Communiqué of the Interim Committee of the Board of Governors of the International Monetary Fund
September 21, 1997
Hong Kong- The Interim Committee held its forty-ninth meeting in Hong Kong, China on September
21, 1997 under the Chairmanship of Mr. Philippe Maystadt, Deputy Prime Minister and
Minister of Finance and Foreign Trade of Belgium.
- The Committee welcomed the generally favorable prospects for the continued expansion
of world output and trade. There are, nevertheless, risks that confront individual countries
and that could also affect the world economy, if not decisively addressed.
- In the advanced economies as a group, growth with low inflation is projected to continue.
However, sustained fiscal consolidation remains a challenge for many countries, requiring
resolute policies over the near and medium term. Exchange rates among the major currencies
should reflect economic fundamentals bearing in mind the importance of avoiding large
external imbalances. In countries that have reached high levels of resource use, including the
United States, monetary policy will need to guard against the re-emergence of inflation. In
continental Europe, monetary policy should remain consistent with sustained expansion of
domestic demand. The challenge for Japan is to achieve the objective of domestic
demand-led growth with a supportive stance of monetary policy while proceeding vigorously
with its structural reform program and further consolidating its fiscal position over the
medium term. High levels of structural unemployment in several European countries point to
the pressing need for more determined efforts to increase efficiency and adaptability in labor
and product markets and to reform tax, social benefits, and other entitlement
systems.
- The growth performance and prospects of developing countries as a group have
strengthened in recent years. However, further improvements are needed in many cases to
achieve significant reductions in poverty. This highlights the need to maintain
macroeconomic discipline and accelerate structural reforms, including
"second-generation" reforms aimed at strengthening public administration and
financial sector management, developing human capital, promoting basic infrastructure, and
fostering a conducive and transparent environment for private investment.
- In some emerging market economies, large external imbalances and fragile banking
systems have adversely affected investor confidence and exacerbated the risks emanating
from volatile capital movements.
- In the transition countries, growth has resumed following good progress, in most cases,
with macroeconomic stabilization and structural reforms. Strengthening growth performance
depends on speeding up legal, institutional, and other reforms that encourage private
economic activity and investment. To safeguard and build upon the achievements thus far,
inflation will in most cases need to be lowered further through disciplined macroeconomic
policies.
- In the advanced economies as a group, growth with low inflation is projected to continue.
However, sustained fiscal consolidation remains a challenge for many countries, requiring
resolute policies over the near and medium term. Exchange rates among the major currencies
should reflect economic fundamentals bearing in mind the importance of avoiding large
external imbalances. In countries that have reached high levels of resource use, including the
United States, monetary policy will need to guard against the re-emergence of inflation. In
continental Europe, monetary policy should remain consistent with sustained expansion of
domestic demand. The challenge for Japan is to achieve the objective of domestic
demand-led growth with a supportive stance of monetary policy while proceeding vigorously
with its structural reform program and further consolidating its fiscal position over the
medium term. High levels of structural unemployment in several European countries point to
the pressing need for more determined efforts to increase efficiency and adaptability in labor
and product markets and to reform tax, social benefits, and other entitlement
systems.
- The Committee welcomed progress made toward a successful European Economic and
Monetary Union (EMU) that contributes to stability in the international monetary system.
The economic convergence achieved in Europe and the strong commitment to start EMU on
schedule constitute a sound basis for securing a smooth transition to the euro on January 1,
1999. The best way to ensure a solid and stable EMU will be for its participants to
demonstrate not only their commitment to the fiscal requirements of the Stability and Growth
Pact, but also their resolve to attack the root causes of Europe’s high unemployment.
- The Committee reaffirmed the vital contribution of globalization to economic growth
worldwide. Adherence by all members to the policy guidelines set out in the
Committee’s "Declaration on Partnership for Sustainable Global Growth"
is essential to ensuring that all share in the benefits of globalization. The Committee
welcomed the recent adoption by the Fund of guidelines on governance issues as well as the
ongoing efforts to enhance the soundness of financial systems, notably the establishment of
the "Core Principles of Effective Banking Supervision" developed by the Basle
Committee in conjunction with the supervisory authorities in a number of emerging market
economies.
- The Committee noted that recent disturbances in Asian financial markets have again
underscored the importance for policymakers in all countries to ensure the internal
consistency of macroeconomic policies, strengthen financial systems, and avoid excessive
external deficits and reliance on short-term foreign borrowing. Although the impact of recent
financial market turmoil on some of the countries affected is expected to result in a
slowdown of growth in the near term, the countries’ economic fundamentals remain
solid and their longer-term outlook is favorable, provided the required adjustment policies are
sustained. The Committee also noted that the recent Asian experience has illustrated that
rising capital flows may require some adaptation of exchange rate arrangements to changing
circumstances. Regardless of a country’s exchange rate arrangement, the maintenance
of appropriate macroeconomic and structural policies consistent with the arrangement
remains crucial.
