October 2, 2004
Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund
October 2, 2004
Documents Related to the International Monetary and Financial Committee (IMFC) Meeting
MR. DAWSON: Good afternoon and welcome to the traditional IMFC press conference. The Chairman of the IMFC, Chancellor Gordon Brown, will have an opening statement, then the Managing Director of the IMF, Rodrigo de Rato, will have some words, then we will be happy to take your questions. When we get to that point, please identify yourself and your organization.
MR. BROWN: Can I say first of all, ladies and gentlemen, we have had a very successful meeting this morning. We began our meeting by welcoming the new Managing Director, Rodrigo de Rato, and all of us look forward to working with him over the next few years on our shared goals of global stability and prosperity for all.
I can report to you that the members of the International Monetary and Financial Committee agreed that the world economy is strengthening but that the recovery has been uneven, and with oil prices doubling and global imbalances worsening, we agreed that action must be taken to address risks to recovery and in the coming months the Fund's work on surveillance should focus on these risks, the impact of high oil prices and worsening terms of trade, especially for the most vulnerable, the sustainability of medium-term fiscal positions and debt in many member countries, the management of policy responses to inflationary pressures and the challenge of economic reform around the world.
We agreed that with oil prices doubling in little more than a year that it was important to have stability in oil markets around reasonable prices consistent with sustained global growth. We did welcome the decisions that have been made by oil-producing countries to continue to expand production. We urged upon them further measures to increase capacity. We also called on oil-consuming countries to take measures to promote more sustainable use of energy. We agreed on the importance of further efforts to improve information about the oil market and to increase transparency, and we called for continued dialogue between consumers and producers.
We agreed that all countries should take advantage of the recovery to address medium-term vulnerabilities and challenges and with a renewed commitment to ensuring action that was successful. We state in our communiqué that we are agreed that bold reforms on a wide front are needed to strengthen fiscal positions, to remove structural impediments to growth, to reduce financial and corporate vulnerabilities, to support the correction of global current account imbalances, and to accelerate the reduction of poverty.
We agreed that it is our shared responsibility to bring forward policies to achieve an orderly resolution of global imbalances, to achieve progress on medium-term fiscal consolidation in the United States, continued structural reforms to boost growth and flexibility in Europe and Japan and in emerging Asia, and to take steps towards greater exchange rate flexibility supported by continued financial sector reform.
As well as addressing these issues surrounding the global recovery, we discussed our concern at what we consider the lack of progress that has been made, especially in sub-Saharan Africa, towards achieving our Millennium Development Goals. These were goals agreed by all of us, including the international organizations, in New York five years ago, and these are goals that look difficult to meet on the target date of 2015 unless further action is taken.
We welcome the joint report of the IMF and World Bank on aid effectiveness and on modalities of financing of development aid, we encouraged as a meeting further analysis by the Bank and Fund on the mechanisms for increasing aid flows, including the international finance facility and other innovative mechanisms for finance, and we looked forward to a further report on these issues at our meeting, but we were conscious throughout that on current rates of progress, the Millennium Development Goals on child poverty, on education for primary schoolchildren, on cutting maternal mortality could not be met in 2015; indeed, on current rates of progress, they would not be met for 150 years.
In specific areas of debt relief we have made good progress. We have agreed the extension of the HIPC initiative for two more years to ensure that more countries are able to benefit. We are also agreed on the continuing work to develop a framework for debt sustainability for poorer countries, and in considering how we can achieve 100 percent relief to multilateral debt, some of you will know that Britain has already announced that we will pay our share of the multilateral debt service of low-income countries, and we are confident that other countries will follow Britain's lead in the coming months. The committee itself has decided that further work on this must be done so that we have a proper framework for debt sustainability.
Now, these were some of the decisions that were made by the IMFC. We also called for the trade talks to progress as quickly as possible so that we have a trade settlement that can help particularly the poorer countries but help the whole world sustain economic growth, and there are other decisions that I am happy to go over with you when you have got the communiqué and want to ask any questions to us.
We had a successful meeting, as I said, and the meeting coincides, of course, with the Development Committee meeting that is happening now when some of these issues of debt relief, aid, and the Financing for Development are going to be discussed in even more detail this afternoon. Thank you very much.
MR. DE RATO: Thank you. First of all, I want to stress how honored I am to have participated as Managing Director of the International Monetary Fund in the meeting of the International Monetary and Financial Committee. I want to thank the Chairman, Gordon Brown, for the way he has handled the committee today.
