We resolved to make the IMF more fit for purpose in a global economy, and more able to address challenges that are quite different from those of 1945 when the IMF was created.
We resolved on the recommendation of the Managing Director that in future the IMF should be more able to address global questions with multilateral surveillance, like current account imbalances, the impact of oil prices and financial sector questions, and the IMF should monitor in future more deeply not just country policies but the linkages and spillover effects of one country's policies on others in the global economy.
And we were in total agreement that members shared a general responsibility for global issues and mutual responsibilities to each other that should be reflected in our new approach to multilateral surveillance.
Specifically, we agreed the IMF must focus more on crisis prevention, as well as crisis resolution, that multilateral as well as bilateral surveillance would become of increasing and central importance, and that we would agree an annual surveillance remit built on multilateral and bilateral surveillance of monetary, fiscal, exchange rate policy frameworks and financial sector issues, and we propose that our surveillance work will take the form of that annual remit and this will involve independence of the surveillance work, greater transparency and of course work by the Independent Evaluation Office.
We also agreed that to reflect changing times, voice, votes, and quotas should reflect the changing international economic weight of countries in the global economy. The committee reiterated that the IMF's effectiveness and credibility as a cooperative institution must be safeguarded and its governance further enhanced, and we emphasized the importance of fair voice and representation for all members. We underscored the role and 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. The committee agreed on the need for fundamental reforms, the committee called upon the Managing Director to work with the IMFC and the Executive Board, to come forward with concrete proposals for agreement at the Annual Meetings in Singapore in September.
We also welcomed the IMF's efforts under the Managing Director's leadership to strengthen its engagement with emerging market country members, particularly focusing on financial and capital markets, and stressed the importance of the funds work in low-income countries.
We welcomed the debt relief agreed now by IMF and World Bank, and we will continue progress toward matching bilateral with multilateral debt relief for the poorest countries.
So, today we agreed that Singapore's annual meeting will become a reform summit, since its origin 60 years ago the IMF has had to cope with the fast-changing forces at work in the global economy, originally having to cope with sheltered, protected, and closed economies, and temporary support for balance of payments issues, we recognize today that the IMF must now cope with open not closed economies; with international not regional flows of capital, and the reforms we have agreed today are designed to equip the IMF best for these future challenges.
We also addressed the challenge of high and volatile oil prices. We welcomed the actions already taken to address capacity, but believe there are still constraints on oil production. We called for further measures to improve the supply and demand balance in oil markets over the medium term, with oil producers, oil consumes, oil companies all playing their part, including through closer dialogue. The International Energy Forum meets on Monday. We call for strengthened dialogue about the needs of both producers and consumers.
We propose further efforts to improve the quality and transparency of market data to ensure informed and educated markets, more frequent, more relevant and more comprehensive data with more detail on reserves and including gas as well as oil. We called for an increase in investment so that we could meet needs both upstream and downstream in the future. We emphasized policies to promote energy conservation, and alternative sources of energy. And the World Bank energy investment framework will be discussed at their meeting of the Development Committee tomorrow to promote greater use of cleaner and more efficient energy sources in developing countries and emerging market countries.
We also agreed that the new IMF shocks facility, which has been designed and promoted by the Managing Director, must be equipped to respond to shocks both from commodity prices, including oil and natural disasters, we welcome the contributions made already to the new facility, including today from Saudi Arabia, but we call on members, including other oil producers, to ensure that that facility is fully financed to help countries deal with oil and other shocks.
The committee decided that we want to a further report by Singapore on the dialogue between consumers and producers on greater transparency, on investment needs, and on energy efficiency for the future.
We also recognized the dangers of protectionism and the beggar-thy-neighbor policies which did so much damage in the 1930s that had to be avoided now, the committee called on all members to resist protectionism in both trade and direct investment. We recognize the importance of ambitious and successful outcome to the Doha Round for global growth as well as for poverty reduction, and we call on all members to contribute urgently to reaching that agreement on a comprehensive package that would support a strengthened multilateral trading system. We called also for further progress to help poor countries take full advantage of the opportunities of global integration through ambitious trade liberalization and we called for trade assistance and the full use of trade-related technical assistance.
So today, faced with the profound changes and challenges that we see around us are taking place in the global economy, and faced with the pressures that we see in the immediate sense from rising oil prices and protectionist sentiment, the committee in my view made clear its resolve that we shall meet the challenges that the IMF will equip itself for the longer term, and that we will make 2006 a year of reform for the international economy by our new approach to multilateral surveillance and by our reform of the governance quotas and representation of the IMF itself.
