Spring Meetings 2003

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

France and the IMF

Statement by Francis Mer,
Minister of Economy, Finance and Industry, France
International Monetary and Financial Committee Meeting

Washington, D.C., April 12, 2003


Dear colleagues,

Our meeting is held at a critical juncture. While the existing uncertainties are particularly aggravated by the geopolitical environment and the conflict in Iraq, we must not forget that the geopolitical situation amplifies persisting structural imbalances. Our job as finance ministers is now to anticipate and prepare for recovery. We can do this by reducing structural imbalances to shelter the world economy as much as possible from the geopolitical turmoil. Our key objectives for a global recovery must therefore be to restore confidence, to foster consumption and investment, and to strengthen the foundations of the markets. It is our responsibility to take up this challenge with vigor, determination and consistency.

In this respect, I fully endorse the address given by my colleague on behalf of the Presidency of the European Union.

In this context, the International Monetary Fund must more than ever use its energy and expertise to identify vulnerabilities, to prevent crises and to promote rapid action in order to eliminate the least risk of contagion. This makes macroeconomic surveillance - the core mission of our institution - our "number 1" instrument.

In the current environment, closer international cooperation is essential. The primary task of the International Monetary Fund is to achieve this goal, which must be reflected concretely in the actions of our committee.

1. Intensifying vigilance, strengthening international cooperation and adopting determined reforms to cope with the deterioration of the global economic environment.

Confronted with a worsening global economic environment, we need to cooperate to ensure a rapid return to strong and sustainable growth.

The world economy has shown remarkable resilience to the major shocks by which it has been hit. Nevertheless, the prospects for a quick recovery have weakened month by month. For the first time in two decades, none of the main economic areas in the world is headed for strong growth.

This observation calls for action and closer cooperation in all areas to restore strong and sustainable growth.

The current slowdown is largely due to the overbearing geopolitical uncertainties, which amplify the difficulties besetting us for the past year and longer. Business and household confidence has dropped sharply in recent months and the markets remain extremely volatile, thus lacking the visibility needed for recovery of investment.

This being said, the conflict in Iraq is not the only reason for the current downturn.

The world economy did not come through the financial bubble and the resulting confidence crisis unscathed. Savings remain too weak in the United States, businesses are on the whole much more in debt than before the bubble on both sides of the Atlantic and households are also building up greater debt. In Japan, the difficulties of the financial sector continue to limit the chances of recovery and to blunt the effect of monetary policy. We must therefore keep up the efforts underway in all these areas, particularly structural initiatives designed to lay the foundations for more balanced growth across our continents. The imbalances affecting the global economy must not be factors of disorder. The IMF needs to indicate to us the right strategy to adopt.

In the years ahead, the United States will no longer be the engine of global growth it was at the end of the 90s. Last year, economic policies contributed powerful support to growth. They will have less impact this year. Although a support for the business community at a difficult juncture, the soaring increase in the public deficit raises concerns about the sustainability of American public finance in the medium term. Moreover, household consumption could slow down once last year's support factors - particularly real-estate rollovers - begin to weaken. Nevertheless, the internal engines of American economic growth remain powerful, as witnessed by the rapid rebound in productivity in 2002.

For the euro area, 2002 also turned out to be less dynamic than predicted last fall. The entire area has sound fundamentals but one must recognize that the bursting of the financial bubble, especially in the telecommunications sector, has boosted the debt overhang of large corporations. They have slashed investments in recent months, precisely to adjust their balance sheets. Their consolidation seems to be well underway, which is preparing the ground for a rebound whose vigor will be boosted by the present low inventories.

Under the circumstances, France has weathered the slowdown relatively well, thanks to dynamic household consumption, supported throughout the year by tax cuts. We must now use the available room for maneuver - even if limited - to restore confidence. The impact of further initiatives to restore investor confidence in the fundamentals of the market economy will of course be decisive. But we should not overlook the contribution of economic policies, which need to support short-term growth without deviating from medium-term objectives. We are determined to carry out the structural reforms aimed at keeping the economy flexible and sustainable. To strengthen our short-term rebound capacity and our medium-term growth potential, we must carry out the ongoing reforms in favor of employment, initiative and innovation. We must also continue to reform public finances, which is a sine qua non for further tax cuts.

