparable rank, reflecting the composition of the Executive Board: each country that appoints, and each group that elects, an Executive Director appoints a member of the Committee. The Chairman of the Committee is Gordon Brown, Chancellor of the Exchequer of the United Kingdom.
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 IMF 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, anticorruption 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.
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 International Development Association (IDA) and Poverty Reduction and Growth Facility lending operations and closer Bank-IMF collaboration.
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.
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 IMF’s participation. The Committee considers that the off-market transactions of up to 14 million fine ounces of gold by the IMF that are envisaged will be a onetime 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.
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 IMF on the SDDS, including on strengthening external debt data and developing macroprudential 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 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 full text is available on the IMF’s website: http://www.imf.org.] 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 Basel Committee to complete that review. It encourages the IMF to continue to support this process.
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.
The Committee reiterates the importance of greater transparency in policymaking. 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 eval-uators’ 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’s website;
- the agreement to establish a presumption in favor of publication of Letters of Intent, Memorandums 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.
The Committee encourages further actions to make IMF practices and members’ policies more transparent without compromising the IMF’s role as confidential advisor.
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.
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.
The Committee welcomes the recent independent, external evaluations of IMF surveillance and research activities and encourages the Executive Board to further examine the recommendations of the former in the context of the next internal review in late 1999. The Committee also reaffirms the importance of independent evaluations of the IMF’s operations and policies.
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 considers that the balance of the various considerations reflected in the report by Group of Seven finance ministers to the Cologne 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.
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 of macroeco-nomic 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.
Persistent and sizable 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 measures 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.
The Committee calls on the IMF and the 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.
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 a temporary new facility for providing outright short-term access to IMF resources to members facing identifiable Y2K-related balance of payments needs.
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.
The next meeting of the Committee will be held in Washington, D.C., on April 16, 2000.