I had quite a few issues to present to the committee. I had a very comprehensive global outlook after the presentations by the chief economist of the Fund and by Mr. Ferguson from the Financial Stability Forum. Later on I also have presented to the committee our role in low-income countries, our actual plans for strengthening surveillance and crisis prevention, and during the lunch I had gone over issues of vulnerability of countries in their present economic circumstances, and also the outlines of the strategic review of the role of the Fund. So it has been a very comprehensive amount of issues.
I want to thank the committee, its Chairman, also its members for their attention and their opinions that will be extremely helpful for me in the months ahead, and for the content of our discussions, I think that Gordon has made a very good summary.
QUESTION: A question for Mr. Rato. You said the other day in the Bretton Woods Commission labor study that what is needed is an IMF that could say no to certain countries. At the same time, it seems that you are showing, you are telling in relation with Argentina, I mean, the communiqué of the G-7. Could you assess us what is going on with Argentina.
MR. DE RATO: Well, I think the communiqué of the committee, International Monetary and Financial Committee, is very expressive of how things are going. I just will — you have it on page 2, but of course you did not have time to read it. I will read it for you.
QUESTION: I know what it says.
MR. DE RATO: Well, then, I agree totally with what it says here. You want my opinion? I think what it says here is that clearly the Argentinean government has done a very good job in macroeconomic policy in the last two years. It is true they are coming out of a very complicated situation, that it is very important for the future of the Argentinean economy that the structural issues that are pending and a medium-term framework are completed, and that will fulfill the commitments the Argentinean government put in its Letter of Intent to the Fund last March, and that all that is done with a comprehensive and sustainable debt restructuring, that of course will allow Argentina to regain a normal situation in the financial markets as a clear prerequisite for a sustainable growth path in Argentina. So in that respect I think that is what I mean.
MR. BROWN: Chancellor Brown — Can I just add that the committee was fully in support and wanted me to thank the Managing Director for all his efforts and what he has done to try to achieve an outcome in this situation. They were fully supportive of his efforts and grateful to him for what he had done.
QUESTION: Mr. Brown, the statement from the Finance Ministers from the heavily indebted poor countries welcomes the efforts on debt relief but calls for the preservation of the integrity of the multilateral organizations, their long-term capacity to Fund development, i.e. not run down the disbursement capacity of IDA and the soft loan windows of the multilateral development banks. Could I just ask you to comment on that.
MR. BROWN: Well, I think it was generally agreed that we would have to find additional funding to finance the next stage of debt relief, and that it therefore had to be funded by some new mechanism and not by some form of substitution.
On the question of the World Bank and the African Development Bank, we, the United Kingdom, have made a proposal that the individual shareholders in a sense repatriate the costs of servicing the debt, that is the multilateral debt, and take upon themselves that burden, so we, the United Kingdom, would take upon ourselves the burden of servicing 10 percent of the debt owed to the multilateral institutions by the HIPC and other countries, and we are asking other countries to do likewise, so there is no question of us not recognizing that additional funds are necessary. We are not asking for some form of substitution, and we have made a specific proposal that each country that is a prominent shareholder take upon itself its share of meeting the servicing and capital costs of that debt. Now that is a proposal that is being discussed at the moment. A lot of work is being done on it, but Britain will do this anyway. We have taken this lead so that other countries will follow.
As far as the debt owed to the International Monetary Fund is concerned, in 1999 when the IMF had to deal with a similar situation of raising funds to write off debts that were owed to it, it decided on a revaluation of its gold. What we are suggesting now is not exactly the same, but we believe that there can be some investigation of market transactions. As you know, IMF gold is valued within the IMF at about an eighth of its market value. I think it is $50 as against $400 or so, and therefore there is considerable scope, but what we are definite about is that you cannot ask existing institutions to do things without providing a financing mechanism for them. If I am right, only 50 percent of the debt owed to multilateral institutions by the HIPC countries is being written off under the present initiative. Our proposals would take us towards 100 percent. In our case, of course, if our proposal was followed, it would be 100 percent for debt up to a certain cut-off point, so that there is no moral hazard involved in this for the future. But these are proposals which are being discussed. They were discussed yesterday at the G-7. They are being discussed today at the communiqué. It shows that we are determined to find a means of solving this problem. As you may also know, the G-7 Finance Ministers will issue a report on this by the end of the year, and you will be able to see the progress that we are making. We are determined to find a solution, but it is not a solution at the cost of countries that do not have debt, like Bangladesh or countries like that. It is by there being the additional funds that are necessary to finance it.
