Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund
IMF News, September 24, 2000
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- Published: September 24, 2000
Meeting context and leadership
- Meeting held in Prague on September 24, 2000, under the Chairmanship of Mr. Gordon Brown, Chancellor of the Exchequér of the United Kingdom.
- Welcomes Mr. Horst Köhler as the new Managing Director.
- Next IMFC meeting scheduled for Washington, D.C. on April 29, 2001.
World economic outlook and risks
- Global growth strengthened this year to the highest rate in twelve years; economies in all major regions have grown and inflation remains generally under control.
- Significant remaining risks identified:
- imbalances in external accounts;
- possible risk from misalignments in exchange rates;
- high levels of equity valuations in the major currency areas.
- Policy priorities and country-specific concerns:
- remain vigilant against inflationary pressures in the United States, and national savings should increase;
- pursue policies in Japan strongly supportive of self-sustained domestic demand-led recovery;
- intensify growth-supporting structural reforms in the European Union and other advanced countries;
- in almost all developing and emerging market countries, continue progress with structural reforms—particularly strengthening financial sectors.
- Concern that poverty remains unacceptably high despite global recovery; many poor countries continue to face serious economic problems.
- Market access for emerging market countries:
- gradual improvement in terms and conditions of market access over the last year due to better fundamentals;
- flows remain below pre-crisis levels, at higher spreads, show significant volatility, and market access remains extremely limited for some emerging markets.
- Oil price risks:
- current oil prices, if sustained, could hamper global growth, add to inflationary pressures, and adversely affect many countries—notably the poorest and those highly dependent on oil imports.
- desirability of stability in oil markets around reasonable long-term prices.
- notes recent U.S. decision to mobilize reserves and that some other industrial countries may examine doing so.
- welcomes steps by oil-producing countries to increase production and calls for further steps to create conditions conducive to healthy global growth.
- looks forward to improved dialogue between oil producers and consumers.
Transition economies
- Ten years since launch of transition to market economies in eastern Europe and former Soviet Union: much achieved, process difficult and far from complete, progress varied across countries.
- Key lesson: transition economies that achieved macroeconomic stability and implemented structural and institutional reforms have achieved the best economic performance.
Future role of the IMF and international cooperation
- Strong support for making globalization work for the benefit of all; endorses the Managing Director's vision of the future role of the IMF and continuing reform of the Fund and strengthening international architecture.
- Emphasis on promoting broadly-shared prosperity, sustained growth, and poverty reduction.
- Fund's comparative advantages: broad mandate, universal membership, partnership with the World Bank to serve members including the poorest countries.
- Calls for continued efforts to reduce vulnerability and avoid crises; when crises occur, reduce spillovers. Focus areas:
- broadening and strengthening Fund surveillance of domestic economic policies of all members and of the international financial system, including regional dimensions;
- continued promotion, development, and voluntary implementation, in a fully participatory way, of internationally agreed codes and standards, supported by enhanced technical assistance;
- constructive engagement of the private sector by the official sector.
- To strengthen effectiveness, the Fund should:
- continue to deepen collaboration with other agencies and bodies, and welcomes initiatives to strengthen cooperation and complementarity between the Fund and the World Bank;
- sharpen focus on core areas of responsibility: macroeconomic stabilization and adjustment; monetary, exchange rate, and fiscal policies and associated institutional and structural aspects; financial sector issues, especially systemic issues relating to domestic and international financial markets.
- National ownership of Fund-supported programs stressed; Executive Board urged to review policy conditionality to ensure focus on most essential issues, enhance effectiveness, and respect members' specific circumstances and implementation capacities.
Poverty Reduction and debt initiatives (PRGF and enhanced HIPC)
- Affirms the Fund's enhanced role in poor countries; lasting breakthrough against world poverty requires poorest countries to build fundamentals for sustained growth with international support.
- Macroeconomic stability and structural reform seen as necessary for private sector investment, access to international capital markets, and poverty reduction.
- International trade critical for development; industrial countries should increase official development assistance; poorest countries' market access should continue to improve.
- Encourages developing countries to follow policies consistent with domestic macroeconomic stability and competitiveness; reduce trade barriers; implement appropriately sequénced outward-oriented reforms; invest in human capital, particularly health and education.
- PRGF provides essential framework, together with World Bank assistance, to support countries' growth strategies and translate HIPC debt relief into poverty reduction.
- Endorses Progress Reports on the HIPC Initiative and Poverty Reduction Strategy Papers (PRSPs); welcomes development of country-owned PRSPs that now underpin Fund and World Bank work in low-income countries.
- Commits to bring 20 countries to their Decision Point by the end of 2000 to ensure debt relief is provided in context of growth and poverty reduction; recent terms-of-trade shocks must not jeopardize this objective.
- Notes Fund may need to respond flexibly to members' needs arising from sustained period of high oil prices; efforts supported by increased technical assistance.
- Urges members to meet commitments to full financing of the HIPC Initiative and the PRGF as soon as possible and urges all creditors to participate in the HIPC framework while recognizing special needs of particular creditors.
- Looks forward to joint discussion of enhanced HIPC Initiative and PRSP process at joint meeting with Development Committee.
