Transcript

Washington, D.C.
April 24, 2004

Participants:

Gordon BROWN, Chancellor of the Exchequer (United Kingdom) and Chairman, International Monetary and Financial Committee

Anne KRUEGER, Acting Managing Director of the International Monetary Fund

Thomas DAWSON, Director IMF External Relations Department

Mr. DAWSON: Thank you, and welcome to the closing IMFC press conference. The Chairman of the IMFC, Chancellor Gordon Brown, will have an opening statement, and then he and the Acting Managing Director, Anne Krueger, will be happy to take your questions.

Mr. BROWN: Thank you very much. I understand the communiqué is now being prepared and will be circulated to you as soon as it is ready. I was very pleased to chair this meeting, and I want to thank Anne Krueger, the Acting Managing Director, for the work that she has done for the IMF and in preparing for this meeting.

Since the last meeting of the IMF in Dubai in September, the world economy has continued to strengthen, and the recovery is becoming more broadly-based. So, the theme of this meeting of the IMFC was of a strengthening economy while being vigilant to the risks. We noted that risks remain, arising from large global imbalances, medium-term fiscal challenges in some countries, the implications of the eventual transition to a higher interest rate environment, and concerns over continuing geopolitical uncertainties and the oil markets, and I believe that policymakers must stand ready to take the necessary policy actions. Flexibility in monetary and fiscal frameworks will be necessary.

We called on all countries to play their parts and cooperating in addressing global imbalances. The communiqué will show that we noted that the economy of the United States is expanding briskly, that Japan's economy is continuing to recover, and so far the recovery in the Euro area is more subdued, while in the United Kingdom growth is strengthening and becoming more balanced. We encouraged countries to take advantage of the current environment to strengthen the foundations for sustainable growth, and in these areas the priorities that we identified for action include medium-term fiscal consolidation in the States, acceleration of structural reforms in the Euro area, continuing banking and corporate reforms in Japan. Fiscal consolidation is also needed in the Euro Area and Japan. We believe that countries in emerging markets should continue to use the opportunities provided by the favorable financial market environment to strengthen growth prospects and reduce vulnerabilities.

Economic performance in many low-income countries is continuing to improve, but still the Millennium Development Goals agreed in New York in 2000 remain at risk, particularly in sub-Saharan Africa, and much remains to be done, we have concluded, by all partners in the global effort to deliver the Millennium Goals. Stronger domestic institutions, sound economic policies, trade integration, less burdensome regulation will be needed to underpin faster growth and poverty reduction in the developing countries. We welcome recent steps to improve governance and eradicate corruption. We now call on the international community to provide additional and coordinated assistance, including technical assistance, policy advice, increased and more effective aid, including grants, debt relief, and greater access to industrial country markets.

We had a report from Dr. Supachai, Director-General of the World Trade Organization, and I want to emphasize this part of our communiqué. We now call for constructive and determined efforts by all countries to achieve early progress with the Doha Round, and we want to focus on the issues of importance to all countries of open markets and fair access, and the reduction of trade-distorting subsidies in all areas, notably in agriculture. We believe that a successful completion of the trade round is a shared responsibility, important for all countries, particularly for developing countries, and we ask that this be given priority by policymakers over the next few months.

We especially welcomed the increased focus by the IMF on surveillance of financial sector and capital markets, and surveillance of economic developments and policies in countries of systemic or regional importance, as well as the early identification of potential vulnerabilities and the institutional foundations for growth. We agreed that further progress in these areas, as well as the further pursuit of policies to facilitate the adjustment of global imbalances, remain key priorities for the surveillance work of the IMF in the coming few months, and surveillance will also need to pay due attention to relevant political risks and to vulnerabilities to exchange rate and interest rate movements. We look forward to further work on ways to reduce vulnerabilities in the international economy, to further discussion of precautionary arrangements, and the potential to assist individual members' own efforts to prevent crises in their countries, and as a possible exit strategy from IMF financial support.

In support to low-income members, we welcome the progress made in better tailoring the IMF's assistance to the differing financing and policy needs of low-income countries. We look forward to further work in a strengthened process of surveillance, where the IMF is not providing finance, with a view towards enhancing and signaling the role of surveillance and promoting country ownership of programs.