Mr. de Rato
MR. DE RATO: Good afternoon. Thank you for being here. I want to say that today's meetings have been a great success. Mr. Brown has just made clear reference to the many important agreements that the members of the IMFC have reached, and I'm especially satisfied by the fact that there is a great consensus in the future of the institution by the membership.
As Mr. Brown has reminded us, the IMFC discussed the global economy this morning, and it is clear that by the presentation and the data that we have presented to you this week, the situation of the global economy can only be defined as very strong. But, there is a clear agreement among the members that we are facing important and maybe in some cases increasing risks. High oil prices, and there is certainly a lot of work to be done moving forward in that direction, and Gordon Brown has mentioned what would be the agenda of the IMF looking forward in the relationship to high oil prices, of course there is a lot of work to be done by countries on the continuation of global imbalances, and the risk of those imbalances of having a disorderly adjustment. The change in the interest rate environment, that certainly is taking place and that should be especially considered by some emerging economies which still have high vulnerabilities, and the rising of protectionist measures in some countries, not least in the most developed countries.
Apart from that, the possible risk of an Avian flu also has been considered by the IMFC.
Yesterday, we had a very productive day, working here on a global imbalance discussion and I want to thank all participants in that discussion. That has helped us to focus the discussion in future days, including today.
Speaking about the medium-term strategy that I presented today to the IMFC, I am very pleased at that the entire membership of the Fund, through the IMFC, has endorsed the medium-term strategy. With this endorsement, we will now focus on the implementation, and some of the calendar of that implementation will be very immediate.
Let me single out two areas in which I think the work is very important, and also Gordon Brown has mentioned them in his remarks: Of course, first, the support for my proposal for multilateral consultations, and that, of course, is going to be a very important step in the role of the Fund in tackling global imbalances, but also in producing an encouraging, cooperative response to global issues; the multilateral consultations that I said to you on Thursday are certainly something new for the institution and also for the members. And, it will be an important vehicle for analysis and consensus-building. They will enable the Fund and members to propose action to address vulnerabilities that affect individual members, but also affects the global financial system, and they will help policy makers to show that the measures they propose will be matched by measures taken by others and that, I think, is a cooperative approach that should benefit all.
Another issue on which we have made progress at these meetings is the question of the legitimacy of the institution. I have spoken several times about the need for increased in voting power for some countries, including a number of emerging market economies, to ensure that they have a role in the Fund's decision-making process that accords with their increased importance in the world economy. The IMFC has now given me a clear mandate to make some proposals to tackle this issue in Singapore. I plan do that.
I plan on presenting some proposals to the next meeting in September, and the Annual Meetings in Singapore, and I look forward to working with the staff, but also with the IMFC and the Executive Board on all these issues.
MR. DAWSON: Now, they will be happy to take question, if you could please identify yourself and your organization in doing so. The front row here.
QUESTION: Mr. de Rato, can you tell us what exactly you mean by multilateral consultations and when you expect them to start?
MR. DE RATO: What I mean, of course, is the process that goes beyond analysis and description of problems, and engage in discussions with the specific governments about the linkages and spillovers of the macroeconomic situation, and in relation to others and the global economy. We will start working immediately on how that process is going to be established. That process will include certainly the Board and the IMFC. So, it will not be only a consultation process with some systemic countries, but it will involve as the process evolves, the whole of the Board and the IMFC, and will allow us to work on important linkages and spillovers that are reality in the global economy.
QUESTION: The first question for the Chancellor, on yesterday's communiqué there was a reference to China for the first time on currencies. Would you explain why you felt there was a need to have China mentioned specifically? Also, on development, there is a paragraph in the communiqué that talks about avoiding fresh accumulation of unsustainable debt and also calling on responsible lending. Are there any countries that you could point out that aren't doing this now on the lending side and on the borrowing side?
MR. BROWN: I would say to you, on your first point, it is not the first time China has been mentioned in the communiqué. It has happened before. We were reinforcing what we said before.
On the second point, it is clear that having succeeded and the World Bank vote has just come in today, that all World Bank shareholders have agreed now that we move ahead with debt relief, that we do not want to see the buildup of, again, an unsustainable burden of debt. That is the main emphasis of that section in the communiqué. Having wiped out probably, by the time this initiative has finished, about $170 billion of debt, we must never allow ourselves to get into a position where the buildup of that happens again.
One of the reasons I think we can avoid it is that our codes and standards are far more effective than they used to be, there is far greater surveillance, there is far greater publicity about what is happening year to year in particular countries, and the transparency and the publicity and the codes and standards themselves are a better safeguard now than there was in previous times. So, that is what we mean by that section of the communiqué.
