Documents Related to the November 17, 2001 IMFC Meeting

IMFC Ottawa Meeting
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Islamic Republic of Afghanistan and the IMF

United States and the IMF

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International Monetary and Financial Committee Press Conference by UK Chancellor of the Exchequer Gordon Brown and International Monetary Fund Managing Director Horst Köhler
Government Conference Centre
Ottawa, Canada
Saturday, November 17, 2001

Participants:
Gordon BROWN, Chancellor of the Exchequer (United Kingdom) and Chairman, International Monetary and Financial Committee

Horst KÖHLER, Managing Director of the International Monetary Fund

Thomas DAWSON, Director IMF External Relations Department

Proceedings:
Mr. Dawson: Welcome to the Chairman's press conference. To my immediate right is Chancellor Gordon Brown, Chairman of the IMFC, and on his right is Horst Köhler, the Managing Director of the IMF.

Mr. Brown: Ladies and gentlemen, our meeting today has taken place at a testing and challenging time for the global economy. It would have been understandable at a time like this for each country to have turned inwards and focused on their domestic concerns. But I believe today's meeting has been a reaffirmation of the importance of global cooperation. Indeed, it has reflected the fact that the global slowdown requires and demands global cooperation. The alliance that we have formed against terrorism has been boosted today by the decisions of the International Monetary and Financial Committee to declare its support-all 183 members of the IMF-for the special recommendations on combating the financing of terrorism. We are calling on all countries to take action to ensure that financial institutions are able to report suspicious transactions, and we are calling on all countries to ratify and implement the United Nations instruments to counter financial terrorism.

For the first time ever, the IMF has committed itself to extending its bilateral surveillance to include members' efforts to counter the financing of terrorism. We have agreed that all 183 countries should consider establishing financial intelligence units to analyze potentially suspicious transactions. We have agreed on the need to share information and ensure cooperation between national financial intelligence units, and we have agreed that the IMF should provide targeted assistance, expert assistance-in some cases financial assistance-to ensure that every country can play its part and has the resources to do so in the fight against terrorist financing. We have called on the United Nations to create a technical register of countries and their needs in relation to tackling terrorist financing. We have set a time limit; we said all these things should be moved forward within three months, by the first of February, and we would want to report at the April meetings of the International Monetary Fund.

I believe all our members are resolute in wanting to take the action that is necessary to stop the supply of funds to terrorist organizations around the world. But our global cooperation has extended also to the decisions we have reached on the global economy and the need to strengthen international cooperation and our international financial institutions. I want to draw your attention to the communiqué itself, to the statement that we have made about the world economy. We say that the outlook remains uncertain, and we say that continuing vigilance is needed. We say that bold policy action has already been taken to support a robust recovery during 2002, and we say that it is essential that the international community stands ready to take timely action to maintain stability and to reinvigorate growth. We say that the authorities, the monetary authorities, stand ready to take further action, if appropriate. We say also that, while the scope for discretionary fiscal policy action varies across countries, the advanced economies should allow automatic stabilizers to operate. We emphasize the importance of the agreements on trade at Doha being pushed forward to reinvigorate world economic growth.

We also are agreed on the need in the different continents for structural reforms to continue and, indeed, in some cases, to be stepped up so that we can have the increased productivity that is important for growth in the longer-term. We turned our attention also to the needs of the poorest countries and the problems that many will face as a result of the slowdown in the world economy. We agreed on the recommendation of Horst Köhler, the Managing Director, who has done so much in this area, that we must take into account worsening global growth prospects and declines in the terms of trade when updating the HIPC Initiative and debt sustainability analysis at completion point. We say that advanced economies must also be prepared to meet the responsibility in providing increased development assistance and debt relief to tackle the increased challenges of poverty reduction and to achieve the millennium development goals. These are the goals for 2015 that every child be in primary education, that we halve poverty, and we cut infant mortality by two thirds. We say that Ministers reiterate the importance of fully financing the enhanced HIPC Initiative, and we urge bilateral donors to fulfill this commitment. We also discussed at our meeting, improving the IMF's facility to engage in crisis prevention and crisis resolution.

You can see that this has been an important meeting for the international financial system, that global financial cooperation is being strengthened in all these areas, that we accept and act upon the increasing interdependence of the world economy, and we recognize the responsibilities of the richest countries to the poorest countries around the world. We affirmed that it is not only right to focus on globalization, but that it has never been more important to get globalization right.

