IMFC Meeting April 20, 2002
April 20, 2002 IMFC Statements
Documents Related to the April 20, 2002 IMFC Meeting
Statement by Mr. Laurent Fabius|
Minister of the Economy, Finance and Industry of France
International Monetary and Financial Committee
Washington D.C., April 20, 2002
Since our last meeting, positive developments have occurred. In particular, the international economy is back on the track towards growth, thanks to economic policies that have played out their role to the fullest.
In his communication on behalf of the European Union, my colleague Rodrigo Rato, President of the Ecofin, sets out an ambitious and balanced vision of these issues. I stand unreservedly behind his analysis, of which I would particularly like to stress the following points, which can be summed up by a single idea: our world needs more rules that have to be accepted by all.
1. The global economic environment has improved and we now need to deal collectively with the vulnerabilities we have identified
Our economies are clearly beginning to turn around, with the help of the coordinated actions taken after September 11.
The environment is poised for a synchronized recovery. Although optimistic, my analysis is both prudent and responsible. It does not overlook the risks currently threatening the world economy. Macro-economic imbalances need to be tackled with determination. And while the euro area does not suffer from structural imbalances, it needs to position itself for stronger potential growth. We collectively committed to these objectives in Barcelona.
The US recovery is continuing. Nevertheless, persisting macroeconomic imbalances and the temptation to engage in unilateral initiatives are two serious topics of concern. An excessive deficit in the current account balance, due to lack of savings, is bound to increase the risk of a sudden correction, including on the foreign exchange markets. We need to avoid unilateralism and must take the multilateral road shown in Doha. The temptation to engage in protectionism needs to be fought: it undermines the foundations of the multilateral system and weakens the collective gains generated by the ongoing liberalization trend.
The trend of oil prices remains a source of risk and uncertainty. Highly volatile prices may affect growth. The international community needs to be ready to respond when oil prices cross a preset threshold, whether up or down, and the oil producing and oil consuming countries could establish a constructive dialogue on this issue.
The volatility of the financial markets remains a source of worry. Recent corporate failures are sapping market operators' confidence at the very core of the market system, based on the reliability of financial information. I welcome the FSF's work program aimed at coordinating the reflections of the major international organizations concerned. During the Ecofin meeting in Oviedo, the European Union confirmed that it intends to contribute to this reflection. Three important issues are involved here: accounting and auditing systems, follow-up of leverage effects, and regulatory arbitrages. The IMF will also need to contribute to this initiative as part of its mandate of multilateral surveillance of financial markets.
In the wake of a difficult year 2001, emerging market economies appear to have bottomed out in the last few months. Our first and most urgent priority is currently to stabilize the situation and restore confidence in Argentina. This requires the conclusion of a credible program with the IMF allowing this country to be brought back to the path of vigorous growth. We cannot remain indifferent to the human and social drama currently sweeping this country. It would be dangerous to maintain the illusion that Argentina can remain isolated from the rest of the world economy. We need to act together and we need to act quickly. Negotiations are the best way to go forward and we must avoid a further deterioration of the situation.
We should also use the lessons learned from the Argentine crisis to improve IMF operations, in particular surveillance activities, orderly debt restructuring mechanisms and conditionality in IMF programs. An SDR allocation based on the criterion stipulated in the Articles of Agreement would help improve the financial stability of developing countries and help prevent crises. In 1997, the IMF's Board of Governors agreed on an "equity" SDR allocation. I call on the US authorities to speed up the ratification process as soon as possible.
2. Despite the undeniable progress accomplished over the last five years, the reform of the international financial architecture must continue in order to prevent financial crises and to facilitate their orderly resolution when they occur
Since the Asian crisis, decisive steps have been taken. The IMF's Management has made very important proposals for the creation of a new sovereign debt restructuring mechanism. This is an important contribution, acknowledging for the first time the legitimacy of more coercive methods to get the private sector to contribute to crisis resolution, such as the use of standstills. In my opinion, the ongoing talks call for the following comments:
· Surveillance by the IMF is essential to reinforce crisis prevention. At the same time, I am afraid that some of the most radical proposals will merely weaken the IMF's contribution. The most promising solutions should be explored through the publication of Article IV reports, so as to improve the IMF's transparency.
