In his capacity as Chairman of the Council of EU Economic
and Finance Ministers to the IMFC
Sunday, September 24, 2000
1. I submit this statement in my capacity as Chairman of the Council of the European Union. It focuses on the ongoing reform of the international financial architecture and the role of the IMF in the international monetary and financial system, the strengthening the fight against abuses of the global financial system, the debt initiative for heavily indebted poor countries, and on developments in the world economy and EU prospects.
Strengthening the international monetary and financial system
2. Despite the considerable progress already achieved in recent years, we still need to take further steps to strengthen the international monetary and financial system. I will address five of them : (i) adaptation of the IMF and the other IFIs to the new and fast changing international financial environment, (ii) implementation of the conclusions adopted by this Committee last April on private sector involvement in the prevention and resolution of financial crises, (iii) progress in the orderly financial liberalisation in developing countries, (iv) strengthening the fight against financial abuse, and (v) improving the integration of a regional dimension in economic development strategies.
Adapt the IMF to the new international financial environment
3. The EU and its Member States underscore the principles agreed at the Spring meetings. On the IMF, let me highlight the following :
4. Credible and efficient responses to crises that may occur also require the Fund's catalytic role to be strengthened. We support in this context a pricing structure of IMF facilities that establishes consistent incentives while reflecting the co-operative character of the Fund and that enables all members to access Fund resources. The design of the IMF facilities should encourage countries to gain access to private capital markets in a progressive and well sequenced manner and should discourage prolonged use of IMF resources. We support a revision of the CCL through changes in pricing and activation procedures, without compromising the initial eligibility criteria. This would effectively provide emerging market economies with incentives to maintain sound economic and financial policies. Furthermore, the Fund should monitor countries' adherence to these eligibility criteria on a regular basis and develop proper exit strategies for countries that no longer fulfil the eligibility criteria. Any additional income that may result from the possible new pricing structure should be used, with due regard to the level of IMF reserves, to support Fund programmes in countries in need, including through the provision of additional technical assistance.
We welcome the current discussion on conditionality in Fund programmes and re-affirm the need for an efficient conditionality, both in the macroeconomic and structural fields. We support the Fund's reviews of the scope and content of the conditionality used in Fund programmes with regard to appropriateness, fairness and necessity in order to make it more effective.
5. While important progress has been achieved in strengthening the multilateral system, we should reflect on whether further steps are needed to maintain its legitimacy and coherence.. In particular, we should reflect on four points:
Ensure full implementation of the framework of principles and tools agreed on private sector involvement
6. The EU welcomes the agreement reached at our last Spring meeting on the framework of principles and tools by which private sector involvement in the prevention and resolution of financial crises is to be obtained. We re-affirm our view that private sector involvement should be a standard element in crisis resolution arrangements. We urge the IMF to systematically use these principles and tools in the design of its programmes, even though details of private sector involvement may be worked out on a case-by-case basis depending on individual circumstances. Concrete steps may be taken: i) to make operational the regular and informal dialogue with the private sector, through improved communication channels between debtor countries and their creditors; (ii) to ensure the implementation in IMF programmes of all the agreed principles and tools, in particular through the systematic inclusion in these programmes of a section specifying the extent of private sector involvement, and (iii) to ensure full co-ordination with the Paris Club in this perspective.
Make progress on orderly financial liberalisation in developing countries
7. Recent experiences in emerging market economies have emphasised the importance of orderly and properly sequenced liberalisation of capital flows. Although it is difficult to design the optimal sequencing for liberalisation of capital movements, a few basic principles can be established: effective regulation and supervision ought to be in place prior to liberalisation; long-term investment rather than short-term debt finance, and simple financial operations, rather than derivatives' trade should be encouraged. . We propose to conclude, as soon as possible within the IMF, an agreement on a sufficiently flexible framework for sound financial liberalisation in order to help those economies in opening their markets to international capital flows, and to make better use of the contribution of private finance to their economic process. In order to make this framework operational, we should resume our reflections on amending the Articles of Agreement so as to provide the IMF with an appropriate legal basis.
Better integrate the regional dimension in economic development.
8. For open market economies, economic development always has a regional dimension. As exemplified by EMU, the stability of markets and exchange rates can be enhanced by regional arrangements between countries. This is particularly the case between countries that have strong trading relationships and have made progress towards economic convergence. Against this background, the framework for regional surveillance and co-operation recently expanded in Asia appears promising. This and other regional arrangements must remain an integral part of the existing Bretton-Woods framework for international monetary co-operation. It is therefore crucial that the IMF better takes account of regional trade issues and arrangements in its surveillance exercises and programmes. It should accordingly strengthen its role in advising and supporting countries in the definition and implementation of their exchange rate strategies. The issue of deeper regional integration of financial markets could usefully be the subject of further study and suggestions by the IMF.
Strengthen the fight against abuses of the global financial system
9. The industrialised countries play a key role in setting an example in the fight against corruption and money laundering. The EU is currently revising its 1991 directive on money laundering to that effect.
10. While globalisation brings indisputable opportunities for growth and welfare gains to emerging market economies as well as to the world as a whole, it can also create risks, including scope for opportunistic behaviour and financial abuses. It is essential to fight against these abuses of globalisation and to adopt a broad and comprehensive approach to the most obvious regulatory loopholes of the international financial system. This is the aim of the lists recently released by the Financial Stability Forum (categorizing offshore financial centers according to their perceived quality of supervision and degree of regulatory cooperation), the OECD (addressing harmful tax competition), and the Financial Action Task Force -FATF- (establishing a list of non co-operative countries or territories in the fight against money-laundering). The EU and its Member States consider that these lists provide the appropriate basis to fight the abuses that can emerge as a result of globalisation.
