Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund
April 16, 2005
2005 Spring Meetings
Documents Related to the International Monetary and Financial Committee (IMFC) Meeting
April 16, 2005
Canada and the IMF
People's Republic of China and the IMF
Kingdom of the Netherlands-Netherlands and the IMF
United States and the IMF
Gold in the IMF -- A Factsheet
IMF Quotas -- A Factsheet
IMF Surveillance -- A Factsheet
Free Email Notification
Press Conference on the Spring 2005 Meeting of the International Monetary and Financial Committee with Gordon Brown, UK Chancellor of the Exchequer and Chairman of the IMFC, and Rodrigo de Rato, Managing Director of the International Monetary Fund
MR. DAWSON [Thomas C. Dawson, Director, External Relations, IMF]: Good afternoon, ladies and gentlemen, and welcome to the closing IMFC press conference. The chairman of the IMFC, Chancellor Gordon Brown, will have an opening statement. The Managing Director, Rodrigo de Rato, is here as well, and they will both be happy to answer your questions.
MR. BROWN: Could I give you a summary of the decisions of the meeting of the IMFC today and the important changes in performance that we recommended.
Can I say, first of all, that we thank Jim Wolfensohn for his work as President of the World Bank. During his time at the helm of the World Bank, great strides have been made in cooperation and partnership between the IMF and the World Bank. This was particularly true in the achievement of debt relief for 27 countries, and we saluted the work that he has done and the progress that he has made toward realizing our dream of a world free of poverty.
In the IMF Committee today, we discussed a number of other vital issues for the stability of the world economy. We noted the continuing global economic expansion, the robust growth that was expected this year in the world economy, but we also discussed how we must be vigilant to the risks to that growth over the next few months. To ensure orderly adjustment of global imbalances, the Committee agreed to call for concrete actions in all continents, fiscal consolidation to increase national savings in the United States, greater exchange rate flexibility as appropriate supported by continuing financial sector reform in Asia, continued structural reforms to boost growth and domestic demand in Europe, and further structural reforms including fiscal consolidation in Japan. It was recognized that for the world economy to continue to grow at the rate at which it was growing and to maintain the stability that has been achieved, each continent must make its contribution to that stability and growth.
We also discussed risks arising from high oil prices and we were concerned about the effect of high oil prices and their impact on the poorest communities of the world. We discussed the continuing shift in oil prices and we agreed on the importance of a number of measures: to remove the disincentives to investment in oil production and refining capacity, efforts to promote energy sustainability and efficiency, closer dialogue between oil importers and exporters, and we believe that there was a need for further efforts to improve oil market data and transparency. And we believe that all these measures were important in maintaining supply and demand in the world oil markets. We also agreed on the importance of the IMF's strategic review, and perhaps Mr. de Rato will talk in more detail about this, and particularly the importance of surveillance to the work of the IMF.
We then discussed the poverty agenda. We discussed debt relief; we discussed the role of the IMF in tackling poverty; and we discussed the contribution of trade to the relief of poverty in the poorest countries. Our communiqué says that we agreed that poverty reduction must remain at the top of the international agenda. We noted with concern that most of the countries in Sub-Saharan Africa will fall well short of the Millennium Development Goals on current rates of progress. We agreed on the need for coordinated financial and technical assistance to these countries. We agreed that this could require further innovative financial mechanisms, certainly require further debt relief, policies to improve market access for developing countries. We have gone on to say in our communiqué that successful and ambitious multilateral trade liberalization is central to global growth and economic development, and we agreed to encourage the Doha participants to aim for ambitious and comprehensive results, notably in agriculture, with substantial reductions in barriers to other trade, including trade and financial services, and strengthen multilateral trade rules.