The first Global Monitoring Report on meeting the 2015 Millennium Development Goals has highlighted the significant remaining challenges. We have expressed our concern that, on current trends, many of the Millennium Development Goals will not be met without an increase in the level and effectiveness of financial resources and other policies. We look forward to reviewing at our next meeting the ongoing joint work between the IMF and the World Bank on aid effectiveness, on absorption capacity of aid, on results-based measurement mechanisms, and various policy options and financing mechanisms, such as the International Finance Facility, and other options.

We welcome the consultation that has taken place with developing countries and emerging markets, and we support plans for improved coordination and collaboration between the IMF and World Bank. We welcome the progress made in debt relief under the HIPC Initiative, with a further five countries reaching the completion point since we have met in Dubai, and we look forward to continued progress towards full implementation of the debt relief initiative. We take note of the work being undertaken on options for addressing the sunset clause which, of course, [inaudible] this year unless further action is taken. We urge all creditors that have not yet done so to deliver debt relief in full, and we welcome the development by the IMF and World Bank of a debt sustainability framework.

There were a number of other issues addressed in the communiqué, And I just wish to highlight two. We stressed the importance of the IMF's technical assistance in supporting members' efforts to build institutional capability and implement sound economic policies, and we stressed the importance of further determined action by the international community to combat money laundering and the financing of terrorism. We welcomed the significant progress that has been made under the 12-month IMF-World Bank pilot program of assessments. We endorsed the recent decision by the Executive Board to extend the scope of the IMF's involvement as a permanent part of the IMF's work in looking at how countries are dealing with the issue of the financing of terrorism. We encourage all international organizations and bodies to work together in conducting assessments, and we urged all members to adopt and implement the revised recommendations at the agreed international standard so that we can have effective action in every part of the world to combat both money laundering and the financing of terrorism. We urge all countries that have made the promise that they would implement measures to complement the financing of terrorism to actually implement these measures in practice so that the world's effort against terrorism could be better coordinated.

Finally, while it was not our job to discuss candidates for the post of Managing Director of the IMF and that this is a matter for the Executive Board, we wish to record our thanks to Horst Köhler, the retiring Managing Director of the IMF, for his dedication, his service, his leadership in the international community, and his stewardship of the IMF over the difficult years of the world downturn, and I will pass on the thanks of every single member of the International Monetary and Finance Committee to Horst Köhler for the work that he has done.

I and Anne are very happy to answer any questions that you have.

QUESTION: Could you explain just some more details of the financing facility that you proposed? Where will you be raising the US$50-100 billion a year, and will this be on the IDA scale, grants, or loans? Can you give some more details on this?

Mr. BROWN: The proposed International Finance Facility is being discussed by a joint study of the World Bank and the IMF. The original proposal that has come from the United Kingdom was discussed at a conference in Paris, attended by more than 60 countries only a few weeks ago, and led to a statement by African and other developing countries of support for the International Finance Facility and, indeed, demanded that it be implemented immediately. The proposal involves the frontloading of aid based on the existing [inaudible] in development aid, leading to borrowing from the international capital markets. The existing distribution mechanisms from aid would remain; in other words, the International Finance Facility is a means by which we raise additional money to be distributed through both the bilateral and multilateral channels that exist at the moment. On that basis, we believe it is possible to raise the amount of aid from [US$]50 billion a year, which is the figure that has been a relatively constant figure for sometime in real terms, to 100 billion a year, an effective doubling of aid. The reason the figure is 50 to 100 is that it has been estimated by the Zedillo Commission, by the World Bank, by a number of other authoritative agencies that to meet the Millennium Development Goals-that is, that every child has a primary education, that infant mortality is reduced by two-thirds and, therefore, avoidable infant mortality eliminated, and at the same time that we are able to meet our other goals, including the halving of world poverty-that the 50 billion is the minimum extra that would be needed if by 2015 we are able and in a position to meet these goals. As part of the Monterrey Consensus, it was said by all countries that any country that made the reforms that were necessary-opening up to trade and investment, dealing with corruption, improving the system of [inaudible]-any country that made these reforms should not be denied the resources in education, health, and anti-poverty programs to meet the Millennium Development Goals. So, that is the spirit of the International Finance Facility, but a report will be coming to the autumn meeting of the IMF. It was part of the discussion this afternoon in our last session, where a number of countries supported the facility but, of course, we are waiting until the report of the IMF and the World Bank comes for further work to be done within the international institutions.

