Transcript of a Press Conference Following the International Monetary and Financial Committee Meeting by Gordon Brown, UK Chancellor of the Exchequer and Chairman of the International Monetary and Financial Committee, and IMF Managing Director Horst Köhler
September 28, 2002
Transcript of a Press Conference Following the International Monetary and Financial Committee Meeting
Saturday, September 28, 2002
Gordon BROWN, UK Chancellor of the Exchequer and Chairman of the International Monetary and Financial Committee
Horst KÖHLER, Managing Director, IMF
Thomas C. DAWSON, Director of External Relations at the IMF, Moderator
MR. DAWSON: Good afternoon, ladies and gentlemen. This is the concluding press conference after the International Monetary and Financial Committee meeting. I have with me to my immediate right, Gordon Brown, Chancellor of the Exchequer as well as chairman of the IMFC, and to his right, Horst Köhler, the Managing Director of the International Monetary Fund.
Chancellor Brown will start with an initial statement, and then we will take questions. We do not have a great deal of time for questions because of the start of the Development Committee meeting, but we will try for several of them. Thank you very much.
CHANCELLOR BROWN: Thank you. We meet here in Washington at a testing time for the world economy, with 20 countries accounting for half the world's output having been at some point in the last year or this year in recession, and the committee as it met today recognized that in part reflecting the determined international response, there are continuing indications that the recovery is proceeding, although at a slower pace than earlier this year.
More than usually, the IMFC has enjoyed a full and thorough review of the world economy and the nature of risks and vulnerabilities, and there was strong agreement, indeed broad agreement on the need for vigilance, and that we should stand ready to act if risks exist.
On the world economy, first of all, while remaining vigilant, there was a strong sense of common purpose. We agreed on a common course of action to maintain the conditions for stability and growth in the world economy. Indeed, we are agreed on the contributions that each of our continents should make. In the United States actions are underway to strengthen corporate governance, accounting and auditing, and we referred to this in our communiqué. In Europe we were agreed that further reforms in labor and product markets are needed. In Japan we were agreed that banking and corporate restructuring should be vigorously pursued. Aware ever more of our interdependence, we are now more than ever aware that it is only by each country taking necessary action that we shall secure the economic growth we wish to see.
Secondly, on the world economy, particularly on the problem of emerging markets, we are agreed on the need to strengthen the mechanisms for crisis prevention and crisis resolution. On crisis prevention, we agreed on the need for increasing integration into Fund surveillance of codes and standards, and in particular of the importance of enhanced standards and principles on corporate governance, accounting, and auditing, and of stronger national practice.
On crisis resolution, where we had a discussion during the course of this morning and at lunch, we agreed on the need to continue to work together on a two-track approach for the official community, the private sector, and sovereign debt issues to continue to work together to develop collective action clauses, and we called on the Fund to develop a concrete proposal for consideration at our next meeting of a statutory sovereign debt restructuring mechanism.
Third, we are united in our belief that at this time of economic recovery there is an imperative to shape a new deal between developed and developing countries so that all countries can share in the benefits of globalization. Specifically, the committee has reaffirmed its commitment to the full financing of the HIPC debt initiative. We noted that the financing shortfall in the HIPC trust fund could be up to one billion dollars, and we called on donor governments to make firm pledges and contributions as a matter of urgency, and I can report that in the meetings over the past two days, 15 countries have pledged support, and I expect further announcements to be made in the coming days.
Fourth, and this is finally, we are united in our belief in the importance for global growth and effective development of achieving substantial trade liberalization in the Doha Round of multilateral trade negotiations. We are agreed on the need for urgent progress in enlarging market access for developing countries and phasing out distorting trade subsidies in developed countries. Today we are setting a common course of action. We enter a period of implementation in a broad program of reform in our international institutions as well as in domestic economies, and we are of the strong view and indeed there was strong agreement to this, that it is only through international cooperation based on common purpose that we will maintain the conditions for stability and growth that will ensure the benefits of global prosperity are shared by all.
MR. KÖHLER: Well, I would like to add to this that the chancellor, as chairman of the IMFC, conducted the discussions as we know it before very efficiently. Second, I do think that the Fund, its staff, Executive Board, also management can take this meeting as an endorsement of its stance and encouragement to continue with the ideas and the work program which had been defined, and, third, for me, very important, I sense from this meeting and also regarding the substance of the discussions that there is cohesion in the international community to face the challenges and find the appropriate responses.