For the relief of poverty, we agreed on the importance of moving further and faster on debt relief, and that there will be more funds needed additional to those that exist at the moment to achieve a lasting exit from debt for the poorest countries. We agreed that we must continue to work to make innovative financial mechanisms work for the needs of the poorest of the world. A number of reports have been commissioned which will come to our autumn meetings but, before that, we know that there is a G-7 and G-8 summit at Gleneagles and then the UN special summit in September and part of our discussion this evening is with Kofi Annan from the United Nations so that we can agree a common agenda for the UN special summit in September. We believe we can make substantial progress over the course of the next months in relieving both the debts and the poverty of people in the poorest countries of the world.
MR. DE RATO: I just want to add, first of all, I think in the name of my two predecessors, and mine and the rest of the management teams that have worked with Jim Wolfensohn in these 10 years that we thank him for his leadership and his collaboration with the International Monetary Fund and with the IMFC. We recognize clearly his immense contribution to the developments on poverty reduction, and his personal commitment and dedication to broadening and deepening the collaboration between the two institutions. We think that Jim is going to remembered for many things, but certainly he is going to be remembered by many people who are not here and probably will never meet him but are people who benefited from his work in fighting poverty and I think we all recognize that.
Now let me just turn to the item of the strategic review of the IMF which Gordon mentioned. I would like to remind you that this was one of my first initiatives this summer to put forward a Committee headed by Anne Krueger to analyze the strategic challenges of the Fund, and that we have had several informal discussions and one formal meeting with the Board regarding this issue before today's spring meetings and IMFC meeting. It was very useful to bring a comprehensive paper to this meeting so that Ministers could express their positions. I think that the strategic thinking of the Fund is going to be an essential part of defining our challenges in the future. Also, it would be part of an approach that will implement changes also in our budgetary procedures and our compensation review.
You have the main issues in the communiqué. I just would like to mention that in this strategic direction of the Fund, we are certainly devoting a lot of efforts to refining our surveillance responsibilities, which are part or the most important part of our core mandate, and certainly we are basing that in our long experience in surveillance but also in referring to the new challenges that our member countries are facing in a global economy. In that respect, not only bilateral surveillance, but global and regional surveillance are part of what we are considering.
The financial sector is an essential part of our work. We have a clear mandate to work on financial sustainability, and the evolution of the financial sector has been impressive in the last 20 years. In that respect, the Fund already provides its members with very focused and tailored Financial Sector Assessment Programs and that gives us a very important tool that we have to refine to work with our member countries on national issues like the opening of capital markets and the opening of their economies, but also international issues, starting with having a clear assessment of the linkages in the international financial system.
Our lending function is a central pillar of our mandate, and lending should be selective; it means it will be related to the efforts of countries, and also anchoring strong country ownership and institutional frameworks. We have been discussing those issues also today. As our policy regarding low-income countries, that represents a critical issue in the work of the Fund and that has spilled over into the third issue that Gordon mentioned, which is development policy, and will be part of tonight's and tomorrow's debates in the World Bank. I would just emphasize that the experience of the work of the Fund with low-income countries is extremely important and that our strategy of strong ownership through the poverty reduction strategies will be essential looking forward.
Some issues are also important regarding our internal governance in the direction of setting and meeting the highest standards of internal management, control, auditing and governance. Certainly, as I mentioned, we are not only in the middle of a strategic review, but also of a new multi-year budgetary framework and compensation review. We will also bring forward to the autumn meetings, to the Annual Meetings, further work on risk management and control and personnel management systems, and last, but certainly not least, the effectiveness and credibility of the institution, and given the substance of the institution as a cooperative one, must be safeguarded and enhanced and, in that respect, the need to work on voice and participation of all members should be assured. In that respect, I have proposed to the IMFC and it has been a very fruitful debate, on the need to review the actual system of quotas and participation to be sure that all member countries find their position in the responsibility of the direction of the Fund. Thank you very much.
MR. DAWSON: We would be happy to take your questions now. Please identify yourself and your institutional affiliation.