QUESTION: I want to ask about the multilateral surveillance process. Do you see this as being a process that essentially takes place in confidence between the IMF and its member countries, or do you see that part of this, at least would have to be made public and transparent in that way?
MR. DE RATO: As you know very well, the consultation process, the bilateral consultation process is made public, so this is not a secret process at all.
MR. DE RATO: It will be very, very similar.
MR. BOWN: There is a restatement of the commitments that countries themselves make under the Article IV, but that the surveillance will include for countries greater attention on financial sector issues than there has been in the past. Then, we endorse the new procedure for consultation that the Managing Director proposed to our meeting. And then finally, I think this helps in an answer to your question directly, about the publication, the IMFC, that is our committee, should set a new annual remit for both multilateral and bilateral surveillance, and this should involve the independence of Fund surveillance, greater transparency and the work of the Independent Evaluation Office, so we would annually set a remit for multilateral as well as bilateral surveillance, and this would be done openly and reported as a result of our deliberations.
I think this is a major shift that I think Mr. de Rato should be praised for recommending, but it shows that the IMF is prepared to deal with the big issues of the global economy in future financial sector issues, external imbalances, the effect of oil price, the spillover effects of any of these from one economy to another, and I believe this is setting the IMF in train for the big challenges we face in the future.
QUESTION: Mr. de Rato, the African ministers said here earlier today that they are strictly against this ad hoc system of changing the votes, and quotas? How do you propose to proceed in this change of votes?
MR. DE RATO: I haven't heard any African minister to be against it. Well, I can tell you what they told me. And I think that what the African ministers said is clearly that the process of increased voice and representation should not only include an ad hoc increase for countries who have a very clear under-representation, but also include other issues like the basic votes. But, that is not to be against the first, it is to say that there has to be other things. And, the communiqué says clearly that the- the communiqué under No. 9 says, "The committee underscores the role of an ad hoc increase in quotas would play improve the distribution of quotas to reflect important changes in the weight and role of countries in the world economy. The committee agrees on the need for fundamental reforms. The committee calls upon the Managing Director to work with the IMFC and the Executive Board to come forward with concrete proposals for agreement at the annual meeting." This has been approved by the whole of the committee.
So, I think that it is perfectly not only feasible, but logical that countries accept that an increase in quotas, an ad hoc increase in quotas will play a very important role in improving the distribution for countries in the world economy, and something else is that there are other issues that are mentioned here on Thursday and I mentioned here today.
MR. BROWN: It was unanimously agreed.
QUESTION: Did I misunderstand that you mentioned the shock facility to which Saudi Arabia made its first commitment today, I would like to understand a little bit more how it would work?
MR. DE RATO: Today Saudi Arabia announced its contribution, and Spain, too, the deputy minister of Spain just announced its contribution, so there are two new contributors. Already today important contributor, the U.K. is the first one, France, Japan -- I don't want to miss anybody. Canada. And Saudi Arabia. And, Spain. I want to thank them all.
The exogenous shock facility was decided by the Board in the autumn, and it is a facility that will help low-income countries that don't have financial program with the Fund, but will be eligible for a PRGF program for a poverty reduction program, to face sudden balance of payments problems derived either from shocks that are related to the increase in commodity prices, or shocks that are related also to disturbances in their neighboring countries, either by conflicts or by important trade disturbances.
MR. BROWN: This is why it is true to say that this is a year of reform, this is a new facility being introduced that is dealing with a particular problem that we have identified with countries now prepared to contribute to it, on a voluntary basis, and the fact that Saudi Arabia and I should mention Spain, have contributed today, will encourage others, I believe, to make the Fund fully financed. And it is very important, of course, in dealing with oil shocks, but it is important to deal with natural disasters, as well.
QUESTION: I just want to ask Mr. de Rato on this multilateral consultation process, do you see this as something essentially proactive or reactive, in other words, for example, with global imbalances will you be looking to get relevant countries together before an unwinding of global imbalances?
MR. DE RATO: That is what it is about. It is about a system through which the authority of the Fund and the consultation process that we already exercise at the bilateral level, we are able to discuss and implement analysis and decisions with relevant countries, related, as the Chancellor has reminded us, with spillovers and linkages, that are very evident in the global economy. Of course, I think that allows the Fund to really serve the international community.
MR. BROWN: The fact that it will have as a result of the work of the IMFC an annual remit means that we will discuss the major issues that should be subject to the greatest attention and surveillance at our Annual Meetings and we will be aware then of what we feel are potential spillover effects or linkages that will affect the whole rung of the global economy. This will be a process involving the Managing Director, the Executive Board, and of course the membership of the Fund through the IMFC.
