Summary Proceedings of the Fifty-Fourth Annual Meeting of the Board of Governors, September 28-30, 1999
Report to the Board of Governors of the International Monetary Fund by the Chairman of the Interim Committee of the Board of Governors on the International Monetary System1
- International Monetary Fund
- Published Date:
- September 2000
I am honored to report on the Interim Committee’s discussions on the world economy and its new financial architecture. I report also on Sunday’s first-ever joint meeting of the Interim and Development Committees, where together we entered into a historic commitment to deliver, in the year 2000, many of the world’s poorest countries from burdens of unsustainable debt.
Since we met here in Washington last October, when turbulence threatened global stability, the world has taken decisive action. Our Committee observed that world growth prospects are now substantially better than they appeared even a few months ago, and the expectation is of recovery strengthening in 2000.
But as the Committee agreed, this is no time for complacency. The challenges ahead include ensuring that the sustained pickup in domestic demand in Europe and Japan, together with medium-term growth in the United States in line with potential, helps to achieve a more balanced pattern of growth. And the Committee urged the crisis-affected emerging market economies to press ahead vigorously with structural reforms that will accelerate their return to sustainable economic growth.
Last year our Committee concentrated on the design of a new framework for stability in the new global economy. This year we have been making important decisions, agreeing on a new design. In the coming year, we must translate our new consensus into effective implementation.
A New Framework for Global Stability
At its April meeting, the Committee noted that broad agreement had been reached on key aspects of a strengthened architecture. It called on the private sector, national authorities, the Fund, and other institutions and forums to carry forward their work in the months ahead. On Sunday, the Committee reviewed progress to date. I am pleased to report that significant progress has been made toward a new framework. Let me elaborate on the main elements.
Surveillance and Transparency
The first lesson we have learned from recent events is that stability is more likely where we have open and transparent procedures in fiscal and monetary policy—and in corporate standards—and where there are agreed objectives clearly and openly stated and regularly monitored.
The Committee underscored the importance of increasing transparency of national governments, the private sector, and the international financial institutions. I believe that, in today’s global economy, governments need to set clear objectives for fiscal and monetary policies, and to follow open and transparent procedures. This is critical for their accountability and for investor confidence. Without transparency and proper procedures, investors may not make the long-term commitment so necessary for jobs, growth, and social progress.
Substantial progress has already been made in this area. The Fund has established the Special Data Dissemination Standard (SDDS), to which 47 countries have subscribed, and the General Data Dissemination System (GDDS), both of which will improve the quality, accuracy, and timeliness of data reporting, especially with regard to members’ reserves and debt management policies.
The Fund adopted the Code of Fiscal Transparency in April 1998, and I am pleased to announce that the Committee on Sunday also adopted the Code of Good Practices on Transparency in Monetary and Financial Policies. These codes and standards are not incidental to the new architecture, they are the architecture.
The Committee encouraged the Fund, in cooperation with other standard-setting bodies, to continue to experiment with assessments of members’ observance of international standards and codes of good practice. It asked the Executive Board to consider whether to integrate such assessments into the surveillance process.
The Committee also reiterated the importance of greater transparency in policymaking. It welcomed the widespread release of Public Information Notices, the public release of IMF policy papers and the associated summaries of Board discussions, and the release of the external evaluators’ reports on IMF surveillance and economic research activities. The Committee reaffirmed the importance of independent evaluations of the Fund’s operations and policies. The decision of 46 countries that have already volunteered to participate in the pilot program for the release of Article IV reports is particularly welcome, as is the Fund’s agreement to establish a presumption in favor of publication of program documents. The Fund is encouraged to take further actions to make IMF practices and members’ policies more transparent, while taking care that this does not compromise the role of the Fund as confidential advisor to governments.
Financial Sector Reform
In the financial area, governments must maintain strong internal financial controls and tighten supervision and regulation of domestic financial institutions and offshore banking centers, including measures to deter money laundering. The Committee urged the Fund to enhance its support for members’ efforts in this area.
Because today’s financial markets are global, we need not only provide proper national supervision but also better financial regulation worldwide. The Fund and the Bank are enhancing coordination on surveillance and their advice in the financial sector.
The Fund, the Bank, other international groups, and financial supervisors have also stepped up their efforts to develop and implement principles and good practices for sound financial systems, and to improve their capacity to make assessments of financial sector vulnerabilities. The Committee welcomed these efforts.
The Financial Stability Forum has now been established. This welcome initiative makes cooperation between the international financial institutions and the regulators a fact of life. The Forum has made a successful start by establishing working groups to coordinate the work of the international financial community on the implications of highly leveraged institutions, offshore centers, and short-term capital flows.
Considerable progress has been made by business, financial institutions, and government agencies around the world in preparing computer systems for the millennium date changeover—the Y2K computer problem. Nevertheless, the risk of possible Y2K-related problems exists. The decision by the Fund’s Executive Board to introduce a temporary facility that would help members deal with unforeseen balance of payments problems that may arise in connection with Y2K is therefore welcome. But members must continue to press ahead and take the necessary steps to minimize Y2K-related disruptions in their financial systems.