· We need to bolster the market mechanisms designed to ensure a more orderly management of financial crises, particularly by including collective action clauses in bond issues. An important effort on legal issues needs to be launched immediately. The potential consequences of such an action could be more easily assessed if the industrialized countries were to set an example by including such clauses in their own issues.
· More statutory approaches are key and have to be examined. Only these approaches can offer efficient coordination among creditors.
I am in favor of such a mechanism, whose development should be the outcome of an international dialogue in which the developing countries would play an integral part. Urgent questions have been raised and they need to be answered while avoiding further delays of necessary reforms. We will also need to identify credible incentive mechanisms. The IMF's role in connection with such incentives should be carefully analyzed. Lastly, emerging-markets capital account liberalization can only be progressive and orderly. The IMF should propose a strategy in this direction.
The momentum built up in the wake of the September 11 events to improve the transparency of the international financial system has already produced significant results. This impetus must be maintained. Progress has been made regarding the transparency of offshore financial centers, thanks to the work done by the IMF and the FSF, but our efforts must continue. Moreover, the OECD has just published an updated list of non-cooperative jurisdictions as regards harmful tax practices. This is an important step forward and further confirmation of our commitment. I have often condemned the temptation of unilateralism, but we need to emphasize the very valuable action of the US in this fight against tax havens. Lastly, as regards the financing of terrorism and the fight against money laundering, steps have been taken towards the objectives agreed upon last November in Ottawa. I welcome the efforts made by many of us to implement their commitments, including those of the IMF and the World Bank. We must now wrap up this preparatory work and issue a Report on the Observance of Standards and Codes (ROSC). Drafted in conjunction with the FATF and based on the 40 plus 8 recommendations of this forum, this report will cover money laundering and the fight against the financing of terrorism. It will naturally have to reflect the principles underlying its evaluations, which have to be voluntary, uniform and transparent. I herewith confirm France's commitment to set an example and to submit itself to such evaluations.
3. The IMF is a leading development player and must align its actions with the objectives agreed upon in Monterrey
In recent months - first in Doha, then in Dakar and Monterrey - the international community has stepped up the fight against poverty throughout the world and its efforts to promote sustainable development. I firmly believe that the IMF, for all the criticism leveled against it, is a driving force behind this momentum.
The Doha and Monterrey conferences highlighted the ties between trade and development. I would welcome a more extensive, balanced analysis of trade issues by the IMF. The European Union is open to the products of developing countries, as witnessed by its generalized system of preferences - one of the most favorable in the world - and the EU's latest initiative (the "Everything But Arms" initiative). I invite all developed countries to take similar initiatives, in order to grant exports from the poorest countries a fair share of international trade. Significant progress will have been accomplished, once the major industrialized countries start offering a similar degree of openness.
However, market liberalization is only one aspect. We must also help developing countries to increase their trade capacity and to remove internal constraints to exports, such as compliance with standards. This is why I have decided to launch a French plan to help boost trade capacity amounting to 30 millions euros over 3 years.
The IMF clearly has a role to play in helping developing countries to build up their capacity in the area of trade and other areas of competence, particularly the budget. Here I applaud the Managing Director's efforts to implement the AFRITAC project. To support the creation of technical assistance centers for Africa, France is pleased to contribute EUR 1 million over the next three years.
The IMF uses a vital tool, the Poverty Reduction and Growth Facility, to help its poorest members implement the reforms necessary to establish an environment structured to promote growth and investment and to reduce poverty. I invite other contributors to join us and to help preserve a facility whose interest was recently confirmed by a review.
Unsustainable debt service has all too often put an intolerable brake on development. Implementation of the HIPC initiative is advancing only at a slow pace. In my opinion, we should therefore encourage active involvement by all creditors. This is in line with the universal purpose of the HIPC initiative.
Stronger international cooperation - which rules out unilateral initiatives - is essential to respond to the challenges raised by globalization with a sustainable solution. To be effective, our collective initiatives require broader acceptance by society and we need to encourage input from other institutions and players. The experience at Monterrey, which established closer relations between the Bretton Woods institutions and the United Nations, has shown the value of a pragmatic approach and needs to be continued. France has established a procedure to consult the representatives from civil society, for which it has set up a special forum whose members include elected officials and opinion leaders. In view of its success, I suggest that the Bretton Woods institutions grant more input to non-governmental organizations, particularly at their annual meetings, just as the WTO did at the Doha Conference. I would like the Managing Director of the IMF and the President of the World Bank to provide us with proposals along these lines.