Press Release No. 95/27

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its forty-fourth meeting in Washington, D.C. on April 26, 1995 under the chairmanship of Mr. Philippe Maystadt, Minister of Finance of Belgium.

2. The Committee welcomed the entry into force of the Uruguay Round agreement and the formation of the World Trade Organization, and encouraged the Bretton Woods institutions to develop a close relationship with it in promoting an open exchange and trade system. The Committee noted that developments in the world economy have been generally favorable, and provide an opportunity that countries should use wisely, by implementing policies to achieve the objectives set out in the Declaration on Cooperation to Strengthen the Global Expansion adopted in Madrid in October 1994.

3. In reviewing progress in implementing the Madrid Declaration, the Committee reaffirmed its intention to reinforce the Committee's role in the process of policy cooperation and coordination, having particularly in mind the medium-term strategy. In this context the Committee observed that

• In the industrial countries, growth has been stronger than expected and inflation has remained moderate. The Committee welcomed the timely increases in interest rates to dampen incipient inflationary pressures in countries approaching full capacity utilization, and the easier stance of monetary policy in some other countries where the expansion is more recent. It emphasized the importance of bolder fiscal consolidation to increase savings, investment, and employment. The Committee considered that recent exchange rate movements for some major currencies had gone farther than warranted by fundamentals and agreed that orderly reversal of these movements is desirable. In this context the Committee agreed that stronger efforts were needed to reduce internal and external imbalances. These efforts should focus on measures to raise national saving in a medium term perspective, in particular through fiscal consolidation, as well as broader deregulation and market opening to increase the responsiveness of domestic sectors to world competition.
• In many developing countries, sound macroeconomic policies and vigorous structural reforms have yielded robust growth; nevertheless policy challenges remain. The long-term prospects of a number of countries, particularly in Asia, remain bright, although in the short run caution is necessary to address signs of overheating. Developing countries in the Western Hemisphere are expected to experience somewhat slower growth. Many developing countries need to act to bring inflation under firm control. Stronger action is required to raise growth rates in many poorer countries above the rate of population increase.
• The Committee also reviewed developments relating to the financial crisis in Mexico. It welcomed the strengthened adjustment program being implemented by the Mexican authorities with the exceptional support of the international community. It noted that early contagion effects had been contained, thanks to the prompt international response and strong adjustment efforts by affected countries.
• The Committee welcomed the strong expansion now under way in an increasing number of transition countries following strong stabilization and reform programs. Although many transition countries are now committed to stabilization and reform, further substantial efforts are still required. The Committee welcomed the courageous policies being implemented by Russia and Ukraine and some other transition countries with the support of the IMF, the World Bank, the EBRD and other regional development banks.

4. The Committee discussed the evolving role of the International Monetary Fund in an environment of increased globalization and integration of markets for goods, services, and capital. It concluded that this new environment required stricter policy discipline from all members to guard against sudden adverse market reactions. The Committee therefore agreed that Fund surveillance should be strengthened in a symmetrical manner and taking into account the lessons to be drawn, by member countries and by the Fund itself, from the recent crisis in Mexico. Endorsing a report by the Executive Board on strengthening Fund surveillance, the Committee agreed that the policy dialogue between the Fund and its members should be improved as follows:

First, the Committee encouraged the Fund to establish a closer and more continuous policy dialogue with member countries, to strengthen its analysis, and to be frank and candid in its recommendations concerning the possible risks attached to policies followed by members. Second, the Committee stressed the importance of regular and timely provision by all members of economic data to the Fund, thereby enabling the identification of emerging tensions at an early stage; in that context, it also noted the Fund's intention to make greater use of financial market data. Third, the Committee emphasized that timely publication by members of comprehensive data would give greater transparency to their economic policies; it requested the Executive Directors to work toward the establishment of standards to guide members in the provision of data to the public, and to submit proposals for consideration by the Committee at its next meeting. Fourth, the Committee noted the risks attached to over-reliance on easily reversible capital inflows, and invited the Fund to pay more attention to members' financing policies, and the soundness of their financial sectors, in its surveillance activities. Fifth, the Committee concluded that the Fund should better focus its surveillance, rebalancing its efforts to give increased emphasis to the situation of those members where economic disturbances or policies could have broader implications for other countries, while maintaining the quality of its policy dialogue with all member countries.

