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Report to the Board of Governors of the International Monetary Fund by the Chairman of the Interim Committee of the Board of Governors of the International Monetary System

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1996
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Author(s)
Philippe Maystadt

It is a great pleasure to have this opportunity to report to the Governors, in my capacity as Chairman of the Interim Committee, on the work of the Committee over the past 12 months. The issues before the Committee have been well covered in its communiqués and I shall therefore limit myself to commenting briefly on the main items.

The World Economic Outlook

At its spring meeting on April 22, and again on Sunday, the Committee expressed optimism at prospects for the world economy and noted that many of the favorable developments reflected the implementation of key aspects of the cooperative strategy set out in the Madrid Declaration of October 1994. Several key factors support this positive outlook: the progress toward price stability and fiscal consolidation in many countries, the improvement in exchange market conditions among the major currencies, the strong growth of trade and financial flows, and the increasing reliance worldwide on market forces.

Against this background, the Committee concluded that the broad thrust of the medium-term strategy set out in the Madrid Declaration remains valid. At the same time, the Committee saw a need to broaden it to take into account the new challenges of the changing global economy, as well as the lessons from the reviews by the Executive Board and by the Committee of members’ economic policies. Accordingly, the Interim Committee has adopted this new Declaration on Partnership for Sustainable Global Growth, which Michel Camdessus presented to you a few minutes ago.

  • This declaration stresses the interdependence between macroeconomic policies and structural reforms. These policies and these reforms are mutually reinforcing.

  • It reiterates the need for fiscal discipline, but it also draws attention to the quality and the composition of the fiscal adjustment, and also to the need for greater transparency in government finances—in particular, the reduction of off-budget transactions.

  • It also emphasizes the importance of promoting good governance in all its aspects, which includes ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption.

  • It also pays attention to the soundness of banking systems through strong prudential regulation and supervision and to the need for more action to prevent money laundering.

  • Finally, the Committee agreed that the realization of this common strategy will help to avoid significant exchange rate misalignments and to provide a foundation for reasonable exchange rate stability.

The Committee has endorsed these principles of sound policies in a spirit of renewed partnership, confident that firm commitment by all members—industrial, developing, and transition economies alike—to respect them will help all countries to achieve sustainable high-quality growth.

Strengthened Fund Surveillance

Governors will recall that last year the Committee carried forward its work on its far-reaching proposals to strengthen Fund surveillance that had been formulated in the wake of the crisis in Mexico. On Sunday, the Committee welcomed the substantial progress that has already been made in adapting Fund surveillance to the new global environment. It noted in particular that the six-monthly reviews of member countries’ policies have yielded important lessons for both the membership and the Fund on the conduct of surveillance in the new global environment. It also welcomed the Special Data Dissemination Standard and was pleased to note that 37 countries representing a broad range of the Fund’s membership have already subscribed. In view of the importance all of us attach to improving the quality, timely provision, and dissemination of economic statistics, the Committee encouraged other members in a position to do so to subscribe to the “best practices” embodied in the Special Standard. It also requested the Executive Board to complete its work on the general standards for data dissemination, that will apply to all countries, so that they are in place before the spring 1997 meeting of the Committee.

Fund Financial Resources and Assistance

The Fund’s financial resources and assistance have been a central concern of the Committee over the past year, and very good progress has been made in three areas.

First, on the New Arrangements to Borrow, which will effectively double the resources currently available under the General Arrangements to Borrow, an agreement in principle was reached in May. The Committee requested the participants in these arrangements and the Executive Board to complete their work promptly.

Second, the Executive Board reached a consensus on a one-time allocation of SDRs to resolve the so-called equity issue. This will require an amendment of the Fund’s Articles of Agreement. On Sunday, the Committee endorsed this approach while emphasizing at the same time that such an amendment would not in any way affect the Fund’s existing power to allocate SDRs on the basis of long-term global need as and when that need arises. The Fund’s Executive Board has been asked to finalize the work on the amendment by the time of the Committee’s next meeting.

Finally, the Committee reached an agreement on the initiative to assist the heavily indebted poor countries (HIPCs). I am very much encouraged by the full support expressed by all Committee members for the implementation of this initiative. When in October 1995—less than a year ago—the Interim Committee encouraged the Fund and the World Bank to continue their work on ways to address the problem of the burden of multilateral debt, few observers would have thought that a credible strategy could have been devised and endorsed by the international financial community as early as today. Even fewer observers would have found it likely that the Fund could be a key partner in this strategy. Today, I am pleased that we have reached an agreement on a set of proposals to help the poorest countries to achieve an exit from unsustainable debt. I am also pleased that the Committee endorsed the Fund’s participation in this initiative through the Enhanced Structural Adjustment Facility (ESAF) with grants or loans on longer maturities.

I would like to end my report by noting that the Committee has requested the Executive Board to complete the Eleventh General Review of Quotas as soon as possible. My hope is that I will be able to report to you next year that the Board has indeed come to a positive conclusion on this very important issue.

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