- The Committee commended the Fund for its prompt and effective response to the events
in Asia, welcomed the support provided by the region, and invited the Executive Board to
examine what further lessons could be drawn for the Fund’s work and to report its
findings to the next meeting of the Committee. In this context, the Committee recognized that
the recent developments raised a number of analytical issues, including on the prevention of
crises and contagion effects. The Committee stressed the importance of openness and
accountability of economic policy making, and of transparency, to achieving policy
credibility and confidence building in a globalized environment. It would be useful for the
Fund to work in this area, including the possibility of developing a code of good practices.
Timely and accurate economic information are also needed to improve the functioning of
markets. The Committee welcomed the Fund’s Special Data Dissemination Standard
and the recent voluntary release of Press Information Notices on the conclusions of Fund
surveillance in individual members, making an important contribution to transparency. The
Committee looked forward to the strengthening of the Fund’s Special Data
Dissemination Standard.
- The Committee reiterated its view that an open and liberal system of capital movements,
supported by sound macroeconomic policies and strong financial systems, enhances
economic welfare and prosperity in the world economy. The Committee adopted the
Statement on "The Liberalization of Capital Movements Under an Amendment of the
Fund’s Articles," and considered that an amendment of the Fund’s
Articles will provide the most effective means of promoting an orderly liberalization of
capital movements consistent with the Fund’s role in the international monetary
system. The Committee requested the Executive Board to accord high priority to completing
its work and submitting a report and a proposed draft amendment to the Board of
Governors.
- The Committee welcomed the agreement reached by the Executive Board on both the
size of the increase in quotas under the Eleventh General Review and on the method to be
used to distribute the overall increase in quotas. The Committee agreed that:
- The present total of Fund quotas would be increased by 45 percent;
- 75 percent of the overall increase would be distributed in proportion to present
quotas;
- 15 percent of the overall increase would be distributed in proportion to members’
shares in calculated quotas (based on 1994 data), so as to better reflect the relative economic
positions of members; and
- The remaining 10 percent of the overall increase would be distributed among those
members whose present quotas are out of line with their positions in the world economy (as
measured by the excess of their share in calculated quotas over their share in actual quotas),
of which 1 percent of the overall increase would be distributed among five members whose
current quotas are far out of line with their relative economic positions, and which are in a
position to contribute to the Fund’s liquidity over the medium term.
- The present total of Fund quotas would be increased by 45 percent;
- The Committee welcomed the agreement reached by the Executive Board on an
amendment of the Articles to provide all members with an equitable share of cumulative
SDR allocations through a special one-time SDR allocation amounting to SDR 21.4 billion,
which will double the amount of SDRs already allocated. Accordingly, it recommends the
adoption by the Board of Governors of the proposed Resolution.
- The Committee welcomed the recent progress made in the implementation of the HIPC
Initiative, including the decisions, in principle, of the Executive Boards of the Fund and Bank
to provide assistance to Uganda, Bolivia, and Burkina Faso, and the preliminary discussions
on Côte d’Ivoire, Guyana, and Mozambique. The Committee encouraged
countries that could qualify under the Initiative to expeditiously take the necessary
adjustment measures to benefit from this special assistance.
- The Committee welcomed the continuing efforts to help secure the resources needed to
complete the financing of the ESAF and HIPC initiatives. It noted that, in light of the
bilateral pledges received or in prospect, and the need to continue making commitments
under the HIPC Initiative, further steps to secure the timely funding of these initiatives would
have to be considered soon.
Capital Movements Under an Amendment of the Articles
- It is time to add a new chapter to the Bretton Woods agreement. Private capital
flows have become much more important to the international monetary system, and an
increasingly open and liberal system has proved to be highly beneficial to the world economy.
By facilitating the flow of savings to their most productive uses, capital movements increase
investment, growth, and prosperity. Provided it is introduced in an orderly manner, and
backed both by adequate national policies and a solid multilateral system for surveillance and
financial support, the liberalization of capital flows is an essential element of an efficient
international monetary system in this age of globalization. The IMF’s central role in
the international monetary system, and its near universal membership, make it uniquely
placed to help this process. The Committee sees the Fund’s proposed new mandate as
bold in its vision, but cautious in implementation.
- International capital flows are highly sensitive, inter alia, to the stability of the
international monetary system, the quality of macroeconomic policies, and the soundness of
domestic financial systems. The recent turmoil in financial markets has demonstrated again
the importance of underpinning liberalization with a broad range of structural measures,
especially in the monetary and financial sector, and within the framework of a solid mix of
macroeconomic and exchange rate policies. Particular importance will need to be attached to
establishing an environment conducive to the efficient utilization of capital and to building
sound financial systems solid enough to cope with fluctuations in capital flows. This phased
but comprehensive approach will tailor capital account liberalization to the circumstances of
individual countries, thereby maximizing the chances of success, not only for each country
but also for the international monetary system.