Mr. Köhler: I fully agree with our Chairman. He conducted the meetings in an excellent and most efficient way. I am very happy with the outcome of this meeting, because there had been, from my side, from my view, three objectives: First, that the IMFC takes place and it took place in a timely fashion; the demonstration of the international community, 183 members, that they come together and have common ground to solve problems. Second, we had the objective of a very focused meeting. And the function had two topics, the global economy and the sense of urgency for the appropriate policy response; and the topic of the fight against money laundering and financing of terrorism. The outcome of this discussion under the Chairmanship of Gordon Brown is, I think, a milestone to build up confidence and make clear that the international community is united in its fight against money laundering and financing of terrorism.

QUESTION: Some questions for Mr. Köhler and Mr. Brown. For Mr. Köhler, I would like to know if the IMF is changing anything about the way it makes forecasts, because you seem to have elicited pretty strong reactions from France and the United States. So, I was wondering if you think it's a good thing or a bad thing that they have been a little critical of your recent cuts in your projections for growth, and why you think that is happening. Also, in terms of the ECB, the other day you said that there might be room for further easing by the ECB. Do you think it is appropriate now, and why or why not?

For Mr. Brown, can you say how much money it may cost to rebuild Afghanistan that is coming up in a couple of days and how much that money should come from G-7 countries?

Mr. Köhler: Let me first say that you may know that Paul O'Neill and I have a bet. If economic development is better then we forecasted, the IMF-I-have to invite him for a dinner. He said, because he has once said to the press our forecast is way off from his judgment, I do think I will be very happy to invite him to dinner. But, the outcome of this discussion is, I think, that the forecast of the IMF is a reasonable, working assumption, and provides us with the appropriate balance between awareness about the economic situation, its fragilities and risks, but also the confirmation that we should not be overly pessimistic but look to the underlying strength of the global economy, and also look to the forward-looking, seeing the potential for productivity gains and further growth. In this regard, I must say I do think that Paul O'Neill impressed his colleagues with his reasonable optimism, not only in the U.S. economy and its ability to promote productivity, but also in the ability, together with the United States, of the international community to find the right policy response. So, I do think this meeting is a confirmation that there is leadership, that there is a concept for a policy response, which will pay off, so I think it should build confidence.

Mr. Brown: I agree with what Horst is saying. All the monetary authorities represented around the table have said that they stood ready to take further action, if appropriate, and it was also agreed from the Finance Ministers that, of course, the scope for discretionary fiscal policy does vary, but what we agreed was that the advanced economies should allow automatic stabilizers to operate. On the question of Afghanistan, as many of you know, $700 million was already pledged for humanitarian assistance, and that is in relationship to the refugee problem and, of course, food for people in Afghanistan itself. As far as the reconstruction of Afghanistan, the conference that will take place will have to look at a number of estimates and assessments of what needs to be done, that the international community does stand ready to do what is necessary to help in the reconstruction of Afghanistan, but it is not possible to give figures as you suggest at the moment.

QUESTION: (inaudible) ... to cut rates now or not, is it the right time now.

Mr. Köhler: I am sure the ECB will define the right time.

QUESTION: Can I have clarified exactly what countries are supposed to have done by February 1and what are you going to do to them if they don't.

Mr. Brown: In the communiqué, you will see the statement of all the actions that have been agreed by the constituent members of the International Monetary Fund. We need legislation in countries where there are suspicious transactions, there is an obligation on financial institutions to report them. We also need a coordination of efforts to track down asset tracking against terrorists. We are prepared to give as an international community, through the IMF, financial support to help countries develop the systems that are necessary, and I believe that is increasingly the issue, not that people do not want to take action, but they need in some cases expert help, model legislation, sometimes financial assistance to develop the systems. You may recall the Financial Action Task Force report, which has been discussed today, and that looks at what action may have to be taken if countries do not respond. Of course, we will be looking at these matters in a report back in April and that would be the time to ask that detailed question.

QUESTION: A follow-up on that question is, there has been some talk in the past few days of whether bodies like the IMF or World Bank, etc., should put anti-terrorist financing measures as conditions on the aid that they give the countries, and I was wondering what your views are on that kind of a measure.

Mr. Köhler: Well, I think there should be no doubt that after this outcome of the IMFC meeting that there is broad agreement of the international community to fight money laundering and financing of terrorism. Therefore, I am quite confident that the members themselves will do everything to be active and efficient.

QUESTION: Does that mean, for example, a country goes to one of your bodies for funding, that you will say, "Yes, we give you the money if you agree to implement tough, anti-terrorist financing measures?"

Mr. Köhler: It is premature to judge it this way. You may not believe it, but there are cases where countries ask us about what they should do or what should be the conditionality, so I am not concerned about conditionality in the traditional sense.