QUESTION: Given that the IMF has repeatedly expressed concern about the size and sustainability of the U.S. budget deficit and is now pushing for increased surveillance, should the U.S. really be trying to extend $1.9 trillion and actually initiate more tax cuts, but the $1.9 trillion in tax cuts and extend more at this time?
MR. DAWSON: To whom was the question addressed?
QUESTION: Either.
MR. DE RATO: As I said, I think it was Thursday, yes, here, we certainly see that one of the risks of the world economy is the correction of current account imbalances. Certainly the U.S. current account imbalance is one of the most important ones. We see that correction as a correction which not only one country but some countries of a special size have to collaborate. In the case of the U.S., the reduction of the public deficit, that is the increases of the savings of the public sector in the U.S., we consider it important for that correction. In that sense, as we said in our Article IV conclusion of the U.S. economy, the framework established by the government to reduce public deficit in the next years have to be increased in light of the better than expected performance of the U.S. economy, and we consider that essential. Of course, the budget can be achieved, the reduction of the budget deficit can be achieved through many ways, and we insist on the authorities to choose the most important ones that will at the same time reduce the budget deficit and collaborate to sustain growth in the U.S. economy.
QUESTION: I would like to ask if you could tell us how was the discussion about the precautionary support for countries that are performing well? From the proposals we read, it seems that developing countries and developed countries seem to be coming to the discussion from very opposite sides in terms of emphasis in access to money on the one hand and more conditionality on the other.
I would like to ask you, where do you see this discussion going and if you see room for a development of a new version of the CCL that is more useful and more attractive to countries.
MR. DE RATO: There is a discussion in the Board regarding new instruments that will give signaling to markets that would be positive for countries that are making important efforts and not just in the normal programs that are derived from a crisis in their external accounts. There are positions of some members of the Board regarding programs with no borrowing facilities, no borrowing programs, PMAs in the new name, and there are countries who are talking about precautionary arrangements. I have to say that those two positions are not divided between developed and developing countries. You have opinions of all sorts in different countries.
What the staff is doing is, on the basis of the discussions in the Board, is preparing future work in which we, of course, will make work with creditors, debtors, markets so that we can give the Board as many inputs as possible as to define what would be the better instruments in which we react to the petition of our constituency of the countries, members of the Fund because we are always talking about programs that would be voluntary. So in that respect I think that we are in the middle of the discussion, but that does not mean that we will not arrive to a satisfactory end.
MR. BROWN: I think as someone who was there at the beginning of the CCL, it is important to recognize that we agreed that there should be further work done on these various proposals, and we do say in our communiqué including the usefulness and potential demand, and that there will be close consultation with potential users, donors, and creditors, and we will have a report on this at the next meeting. I think I would also add that members wished to draw attention to the increased importance that we now attach to surveillance as the essential work of the International Monetary Fund, to the need for greater transparency and therefore the use of codes and standards, and we welcome the fact that Article IV reports are now published and available for everybody to see. That is something that was not happening a few years ago. We would emphasize in addition to the facilities the importance of surveillance, the importance of greater transparency, and the importance of greater publicity so that people know the situation on the ground.
QUESTION: I have a question for Mr. Brown. Was there any concrete support in the meeting for your proposal on revaluing the gold of the IMF?
MR. BROWN: This was discussed at the G-7 yesterday. Work has got to be done on it, and Mr. Rato has agreed that work would be done on this. We would then have a further discussion about the next stage. We are in no doubt that this is possible. I do not think there is in most countries any ideological objection to this, and of course the revaluation that was done in 1999 in a sense set a precedent for this to be done. If we are going to solve this problem of multilateral debt, which is debt overhanging these countries that have been deprived of the means of development, and if I am right that only 50 percent of multilateral debt is being written off at the moment under existing HIPC mechanisms, even if you get the maximum write-off allowable, then we have to find an innovative way of solving this problem, and I have no doubt that in the case of the IMF it will come back to the use of gold, but it is some form of off-market transaction that is being looked at.
QUESTION: Last evening the G-7 made a statement saying that it approved the IMF statement on Iraqi debt plan. We have not seen that. That has not been published. I wondered if, one, if you were disappointed that there was no G-7 approval of your gold plan, but, two, whether or not this approval by the G-7 means that there will be an Iraqi debt plan by the end of the year?