Crisis Prevention and Resolution
There is a general consensus that prevention of crises remains the key. Analysis of members’ vulnerability to crises should be strengthened, and the Fund and its members should focus, in the context of both surveillance and program design, on minimizing and managing this vulnerability. Here, the continued involvement of the private sector—in both forestalling and resolving crises—is critical.
The Committee noted the progress achieved in securing the involvement of the private sector in individual cases. It considered that the report by the G–7 Finance Ministers to the Cologne Economic Summit provides a helpful framework on which to build, and within which the international community can work to address individual cases. The Committee has asked the Executive Board to build on this framework and to report at its next meeting on the ways in which the broad principles have been implemented.
Choice of Exchange Rate Regimes
While it is up to members to decide what exchange rate regime to adopt, it should be borne in mind that individual members’ choice of exchange rate regime has repercussions for the member itself, but also in some cases potentially for the world economy. The Committee noted that IMF surveillance and programs should further focus on the consistency of a member’s macroeconomic policies, institutional arrangements, and exchange rate regime.
Transformation of the Interim Committee
To strengthen the policymaking process, the Committee endorsed the recommendation of the Executive Board to the Board of Governors that the Interim Committee be transformed into the International Monetary and Financial Committee, and that its advisory role be strengthened.
It is important that, in building a strengthened financial system, we do not forget the plight of the poor. The low-income heavily indebted countries must also benefit from the new architecture. A critical need is to reduce poverty. There is a now general recognition that growth by itself is not necessarily sufficient for reducing poverty. Sustainability of growth requires rising incomes founded on durable productivity growth. This in turn entails policies, in areas such as health and education, that raise productivity and enhance employment opportunities, especially for the poor. Moreover, in fostering economic growth through prudent macroeconomic policies and structural reforms, it is critical that the burden of adjustment does not fall on the poorest and most vulnerable.
The reform of the Fund’s ESAF into the Poverty Reduction and Growth Facility, which will make poverty reduction an explicit and overarching goal, is a major step forward. The Committee warmly welcomed this reform of the ESAF. The cornerstones of the new approach are (i) a comprehensive Poverty Reduction Strategy Paper that will be prepared by the country, with assistance from the World Bank and the Fund, to guide the design of programs; (ii) social and sectoral programs, aimed at poverty reduction, will be taken into account fully in the design of economic policies for promoting faster, sustainable growth; (iii) greater emphasis will be accorded to good governance, in particular in all government activities, through greater transparency, effective monitoring procedures, anticorruption initiatives, accountability, and the involvement of all sectors of society; and (iv) higher priority will be accorded to key measures critical to achieving governments’ social goals.
The Committee recognized that a mountain of inherited and hitherto immovable debt stands in the way of economic development in the poorest countries: unsustainable debt that is a burden imposed from the past on the present generation, which is tragically depriving millions of their chance of a future. And it is in the spirit of those who founded the Fund and the Bank that all of us believe that we have obligations beyond our front doors, responsibilities beyond the city wall, duties to others beyond our national borders, that we are called to take decisive action.
So let it be said of the conclusions from the historic joint meeting of the Development and Interim Committees—that those to whom the world’s greatest wealth has been given have joined with those burdened down by the world’s greatest debt and destitution to form a new and worldwide alliance against poverty.
First, by endorsing the enhancements and reforms to the HIPC Initiative, we set ourselves a challenging target to move three quarters of eligible countries through the process and the remainder on the path to debt relief by end–2000.
Second, in seeking to establish a virtuous circle of debt relief, poverty reduction, and economic development, we endorsed a major and decisive shift in policy on poverty. The old approach underplayed the importance of social policy. The new approach is that countries will prepare reduction strategies in partnership with the Bank and Fund and that these will stress how together macroeconomic, structural, and social policies can generate growth and contribute to reducing poverty.
We agreed that poverty reduction strategies should be country-driven, engage the broad participation of civil society, and be explicitly linked to achieving agreed international development goals, the most pressing and challenging of which is to halve world poverty by 2015.
Third, financing our reforms—and in this area in particular I pay tribute, as in so many areas, to the work of Michel Camdessus, James Wolfensohn, and their staffs, without whom faster, deeper, and wider debt relief could not have been possible. The Interim Committee endorsed the decision of the Fund for off-market transactions of up to 14 million ounces of gold to fund the Fund contribution to the new enhanced HIPC framework. In the last week alone, an additional $1.5 billion has been promised or committed to the HIPC millennium trust fund. The challenge is for those countries in need of debt relief to secure that debt relief now, and I believe that the first country can now benefit from our enhanced debt relief not just in a year, or in months, but in weeks.
So, in all our decisions, we are reaffirming the public purpose and high ideals that 54 years ago brought the Fund and the new international financial order into being; demonstrating our belief that prosperity is indivisible and that we cannot take refuge in absentee government; showing that, by the strong helping the weak, it makes us all strong; and by that public action, we can say from here in Washington, on the eve of a new century, we are determined to advance a new and worldwide prosperity for all.
Delivered at the opening Joint Session, September 28, 1999.