QUESTION: It is suggested that, for determining quotas, it should be on the basis of purchasing power parity. I was wondering how you do that. Secondly, generally one thinks of bankers as very prosperous people, but these days you will find that the developing countries that are very poor have become the bankers of the United States. I was wondering do you think this will change in the not too distant future, and what are the dangers in this.
MR. DE RATO: Referring to the bankers, can you repeat it, if you do not mind? I did not understand.
MR. BROWN: I think our friend is saying what are we doing in terms of the transfer of resources to the poorest-
QUESTION: I was saying that generally bankers are thought of as being very prosperous people. What we find now, the developing countries that are very poor have become the bankers of the United States.
MR. DE RATO: First of all, regarding quotas, we believe that this is a debate that the shareholders should face and I think there is a great consensus that this should be so. We are in the middle of the 13th quota review so it is a formal moment to do it. In that respect, I do not think this is an issue that can be solved technically. I do not think this is a technical issue; I think this is a political issue that demands countries to recognize the new, maybe the new circumstances of other countries regarding their weight in the world economy, and also the fact that maybe in the past the so-called basic quotas have been eroded and that that is not to the benefit of, for instance, the African countries. I have to say that in today's discussion, it appears to be a growing consensus and I hope that that will be so, so that we could bring this issue forward. That, of course, depends totally on the will of the member countries.
Regarding the question of savings and investment in the world, it is true we are seeing very important flows of savings going from one part of the world to another, which of course makes sense, at the end people saving in countries and investing in those countries and others. From our point of view, it is important that there is a better balance in that direction, in two senses. One, that important countries like the United States increase its domestic savings, and we believe that is part of better management of the world economy; and second, that in the medium term we see more investment in developing countries, and that is certainly true and is already happening in very important countries like China, but we see the need to increase investment in some of the countries in Asia and in other parts of the world. That, of course, will probably take us to maybe a more logical flow of things and will be that countries with clear aging populations save and invest, and countries with development needs invest even more.
QUESTION: Could you just articulate a little bit more than what we had in the communiqué about how much of a threat oil prices are to global growth, please.
MR. BROWN: I think we recognize that the volatility of oil prices, and particularly the high level in recent months, could have a damaging effect on growth. We felt that in detail we had to look at a number of issues in the oil market. First was the shortage of supply, and we looked at the disincentives to investment in oil production, and then also in refining capacity. We drew attention to what needed to be done so that there was higher investment in both these areas. Then we looked at the issue of energy sustainability and the efficient use of energy, and that became part of quite a big discussion at our lunch about issues on alternative sources of energy as well.
We believe that there should be a closer dialogue that brings together exporters and importers, and that leads to another issue. We believe that the level of information about available reserves and transparency in relation to that ought to be far greater so that the world and markets are in a better position to know what the true position is.
So it is true to say that we expressed our concern about the effects of high oil price on growth. We also expressed our concern about the impact on the poorest communities of the world. But we do believe there are measures that could be taken and we highlighted these, which have got to be examined cooperatively to make for a more efficient oil market and to make for a better balance between supply and demand. We will continue to review these issues at future meetings of the G-7, the IMF and, of course, the World Bank Development Committee.
QUESTION: I would like to know after these meetings how is your feeling, Mr. de Rato, in relationship with the next several months about imbalances. I mean, there is some compromise in reducing in a new policy relationship with imbalances, and the second question is the President from Argentina just said in Munich that there is life after the IMF, a very good life. It seems to be an answer about a matter of holdouts. Could you elaborate something about this?
MR. DE RATO: Well, first of all, in the first part of the question, certainly I think the IMFC is a good formal fora for discussion among countries on different policies, but also especially on global issues, and I think today the discussions both in the meeting and at lunch were extremely important in that respect. As I had the chance of saying I think Thursday but I will stress it again, I think the analysis that the IMF is doing regarding the global imbalances is coincident with what different countries are saying and in that respect I do not see any challenges in the things we are saying regarding the increase of savings in the United States, with also change in budgetary policy, what we are saying also regarding structural reforms in Europe and Japan to make them more active players in the world growth, and the need for Asian countries to have more flexible exchange rates. I think that there is a consensus that those issues are important for the world and are important for the countries themselves.
