Press Release: IMF's International Monetary and Financial Committee Reviews Multilateral Consultation
IMF News, April 14, 2007
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- Published: April 14, 2007
Multilateral Consultation — purpose and overall assessment
- Objective: provide a forum for improving understanding and sharing views on global imbalances and how best to reduce them in the context of sustaining robust global growth.
- Participants: China, the euro area, Japan, Saudi Arabia, the United States, and IMF staff.
- General findings:
- The consultation process "has proved a useful initiative" with "open and constructive" discussions that improved understanding of issues and positions.
- Implementation of participants' policy plans "would in combination constitute a significant further step toward sustaining solid economic growth and resolving imbalances."
- Agreement to reconvene "when developments warrant."
- Global outlook statements:
- The global economy remains on course for "sustained, solid, and better balanced growth."
- Global imbalances increased further in 2006 from already high levels but "are showing some signs of stabilizing more recently" and deficits have been relatively easily financed.
- Reducing global imbalances is "fundamentally a multilateral challenge" and resolving them compatibly with robust growth is a shared responsibility.
China — policy progress and plans
- Past-year policy developments:
- Raising household income and stabilizing expectations: elimination of agricultural taxes; increased support for grain producers; civil servant compensation reform; improvements in income distribution system.
- 2006 income growth: real urban per capita disposable income growth rose to 10.4 percent; real rural per capita disposable income growth rose to 7.4 percent.
- Social spending: central government spending on science and technology, education, health, and cultural services "substantially increased."
- Social coverage: pilot rural cooperative health system extended to cover "more than half of the counties"; 25 provinces established preliminary subsistence living mechanisms for rural households.
- External sector measures: streamlining export tax rebates; lowering general tariff level to 9.9 percent; opening banking, distribution, and telecommunications to foreign competition; steps to encourage overseas investment.
- Financial reform: joint-stock reform of state-owned commercial banks; listings of Bank of China and Industrial and Commercial Bank of China on domestic and foreign markets; rural credit cooperative reform; non-tradable share reform largely completed; strengthened securities market infrastructure; insurance sector reform; deeper reform of foreign exchange management and facilitation of holding/use of foreign exchange by residents.
- Exchange rate flexibility: since July 2005 reform, RMB appreciated 7 percent against the U.S. dollar as of March 19, 2007; as of February 2007, nominal and real effective exchange rates appreciated by around 6 percent and 5½ percent respectively; improvements in foreign exchange market infrastructure (OTC market, market-maker system, forward and swap transactions).
- Policy plans:
- Make reduction of external imbalance a major objective for 2007; expand domestic demand and accelerate structural adjustment to achieve "a rough external balance over time."
- Boost domestic/consumer demand, rebalance investment and consumption, ensure appropriate fixed-asset investment growth, deepen income distribution reform, adopt measures to increase household income (especially low-income and rural households).
- Rural measures: waive tuition and fees for rural compulsory education starting this year; extend pilot rural cooperative health system to cover more than 80 percent of counties.
- Legal/administrative: Property Rights Law to come into effect on October 1, 2007; Corporate Income Tax Law unifying taxes to come into effect in 2008.
- External and financial reforms: reduce list of products eligible for export tax rebate and rebate rates; encourage overseas investment; deepen state-owned bank reform and corporate governance; expedite Agricultural Bank reform; improve rural financial services; develop capital and insurance markets, particularly the bond market; further open financial sector and enhance financial regulatory capacity.
- Exchange regime: improve exchange rate formation mechanism gradually and controllably; increase exchange rate flexibility with attention to a basket of currencies; relax restrictions on holding and use of foreign exchange by enterprises and individuals.
Euro Area — policy progress and plans
- Past-year policy developments (three main markets):
- Product market: strengthened competition under renewed Lisbon Strategy; OECD index of product market regulation declined "by more than 0.5 points from 1998 to 2003 to reach the OECD average"; Services Directive adopted; policies to stimulate private R&D and promote information technologies implemented.
- Labor market: labor force participation increased by 6.6 percentage points to 64.5 percent between 1995 and 2006; standardized unemployment rate declined to 7.5 percent by end-2006 (lowest since 1993); average tax wedge fell in most countries; eight euro-area countries reformed public pension systems since 2001.
- Financial market: EU financial integration progressed in wholesale, bond, and equity markets; FSAP implementation continuing; industry-led Code of Conduct introduced for clearing and settlements.
- Policy plans:
- Product market: further reduce market regulation; transposition of Services Directive in all Member States by December 2009 at the latest; develop internal market for network industries.
- Labor market: reforms to foster labor utilization and productivity (increase fiscal incentives to work; modernize employment protection; align wage and productivity developments; promote labor mobility); modernize higher education; implement lifelong learning strategies; adopt legislation improving vesting and preservation of supplementary pension rights.
- Financial market: Payment Services Directive (PSD) to create SEPA by 2010; new EU Directive for mergers and acquisitions in financial sector; MiFID to come into effect on November 1, 2007; TARGET2 Securities (T2S) project work underway with final decision on implementation in spring 2008; preparation of new Solvency Directive for insurance; work to create a more integrated housing finance market and facilitate securitization of loans.