QUESTION: Mr. Brown, you mentioned this morning in your statement the matter of the new approach to fiscal rules internationally. I cannot see this point in the communiqué. Could you elaborate something about this.

Mr. BROWN: First of all, what I said this morning in the United Kingdom statement, speaking as the Finance Minister of the United Kingdom, was that now that we were coming through the world downturn and the world economy was strengthening, it was a good time, indeed an appropriate time, to examine the performance of different fiscal policy mechanisms during that period, both the period of growth during this economic cycle and the period where the world has gone through a downturn. I said in my statement that we might compare the existing fiscal disciplines, including the Stability Pact, the balanced budget rule, the golden rule-which is the British fiscal policy that is adopted-and see which of the different systems have been of most help in moving the economy through the world downturn where fiscal policy was best able to support monetary policy. Now, that is the United Kingdom position.

As you may know, the International Monetary Fund is looking at fiscal policy. They have already agreed a report, including some pilot work, and that will form a feature of the work of the October meetings. So, the fiscal review work is being done within the IMF, and there will be a report in October.

Mr. DAWSON: Indeed, we put out a public information notice this morning on that particular project.

QUESTION: Is there a consensus in the IMFC on developing countries as well as developed countries that the IMF is the right institution to take on the responsibilities of terror financing and money laundering, and also that it can take on yet more responsibilities without using its existing resources?

Mr. BROWN: I can do no better than read out the communiqué on this matter; I think I am referring to paragraph 17: The Committee underscores the importance of further determined action by the international community to combat money laundering and the financing of terrorism. It welcomes the significant progress that has been made under the 12-month IMF/World Bank pilot program of assessments. The Committee endorses the recent decision by the Executive Board to make the scope of the IMF's involvement in these assessments comprehensive and a regular part of the IMF's work. It encourages all international organizations and bodies to work closely together in conducting assessments and delivering critically-needed technical assistance. Then it went on in the next paragraph to urge all members to adopt the FATF recommendations as the accepted international standard. So, there can be no doubt from this communiqué of the support for the decision of the Executive Board from all members of the IMFC for the continuing work of the IMF in doing surveillance on the issues of the financing of terrorism.

There is an issue, of course, about the financing of this additional work by the IMF, but there is no doubt about our determination that an organization that has, as one of its primary roles, surveillance should be involved in looking at how effective we are in dealing with the problem, particularly, of the financing of international terrorism. I can repeat that the international community will only be as strong in tackling the problem of the financing of terrorism as its weakest link, and that is why it is important that every country that has made the promise to implement legislation to deal with the questions of financing of terrorism [inaudible], so that we can get to the source of funds that are supporting terrorism, so that we can intercept the funds before they can go to terrorists. It is very important that every country that has made these promises, particularly promises made in the wake of September 11th, actually now implement all the promises that have been made, not just in terms of the laws, which have often been passed, but in terms of implementing these laws, and that is why it is so important that the IMF is involved in work that assesses the effectiveness of these measures, and it is also why it is important that help is given in building capacity for countries that would otherwise not be able to do so to implement these rules, laws, and mechanisms that can get to the source of terrorist financing.

We cannot, as an international body, stand by, having made these promises, and allow them not to be implemented. It must be part of our work to ensure by proper surveillance, by providing help for capacity building, and at the same time the monitoring work being published so that people know exactly what is happening. It must be our role to make sure the international community is more secure by dealing with one of the root causes of the support of terrorism.

QUESTION: Secretary Snow in his statement today said that ongoing development assistance shouldn't come from the IMF and that the IMF should give grants. If that did not put a good chunk of the IMF out of business, would it severely restrict your activities, and how do you feel about that?