5. The Committee agreed that the Fund's liquidity position is adequate at present, despite recent large demands on Fund resources, but noted that the Fund's liquidity is projected to decline sharply over the next two years. It requested the Executive Board to continue to review the adequacy of the Fund's resources, and, in connection with its review of the role of the Fund, to carry forward its work on the Eleventh General Review of Quotas. The Committee also saw a need to examine the issues related to borrowing by the Fund from members and, in particular, the role of the General Arrangements to Borrow.

6. The Committee continued its consideration of SDR issues, in light of the Chairman's report on his consultations with members and the Executive Board's further consideration of these issues. It noted that there was not now a basis for agreement on an allocation but requested the Executive Board to keep this matter under review. The Committee requested the Fund to initiate a broad review, with the involvement of outside experts, of the role and functions of the SDR in light of changes in the world financial system.

7. The Committee welcomed the application by Paris Club creditors of Naples Terms for low-income countries. It took note of the Executive Board's discussion of the multilateral debt of heavily indebted poor countries, and stressed that multilateral lending to these countries should be on appropriately concessional terms. It agreed that continued Fund support for the poorest developing countries on ESAF terms is desirable. In this context the Committee requested the Executive Board to examine the options for continued financing and adapting of the ESAF.

8. The Committee had a broad ranging discussion on how the Fund can better assist members in coping with sudden market disturbances, consistent with its catalytic role. It invited the Executive Board to embark on a further examination of all the relevant issues, in close collaboration with other institutions.

9. The Committee will meet again on October 8, 1995, when it will further review progress in implementing policies to maintain global recovery and ensure stable financial market conditions, and in strengthening Fund surveillance and financing.

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ANNEX INTERIM COMMITTEE ATTENDANCE
April 26, 1995

Chairman

   Philippe Maystadt, Minister of Finance, Belgium

Managing Director

   Michel Camdessus

Members or Alternates

   Mohammad Abalkhail, Minister of Finance and National Economy, Saudi Arabia
   Edmond Alphandery, Minister of Economy, France
   Sultan N. Al-Suwaidi, Governor, United Arab Emirates Central Bank
      (Alternate for Ahmed Humaid Al-Tayer, Minister of State for
      Finance and Industry, United Arab Emirates)
   Domingo Felipe Cavallo, Minister of Economy and Public Works
      and Services, Argentina
   Anatoli Chubais, First Deputy Chairman, Russian Federation
   Kenneth Clarke, Chancellor of the Exchequer, United Kingdom
   Lamberto Dini, Prime Minister and Minister of the Treasury, Italy
   Marcel Doupamby Matoka, Minister of Finance, Economy, Budget, and
      Equity Financing, Gabon
   Sigbjoern Johnsen, Minister of Finance, Norway
   Abdelouahab Keramane, Governor, Banque d'Algerie
   Pedro Sampaio Malan, Minister of Finance, Brazil
   Adriano Afonso Maleiane, Governor, Banco de Mocambique
   Paul Martin, Minister of Finance, Canada
   Maria Schaumayer, Governor, Austrian National Bank, Austria
      (p.m. session) and Alfons Verplaetse, Governor,
      Banque Nationale de Belgique (a.m. session)
      (Alternates for Philippe Maystadt, Minister of Finance, Belgium)
   Guillermo Ortiz, Secretary of Finance and Public Credit, Mexico
   Robert E. Rubin, Secretary of the Treasury, United States
   Manmohan Singh, Minister of Finance, India
   Otto Stich, Minister of Finance, Switzerland
   Masayoshi Takemura, Minister of Finance, Japan
   Vijit Supinit, Governor, Bank of Thailand
   Theo Waigel, Federal Minister of Finance, Germany
   George Gear, Assistant Treasurer, Australia
      (Alternate for Ralph Willis, Treasurer, Australia)
   H. J. Brouwer, Treasurer-General, Ministry of Finance, Netherlands
      (Alternate for Gerrit Zalm, Minister of Finance, Netherlands)
   Chen Yuan, Deputy Governor, People's Bank of China
      (Alternate for Zhu Rongji, Vice Premier and Governor,
      People's Bank of China)

Observers

   S. Abrahamian, Officer-in-Charge, Global Interdependence
      Division, UNCTAD
   Andrew D. Crockett, General Manager, BIS
   Yves-Thibault de Silguy, Commissioner, CEC
   Mohamed Kabbaj, Chairman, Development Committee
   Gautam S. Kaji, Acting President, World Bank
   Jean-Claude Milleron, Under-Secretary-General for Economic and
      Social Information and Policy Analysis, UN
   Jean-Claude Paye, Secretary-General, OECD
   Gary P. Sampson, Director, Development Division, WTO