While the implementation of the Doha Development Agenda and steady efforts to achieve a balanced liberalization of trade will represent important contributions to global growth, these will be only two components. The success of the Doha Development Agenda will depend on progress in all areas. Focusing only on agricultural negotiations, which account for no more than about 10% of total goods trade, would make us overlook the importance of progress in all other areas, such as industry and services, competition, investment and international trade rules in general, and, lastly, a critical development issue, access to medicine.

Even though the economies of emerging countries in crisis have bottomed out, we must not relax our vigilance vis-à-vis the negative consequences of the recent shocks.

The sharp slowdown in the industrialized countries should not overshadow the remarkable performance of certain emerging markets, such as India and China, directly benefiting more than one-third of the world's population and indirectly helping everyone on the planet. I welcome the progress made to stabilize the situation in Argentina, confirming the relevance of the interim reform program promoted by the IMF. Argentina must fully implement this program in order to preserve the recent gains, especially during the electoral period. The ongoing dialogue between the IMF and Turkey is also producing results. Turkey's encouraging economic performance in 2002 confirms that it is on the right track. These gains must be consolidated by a steadfast implementation of its structural reform commitments, especially as regards the financial system restructuring.

The impact of the conflict in Iraq on regional economies and on developing countries and emerging markets in general needs to be followed with the closest attention - especially because of the volatile oil prices and the growing risk aversion of the markets. Moreover, the SARS epidemic threatens to weaken the growth of emerging markets in Asia, currently the area with the strongest results. Under these circumstances, the IMF must exercise its surveillance duties - and its mission to spot vulnerabilities upstream - with even greater vigilance so that we can collectively give the most effective response to any further deterioration of the situation.

In Iraq, war will need to be succeeded by reconstruction. France will of course take on its share of the humanitarian support planned for the Iraqi people, both bilaterally and through the European Union. The reconstruction of the country itself will require international consensus at the UN level before action can be taken.

2. Restoring confidence in the fundamentals of the international financial system and in the globalization process calls for the promotion of a more responsible market economy.

Ongoing initiatives to strengthen financial stability and to improve corporate governance need to be stepped up and to be continued with tenacity.

Restoring confidence calls for determined action to reduce the volatility of the financial markets and to strengthen the foundations of the market economy. Momentum is currently building up, mainly generated by significant measures undertaken in several countries including France, which has prepared a law bill on financial safety. Coordinating the work of the leading international authorities concerned, as well as globally aligning their efforts, is essential. This requires us to press several levers at the same time and to adopt a global approach.

We recognize the tools needed to strengthen the financial markets: reinforcing market discipline, upgrading corporate financial reporting and improving regulatory transparency and effectiveness.

Our working program is ambitious but unavoidable: good corporate governance, independent audits, convergent high-quality accounting standards and quality financial reporting. Major steps have been taken to facilitate identification of new sources of vulnerability - particularly in the area of credit derivatives, risk transfers and reinsurance - and to encourage initiatives in new areas, such as the conflicts of interest faced by financial analysts and the development of best practices for rating agencies. More generally, I also want us to look at the "dark zones" of international financial markets, including credit derivatives, whose operation, volumes and consequences remain insufficiently known. An objective viewpoint requires better knowledge of these markets: their transparency is bound to benefit all players. In other words, the integration of financial markets calls for international efforts to solve all these issues.

In close collaboration with the international regulation bodies concerned - particularly the IOSCO - the Financial Stability Forum plays a key role in the implementation of this work on the international level. I welcome its progress, not least the outcome of its recent meeting in Berlin. I would like to take this opportunity to salute Andrew Crockett's vital contribution to the work of the Financial Stability Forum: this "young" forum has already established a remarkable track record, to which he has personally made an important contribution.

All players need to take responsibility for their share in the efforts required to achieve sustainable development and to fight the abuses of globalization.

Restoring confidence and ensuring that globalization contributes to sustainable development also mean making sure that all economic players adopt more responsible conduct. The OECD's efforts in this direction must be supported unreservedly. The guidelines for multinationals and their implementation in France are good examples of effective action. Similarly, the OECD Convention on Corruption of Foreign Public Officials in International Commercial Transactions is an excellent tool, especially because of the effectiveness of its implementation mechanism.

Continuing international efforts to fight corruption also calls for more sustained initiatives to improve transparency. The IMF and the World Bank already have the instruments needed to enhance transparency of public spending, promoting better use in favor of development and reducing the risks of embezzlement. In my opinion, these efforts would benefit from a closer involvement of all stakeholders, including the private sector, especially in such sectors as the mining industry. I hope that the IMF and the World Bank will continue to work on these issues and come up rapidly with proposals for their role as "reliable intermediaries" so as to facilitate the emergence of such a collective action.