QUESTION: I just would like to ask the Chancellor if he could explain to us why the G-7 felt it necessary to name China, for another time, but why the IMFC did not feel it necessary to name China in its discussion on the way to address the global imbalances?
MR. BROWN: I don't see that as a particular difficulty. The G-7 had a discussion on these issues and decided in the light of its discussion that it would raise the exchange rate issues in the particular way it did. The international committee today had a discussion that was probably wider about current account imbalances, we already had a session the day before about these issues. I think you will see that the focus of the IMFC report is on what each continent can actually do to make a difference in both addressing current account imbalances and making for stability and growth. We emphasize structural reform in Europe, we emphasize financial market reform in Asia, we emphasize the deficits in America. And that is normally the way that the IMFC will go about it looking at the world position.
QUESTION: Mr. de Rato, could you elaborate on the confidence that you have in this multilateral process to actually persuade the countries concerned to act on the spillovers and linkage problems that you referred to? Mr. Rajan earlier in the week highlighted that countries have been aware of the prescriptions, policy prescriptions needed. But, that they have been reluctant to take action. What confidence do you have that they are going to be more prepared to act on what emerges from the new surveillance process?
MR. DE RATO: First of all, I have to say that of course the responsibility affecting governmental interaction is on governments, not international institutions. I think we can provide a framework in which consequences of actions can be seen more clearly, and also consequences of inaction. And, I think that to do that beyond the mere analysis and descriptions to that in the consultation process with governments will be extremely useful. As the communiqué emphasizes, that would be done, also, in consultation with the whole membership. So, there is going to be a very transparent way of analyzing linkages and spillovers and risks, and solutions, that probably is going to teach us a new way of understanding international cooperation. As I said in my remarks, this is a new instrument that the IMF is going to develop. It is new for us and going to be new also for the membership. And I think we're going to be learning about many things when we get this consultation with the specific governments and, at the same time, when we engage the whole international community on in it.
MR. BROWN: Why this is a major change, which is why I think it should be emphasized, as you see from the report today, it is not the IMF as an institution accepting responsibility for multilateral surveillance, it is the members of the IMF as a whole and therefore the global economy itself, accepting that we have responsibilities to each other, and that these responsibilities have got to be addressed, that there has got to be an annual discussion of what the priorities are for surveillance, and on that basis, the members themselves, that is the individual economies of the world, accept responsibility for addressing and then examining how they can move forward as a result of identifying the key risks.
QUESTION: Let me make some parallelism between the matter of multilateral consultation and oil. As far as Mr. de Rato has, said and Mr. Gordon Brown said, this is a new initiative, the matter of multilateral consultation, and I would say it is in some way an answer to objectives that did not cope with the objective until now. Shall we need to waste a lot of time more for seeing a new initiative in regard to oil, because in Point 4, you repeat all the matters and other recommendations we see in the last couple of years? And, it is clear that there is a failure, that the price of oil is $75 dollars, $74-$75 per barrel.
MR. BROWN: There are, of course, supply issues and demand issues some of which are new and some of which are continuing, but I wouldn't identify the communiqué as simply repeating what we have done before. It is us monitoring what has happened, strengthening the dialogue between producers and consumers, one of the major points made to us today is that we need more information about demand, and more information about reserves and supply.
Another of the major points made today was that we need to increase investment not simply in the output of oil itself, but in refining capacity. And we are going to monitor that over the next few months.
Another major point made to us and this will be discussed tomorrow by the World Bank, whether where there is considerable progress, is the need to provide loan and grant facilities for developing countries to develop alternative sources of energy and to move to greater efficiency in the use of existing energy, and that is a project that is moving forward with some speed now, because there is a general interest both in developing countries and emerging markets in moving that forward. The oil shocks facility, but it is an all commodities and general shocks facility, but it affects oil, is now up and running as a result of Mr. de Rato's efforts and it is now being funded by a whole series of different countries. So, in each of these areas, I think you can see first of all that we have identified real problems; secondly that there is real progress. But, of course, there is a great deal more do.
Mr. de Rato and Mr. Brown
I think it is significant that the committee decided today that it would ask the Managing Director to report on all these issues to the September Singapore meetings and therefore each of these issues and progress will be monitored and I, for one, want to see a far more enhanced dialogue between producers and consumers. I want to see far greater transparency over the next few months. And I want to see decisions made for more investment in both oil capacity and in refining capacity for the future, as well as seeing the World Bank facilities up and running.
Mr. DE RATO: Thank you.
MR. DAWSON: Thank you very much.
IMF EXTERNAL RELATIONS DEPARTMENT