G7 Leaders' Statement on the World Economy
G7 leaders have reviewed recent developments in the world economy. We welcome the steps our Finance Ministers and Central Bank Governors have announced today to address both the immediate problems and longer term weaknesses in the international financial system, particularly in the light of their impact on the poor and the most vulnerable.
2. We welcome the significant steps taken over recent weeks to strengthen confidence in the world economy, including:
- the progress made towards agreeing the IMF Quota increase and the New Arrangements to Borrow, which together will provide additional resources to the IMF of $90 billion;
3. These developments have contributed to some improvement in market conditions, though we still face serious challenges which will take time to resolve. We therefore call on our Finance Ministers, working together with their central bank colleagues, to strengthen further their cooperation to promote strong and steady growth with low inflation in our economies.
4. In view of the exceptional pressures in the international financial markets, we welcome our Finance Ministers' and Central Bank Governors' proposals for a set of financing arrangements to ward off destabilizing market contagion, including:
- establishing an enhanced IMF facility to provide a precautionary line of credit that could be drawn on if needed by countries pursuing stong IMF approved polices, accompanied as appropriate by bilateral finance, on a case by case basis, and with appropriate private sector involvement;
5. This should significantly strengthen the international financial system, help to reduce the risk that this crisis could intensify, and promote the prospect of the earliest possible return to growth in emerging markets.
6. However, beyond these short-term steps we also agree that further reforms are now required to create a strengthened financial architecture for the global market-place of the next millennium that captures the full benefits of international capital flows and global markets, minimises the risk of disruption, and better protects the most vulnerable.
7. At the Birmingham Summit, we asked our Finance Ministers and Central Bank Governors to make recommendations to help strengthen the international financial system. They have worked intensively with key emerging markets, other industrialized nations and the relevant international organisations to put in place the building blocks of this new architecture. We have now reached agreement on a number of their recommendations:
- strong global action to promote greater openness in the financial operations of individual countries, of financial and corporate institutions and of the international financial institutions, including through internationally agreed codes of good practice to increase the transparency of governments' fiscal and monetary policy, and to strengthen corporate governance;
8. We welcome our Finance Ministers' and Central Bank Governors' detailed proposals in these areas, published today, and agree they should be implemented promptly.
9.But we must do more to build a modern framework for the global markets of the 21st century and to limit the swings of boom and bust that destroy hope and diminish wealth. We therefore call upon our Finance Ministers and Central Bank Governors to extend the reach of their work to pursue further proposals to strengthen the international financial system, including:
- the scope for strengthened prudential regulation of financial institutions in industrial countries to promote safe and sustainable capital flows, encouraging sound analysis and better risk assessment. Examination of the implications of operations of highly leveraged and offshore institutions, including with a view to encouraging offshore centres to comply with internationally agreed standards;
10. Open markets will play a key role in restoring and sustaining growth. We therefore renew our commitment, made at the Birmingham Summit, for all countries to open their markets further, resist protectionism and to continue liberalisation within the framework of the WTO.
11. We remain committed to keeping these issues under constant review. We have asked our Finance Ministers and Central Bank Governors to consult with other key countries, including emerging market economies, and to work up detailed proposals in each of these areas. We look forward to agreeing these at our meeting in Koeln next year.
30 October 1998