QUESTION: (inaudible)...said that the rich...ever to have more money for development. Do we have any numbers or any targets of any sense, because you ...the number of 50 billion? Have people renewed their commitment to the UN objective in terms of percentage of GDP?

Mr. Brown: What I said in my speech on Friday was that there had to be a new deal between developed and developing countries, that it was as an increased recognition of our interdependence that I believe that in return for actions in developing countries to pursue pro-poor growth policies and to pursue the regime that has been suggested on trade at Doha, and equally, of course, to attract investment for the future, that we should as an international community be prepared to do far more. I mentioned the Zedillo report and he estimates that it would cost $10 billion for primary education to be available for all, $12 billion for the global health initiative to work in cutting infant mortality by two thirds, and $20 billion to halve the amount of poverty, as we promised to do by 2015. I said we must as an international community look at this $50 billion figure suggested by Zedillo, and my view was that we had to do more and look at how, through an international development trust fund, we could find the means by which countries could make their contribution in the future.

Now, today was not the time obviously for discussing sums of money. There is a Financing for Development conference coming up next year. This will be a matter that will be discussed at the April meetings of the IMF and the Development Committee. But what you have from today's meeting is an agreement that advanced countries must be prepared to meet their special responsibility in providing increased development assistance and debt relief to tackle the increased challenges of poverty reduction and to achieve the millennium development goals, and I think this is the first time we have seen a statement as bold as this from the International Monetary Fund's Committee, and I believe it represents a shared desire that we move forward to meet these development goals and that the responsibilities that you talked about from the rich to the poor countries are fully accepted by the international community.

QUESTION: On another subject, at the G-20 this morning they agreed to have the Deputies work on the idea of standstills and private sector involvement for debt renegotiation and things like that. What will the IMF will do on this? Are you going to support this work in any sense?

Mr. Köhler: I heard that the Deputies of the G-20 have got the instruction to work on that. So, I am interested, of course, to get their product. The IMF has a work program on private sector involvement, and I think we got some further input at this meeting. We will go through this work program very systemically because in the end it should work. I am quite confident that we will come up with a reasonable concept for private sector involvement.

Mr. Brown: Can I add that we were all grateful to Canada, and particularly to Paul Martin, the Finance Minister, for hosting these meetings today. The G-20 discussion reflected the view that in return for the operation of codes and standards and the increased transparency that we are asking of individual countries, and in return for the transparency that is being created by the surveillance work of the IMF and the enhancing of it, which we agree in our communiqué is necessary and something that is going to be a bigger feature of the international financial architecture in the future, then the private sector too must accept increased responsibilities, and that is the nature of the discussion that the G-20 and indeed the IMF is engaged in.

QUESTION: To pursue that point a little bit further, Chancellor, I noticed that in your speech yesterday you mentioned that an international bankruptcy procedure is something that you support. Secretary O'Neill has mentioned sort of casually that he likes the idea. This idea keeps coming up in peoples' statements and I wonder if we could get the two of you to formally state whether there is a consensus among, whatever you want to call it, the powers that be that this finally ought to happen. Since everyone agrees that it will take a long time to work it all out, I know you have a lot on your minds these days, but is some effort going to be made to get this rolling?

Mr. Brown: I think there is a growing agreement; Horst will have his own views. There is a growing agreement in the international community that we must try to move from what has essentially been in the past an ad hoc and crisis-triggered approach when we deal and have to deal with problems sometimes far later than they should be dealt with, and that we need a far more systematic approach to both crisis prevention and crisis resolution in the international financial system. I believe that some of the measures that are being discussed are designed to create a more presumptive rather than ad hoc approach to dealing with financial difficulties when they do arise. We believe that if we were to be able to move forward on that, that that itself would be a better form of crisis prevention than we have at the moment. In other words, this is a debate that I think large numbers of people are now prepared to enter into. This is something that is not completed as a debate, however, but it shows a recognition on the part of the international financial community that from an ad hoc to a more rules-based approach, there is a possibility of greater progress in the interest of stability around the world and in the interest of crisis prevention for individual countries that are sometimes at risk.

Mr. Köhler: We have a work program, and I feel it is appropriate we should first work before we talk; I mean the IMF.

QUESTION: I wonder if I could get you to comment on the timing of some of the things we are hearing about this weekend. The idea of standstills has been around for many years now. You are talking all of a sudden about the need for more foreign aid. What has happened that this change has come about all of a sudden?