- These efforts should lead to the establishment of a multilateral and nondiscriminatory
system to promote the liberalization of capital movements. The Fund will have the task of
assisting in the establishment of such a system and stands ready to support members’
efforts in this regard. Its role is also key to the adoption of policies that would facilitate
properly sequenced liberalization and reduce the likelihood of financial and balance of
payments crises.
- In light of the foregoing, the Committee invites the Executive Board to complete its work
on a proposed amendment of the Fund’s Articles that would make the liberalization of
capital movements one of the purposes of the Fund, and extend, as needed, the Fund’s
jurisdiction through the establishment of carefully-defined and consistently applied
obligations regarding the liberalization of such movements. Safeguards and transitional
arrangements are necessary for the success of this major endeavor. Flexible approval policies
will have to be adopted. In both the preparation of an amendment to its Articles and in its
implementation, the members’ obligations under other international agreements will
berespected. In pursuing this work, the Committee expects the IMF and other institutions to
cooperate closely.
- Sound liberalization and expanded access to capital markets should reduce the frequency
of recourse to Fund resources and other exceptional financing. Nevertheless, the Committee
recognizes that, in some circumstances, there could be a large need for financing from the
Fund and other sources. The Fund will continue to play a critical role in helping to mobilize
financial support for members’ adjustment programs. In such endeavors, the Fund will
continue its central catalytic role while minimizing moral hazard.
- In view of the importance of moving decisively towards this new worldwide regime of
liberalized capital movements, and welcoming the very broad consensus of the membership
on these basic guidelines, the Committee invites the Executive Board to give a high priority
to the completion of the required amendment of the Fund’s Articles of Agreement.
ANNEX
September 21, 1997
- Chairman
Philippe Maystadt, Deputy Prime Minister, Minister of Finance and Minister of External Trade of Belgium- Managing Director
Michel Camdessus- Members or Alternates
Ahmad Mohd Don, Governor, Bank Negara Malaysia
Ibrahim A. Al-Assaf, Minister of Finance and National Economy, Saudi Arabia
Erik Åsbrink, Minister of Finance, Sweden
Gordon Brown, Chancellor of the Exchequer, United Kingdom
P. Chidambaram, Minister of Finance, India
Carlo Azeglio Ciampi, Minister of the Treasury, Italy
Peter Costello, Treasurer, Australia
Dai Xianglong, Governor, People's Bank of China
Rodrigo de Rato Figaredo, Second-Vice President and Minister of Economy and Finance, Spain
Marcel Doupamby Matoka, Minister of Finance, Economy, Budget, and Equity Financing, Gabon
Sergei Dubinin, Chairman, Central Bank of the Russian Federation
Roque B. Fernández, Minister of Economy and Public Works and Services, Argentina
Abdelouahab Keramane, Governor, Banque d'Algérie
Sultan Bin Nasser Al-Suwaidi, Governor, United Arab Emirates Central Bank
(Alternate for Mohammed K. Khirbash, Minister of State for Finance and Industry, United Arab Emirates)
Pedro Sampaio Malan, Minister of Finance, Brazil
Justin C. Malewezi, Vice President and Minister of Finance, Malawi
Gordon Thiessen, Governor, Bank of Canada (a.m. session) and James A. Judd,
Assistant Deputy Minister, International Trade and Finance, Department of Finance, Canada (p.m. session)
(Alternate for Paul Martin, Minister of Finance, Canada)
Jean-Claude Juncker, Prime Minister and Minister of Finance, Luxembourg
(a.m. session) and Wolfgang Ruttenstorfer, Secretary of State, Federal Ministry of Finance, Austria (p.m. session)
(Alternate for Philippe Maystadt, Deputy Prime Minister, Minister of Finance and Minister of External Trade, Belgium)
Hiroshi Mitsuzuka, Minister of Finance, Japan
Robert E. Rubin, Secretary of the Treasury, United States
Dominique Strauss-Kahn, Minister of Economy, Finance and Industry, France
Kaspar Villiger, Minister of Finance, Switzerland
Theo Waigel, Federal Minister of Finance, Germany
Gerrit Zalm, Minister of Finance, Netherlands- Observers
Yilmar Akyuz, Chief, Macroeconomics and Development Policies Branch, UNCTAD
Andrew D. Crockett, General Manager, BIS
Yves-Thibault de Silguy, Commissioner for Economic, Monetary and Financial Affairs, EC
Driss Jettou, Chairman, Joint Development Committee
Donald J. Johnston, Secretary-General, OECD
Rilwanu Lukman, Secretary General, OPEC
Rubens Ricupero, UN
Jesús Seade, Deputy Director-General, WTO James D. Wolfensohn, President, World Bank - Managing Director
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