MR. DAWSON: Now we will take questions. I ask you to identify yourself and your organization at the outset. Right down near front.
QUESTION: Chancellor, as you know, there is a great deal of opposition to the plan known as the Krueger plan for the sovereign debt restructuring. Is it the intention to pursue this in the teeth of private sector opposition?
CHANCELLOR BROWN: I think the decision that we made today took into account everything that has been said over recent months and discussions that have been taking place in many arenas, and if I just read out the decision of the committee so that people are absolutely clear, it welcomed, of course, the recent decision by many countries to include collective action clauses, and then we went on to say that the committee calls on the Fund to consider the issues further and to develop for consideration at its next meeting, that is our April meeting next year, a concrete proposal for a statutory sovereign debt restructuring mechanism to be considered by the membership. In other words, we awaited our next meeting for consideration by that meeting, and there will be discussion obviously as a result of that, a concrete proposal from the IMF management. So we made progress today not just in support of collective action clauses but in support of examining at our next meeting a concrete proposal on the sovereign debt restructuring mechanism.
MR. KÖHLER: I can add to that that the IMF in its further work will of course continue and even intensify the outreach in the dialogue with the private sector and others involved.
QUESTION: Were there any discussions about the Bank of Japan's plan to buy stocks directly from commercial banks and is this welcome development?
CHANCELLOR BROWN: We had obviously discussions about the condition of the economy in each continent. The conclusion of the meeting in the communiqué is that in Japan, banking and corporate restructuring should be vigorously pursued, in particular addressing the issue of non-performing loans, and that was the conclusion of our discussion on these matters.
QUESTION: Are you satisfied with the progress of reaching the goals of the millennium development and if not, how short are we towards the goals and what do you propose about it? Secondly, one proposal that has been made, and this is for the Managing Director, one proposal that was made is that the IMF should be able to issue special drawing rights temporarily to meet any special needs and retire them when the needs are met.
MR. KÖHLER: Well, the IMFC endorsed, welcomed the work the IMF is doing in participating in this international effort to fight poverty, and this is based on this compact defined in Monterrey and Johannesburg, based on two pillars—the self-responsibility of the countries for good governance and creating a good investment climate, and better, second pillar, better, faster, more comprehensive support from the international community, and the IMF is exercising this mainly on the basis of Poverty Reduction Strategy Papers, on working hard to implement further the HIPC initiative, and also to implement now the review of our conditionality concept, which means that we are going to streamline but also to focus conditionality, and on this basis work to improve and strengthen ownership, and I made also clear and the governors have endorsed it that the IMF should be part of this process to monitor the achievement of the development goals, the concept for that needs to be worked out, and here I see the World Bank in the lead.
Regarding SDRs, that was not an issue discussed here.
CHANCELLOR: BROWN: I am grateful to you for raising the question. Millennium Development Goals were discussed in some detail. We had a session on that, and the position of low-income countries during the course of the morning. I think everybody wanted to welcome the progress in Doha, in trade negotiations that will help developing countries at Monterrey when Europe and America between them pledged $12 billion extra for aid by 2006, progress made with the new IDA agreement that has been reached over the last period of time, and then today progress on debt relief, and the paragraph in the communiqué on debt relief shows both our commitment and how we are meeting that commitment by raising money through pledges made by, as I've said already, 15 donor countries, that they will help meet the shortfall in the World Bank trust fund.
Now, a few weeks ago people said it was impossible for us to reach agreement on getting extra money for the trust fund here at Washington. Some people thought that it should be postponed for sometime until countries with economic difficulties of their own could look at the situation affecting them, but there has been a remarkable coming together of 15 countries already. Others I think still to come in to show that we will continue even in difficult economic circumstances to meet our commitments to the developing world. As Horst Kohler has said, what we are seeing is a new compact between developing and developed countries, effectively a new deal for the world economy, where in return for the action that developing countries are prepared to take and must take on improving stability, tackling corruption, opening up to trade and to investment, the developed world will meet its commitments trade, but also its commitments to enhance the amount of aid and investment that is available to the poorest countries, and I believe over the next period of time we should be making more progress in that area as well, so I can record progress today, and I think the World Bank trust fund can move forward with great confidence.