Lastly, we need to maintain our determination to promote the "moralization" of the economic and financial world and the integrity of the international monetary and financial system. Let us acknowledge the progress achieved with respect to the principal abuses of the system (harmful tax competition, money laundering, financing of terrorism, off-shore centers), including its use for criminal purposes. The IMF and the World Bank are actively involved in this work, inter alia through their ongoing evaluation of off-shore centers and their pilot evaluation and technical assistance program in the fight against money laundering and the financing of terrorism, conducted in close partnership with the FATF. These actions fall entirely under the mandate of both institutions. The progress made in the offshore segment - to be reported by the FSF in September - will allow us to determine how best to maintain this momentum. The report received from the IMF and the World Bank on the conduct of the pilot initiative in the fight against money laundering and the financing of terrorism shows the progress achieved so far. It also confirms the importance of maintaining these efforts beyond the pilot program, in close collaboration with the FATF, and of implementing the evaluation tools agreed on by this forum and the Bretton Woods institutions.

3. Granting even greater priority to international solidarity and the fight against poverty.

Development is a major issue for the international community. We need to remain clearheaded. The results obtained so far are insufficient. We will have to be more ambitious and to commit our concerted energy to realize the high hopes raised by the summits in Doha, Monterrey and Johannesburg.

It is our responsibility to increase official development assistance in order to achieve the Millennium Development Goals, particularly in the areas of health and access to water.

The reduction of poverty is and must remain our top priority. As my colleagues of the G7 and I stressed in February, our responsibility, our duty, is to do everything within our power to meet this challenge. We need to increase official development assistance, to make it more efficient (partly to refute the widespread misconception that ODA has little impact and is even embezzled) and to grant full priority to Africa. This is why President Jacques Chirac has designated responsibility and solidarity as priorities on the agenda of the G8 Summit to be held in Evian in June.

Special attention must be paid to health and water. While the World Bank must be a driving force behind these issues - and as the Development Committee needs to focus closely on them - the International Monetary Fund must continue to support the structural adjustment programs required to make sure these priorities are given the attention they deserve and that vital social spending actually gets priority financing.

France is advocating a specific response to Africa's need to become an integral part of world trade, particularly in agriculture.

The European Union has made considerable efforts to promote export sales by developing countries. Today, more than 40% of Union imports come from developing countries and it accounts for two-thirds of African exports. Its generalized system of preferences is one of the most attractive in the world and the "Everything But Arms" initiative launched last year represents an essential contribution to the poorest countries. If adopted by all industrialized countries, as proposed by the EU, it would boost exports from the developing countries by more than 10% according to a World Bank estimate.

It is nevertheless clear that liberalization of markets is not the only way in which trade can boost economic development. The marginal integration of many developing countries in world trade is moreover largely due to internal factors (poor infrastructures, high transportation costs, bad governance, conflicts), not to mention an unfavorable economic environment (especially volatility of commodity prices).

At the France/Africa Summit held in February, President Jacques Chirac announced a trade initiative geared to specific African needs justifying positive discrimination. This initiative is underpinned by three complementary pillars: harmonization and alignment of preferences for the Sub-Saharan countries to the most favorable regime and a standstill on export subsidies which might have a negative impact on local production; review of food aid and discipline for export credits; and lower exposure of African countries to fluctuating commodity prices. I am urging the International Monetary Fund and the World Bank to continue their ongoing development of the mechanisms required to help protect the African countries against fluctuation of commodity prices, to which they are particularly vulnerable. I am making a special appeal to the IMF to rapidly present concrete proposals within the framework of the PRGF and the PRSPs so that the structure of the Compensatory Financing Facility will be adapted to the needs of the poorest countries, currently unable to apply for this facility, particularly because of its cost.

One of the priorities in our fight against poverty is to implement the HIPC initiative fully and to reinforce its impact.

Our efforts in favor of the poorest countries must inter alia center on full implementation of the Heavily Indebted Poor Countries (HIPC) initiative, to support ambitious debt reduction programs and consequently to ensure maximum impact for the allocated resources. Implementation of this initiative is a determining factor for the credibility of the international financial community, which is firmly committed to its success. Hence I want its implementation pace to be stepped up. We must therefore analyze the origin of the current delays in order to remedy the difficulties encountered by countries which fail to reach the decision point and thus remain excluded from its benefits, and the problems besetting beneficiaries which fail to reach the completion point.

