2003 Spring Meetings: News Releases, Speeches, Committee Papers, Documents and Background Information
Statements Given on the Occasion of the IMFC Meeting
April 12, 2003
Documents related to the International Monetary and Financial Committee (IMFC) Meeting
Antigua and Barbuda and the IMF
The Bahamas and the IMF
Belize and the IMF
Barbados and the IMF
Canada and the IMF
Dominica and the IMF
Grenada and the IMF
Ireland and the IMF
Jamaica and the IMF
St. Kitts and Nevis and the IMF
St. Lucia and the IMF
St. Vincent and the Grenadines and the IMF
Statement by the Honourable John Manley
Minister of Finance of Canada
International Monetary and Financial Committee
Washington, D.C., April 12, 2003
We come together at a critical time, with the world facing heightened geopolitical and economic uncertainty. Today's discussions in the International Monetary and Financial Committee provide a crucial opportunity to address current global economic challenges. We have made progress in a number of key areas, including improving surveillance, strengthening crisis prevention and resolution and addressing obstacles to growth in low-income countries. More needs to be done, however.
The Global Economy: Risks to the outlook and policy challenges
For the past several months, the global outlook has been clouded by uncertainties, many of these associated with the situation in Iraq. On the economic front, some of the more serious fears about the consequences of the war have not come to pass. Oil prices have moderated to pre-Iraq crisis levels. Equity markets, while volatile, have not been as weak as some feared. But as the IMF forecast notes, there is a climate of uncertainty today and the balance of risks is clearly on the downside. There continue to be risks associated with a winding down of the war in Iraq and the possibility of further terrorist activity.
More fundamentally, however, many of the risks and uncertainties in the outlook that were present even before the build-up to the war remain.
The current juncture therefore poses a considerable challenge for policy-makers. It is critical that macroeconomic policies in the industrial countries support economic expansion. Fiscal and monetary policies must be put on a sustainable track. And structural policies to improve the growth potential and flexibility of economies have to be a key element of our economic strategies going forward.
In Canada we have committed to ensuring that these economic fundamentals are in place. The resilient performance of the Canadian economy at a time of global weakness reflects this commitment.
The Government has established a track record of maintaining budgetary discipline. The federal government recorded five consecutive budgetary surpluses through fiscal year 2001-02, which led to a steady drop in the federal debt. The success on the fiscal front, together with sustained low inflation, played an important role in helping the Canadian economy avoid a recession in 2001 and rebound strongly in 2002 despite the global economic weakness. It enabled fiscal and monetary policy to provide timely support to the economy through lower taxes and interest rates. The federal government implemented the largest tax cut in Canadian history in 2001, and the Bank of Canada was able to reduce interest rates as soon as the economy showed signs of weakness.
The Government is committed to maintaining budgetary discipline by continuing to pursue a prudent approach to fiscal planning. With the commitment to balanced budgets in the last federal budget, which includes the fiscal year just ended and the next two, the debt/GDP ratio is forecast to decline to about 40 per cent by 2004-05, further reducing Canada's vulnerability to shocks and increasing its policy flexibility.
In Ireland, GDP growth eased towards a more sustainable 4 to 5 per cent last year, primarily reflecting the global slowdown. The outlook for 2003 is clouded by prevailing geo-political uncertainties but, unless the return to normalcy is delayed, the economy should expand by about 3 per cent. Against this background, the Government has budgeted for continued strong investment in infrastructure this year, with a marginal fiscal deficit. A new social partnership arrangement envisages moderated wage developments over the period ahead.
The Caribbean faces serious challenges - with the region's economic outlook highly dependent on global economic activity and tourism, the war in Iraq could have a particularly destabilizing effect on the region. Against this background, Caribbean governments are working to improve competitiveness and strengthen public finances by redirecting expenditures and enhancing revenue collections. These efforts, combined with an early improvement in global economic activity and strength in the tourism sector, will allow the Caribbean to build on the economic growth experienced in the latter part of 2002.
For emerging market economies in general, the importance of sound fundamentals is obvious. Several countries are facing serious challenges to growth and living standards stemming in part from their excessive external financial vulnerability. In almost every case, these challenges spring from poor economic fundamentals, such as a weak fiscal situation, an inappropriate exchange rate regime, or a vulnerable financial sector. This contrasts sharply with those emerging market countries that have worked to put sound policies in place and therefore continue to enjoy strong economic growth and access to capital markets.
In all countries, strong governance is fundamental to coping with periods of global economic uncertainty. Effective, transparent and accountable state institutions, strong regulatory frameworks and adherence to the rule of law are key to longer-term growth and poverty reduction.
