Speech

As Prepared for Delivery

Mr. President, Mr. Secretary-General, Excellencies, Ladies and Gentlemen,

The International Monetary and Financial Committee met in Washington under the chairmanship of Mr. Gordon Brown, Chancellor of the Exchequer of the United Kingdom, who has asked me to convey to you the outcome of our deliberations.

The global economy continues its strong expansion. The expansion is becoming geographically more broadly based, and global growth is expected to remain strong over the near term. Meanwhile, inflation and inflationary expectations remain well contained. Nonetheless, we cannot be complacent, as there are downside risks, including those related to continued high and volatile oil prices, an abrupt tightening of global financial conditions, a rise in protectionism, and a possible avian flu pandemic. Furthermore, the risks posed by the global imbalances, which have continued to widen, require vigilance on the part of policymakers.

Achieving an orderly resolution of global current account imbalances is a shared responsibility of the international community. More concerted and sustained implementation of an agreed policy strategy is needed, including by raising national saving in the United States; implementing structural and other reforms to sustain growth potential and boost domestic demand in the euro area and several other countries; further structural reforms, including fiscal consolidation, in Japan; allowing greater exchange rate flexibility in a number of surplus countries in emerging Asia; and ensuring efficient absorption of higher oil revenues in oil-exporting countries with strong macroeconomic policies. All countries and regions will have a role to play by increasing the flexibility of their economies and adapting to changing global demand patterns.

The IMFC discussed developments in the oil sector. While there have been actions taken to address capacity constraints in oil production, further measures are needed to improve the supply-demand balance in oil markets over the medium term, with oil producers, oil consumers, and oil companies all playing their part.

A substantive outcome to the Doha Round by the end of 2006 is crucial for global growth and poverty reduction. All members must urgently contribute to reaching agreement on the key elements of a comprehensive package supporting a strengthened multilateral trading system. There should be continued efforts to help poor countries take full advantage of the opportunities of global integration through ambitious trade liberalization. In this regard, Ministers stressed that the Aid for Trade initiative should be firmly grounded in national development strategies and delivered through established and enhanced mechanisms for trade-related technical assistance.

With regard to the Millennium Development Goals (MDGs), the IMFC was encouraged by the improving growth prospects in the poorest countries, including in Sub-Saharan Africa. To achieve the MDGs, a partnership between poor countries and donors is needed. National authorities should pursue sound macroeconomic policies and growth-critical reforms, including further substantial efforts to build sound, accountable, and transparent institutions. The international community should follow through expeditiously on its renewed commitment to provide additional resources. The IMF stands ready to continue to do its part in its areas of expertise.

Let me turn to the IMF's Medium-Term Strategy (MTS) proposed by the Managing Director, on which the IMFC Ministers had extensive discussions. The MTS considers the future direction of the Fund in light of the economic transformation brought about by globalization. Several changes are crucial. First, it is important to make IMF surveillance more effective. The IMFC proposed a new framework for IMF surveillance with a new focus on multilateral issues, including global financial issues, and especially the spillovers from one economy to others. Member countries and their institutions would restate the commitments that they make to each other under Article IV on which surveillance can focus on monetary, financial, fiscal, and exchange rate policies. The new multilateral consultations proposed by the Managing Director can play a role in promoting multilateral action.

Second, the IMF should strengthen its engagement with emerging market members. The impressive expansion of private capital markets has presented these countries with unprecedented opportunities and challenges. Financial and capital markets issues should be increasingly at the center of the IMF's work in these countries. The IMFC looked forward to further work in the IMF on the Managing Director's proposal on a possible new instrument to provide high-access contingent financing for countries that have strong macroeconomic policies, sustainable debt, and transparent reporting, but which remain vulnerable to shocks. The IMF will also explore the role it can play in supporting regional arrangements for pooling reserves.

Third, regarding the IMF's work in low-income countries, it is critical that its policy advice, support for capacity building, and financial assistance are closely aligned with the countries' evolving needs and poverty reduction strategies, and focused on macroeconomic issues, including institutions relevant to financial stability, trade, and economic growth. We must assist with countries' efforts to effectively absorb increased aid flows—including debt relief—and we must play our part within our areas of competence in monitoring progress toward the MDGs.

The IMF and other institutions have provided substantial debt relief under the Multilateral Debt Relief Initiative (MDRI). Nineteen countries have already received MDRI assistance from the IMF, and we expect about six more to join them this year. Along with the World Bank, there has been agreement on the final list of members that meet the criteria of the HIPC Initiative. The MDRI provides some countries with considerable space for new borrowing in support of their efforts to reach the MDGs. However, countries need to avoid the re-accumulation of unsustainable debt and the potential adverse consequences of non-concessional borrowing for debt sustainability. Against this background, it will be important to refine the joint IMF-World Bank debt sustainability framework and help countries implement sound medium-term debt strategies and strong public expenditure management and tax systems. The IMF introduced two new instruments: the Policy Support Instrument and the Exogenous Shocks Facility. These are particularly appropriate for countries that are focused on second-generation reforms or are facing short-term balance of payments needs that come from external events.

Finally, Ministers had an exchange of views on the voice and representation of member countries in the governance structures of the IMF. There was a broad consensus that the IMF can only be effective if all members have a strong sense of ownership and participation in the institution. The IMFC underscored the role an ad hoc increase in quotas would play in improving the distribution of quotas to reflect important changes in the weight and role of countries in the world economy. Ministers agreed on the need for fundamental reforms, and called upon the Managing Director to work with the IMFC and Executive Board to come forward with concrete proposals for agreement at the Annual Meetings in Singapore in September.

Mr. President, Mr. Secretary-General, these were the main issues at the IMFC's deliberations last Saturday. In closing, I wish to highlight the importance of this high-level dialogue in bringing together our efforts to assist countries to achieve the MDGs.