Chapter

Interim Committee of the Board of Governors on the International Monetary System

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1994
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Press Communiqué October 2, 1994

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its forty-third meeting in Madrid, Spain, on October 2, 1994, under the chairmanship of Mr. Philippe Maystadt, Minister of Finance of Belgium.

2. Meeting at a time of encouraging developments in the world economy, the Committee focused on the policies required to sustain a non-inflationary expansion, reduce unemployment, and raise living standards worldwide. It recalled the contribution of policy cooperation to global economic progress in the fifty years since the Bretton Woods Agreement, and re-affirmed the growing importance of such cooperation in a highly integrated global economy. In this spirit, the Committee adopted the attached declaration on cooperation to strengthen the global expansion.

3. In order to complement and support this strategy for durable growth, the Interim Committee considered several measures to strengthen the Fund’s financial assistance to member countries. With regard to access to IMF resources, the Committee considered a proposal for a temporary increase in annual access limits from 68 percent to at least 85 percent of quota. Committee members recommended that the Executive Board further consider this proposal with a view to its early adoption. The Committee had a broad-ranging exchange of views with regard to the proposal to extend the systemic transformation facility with increased access. The Committee also had a broad-ranging exchange of views relating to proposals for allocation of special drawing rights. Committee members requested the Chairman to conduct further consultations and to call a meeting of the Committee when he judges that the prospects for resolution of these issues are favorable.

4. The Committee requests the Executive Board to accelerate its consideration of issues relating to the distribution among member countries of the cost of operating the Fund with a view to ensuring a more effective and equitable mechanism.

5. The Committee recognizes the special needs and problems of countries emerging from economic and political disruption and also of the poorest, most indebted countries, and requests the Executive Board to examine proposals in these areas.

6. The Committee attaches great importance to the on-going effort to enhance the Fund’s role in the international monetary system and its ability to serve its member countries. The Committee requests the Executive Board to pursue its work on strengthening Fund surveillance as the central element of the Fund’s contribution to better economic policies and more effective cooperation, and to continue its work on capital markets. With these objectives in mind, the Committee requests for its Spring meeting a report on the methodological aspects of multilateral surveillance. Committee members affirmed their intention to reinforce the Committee’s role in the process of policy cooperation and coordination, having particularly in mind the medium-term strategy.

Interim Committee Declaration on Cooperation to Strengthen the Global Expansion

1. The immediate prospects for economic growth in the world economy are better than they have been at any time in this decade. But serious policy challenges remain. For the industrial countries, the most important are to sustain economic growth, reduce unemployment, and prevent a resurgence of inflation. Growth in the developing countries (and in particular, in the poorest countries) must be maintained and extended. The economies in transition must be integrated into the international economy and set firmly on the path of sustainable growth.

2. The planned entry into force of the Uruguay Round trade agreements on January 1, 1995, will enhance world economic prospects by deepening global economic integration. The Committee urges ratification of the agreements without delay, and calls for action to sustain the impetus of trade liberalization and for close cooperation between the Fund and the proposed World Trade Organization (WTO). The Committee also welcomes the growing trend toward currency convertibility and encourages member countries to remove impediments to the free flow of capital.

3. The recent success of many developing economies illustrates once again the validity of a strategy based on steadfast implementation of strong programs of macroeconomic adjustment and structural reform. The Committee urges other countries to follow a similar bold strategy for sustained economic growth and domestic and external financial stability. Such efforts by developing countries must be supported by a global environment characterized by improved access to industrial country markets and timely financial support on appropriate terms, including a flexible approach to official bilateral debt reduction for low-income countries, in the context of strong policies.

4. The impressive turnaround in several economies in transition also attests to the benefits of macroeconomic discipline and structural reforms. The Committee urges all other economies in transition to be bolder in their approaches to stabilization and reform. Experience has demonstrated the central importance of early fiscal reforms and firm monetary discipline in the early stages of the transformation process to achieve financial stability. This needs to be accompanied by institution-building, price and external sector liberalization, enterprise restructuring and privatization, and financial sector reform. Social safety nets that are well targeted and cost efficient are also necessary to alleviate the adverse impact of higher open unemployment. As in the case of developing countries, the Committee recognizes the importance of a supportive international environment.

5. The improved economic outlook for the industrial countries creates an opportunity for them to strengthen growth and reduce unemployment, while safeguarding the progress toward price stability. The Committee attaches particular importance to the following three elements of a common strategy:

  • Structural reforms to eliminate impediments to sustained growth, including steps to dismantle nontariff trade barriers and to ensure the long-term financial viability of health care and public pension systems. The Committee notes that problems of long-term unemployment and lack of jobs for young and unskilled persons should be addressed by efforts to improve education and training and by fundamental labor market reforms to reduce disincentives to employment;

  • A strengthening of fiscal consolidation efforts in 1995 and beyond as part of a medium-term strategy to significantly reduce fiscal deficits beyond the effects of cyclical recovery and cut debt to GDP ratios, thereby facilitating lower real interest rates. The Committee notes in particular that countries with especially serious fiscal problems must not delay major corrective action; and

  • Readiness to adjust monetary conditions to maintain price stability as a condition for sustaining medium-term growth, including timely increases in interest rates with a view to preventing the emergence of inflationary pressures. This will reinforce the hard-won credibility of anti-inflationary monetary policies.

6. The Interim Committee will review progress in implementing the agreed common strategy at its Spring 1995 meeting.

Interim Committee Composition as of October 2, 1994

Philippe Maystadt, Chairman

Mohammad Abalkhail1Saudi Arabia
Edmond AlphandéryFrance
Ahmed Humaid Al-TayerUnited Arab Emirates
Lloyd M. BentsenUnited States
Domingo Felipe CavalloArgentina
Kenneth ClarkeUnited Kingdom
Eneas Da Conceicao ComicheMozambique
Lamberto DiniItaly
Ciro Ferreira GomesBrazil
Anwar IbrahimMalaysia
Sigbjoern Johnsen2Norway
Abdelouahab KeramaneAlgeria
Paul MartinCanada
Marcel Doupamby MatokaGabon
Philippe Maystadt3,4,5Belgium
Aleksandr N. ShokhinRussian Federation
Manmohan SinghIndia
Pedro SolbesSpain
Otto StichSwitzerland
Masayoshi Takemura6Japan
Theo WaigelGermany
Ralph WillisAustralia
Gerrit ZalmNetherlands
Zhu Rongji7China

Alternate attending for member:

Hamad Al-Sayari

Torstein Moland

Jacques Santer (Item 2)

Ivan Kocarnik (Item 3)

Ferdinand Lacina (Item 5)

Yasushi Mieno

Chen Yuan

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