MR. BROWN: First of all, I did not ask the G-7 to approve my gold proposals yesterday. What I asked and had agreed is that further work should be done on them. This, in my view, is the way forward. In a number of other countries' view this is also the way forward, but we have also got to do the detail work. That will now be done. Then a decision will be made.
As far as Iraq is concerned, and this was a separate discussion, unrelated to the point you are making about gold, the position of our country is that the vast majority of Iraqi debt should be written off. That is the position of many other countries as well. I am hopeful that we can move to a resolution of this issue very soon.
I do not know which plan you are referring to. The debt sustainability analysis. I do not know.
MR. DE RATO: The debt sustainability analysis we do in this case is for the Paris Club. In other cases there is work with different hypothesis that we do not publish. It is the Paris Club who has decided this. We do not have to — it is work we do technically for the Paris Club in all cases.
MR. BROWN: Can I just say why Iraqi debt has not got the same — is different from the HIPC debt we are talking about. I think it is around $124 billion. But only 0.5 billion of that is multilateral debt. In other words, for most HIPC countries, a very substantial amount of the debt is owed to multilateral institutions. In Iraq's case it is almost entirely bilateral.
QUESTION: This is one question for the Chancellor and one question for Mr. De Rato. Chancellor, you came into this meeting armed with plenty of new policies and off-balance sheet gold sales, doubling of world aid through the IFF, and so on. It seems that what has come out of it is more reports, more studies, more work in progress, but not a single penny piece, dollar or euro in extra financial aid. Isn't the reality that the global community is completely divided on what to do on these issues and that as a result all its protestations of hitting the Millennium Development Goals are just paying lip service to this idea?
MR. DE RATO: You can stay there. We have had enough.
[LAUGHTER]
QUESTION: What if one of the NGOs put out a paper saying there are 9,000 unemployed teachers in Zambia as a result of IMF spending limits on the budget, on the payroll there. I wonder how you think that is consistent with IMF support hitting the MDG of universal primary education by 2015.
MR. BROWN: I disagree entirely with your premise, Larry, about my record at meetings. We succeeded in 2000 working together with many countries in agreeing 100 percent bilateral debt relief, and that has been progressed to the extent that 27 countries are now receiving debt relief where when I started as a Finance Minister, only one was ever likely to get debt relief unless we changed the HIPC. In our last few months we have succeeded in getting an agreement on topping up for debt relief, we have succeeded in getting agreement also on a two-year extension of the HIPC, the sunset clause, and we have already put on the table additional money this weekend, the money that is necessary to finance 10 percent of multilateral debt relief.
What we have succeeded in persuading other countries of, and you can see the G-7 communiqué yesterday, is that they have, what it actually says, we have now decided that we must solve this problem, we will report by the end of the year. Now, that is very significant progress, and it means that the work that is now being done is done on the detail, having accepted that we must make progress on multilateral debt relief.
As far as the international finance facility is concerned, I have always said that this is something that we have been talking to other countries about, trying to win support for. We are actually open as a country to looking at any other mechanism for financing development aid over the next few years. We are winning support for our proposal. Obviously, there are many countries that are looking at it who still have to say that they will support it, but my view is that as people recognize that as we move to 2005, the first millennium development target falls due and it is not going to be met. Every other development target that we signed up to in 2000, only four years ago, we know they cannot be met with existing resources, but the world community must make a decision about how it is going to keep its promises, redeem the promises it has made, bridge the gap, if you like, between the rhetoric of 2000 and the reality we now see in 2004, and this was always a set of decisions we thought would be made during the year 2005, and that is why we have floated these proposals, we are discussing them with our colleagues. We are winning support, and of course 2005 is the year in which we hold the G-7 presidency, and we hope to make progress in that year. So I disagree. There has been considerable progress this weekend, and it looks forward to a situation where we can make even more progress in 2005. I am not complacent. There is a lot more work to do, but I believe people are beginning to understand the urgency of solving this problem and the fact that the funding gap cannot be closed by traditional means.