We are also in favor of changing the method used to calculate the topping-up process in order to ensure bilateral debt relief with a genuine add-on effect for countries having endured economic shocks. I regret to say that there is no consensus on this issue at this time. I am convinced that clarification of the positive impact of such a change on the sustainability of the debt of these countries (particularly by reducing their exposure to commodity prices) and on the financing of the HIPC initiative will lead to a consensus.

Lastly, I want debt relief to have a concrete impact on the fight against poverty, which will require close attention to the efficient use of resources and therefore good governance. The IMF and the World Bank are already taking this aspect into consideration, particularly in the Poverty Reduction Strategy Papers and the Poverty Reduction and Growth Facility. I nevertheless believe that a stronger and more systematic effort is required. I am expecting both institutions to make proposals in this direction.

4. Adopting a principle of responsibility in order to help strengthen the measures taken to prevent and resolve financial crises.

We have made considerable headway since our last meeting. We now need to exploit these advances and to maintain our momentum. The two-pronged approach adopted at that meeting, based on mutual reinforcement of each pillar, has clearly produced results. It has inter alia helped to rally players who were initially the most reserved.

We need to exploit the progress made so far with collective action clauses.

Mexico's decision to insert collective action clauses in its recent bond issues is a great success - thereby confirming that it is possible to adopt effective contractual clauses on the New York market - and could quickly establish a market standard. Now we need to ensure that other issuers move rapidly in this direction and confirm the use of balanced clauses. I suggest that the IMF will play its full role in promoting such instruments.

Reviews completed in recent months have however shown that collective action clauses are not enough by themselves to prevent and solve financial crises effectively. The new sovereign debt treatment mechanism proposed by the IMF management has confirmed the need to deal with such issues as coordination of all creditors (aggregation), treatment of outstanding debt, dispute settlement and comparable treatment of creditors. These issues have yet to be treated and we must continue to deal with them. France unreservedly supports the creation of an institutional mechanism for this purpose. I nevertheless regret the fact that no consensus has so far emerged to take this step quickly. Work on these vital issues must therefore be kept up.

Better defining good conduct for stakeholders is of vital importance. We must rapidly embark on a collective process to prepare a code of conduct.

Suggestions have been made to complement CACs with other solutions designed to fill the need for collective action, inter alia by setting standards for the "conduct of stakeholders". This is particularly reflected in Jean-Claude Trichet's proposal to develop a code of conduct. These proposals present intrinsic merits and must be examined as soon as possible. There currently seems to be no obstacle to rally all potential stakeholders behind this. We need to make the most of this situation and to begin work on a code and ways to promote its implementation. The lessons we can learn from these approaches and the work carried out at the same time by the IMF will enable us to determine in due time whether further steps are necessary.

Nevertheless, crisis prevention cannot be improved only by reinforcing crisis resolution instruments. The IMF needs to act further upstream through more effective surveillance and efforts to tighten its discipline with regard to the mobilization of its resources. The IMF's primary objective must be to step up surveillance since surveillance is the reason for its existence. There is a growing consensus that we need to act but so far this has not been reflected in concrete proposals. While I do not endorse proposals to separate the surveillance function from the Executive Board, I want the IMF management to present further concrete proposals to improve the quality of surveillance and also to strengthen its use as a clear signal for target countries and markets alike. To achieve this, we will all have to give wider publicity to IMF analyses and to participate in initiatives to evaluate the financial sector, for which France has just confirmed its candidacy.

In addition to the technical discussions on collective action clauses and sovereign debt crisis resolution, we must upgrade the existing system, whose stakeholders do not assume the full consequences (or losses) of their sometimes thoughtless risks. Market discipline should not just remain an empty word in this context. In return for the responsibilities accepted by the international community to avoid crises in certain countries, governments should accept a strong commitment to assume the consequences of their economic policies and the private sector should assume its risks.


More than ever, the international environment calls for close multilateral cooperation and collective commitment. Our solidarity with the poorest populations, particularly in Africa, our responsibility to boost and ensure the sustainability of global growth and our commitment to improve security within our sphere need to be concretely confirmed. The International Monetary Fund and the World Bank are the core instruments to achieve these aims. Their commitment needs to demonstrate the benefits of multilateral action.