Mr. BROWN: I think if you were to quote the full text of what Secretary Snow said, it is not that. It is the continuing debate that there has been about the use of IDA funds and whether there should be more loans as opposed to grants, or more grants as opposed to loans. In the previous discussions that we had, we actually concluded that there should be more funding allocated towards grants for the poorest countries. There is a continuing discussion about how we complete the process of debt relief for the very poor countries that have been weighed down by the burden of debt inherited from the 1970s and 1980s, but which makes it both unpayable and difficult for these countries to move forward under the burden of that debt.

One of the proposals that is, of course, being discussed is that at one and the same time we can give deeper debt relief to these countries, we also make sure that we do not burden them with further debt by providing grants rather than loans for the further work. But, if I may say so, this is a proposal that is related more to the World Bank than it is to the IMF. The IMF's work in debt relief has yielded 27 countries now receiving debt relief, debt worth something on the order, when it is completed, of $70 billion; and 11 more countries that ought to be capable of getting debt relief, some of which are in conflict and where we need programs of post-conflict assistance. And it is because of these issues arising from the debt/ export ratios for existing countries who are trying to complete their debt relief program and post-conflict countries that have not been able to benefit from debt relief that we have decided that we will have a further and more detailed discussion of these issues at our autumn meeting.

I think you will find from the communiqué that there is a determination on our part to address these issues and to make sure that the promise of debt relief is realized in practice for many countries who are still burdened by the debts that have been inherited from previous decades. So, although I have not seen the full text, if I interpret what I know to be the American position, it is more in relation to IDA and the World Bank facilities, and all of us are determined that the IMF is in a position to work with the World Bank to offer effective debt relief.

QUESTION: Two questions, Chancellor. The first is on trade. No international communiqué is actually complete without some comment about the need to make progress on the Doha Round. What specific steps do you think are actually necessary now to put these talks back on track?

The second question is, has any real progress been made in any of the areas of debt relief, financing, the new financing facility or funding the education-for-all program, real progress, extra money being stumped up by people rather than words? Otherwise, aren't all these comments made about concern about not meeting the Millennium Development Goals really just empty words unless people are actually prepared to put their money where their mouth is?

Mr. BROWN: Thank you for both these questions. Anne Krueger first, and I will deal with both these questions myself.

Ms. KRUEGER: After concrete steps on the Doha Round, as you know, there are lots of things going on where the support of the various members of the WTO is important. But specifically from the viewpoint of the IMF, there have been concerns from some of our member countries that if the Doha Round were completed, they might lose some of their preferential access to some of the industrial country markets, or that some of the changing commodity prices that would result would hurt them, and so on. We have undertaken some research which we have provided to the WTO in which we have tried to estimate what, in some sense, the most likely range of such possible damage in the short run would be because, of course, in the long run, virtually all of them would benefit. We have also developed what we are calling a Trade Integration Mechanism, which was approved by our Board earlier this month, under which if any country did experience any shortfall in its exports or increase in commodity prices of its imports due to various parts of the trade liberalization exercise multilaterally, we would be in a position to provide very quick financial support. We have received a lot of positive feedback from that; Dr. Supachai mentioned it this morning in his remarks. I will be going to Geneva and talking to the General Counsel in the middle of May.

Mr. BROWN: Just to emphasize the point eloquently put by Anne. First of all, the communiqué-I will just read this-refers to the need to achieve constructive and determined efforts by all countries for early progress with the Doha Round, focusing on the issues of importance, including the reduction of trade-distorting subsidies in all areas, notably in agriculture, and that a successful completion of the round is a shared responsibility in addition to what Anne has said about the IMF supporting action to help countries to gain full advantages of the opportunities of open trade, and this new Trade Integration Mechanism which would address the concerns being expressed by countries worried about the effect of the current round. I can also draw your attention to the G-7 communiqué this morning, and I think it is the strongest language that has been in a G-7 communiqué about the importance and urgency of dealing with the trade issues and about recognition that all countries, including the countries who are members of the G-7, had to make renewed efforts to deal with the outstanding problems and to resolve them as soon as possible. I think I am reflecting properly the discussion around the table today at the International Monetary and Finance Committee that almost everybody who spoke said that, if we were to strengthen and sustain growth over the next period of time, an important and key element of that was that successful conclusion to the trade round, and it was because, of course, of the importance we attach to it that we invited Dr. Supachai to be with us today and to share with him our determination that there be a solution, and for him to brief us on what the next stages are.