Strengthening Crisis Prevention and Resolution
Crisis prevention and resolution are key to longer-term growth and stability. Considerable progress has been made in designing measures to help countries prevent financial crises and withstand potential shocks.
IMF Surveillance and Crisis Prevention
Through its surveillance role, the Fund helps countries put in place strong policy frameworks, which provide the basis for sustained growth. The joint Fund/World Bank work including the Reports on the Observance of Standards and Codes (ROSCs) and the Financial Sector Assessment Program (FSAP) have already helped to make IMF surveillance more effective through better assessments of financial sector vulnerabilities. They have also increased transparency.
But surveillance needs to be further strengthened through sharpening and better tailoring analysis to individual country circumstances. More focussed and franker assessments of a country's major vulnerabilities and a clearer "road map" for reform are required. Sharper analysis must also be supported by more candor at Executive Board discussions to ensure that peer pressure for the adoption of sound policies does not turn into peer protection of existing policies. Finally, the Fund and members should make public as much information as possible, consistent with the need for candid assessments.
Resolving financial crises
Events over the past year also have served to highlight the importance of having a clear and predictable framework for dealing with sovereign debt restructurings. The Fund's work on developing a Sovereign Debt Restructuring Mechanism has served to promote our understanding of a range of complex issues that must be addressed in any debt workout.
We are also very encouraged by the progress that has been made in promoting the use of contingency clauses in sovereign bond contracts based on cooperation between the official and private sectors. Recently, Mexico's leadership in including collective action clauses in its bonds issued under New York law is an important milestone, and we encourage other countries to follow suit. The development of a `code of good conduct' could be a useful complement to this and other elements of the crisis management framework.
But the lynchpin of any such framework is an appropriate policy on access limits. Clear limits to official financing are essential to align incentives of sovereign debtors and their private sector creditors, and to ensure that constructive negotiations on debt restructurings begin early on. There has been considerable progress in setting out the criteria and procedures for access to exceptional financing, but these criteria must be made operational.
Addressing Obstacles to Growth in Low-Income Countries
Enhancing Trade Opportunities
For many developing countries enhancing trade opportunities is one of the most important factors in supporting sustained economic growth. The launch of the Doha Development Agenda was recognition of this - developing countries can gain significantly from better integration in the international trading system. All developed countries should now consider how they can best seize the opportunity of Doha to improve market access for developing countries, particularly with a view to liberalizing trade in agriculture, increasing access for exports of textiles and apparel, and eliminating tariff escalation on processed exports from developing countries.
Market access, however, is not just a North-South issue. Over 70 percent of duties paid by developing countries are to other developing countries and tariff rates on South-to-South trade are nearly four times higher than South-to-North trade. The prospects for long-term growth and poverty reduction in the developing world would, therefore, be substantially improved if the Doha Round were to lead to a reduction of these trade distortions.
Finally, developing countries have identified the importance of trade-related capacity building. We urge the IFIs, working together with the World Trade Organization, to better coordinate their efforts to ensure the issue of trade-related technical assistance is more effectively integrated into Poverty Reduction Strategy Papers (PRSPs), Fund-supported programs, and MDB country strategies.
Debt reduction remains a key element of our strategy to promote longer-term developing country growth and poverty reduction. In this context, we strongly support the enhanced HIPC Initiative and the Fund's and the Bank's continued involvement in debt relief. To ensure debt relief is delivered as promised, we urge action on a number of outstanding issues.
First, donors should close the funding gap for the HIPC Trust Fund. Canada has just made a contribution of $75 million, which represents our share of the estimated funding gap. This money will be made available immediately for debt relief operations and will not be earmarked, so as to help ease administrative costs. We expect that other countries will deliver quickly on the pledges they made last October 24 at the Donors Technical Meeting.
Second, debt relief that is provided by donors in addition to the HIPC Initiative should not be included in the calculation of "topping up" assistance. To do otherwise would negate the objective of offering this additional debt relief and lead to unfair burden sharing amongst creditors.
Third, greater efforts are needed to encourage non-Paris Club and commercial creditor participation in the HIPC Initiative. Too many creditors have chosen not to offer debt relief which means that many poor countries are not receiving the debt relief they need to make a lasting exit from debt problems.
Finally, many HIPCs suffer from weak debt management capacity. We urge more technical assistance be directed to this important area so as to improve the prospects for debt sustainability. The IMF's African Technical Assistance Centre (AFRITAC) is an important new instrument in this regard and Canada is pleased to contribute $2.5 million to this initiative.
The current global uncertainty makes it a difficult and challenging time for developed and developing countries alike. But, we have learned a great deal about how to work together constructively in the face of such challenges. We have also learned the importance of sound economic policies in weathering difficult economic times.