Interim Committee of the Board of Governors on the International Monetary System
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1989
September 25, 1989
1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-third meeting in Washington, D.C., on September 24–25, 1989, under the chairmanship of Mr. H. Onno Ruding, Minister of Finance of the Netherlands. Mr. Michel Camdessus, Managing Director of the International Monetary Fund, participated in the meeting, which was also attended by observers from a number of international and regional organizations and from Switzerland.
2. The Committee noted that after two years of rapid expansion, the growth of economic activity in the industrial countries is moderating to a more sustainable pace. Inflation remains contained thanks to the implementation of appropriate policies. Policies will need to remain vigilant, particularly in those countries where inflationary pressures persist. Growth has also been strong in a number of developing countries, particularly among the exporters of manufactures, reflecting the continued buoyancy of world trade.
While prospects for sustained economic expansion among many countries continue to be favorable, a number of developments require close attention. Inflation remains high in some industrial countries; some further progress is being made in reducing external imbalances although adjustment has slowed; several countries, particularly in Europe, continue to face high unemployment. Growth remains weak in most of the heavily indebted middle-income developing countries and in many of the low-income countries of Africa.
The Committee agreed that, where inflationary pressures persist, and given the present high level of capacity utilization, monetary policies should remain cautious; a premature easing could well result in an intensification of cost/price pressures and eventually lead to a renewed rise in interest rates. At the same time the slowing of the pace of adjustment and the prospect of sizable and persistent current account imbalances among the largest industrial countries remain a matter of close attention. To give renewed impetus to the process of external adjustment, deficit countries should strengthen saving through fiscal policy, where appropriate, and by removing impediments to private saving, while surplus countries should continue to sustain adequate expansion of domestic demand without endangering price stability. In order to enhance their efficiency and to integrate further developing countries into the world economy, all industrial countries, as well as the newly industrializing economies, should step up structural reforms, including opening up sectors shielded from market competition and removing subsidies, to support noninflationary growth, facilitate external adjustment, and help to reduce unemployment over time.
The need to restore satisfactory growth in the developing countries with debt-servicing difficulties is urgent. These countries should intensify efforts to raise national saving and investment, promote efficiency through structural reforms, curb inflationary pressures, encourage the return of flight capital, and promote foreign direct investment while giving due attention to shielding the poorest from the adverse transitory effects of economic reforms. These efforts require maintenance of a favorable international environment, as well as an adequate flow of financial resources. In this connection, the Fund continues to stand ready to provide its resources, including enhanced structural adjustment facility resources, in support of strong growth-oriented adjustment programs in low-income countries.
The Committee emphasized the importance of economic reforms in certain Eastern European member countries and expressed the hope that these would soon be integrated within strong and sustainable economic programs that could be supported by the Bretton Woods institutions.
To increase their own efficiency and strengthen the health of the world economy, all countries must act forcefully to counter protectionist pressures, reverse the trend toward managed trade, and reduce existing trade barriers. The Committee emphasized that the successful completion of the current round of multilateral trade negotiations by the end of 1990 is essential.
3. The Committee welcomed the establishment by the Executive Board of operational guidelines for Fund support for significant debt and debt-service reduction where these are part of financing packages in support of strong growth-oriented adjustment programs. It noted the progress already made in several cases in implementing, in close collaboration with the World Bank, the strengthened debt strategy.
The approach adopted had allowed the development of financing packages reflecting the diversity of circumstances facing individual debtor countries. While recognizing that time is needed to negotiate complex and difficult arrangements involving both new money and debt and debt-service reduction options, Committee members reiterated that commercial banks needed to move expeditiously in arranging financing packages in support of strong adjustment programs. Each financing package must be evaluated carefully by the Fund for its adequacy to the circumstances of the member, the efficiency of debt reduction, and in light of the need to safeguard the Fund resources that would be made available so as to preserve the financial integrity of the Fund. The Committee reaffirmed its view that official creditors should not substitute for private lenders.
The Committee stressed that implementation of officially supported debt and debt-service reduction must not divert financial support from those countries that, notwithstanding heavy debt burdens, have been able to preserve access to international financial markets through sound economic policies.
The Committee welcomed the initiatives that have been taken by donors and creditors, both individually and through the Paris Club, to forgive or alleviate external obligations of the poorest low-income countries that rely mainly on official financing. It hoped that these initiatives could be pursued as appropriate on a flexible, case-by-case basis.
The Committee also welcomed the review by creditor governments of tax, regulatory, and accounting practices to remove unnecessary constraints to debt and debt-service reduction operations. It noted with satisfaction that concrete steps had already been taken in some countries and encouraged all other countries to do likewise.
4. The Committee discussed issues relating to the Ninth General Review of Quotas and the role envisaged for the Fund in the 1990s. The Committee noted the progress toward an agreement on an increase in the size of the Fund that was reported by the Executive Board as well as on the principles that could be followed in distributing an enlargement of the Fund between members.