As you rightly point out, the question of implementation is now what is needed, and that is a very important part of governments. So, now it is a question of governments to put forward not only debt strategies-many of them have already done so-but to have timetables and clear compromises to respond to their own analyses of the circumstances.
And to the second question, allow me to tell you that I learned a long time ago, in my previous life, that one should never make speeches about declarations of other people.
QUESTION: The issue of selling part of the IMF's gold reserves seems to have disappeared from the G-7 communiqué. Why has no progress been made on this, and can we actually expect any real progress to be made when the world leaders meet at Gleneagles?
MR. BROWN: I do not think it is true to say at all that it has disappeared. I think the G-7 communiqué refers to the role of the IMF in debt relief. The communiqué from the IMFC which I had just been talking about refers to further discussion with shareholders, including the possible use of the IMF's resources, and that we expect proposals by the time of our next meeting. We have, after all, been discussing the report today by the Managing Director on the issue of gold and other resources of the International Monetary Fund.
But the general issue is how can we finance the next stage of multilateral debt relief, what are the mechanisms by which we can deal with the debts that are owed to the IMF and the debts that are owed to the African Development Bank and that debts that are owed to the World Bank. I believe we making considerable progress now on these issues. It is now recognized, I think for the first time as a result of these meetings that more money will have to be available. It is now recognized that we will have to look at innovative forms of financing for the longer term and if you look at the communiqué here, we deal with the issue of the International Finance Facility, the pilot the International Finance Facility for Immunization. We talk about global taxes which could also finance the International Finance Facility and we welcome the joint IMF-World Bank note outlining progress that has been made. There is no doubt now that more resources are going to be needed and the challenge will be at the Gleneagles summit and then at the UN special summit for specific sums in addition to what has already been promised to be made available.
Now at the same time, over the last year, there has been considerable progress on countries announcing that they are moving to 0.7 percent for development aid, and I think that is another aspect of the change in atmosphere that has got to be taken into account.
QUESTION: Just a couple of questions for Mr. Brown. Do the rest of the G-7 and do the IMFC agree with the U.S. call that action is needed on China's currency now, not next week or next month but now. Secondly, Chancellor Snow was saying today that the G-7 is coming around to the U.S. view that what is needed on debt relief is cancellation rather than servicing the debt, paying for the service of the debt. Is that now the consensus view at the G-7?
MR. BROWN: On China, I think there are two references to exchange rate flexibility in our communiqué. Greater exchange rate flexibility is appropriate, supported by continued financial sector reform in emerging Asia, and then we come back to this in the context of inflation. In countries receiving strong capital flows, exchange rate flexibility would facilitate monetary management. So these issues are being discussed, becoming aired, but of course a decision on that matter, as everybody will tell you, is a matter for the Chinese themselves.
Your second question was about-sorry?
MR. BROWN: We are actually providing relief on debt servicing payments at the moment. So there is debt servicing taking place for the multilateral debts as a result of decisions by Britain, by Canada, and in the last few days by the Netherlands, so debt servicing rather than write-off is actually taking place already. But we have also said to the Americans, and I think this is a common view that is held also by those countries who have been engaged in servicing the debt payments, that we are quite happy, either way we are quite happy to write off the stock or to service the existing debt but the question is, if you are going to do either of these two things, you will have to put up more money. What we have got as an agreement today from all countries involved that there would have to be more money that it cannot be money that the World Bank has got to provide itself; it has to be additional money from the richest countries. And I think the way forward, of course, is to look at whether we can match both debt servicing and write-off, but at the same time the key to that is that there is and will be more money provided by the richest countries. I expect at the next meeting of the G-7 Finance Ministers and at Gleneagles there will be announcements about additional sums of money for debt relief for the multilateral debts owed by the poorest countries.