So, I do not agree that this is just words. This is a determination that we will use our efforts over these next few months, both by providing new facilities in the IMF to deal with the problems of the trade round for developing countries, and to understand that each country, including on the issue of agriculture, had a very big responsibility to ensure the reduction of trade-distorting subsidies.

On the International Finance Facility and debt, can I just say, first of all, the United Kingdom has, if any more money [inaudible] been provided, the United Kingdom has given more money in the last week. Can I also say that in the last few days that Niger and Ethiopia, countries that were subject to a great deal of controversy about the debt relief that they needed to achieve, did, as a result of decisions of the World Bank and the IMF, receive that extra debt relief and, therefore, that for these two countries there was a breakthrough that took place just before the meeting, so things are moving forward in regard to these countries. I believe that tomorrow in the Development Committee there is going to be an even fuller discussion, in which the United Kingdom will participate about the urgency of dealing with some of the outstanding issues of debt relief.

Can I just say as far as the International Finance Facility that not only has a statement been issued by African countries and developing countries in support of the International Finance Facility and by many emerging market countries, including Latin American countries in support of it, there is also a discussion taking place within GAVI, which is the Global Alliance for Vaccines and Immunization about whether in advance of an international agreement on the finance facility they, themselves, could adopt the principles that are contained in that so that they could frontload the amount of money available for vaccines and immunization. The work that has been done in that regard suggests that, if we could use the facility's mechanisms for vaccines and immunization, it would be possible over five years to raise an additional two-thirds of a billion pounds-dollars simply for vaccines, and it may be possible, according to that calculation, to save the lives of two million people who otherwise, without vaccinations, would be put at risk.

QUESTION: The G-7 communiqué says that Argentina has done progress, but that more progress is required. I would like to know if, among this new progress you are expecting, there is an increase in the fiscal surplus and the [amelioration] of the offer in Dubai?

Ms. KRUEGER: The Chancellor has asked me to respond to that. As to the primary surplus, as you know, that is between the Argentine government and its creditors. In the Letter of Intent last September, I think it was, the government committed to a target level for this year, and agreed that it was going to continue a rising trend going forward, so the government has already made a commitment to a rising trend without specifying a number. The government also takes the view that there are several components that determine how much they can pay on their debt service, and the primary surplus is only one. That, again, is subject to negotiation. Those negotiations, as you know, are going on between the creditor and the debtor. Our interest is simply that whenever a country is in arrears, we want to be in a position where we can support it. In order, therefore, not to be prejudicing in some sense the other negotiations, we do have a lending into arrears policy which does require good faith negotiations, and that is the extent of our concern there.

Mr. BROWN: I will just read out the communiqué: the Committee welcomes the calls on the government to continue to push ahead with the full implementation of the policies and provisions of its economic recovery program and in strengthening growth, including negotiations aimed at reaching a sustainable debt restructuring through a collaborative agreement with creditors. That is the full statement.

QUESTION: What can the IMF offer Iraq after June 30th, in the transfer of sovereignty? Can you increase aid? Can you enlarge your role?

Ms. KRUEGER: Well, we are already, of course, working with the Iraqis in terms of things like working out what their obligations are going forward, working on a monetary framework and other policies. We will be able, of course, to continue with technical assistance of that kind. In addition, we can consider, once they have the appropriate institutions and mechanisms for carrying out policies, we can consider post-conflict assistance and other financial support going forward.

Mr. BROWN: As you know, the Iraqi Finance Minister and the head of the central bank are in Washington at the moment, and I would just remind you of the G-7 communiqué this morning, which supported debt relief for Iraq.

Mr. DAWSON: Thank you very much.