11. We particularly welcome the important steps recently taken to improve the fight against financial abuses. We re-affirm our strong support for FATF and for the inclusion of its recommendations among the priority international financial standards. Good governance and fight against financial abuse should be an important element of the IFIs work. IFIs should incorporate money laundering issues in technical assistance, in particular in supporting financial sector restructuring. The World Bank should include the fight against corruption and money laundering in its programmes. Where relevant, the IMF should include in its Article IV and programme reports a specific section on market integrity and corruption, including the fight against money laundering on the basis of information supplied by relevant organisations like the FATF. Also the IMF must, on the basis of its mandate, quickly put in place a dialogue with the countries and territories concerned and should envisage further measures to provide incentives for reinforcing the fight against money laundering by its members. This should include requests for information on the basis of its Articles of Agreement.
12. The EU is committed, in case of unproductive dialogue with the listed countries or territories, to defining an appropriate and comprehensive set of measures, in order to compel them to adhere to internationally agreed standards. Most EU Member States have already issued new advisories to their banks and other financial institutions, to set an example.
Ensure the financing of the HIPC initiative
13. We reaffirm that continued progress in the implementation of the HIPC initiative is of utmost importance. Every effort must be made to deliver debt relief quickly to all eligible countries that are committed to poverty reduction. In this respect, we note that up to 20 countries could have reached their decision point by the end of the year, and urge all parties to make this figure an attainable objective, giving due consideration to progress of economic reforms and the need to ensure that the benefits of debt relief are targeted to assist the poor and the vulnerable. The EU and its Member States have pledged more than 1,5 billions of US dollars to the HIPC trust fund. The EU has fully met its commitments to the HIPC Trust Fund by disbursing a first tranche of assistance. We urge the donors who have not yet done so, to deliver their committed contributions as effectively and as soon as possible.
Global economic outlook and EU perspectives
A balanced economic performance in the world
14. The upturn of global economic growth since the middle of last year has continued and should contribute to a progressively more balanced performance between the main economic areas. We welcome in this context the signs that the US economy is moving towards a more sustainable path, the economic improvements in Japan, economic recovery in most emerging countries, and accelerating growth in the EU. Nevertheless, important risks still exist and have to be managed carefully, in particular those related to the increasing current account imbalances in the world. Another risk is related to less benign developments in the US resulting from potentially severe corrections in the US stock markets or an abrupt reversal of the current pattern of capital flows among the three major economic areas. We encourage the US authorities to pursue economic policies aiming at fostering national savings, curbing the growth of domestic demand and bringing the economic expansion in line with potential output growth. In this context, it is important to maintain a tight fiscal position. We also urge the Japanese authorities to take appropriate policy measures to enhance the confidence in its economic recovery.
15. We welcome the general orientation of Russia's social and economic programme, published on 28 June 2000. The quick and determined implementation of this program is essential if the Russian authorities are to correct the structural deficiencies of the economy and to put economic recovery on a sounder footing, in particular through the resumption of national and foreign investment. Priority should be given to the establishment and strengthening of a stable and effective regulatory framework for economic activities as well as to the restructuring of the banking sector.
A strong economic recovery in the European Union
16. The European Union is enjoying a strong and solid economic recovery. It is expected to continue in the foreseeable future. Fundamentals are very good in terms of growth, budgetary consolidation and inflation; and the EU member States are registering steady gains in employment. Structural reforms are yielding benefits. However, in spite of its rapid decreasing, unemployment is still high; therefore, structural reforms will be accelerated. We are also concerned about continuing high oil prices and emphasize the need for greater stability in oil markets to help ensure sustained growth and prosperity in both oil producing and oil-consuming countries.
17. Sustained non-inflationary growth and higher employment continue to be the EU's major economic objectives. The EU Member States are firmly committed to reinforcing the efforts that have been successfully undertaken over the past decade to promote macro-economic and financial stability and remove structural rigidities. In the central annual document that sets out the broad guidelines for the economic policies of the Member States and the Union, the economic and finance ministers agreed to speed up the ongoing process of budgetary consolidation—including debt reduction—and to accelerate economic reform. Expenditure restraint has also paved the way in many member states for structural reforms of national tax systems. The opportunity provided by the improved economic climate will be used in particular to pursue fiscal consolidation more actively and to improve the quality and long-term sustainability of public finances.
Economic reforms and the development of new technologies in Europe
18. Economic reform has been going on in Europe for more than a decade and is at the top of the EU policy agenda, as confirmed by the comprehensive range of measures contained in the strategy set up by the EU Heads of States and Government at their March 2000 meeting in Lisbon. The focus of these measures is to exploit the full potential of the single market and of the euro, and to raise the productive potential of Member State economies. The development of new technologies is key, as part of a broader reform process in the area of product, capital and labour markets. The shift to a digital, knowledge-driven society, prompted by new goods and services, will be a powerful engine for growth, competitiveness and jobs. With a view to realising Europe's full e-potential, we are committed to creating a stable regulatory environment that inspires business, fosters consumer confidence, allows electronic commerce and the internet to develop, and promotes the access of citizens to the e-economy. The EU currently develops rules on intellectual property rights, on e-money and on taxation of e-commerce, based on the Ottawa Framework conditions.