QUESTION: One of the things that strikes one about the IMF meetings generally is that there is a lot of talk about China but very little visible presence of Chinese representatives. Of course, at the G-7 the presence of the Chinese delegation was actually downgraded. Could you explain how that might be remedied in the future?
MR. BROWN: I do not think either of these observations are correct. China plays a very prominent role in the meetings as we found today on all the issues we have been talking about, including the ones we just talked about on exchange rates. So China plays a very big role in the discussions at the meeting and I think they contributed on every aspect of the meeting today, including the issues of debt relief and help for the poorest countries in Africa and Asia.
As far as the presence of China at the G-7, you will probably know that at the last meeting of the G-7 in London, we had, first of all, a lunch with the Chinese representatives. We also had a joint meeting with South Africa, China, Brazil, and India, at which the Chinese were also present. You will see in future meetings that are scheduled for the G-7 that is exactly what is going to happen. So, I do not accept that there has been any downgrading, either, of the Chinese presence or the invitations that have gone to the Chinese to be present at these discussions. In fact, it has been stepped up over the last few months.
QUESTION: A question for Mr. Brown. You said yesterday that there is no chance for poverty reduction in Africa without stepping up money this year. Having ruled out every option, including selling gold and stuff, where do you expect more resources would be coming from in order to meet the United Nations' poverty reduction deadline set for 2015?
MR. BROWN: First of all, none of the options you are talking about have been ruled out. Secondly, more money is being provided and will be provided over the next few months. We, Britain, announced that we would service the debts that are owed by the poorest countries, or our share of them, to the World Bank and the African Development Bank. We announced sums of money that run into hundreds of millions of pounds over the next 10 years to do so. Subsequent to that, Canada announced only a few weeks ago that it would do exactly the same and, indeed, would extend it to the debts that are owed to the IMF as well as to the World Bank. Only in the last few days, the Netherlands have announced that they will do likewise and they will service their share of the multilateral debts owed by the poorest countries to the World Bank and the African Development Bank. So, there has been progress week by week, with new countries announcing that they are prepared to make the financial contributions that are necessary to eliminate the burden that is on the poorest countries, particularly in Africa, for managing their HIPC debts.
What we must now do, of course, is get the international agreement to sums of money and we believe that that will come at Gleneagles. We know now that every country has signed up to the proposition that more money must be found, that the World Bank cannot be asked to make the payment itself, that additional money must come from the richest members of the world community and the sums of money in addition to those announced by Britain, by Canada, and by the Netherlands, these sums will be announced, in my view, at the Gleneagles summit.
QUESTION: The Brazilian Finance Minister said in his communiqué that the IMF has a very good diagnostic of the first world imbalances and the problems that America and Europe have faced, but the action should be taken to correct them are not put in a place in a very bold and organized way. How can the IMF try to be more effective regarding first world problems at the same way the IMF is with the third world problems?
MR. DE RATO: I think what we do with our surveillance responsibility is to analyze with each country, especially in the Article IV consultation, what are their weaknesses and what are their challenges and put forward a focused strategy that applies to a country in a specific moment. What we do also, and we will do more and more in the future, to have a global surveillance that regards systemic countries that can have clear spillovers in the world economy. Certainly, since the last Annual Meetings, we have been identifying that the world risks, one of the world's risks was clearly the imbalances and the current account situation, the difference in rates of growth, difference in the rates of savings. In these meetings we have clearly stressed those risks are increasing. Although the central scenario of the world economy is extremely positive and we see a clear, good opportunity for growth to continue, we are certainly not only advising countries, but calling on countries to take action on those issues of global imbalances, insisting that if policies do not adapt, do not change to react to those imbalances, we run the risk of an abrupt correction by the markets at a moment in which confidence, for different reasons, could evaporate or could be reduced.