There was widespread support in the Committee on the need for a substantial increase in quotas under the Ninth General Review, although a few members believe that the Fund has adequate resources at the present time to fulfill its responsibilities. The Committee underscored the central role of the Fund in fostering a stable international monetary system and in promoting a strong and sound global economy. It agreed that it is of fundamental importance further to reinforce the role of the Fund as the central monetary institution and that it must be adequately endowed to fulfill its systemic responsibilities in the first half of the 1990s, while reducing reliance on borrowing. It also agreed that the Fund must be able to respond in an effective manner to the balance of payments needs of individual members that implement strong programs of growth-oriented adjustment—and to assist them in mobilizing support from other sources—while maintaining a strong liquidity position and the revolving character of its resources. In this context, the Committee noted that prolonged use of Fund resources by some countries could impair the revolving character of the Fund and asked the Executive Board to examine actions that could be taken to address these problems.
The Committee reiterated that the size and distribution of any quota increase should take into account changes in the world economy since the last review of quotas as well as members’ relative positions in the world economy and the need to maintain a balance between different groups of countries, and the Fund’s effectiveness in fulfilling its systemic responsibilities, including its role in the strengthened debt strategy. The main principles that could guide the distribution of the enlargement of the Fund among members are: (i) all members should receive a meaningful increase in quotas; and (ii) the distribution should be based on uniform methods. The Committee agreed that, in the case of a general quota increase, an ad hoc increase in quotas should be considered where appropriate.
The Fund has not yet concluded its consideration of the issues regarding the appropriate size of the Fund in the 1990s. The Committee requested the Executive Board to pursue its work on the outstanding issues relating to the Ninth Review as a matter of highest priority, with a view to a decision by the Board of Governors on the completion of the Ninth Review before the end of this year.
5. The Committee discussed the Fund’s policy on enlarged access and, having taken note of the Fund’s liquidity position, agreed that the enlarged access policy and the present access limits under it should be maintained for 1990 and reviewed in the light of the outcome of the Ninth General Review of Quotas.
6. The Committee reiterated its strong support for the three aspects—preventive, collaborative, and remedial—of the cooperative approach to reducing and eventually eliminating overdue financial obligations to the Fund that it had endorsed at its meeting in Berlin. It welcomed the strong and continued implementation by the Fund of the strategy and noted with satisfaction the significant reduction in the number of members in arrears, the establishment of a support group for two others, and progress by several members in embarking on significant policy reforms as a step toward clearing their arrears to the Fund and other international financial institutions and normalizing their financial relations with the international community.
The Committee was also encouraged by the resumption of payments by certain other countries which were cooperating with the Fund in the search for solutions to their outstanding arrears. It was concerned, however, that the overall amount of arrears had nonetheless continued to rise, owing to the failure of a few countries with protracted arrears to meet their financial obligations. It noted with regret that a few members were still not cooperating adequately in addressing the problem of their arrears to the Fund and that remedial measures had had to be adopted. The Committee again called on all members in arrears to adopt policies promptly to correct their economic imbalances and regularize their relations with the Fund, bearing in mind the burden that overdue obligations impose on other Fund members. It urged all members to assist the Fund in the implementation of the cooperative strategy. The Committee requested the Executive Board to submit a progress report for consideration at its spring meeting.
7. The Committee welcomed further discussions in the Executive Board on key issues relating to the functioning of the international monetary system, international liquidity, and the systemic role of the SDR. The Committee encouraged the Executive Board to continue to analyze present developments in the system with a view to identifying improvements that could be implemented. Although the broad support necessary for an allocation of SDRs during the fifth basic period has not emerged, the Committee requested the Managing Director to continue to conduct consultations on this issue.
8. The Committee reaffirmed the central role of Fund surveillance in fostering more consistent and disciplined economic policies. It noted the contribution of the Fund to the process of policy coordination through its work on key economic indicators and the development of medium-term scenarios to clarify the implications of alternative policy stances. The Committee encouraged the Executive Board to continue improving the analytical and empirical framework underlying multilateral surveillance, including the measurement, determinants, and systemic consequences of international capital flows.
9. The Committee agreed to hold its spring meeting in Washington, D.C., on May 7, 1990.
Interim Committee Composition
as of September 24–25, 1989
H.O. Ruding, Chairman
|Mohammad Abalkhail1||Saudi Arabia|
|Hikmat Omar Al-Hadithi||Iraq|
|Alhaji Abubakar Alhaji||Nigeria|
|Nicholas F. Brady||United States|
|Paul J. Keating2||Australia|
|Nigel Lawson||United Kingdom|
|Mailson Ferreira da Nobrega||Brazil|
|Pay Pay wa Syakassighe||Zaïre|
|Niels Helveg Petersen4||Denmark|
|Theo Waigel||Germany, Federal Republic of|
|Michael H. Wilson||Canada|