Japan — policy progress and plans
- Past-year policy developments:
- Labor participation incentives: FY2007 budget includes expenditures to reduce skills mismatches for women and younger workers; increased tax relief for FY2007-08 child care expenditures; stronger equal job opportunity law passed effective in FY2007; partial liberalization of job placement services.
- Competition: new anti-monopoly law enacted April 2005, effective January 2006, granting stronger authority to the Fair Trade Commission.
- Fiscal consolidation: FY2007 budget reduces issuance of new government bonds by ¥4.5 trillion (15 percent year-on-year); primary deficit of central and local governments combined projected to fall from 1.7 percent of GDP in FY2006 to 0.6 percent of GDP in FY2007.
- Policy plans:
- Labor market reforms: bill to extend pension coverage to temporary workers; further liberalization of job placement services; reform priorities to enhance labor mobility and retraining marginalized workers to be elaborated in June for inclusion in Basic Policies for FY2007.
- FDI facilitation: tax treatment of mergers and acquisitions involving noncash transactions under parliamentary debate; program to accelerate FDI to increase FDI stock to 5 percent of GDP by 2010.
- Competition and deregulation: roll-out of deregulation in "Special Zones for Structural Reform"; draft bill for reform and eventual privatization of some government-owned financial institutions under legislative review; promotion of Economic Partnership Agreements; agricultural and immigration reforms to be addressed.
- Fiscal consolidation objective: reduce debt-to-GDP ratio in a stable manner by the mid 2010s and achieve a surplus in the primary balance of central and local government combined by 2011.
Saudi Arabia — policy progress and plans
- Past-year policy developments:
- Public expenditure: total expenditures increased by over 12 percent in 2006, "16 percent above the original budget"; from $25 billion set aside for social projects over the medium term, about $1.5 billion was spent in 2006.
- Imports and services payments: rose by more than 27 percent during 2006 reflecting increased government expenditure and robust private sector activity.
- Hydrocarbon capacity: plans on schedule to expand upstream oil production capacity to 12½ million barrels per day by 2009.
- Policy plans:
- Government spending: 2007 announced budget envisages total expenditures growing by around 13-14 percent, with social and infrastructure components growing by nearly 20 percent; amount set aside for social projects increased to $32 billion over the next five years.
- Hydrocarbon investment: Saudi ARAMCO pursuing an $80 billion investment program to boost crude oil production capacity, increase oil refining capacity at home and abroad, and expand gas processing facilities.
- Non-hydrocarbon investment: investments under Public-Private Partnerships during 2006-10 expected to exceed $200 billion.
- Exchange rate policy: authorities intend to maintain the peg to the U.S. dollar in line with the GCC agreement to establish the Monetary Union in 2010; openness of trade regime and labor market expected to preserve price stability.
United States — policy progress and plans
- Past-year policy developments:
- Budget deficit: unified federal budget deficit declined to 1.9 percent of GDP in FY 2006.
- Tax reforms: passage of saving-focused tax reforms extending rate cuts for capital gains and dividends for two years; increased expensing allowances for small businesses; permanent enhancements to tax-advantaged retirement and education savings vehicles; removal of legal barriers to automatic enrollment in employer-sponsored retirement plans; permanent saver's credit; more attractive health savings accounts.
- Policy plans:
- Fiscal consolidation: FY 2008 budget targets eliminating the budget deficit by 2012.
- Budget process reform: FY 2008 budget proposes limits on Congressional earmarks and authority for the President to exercise a budget line-item veto.
- Entitlement reform: proposals to slow growth of health care costs while expanding access, including a standard deduction for health insurance and expanded use of health savings accounts.
- Tax incentives for saving: FY 2008 budget promotes new tax-advantaged vehicles replacing IRAs with Retirement Savings Accounts and introducing Lifetime Savings Accounts; Social Security reform with Personal Retirement Accounts proposed again.
- Energy efficiency: net oil imports amount to 35 percent of the U.S. trade balance; Administration committed to cutting gasoline consumption by 20 percent in 10 years by requiring 35 billion gallons of renewable and alternative fuels by 2017 and increasing fuel economy standards for cars and light trucks.
- Investment and capital markets: commitment to pro-growth, open investment policies and resistance to protectionist pressures; efforts through U.S. Treasury to improve legal, regulatory, and accounting frameworks to ensure U.S. capital markets remain competitive and innovative.
Commitments on the IMFC strategy and IMF follow-up
- The IMFC strategy comprises steps including:
- Boosting national saving in the United States, including fiscal consolidation.
- Further progress on growth-enhancing reforms in Europe.
- Further structural reforms, including fiscal consolidation, in Japan.
- Reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries.
- Increased spending consistent with absorptive capacity and macroeconomic stability in oil-producing countries.
- IMF role: the IMF "will continue to follow developments in global imbalances and the implementation of the IMFC Strategy through its regular multilateral and bilateral surveillance activities."
Communiqué and press briefing summary from Press Release No. 07/72, April 14, 2007.
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