MR. DE RATO: In respect to your second question about Zambia, you seem to take at face value a declaration by NGOs that I do not know the name and I do not know the data exactly, so I cannot argue with you. But I can tell you that the policy of our poverty reduction program is that specifically in education and health expenditures we certainly urge the governments and make room in our provision of expenditure for taking care of those two issues which we consider essential for poverty reduction strategies. So I do not accept what you just said, and I would like to know exactly what are the terms of that declaration, who has done it, with what information, and referring exactly to what circumstances of the Zambia budgetary circumstances.
QUESTION: One of the proposals made by the G-24 was that in order to increase the voice of the developing countries, you have to redo the quota calculation by purchasing power parity, how we view that.
Secondly, for some years, each year we used to talk every six months about special drawing rights, and now it seems to have gone off the map. Is that still alive?
MR. DE RATO: In reference to the G-24, I had the honor and the chance of meeting yesterday morning with them, and I discussed with them the issue of quota and voice representation. Certainly the question is not the technical calculations. We discussed very technical issues, like if monetary unions, the trade inside monetary unions should be considered interregional trade or domestic trade. So we came down to very technical details. But the question, as they agreed, is a political one. So there has to be a political consensus among member countries to arrive to a solution in that respect. My position as managing director is that is an important issue and the membership should address it. Right now there is not a new position of any of the meetings with member countries regarding a new position regarding SDRs.
MR. BROWN: I think the issue on SDRs you are referring to probably is the proposal by George Soros that he would finance additional development funding through SDRs. That was a proposal floated two years ago. It has been discussed by a number of countries. It does not command the support that some of the other proposals have at the moment, partly because it is difficult for some countries to get a change like this through their own parliaments or Congress or assemblies, but it is one of the proposals that has been on the table in the past to look at additional funding.
I may say that we say in the communiqué that we are prepared to look at other proposals to raise funds for development aid, the proposal from President Chirac and President Lula to look at a form of global taxation and then other innovative mechanisms, incidentally, the Group of 24 has supported the international finance facility when they met yesterday.
QUESTION: Chancellor, I would like to ask you, you mentioned that you were given the impression that a number of countries would be following Britain's lead in unilaterally contributing to their share of the cost of debt forgiveness. Have you had any indication that the United States would be among them?
In a related point, since the U.S. has taken, seems to be taking the position that both debt relief and its grants proposal can be handled without additional contributions by shareholders to IDA, why are you so confident that some sort of reconciliation can be made between your approach and the U.S. approach?
MR. BROWN: Well, I think it is very interesting that so many countries have come to a consensus that we have got to do something now about multilateral debt relief, and the United States' proposal is in the context of 100 percent write-off up to a certain cut-off date for the multilateral debt owed to the IMF, the African Development Bank, and the World Bank, so there is a growing consensus that includes a large number of the G-7 countries but many others that the next stage of dealing with the overhang of debt is to look at 100 percent or up to 100 percent multilateral debt relief. So there is agreement there that this is an issue that has got to be dealt with. But what we agreed yesterday was that by the end of the year, and this is not the IMFC, this is the G-7 Finance Ministers who produced a report on these very issues, we recognized the pressure for grants as opposed to loans, we recognized also that there are issues about the funding both for the World Bank and the IMF if they have to do this write-off, and that is why we have been looking at these various instruments for doing so. But I think you should be aware that there is now a growing consensus that multilateral debt relief has got to be dealt with as soon as possible.
QUESTION: Would China have to become a fully fledged democracy before qualifying for full membership of the G-7?
MR. BROWN: I think this is a question for the G-7 and not for the IMF. The discussion with China was not in the context of the membership at all. The discussion with China was, they were invited to part of the meeting, to a special section when we discussed issues that we shared in common, and I do not think it was ever proposed at anytime that at this stage or at any stage China was joining the G-7. What I think we agreed was it was very important for the strength of the relationships between the two economies to be developed. The dialogue we had, as I think Mr. Snow, the American Treasury secretary, has already said was very useful, useful indeed, but these other questions that you raise would not essentially be matters that could be resolved by Finance Ministers. It would have to be resolved in the context of heads of government and the G-8, and the invitation to China is to the Finance Ministers meeting, and that was the only meeting at this stage that they were invited to. But I may say, it was a very useful dialogue, very open, very informal, very friendly about the issues that are confronting us in the global economy, not least the issue of oil prices which in a sense I am surprised others here have not raised more about this afternoon in our press conference, but we had a long discussion about the effect of oil prices and what was happening to oil supply. We had quite a major discussion about what was happening in the context of the entire globalization of the economy.
MR. DAWSON: Thank you very much.
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