Mr. Brown: I think there is an increased recognition right across the countries represented in the IMF that greater cooperation and a strengthening of the international financial institutions is necessary. There is a recognition that the slowdown has taken place in many continents; there is a recognition that international cooperation is necessary when you are dealing with that. But there is also a recognition that the problems of globalization that have been raised with us about the large numbers of people in poverty can again only be dealt with by strengthening our international institutions. That is what, I think, we are in the business of both discussing and doing. And when I talk about a new deal between the developed and the developing countries, I believe there is scope for a new strategy, a new consensus to develop around trade, investment, policies for stability, and increased development aid. I believe there is support in developing countries as well as developed countries for that approach. It is a recognition, particularly after the events of September 11, that our interdependence means that what happens in rich countries affects poor countries and what happens in poor countries affects rich countries, and there is, I believe, a new determination and political will to make the changes that are necessary to make the international economy work better, particularly in the interest of those people who are presently excluded.

QUESTION: Your most ardent critics say it is easy for the richer countries to throw these promises around, but yet you never follow up on them. What are you going to do this time? What is different this time?

Mr. Brown: We said in 1997 that it was completely unacceptable that only one country was moving through the debt reduction process. Horst  Köhler and Jim Wolfensohn agreed with many of us that what we had to do was move that process quickly. Twenty-four countries are now going through the debt reduction process. $50 billion has been pledged in debt relief. Potentially, if the conflict-ridden countries could be part of that initiative, and are disqualified because of conflict, we would be in a position of giving a $100 billion of debt write-off. In other words, there was an international coalition; the churches, community organizations, individual countries, the inspired leadership of Horst Köhler and Jim Wolfensohn, made that debt initiative happen.

Now, of course, we have do more. We are doing more for post-conflict countries. We will have to be more flexible because of what has been happening as a result of the slowdown in the world economy. We will be reconsidering, if necessary, the position of the debt countries at completion points so that there is a sustainable exit from debt. I believe that the same coalition of forces must be brought together now for that new deal between the developed and developing countries. I believe there is now also the political will to do that, that people understand that the real issue is not whether you are for or against globalization, because globalization is moving forward. The real issue is whether you are for or against social justice on a global scale, and I believe there is an increasing recognition that we have to work together to make the world and the global economy a better place for the world's poor.

Mr. Köhler: I indeed reported to the Committee about Jim Wolfensohn's and my commitment to work further very hard, indeed, on this HIPC debt initiative, and also to review this process country by country at the so-called completion point. Secondly, this is part of the concept, we are in a very comprehensive review process of what we call the poverty reduction strategy paper process. These are poverty reduction strategies where we can recognize that the poor countries have accepted this concept, which is based on also a participatory process and really on forward-looking long-term strategy ideas how to fight poverty. This is in the making, and I think it is a very promising concept. Jim Wolfensohn and I will do everything to improve it further. That is the first point.

But I am eager to add to this that having said that debt relief is an important part of a comprehensive strategy to fight poverty, we should not forget about the other two pillars of this concept, and this is market access and this is more official development aid. I gave some very concrete numbers here at the Committee about cotton subsidies, about sugar subsidies, and about subsidizing rice, directed to the United States, directed to the European Union and to Japan in order to make clear that whenever, however, and how much we will give on debt relief, if the poor countries do not themselves have a better chance to get sustainable business activity in their country and in their economy, we will not be successful in fighting poverty. Therefore, this market access, opening of markets in the advanced countries and phasing out the subsidies in advanced countries, is the number one issue.

The number two issue is this 0.7 (percent of GNP) objective of official development aid. This is direct, this is grant money, this is money in my view which goes via the budget where the parliaments can really measure their magnitude of solidarity or lack of solidarity. So, we should not distract ourselves from these major points. I have a bit of a concern that this concentration of the debate on debt relief or the Tobin tax is distracting us a bit from the awareness or recognition that there is a major problem in the fight against poverty, and this is the selfishness in the advanced economies and societies and their difficulty in speeding up their pace of structural reform. Because to fight poverty successfully means we need to be serious that growth is based on structural reform in two ways: the poor countries have to adapt to a modern economy, but also the advanced countries have to adapt and have to restructure their economies. Labor markets and subsidies which are based on the 20th century economy, in principle, are outdated and have to be outdated.

QUESTION: Can you define terrorism, and do you think that the Chechen rebels are terrorists? I am after a tight definition.

Mr. Brown: There is an international definition of terrorism accepted by the United Nations. We did not think, as we are Finance Ministers, that we could enter into this debate about legal definitions of terrorism. What we know is that there is huge criminal activity in money laundering and what we know is that we have got to get to the supply and the sources of terrorist finance, and that is the action that we are taking. But certainly we are not going to be lawyers when this work has already been done by the United Nations.

Mr. Dawson: Thank you very much.