Review of Fund facilities and reform of access
- Welcomes agreement on modifications to IMF's nonconcessional financial facilities intended to:
- enhance precautionary nature of the Contingent Credit Line (CCL) within existing eligibility criteria to make it more effective for preventing crises and resisting contagion for countries pursuing sound policies;
- adapt terms of stand-by arrangements and the Extended Fund Facility (EFF) to encourage countries to avoid reliance on Fund resources for unduly long periods or in unduly large amounts;
- reaffirm that the EFF should be confined to cases where longer-term financing is clearly required;
- agree that enhanced post-program monitoring could be useful, especially when credit outstanding exceeds a certain threshold level.
Enhancing Fund surveillance and financial sector transparency
- Surveillance should be strengthened further; Article IV process reaffirmed as appropriate framework to organize and discuss results.
- Welcomes efforts to improve understanding of members' economies and quality/availability of economic and financial data.
- Supports Financial System Stability Assessments (FSSAs) derived from joint Fund-World Bank Financial Sector Assessment Program (FSAP); Reports on Observance of Standards and Codes (ROSCs); vulnerability indicators and early warning systems.
- Welcomes joint Bank-Fund work on debt management guidelines, Fund's work on sound reserves management practices, and its role in assessing offshore financial centers.
- As part of protecting integrity of international financial system against abuse, asks Fund to explore incorporating work on financial abuse—including money laundering—into its activities where relevant and appropriate.
- Calls on Fund and World Bank to prepare a joint paper on their respective roles in combating money laundering and financial crime for Board discussion before the Spring meetings and to report to the Spring IMFC/Development Committee meetings on status of efforts.
- Encouraged by experience preparing ROSCs; looks forward to review of experience with assessing implementation of standards and to the next review of the FSAP; encourages member participation.
- Three core issues requiring further consideration:
- exchange rate arrangements;
- sequéncing of financial sector development and capital account liberalization;
- monitoring and analysis of developments in international capital markets.
- Encourages deeper work on international financial markets, market dynamics, and cross-border capital flows; urges exploration of engaging private sector more constructively and welcomes formation of the Capital Markets Consultative Group.
- Welcomes Executive Board agreement to adopt general policy of voluntary publication of Article IV and use of Fund resources staff reports and other country papers; encourages members to move in principle toward publication.
Private sector involvement in crisis prevention and resolution
- Endorses the Managing Director's report on private sector involvement in crisis prevention and management; welcomes progress on developing a framework for involving private creditors in crisis resolution.
- Framework balances clarity needed to guide market expectations with operational flexibility, anchored in clear principles, to allow effective case-by-case responses.
- Notes Fund resources are limited; extraordinary access should be exceptional; neither creditors nor debtors should expect protection from adverse outcomes by official action.
- Framework operational principles:
- rely as much as possible on market-oriented solutions and voluntary approaches;
- base international community approach on IMF assessment of a country's underlying payment capacity and prospects of regaining market access;
- catalytic official financing combined with policy adjustment may allow rapid restoration of full market access in some cases—high levels of access require substantial justification regarding likely effectiveness and risks;
- encourage voluntary approaches to overcome creditor coordination problems where appropriate;
- in cases where early restoration of full market access is unrealistic, broader actions by private creditors, including comprehensive debt restructuring, may be warranted to provide an adequately financed program and viable medium-term payments profile;
- in certain extreme cases, a temporary payments suspension or standstill may be unavoidable.
- Fund should continue to be prepared to provide financial support to a member's adjustment program despite arrears to private creditors, provided the country seeks to work cooperatively and in good faith with its private creditors and meets other program requirements.
- Urges progress in applying the framework agreed in April 2000, refining the analytical basis for required judgments, and looks forward to a progress report by its next meeting.
Good governance, information reliability, and institutional reforms
- Views with concern recent cases of misreporting to the Fund; stresses importance of steps to improve reliability of information used by the Fund.
- Welcomes application of the new safeguards assessment procedure to all new Fund arrangements to provide assurances of adequate control, reporting, and auditing procedures in borrowing countries.
- Strongly welcomes Executive Board decision to establish an independent evaluation office (EVO), including agreement to publish promptly its work program and a strong presumption that its reports would be published promptly.
- Urges that the EVO become operational before the Spring 2001 meeting of the IMFC and looks forward to regular reports on the EVO's work.
- Notes quotas should reflect developments in the international economy; takes note of Executive Board discussion of quota formulae group and looks forward to continued work.
- Takes note of Working Group to Review the Process of Selection of the Managing Director, being carried out in tandem with similar World Bank work; the two groups will report together.
- Values IMF staff professionalism and dedication as the Fund's most valuable asset.
Operational and attendance notes
- Committee expresses appreciation for hospitality and support provided by the Czech authorities and people of the Czech Republic.
- Annex lists IMFC attendance including Chairman Gordon Brown; Managing Director Horst Köhler; Ministers, Governors, and alternates from member countries; and observers from UNCTAD, FSF, ECB, BIS, OECD, UN, ILO, WTO, European Commission, World Bank, and others.
Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund — September 24, 2000