Today has been a very important day in that direction, because in the IMFC, all those systemic countries are seated. I think the communiqué is very clear that the representatives and the Finance Ministers and the Governors of those countries agreed with our analysis. We agree with their analysis; I mean, I think it is the same. But as I said before, implementation is the responsibility of governments, and that happens also with other aspects of our work. It is true that we advise member countries, low-income countries, middle-income countries, developed countries to take action. We do that in Article IV consultations; we do that in the framework of a program. But the implementation and the decision to take the action is the responsibility of governments. That is a clear responsibility of what it means to govern a country.
I take this chance to insist once more that right now there are important economies in the world that face a special responsibility regarding world imbalances. It is very clearly stated and is very clearly put in the communiqué of the IMFC.
QUESTION: Chancellor, could you just update us on what sort of progress you made with the IFF, what level of support you currently have, in particular any progress with the United States?
MR. BROWN: It is very interesting. Over the last few months, gradually, country by country, people are coming either to support the IFF itself or the pilot program which is the IFF for immunization. We now have a number of countries that have signed up to the pilot project. That is a joint project with the Gates Foundation and with national governments, and I believe it can get off the ground in the next few weeks. The American administration holds to its position that the millennium challenge account is its best way forward. We believe, however, that the work that is now continuing in the international community which will be discussed at our next meeting of the G-7 Finance Ministers meeting will progress at least a European initiative on this matter, but we still are hopeful that we can draw on other countries from around the world. Generally speaking, more and more countries are coming to support the International Finance Facility, particularly the project for immunization.
QUESTION: On that point, do you see a situation in which we all have a consensus European approach to financing increased aid, with the U.S. left to its own devices? I mean, that need not necessarily be a disaster; it could be complementary approaches geared toward the same end. Could I separately ask Mr. Brown whether you accept the IMF recommendation for fiscal consolidation in the U.K.
MR. BROWN: First of all, on the joint European approach on development, I think there is significant progress here. It has been discussed by the European Finance Ministers; it will be discussed at the next meeting of Finance Ministers in the next few days. There is considerable support for a joint European plan that would provide sufficient finance either through the pilot on immunization or through other means, including looking at global taxes for providing the funds for development. So, what you have seen over the last year is not only growing support for that, but you have seen Britain, France, Spain, Ireland, Belgium, Luxembourg, and other countries committing themselves to the 0.7 development aid target as well. So, there has been huge progress in Europe both on innovative forms of financing and on commitments that have been made to 0.7 percent.
Now, I still hope that this can be a global initiative. I still hope that all continents and all major countries will come in in a joint project, but there is no doubt from a period a year ago when people were reluctant to sign up to new initiatives. We have both large numbers of countries supporting 0.7 percent as their timetable target for development aid and countries supporting the issue of innovative finance facilities. One thing that is clear today, and I think you should understand that this is the decision, we do need and everybody has accepted that there must be more money for both debt relief and for help on development issues. And that is why I think the decision on particular sums of money that follows what we have done, what Canada has done, what the Netherlands has done, will come at the Gleneagles summit.
As far as the IMF's recommendations on the surveillance of the British economy, this work was done in December. It was published then. It is out of date, given the figures that I managed to put forward in the budget. It has become more out of date as a result of what has happened on corporate tax and other revenues. We will meet our fiscal rules; we will meet our fiscal rules in this cycle and the next. I do not accept the IMF statement about the British financial figures.
I may say, and I say this with respect to the staff of the IMF, they have been wrong before about British growth. We have achieved high levels of British growth than have been projected, and I believe the figures are wrong again from the IMF. That is why I will not accept these recommendations. We will go ahead with our public spending plans as I have set them down, because under our public sector spending plans, under our public spending plans, we meet all of fiscal rules.
IMF EXTERNAL RELATIONS DEPARTMENT