MR. DAWSON: The Development Committee will be starting in just a few minutes. I think we will have just two more questions.
QUESTION: I would like to ask a question about Brazil. Mr. Managing Director, both you and Ms. Krueger have expressed confidence in the past few days that the situation there, that the markets are overreacting, and they keep going down and down and down, as I am sure I do not have to tell you. Friday more records for the real. Why do you think the situation is going to turn around after the election? Aren't the markets putting the country in a completely impossible situation and does this situation, as it appears to be developing in Brazil, convince you that some approach involving IMF rescues that include comprehensive restructuring of the debt is the way to go?
MR. KÖHLER: I do not think that markets are concentrated on Brazil. Markets are in general nervous, irritated, in confusion. That is indeed a problem, the volatility of markets. And the causes for this volatility vary. It goes from oil market to further questions, is the worst already behind us with corporate scandals up to possibly also vulnerabilities in emerging market countries, but it is not a special Brazilian-driven development.
I expressed my confidence that Brazil will see a smooth transition because of facts, and the facts are, first, that this country has a huge potential for growth, for activity, job creation, and trade. Second, this country has, in principle, seen in the last year a remarkable improvement of its economic, financial, and monetary fundamentals, and I do think what we have heard from the major candidates, that they endorse the crucial elements of the IMF work program with Brazil is for me a further confirmation that the most likely outcome of this is and will be a smooth transition and that Brazil will work out of this situation without a debt restructuring because they have the potential for growth and servicing their debt.
QUESTION: On the HIPC trust fund, can you tell us how much these 15 countries have actually pledged towards the shortfall? And on the sovereign debt restructuring mechanism, what are the specific issues that you want to see addressed by the Fund as it works out its proposal over the next six months?
CHANCELLOR BROWN: I will take the first, and Horst may take the second on the IMF's proposals. On the HIPC trust fund, 15 countries have indicated, some have actually given us the exact figure that they will put in, some have given us an indication that they will do as a percentage what they did last time when we had to form a trust fund, and some are returning to us over the next few days with the absolute figure that they are going to give, but I am confident that if we can add to the 15 countries that have already indicated additional countries over the next period of time, then we are in a position to meet that commitment. We said that up to a billion shortfall has got to be rectified in the HIPC trust fund. There are several hundreds of millions that have already been directly pledged, the percentages, and then the repetition of what was done last time gives me some confidence that once the additional countries come in, we can meet the figures that we are talking about, but I will be able to report in more detail, as will others, once the final figures are brought in, but this has been a great success in getting countries around the table to agree to make these pledges, and I believe it shows the world community even in a time of difficulty is prepared to come together to meet obligations that I know large numbers of people in the developing world, indeed large numbers of campaign groups, including the churches around the world want us to meet.
MR. KÖHLER: Well, I would like first in answer to this question to say a word to the context of the sovereign debt restructuring mechanism. This is part of an integrated concept for better crisis prevention, to strengthen the international financial architecture, and in particular have better instruments within the IMF to support countries rapidly, with a high degree of automaticity through financial support in case there is a turbulence or a shock where they have no influence on. So it is a bigger discussion, not just the SDRM.
This bigger context makes also clear that this SDRM will not undermine the credit culture in the global economy, saying that, of course, the culture is that credits have to be paid back. It is a last resort, and insofar fills the gap in the financial architecture, and the specific questions where we are working on either following amongst others, but the most important, to make clear how the decision making about collective action is organized, and as you know, our suggestion is that the sovereign debtor and the supermajority of creditors takes this decision, not the Fund. Second, we need to go in detail what kind of dispute settlement could we organize, and our idea is again it is not the Fund who is in this business, but a small group of independent, very experienced experts to do that. Third, we need, of course, to sort out further the scope of the debt which is involved in a restructuring operation, and this includes also we need, for instance, to discuss with the Paris Club how official bilateral debt is handled in this, though still a lot of issues are open in that the Fund has a lot to do and there is a lot of further discussion, and I look forward to put forward to the IMFC something for further consideration after further hard work.
MR. DAWSON: Thank you very much.