Interim Committee of the Board of Governors on the International Monetary System
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1987
Press Communiqué. September 28, 1987
1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twenty-ninth meeting in Washington, D.C. on September 27–28, 1987 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. In their discussion of the world economic outlook, Committee members noted certain positive features in the current situation. The present economic upswing is about to complete its fifth year, there are few signs of cyclical strain, inflation has remained moderate, progress has been made in reducing fiscal and payments imbalances in real terms among the large industrial countries, and economic growth in non-fuel exporting developing countries has picked up. Economic performance nevertheless is falling short of expectations in a number of other respects, with unemployment still high in many industrial countries. The persistence of large current account imbalances in some of these countries is a matter of concern. Also, commodity prices, though having recovered somewhat of late, remain historically low in real terms; the debt situation of the heavily indebted middle-income developing countries remains difficult; and the plight of the low-income countries, especially those with declining per capita incomes, continues to give cause for deep concern.
In dealing with these problems, the importance of a continued coordinated, cooperative approach was stressed. The improved economic and monetary cooperation between the major industrial countries was welcomed. The resolution of debt difficulties remains crucially dependent on the combination of sustained growth-oriented adjustment in debtor countries, access by these countries to external financing, and policies in industrial countries that will secure stable world financial conditions and open and growing markets. The Fund has a major responsibility through its surveillance function to foster this combination of mutually reinforcing policies.
Committee members welcomed the recent reduction in the U.S. fiscal deficit. This progress should be carried further in 1988 and beyond to facilitate external adjustment without harming capital formation. In this context, they were pleased with the decision by the President of the United States to sign legislation that carries this process further in 1988. It is important, at the same time, that the growth of domestic demand exceed that of GNP in countries with strong external surplus positions, price stability, and government deficits that are not too large. They also stressed that some newly industrialized economies should play a greater role in the global adjustment process. In addition, while Committee members acknowledged efforts made by a number of developing countries, they urged those developing countries that need to initiate or continue adjustment to intensify efforts to achieve and maintain domestic economic stability; to mobilize additional domestic savings for investment; to improve the efficiency of resource use; and to pursue outward-oriented growth strategies. Committee members stressed the importance of ensuring that appropriate flows of financing from private creditors, industrial countries, and multilateral financial institutions are available. The Committee took note of the adverse impact which increases in real interest rates have on the economies of heavily indebted countries.
3. In reviewing the external environment, Committee members expressed concern over recent trends toward the intensification of trade restrictions and export subsidies. They remarked that such measures create uncertainties, interfere with efficient resource allocation, reduce living standards, hamper efficient adjustment, hinder the resolution of the debt situation, and ultimately worsen employment prospects internationally. They also invite retaliation. The Committee noted that macroeconomic imbalances have both aggravated demands for protection and complicated the removal of the structural rigidities that often are at the root of protectionist pressures. The Committee emphasized that macroeconomic imbalances should not and cannot effectively be tackled through trade restrictions; instead, it stressed that the correction of the factors responsible for these imbalances would promote a climate conducive to the strengthening of an open multilateral trade system and to an improvement in the general level of welfare. The Fund should, in its own operations, continue to do its utmost to support the GATT. The Committee reiterated the importance of early results in the ongoing Uruguay Round in order to make decisive progress in trade liberalization, including services and agricultural products.
4. The Committee welcomed the more extended use of indicators in the context of surveillance and the recent world economic outlook exercise. Committee members generally found the medium-term focus of the analysis and the use of alternative medium-term scenarios, involving key indicators, to be helpful in highlighting the international interaction of economic policies and developments. They encouraged the Executive Board to pursue its work in this area, in the context of both the world economic outlook exercise and Article IV consultations, and to continue exploring the development of criteria that would be helpful in judging the sustainability and desirability of the evolution of a limited set of key economic variables. The Committee noted the importance of stable exchange market conditions and welcomed the progress made since the Louvre accord.
5. Committee members, taking stock of the uneven adjustment experience of many indebted countries and the uncertainties in the current international economic environment, agreed that a satisfactory resolution of the debt problem is likely to take longer than was expected earlier, despite the significant progress that has been made in a number of areas.
Members emphasized the importance of continuing the case-by-case approach to debt problems, and noted that this is the only way in which adjustment programs and financing flows can be tailored to individual country circumstances. While noting the support that would be provided by an improved international economic and trade environment, they stressed the overriding need for heavily indebted countries to pursue policies aimed at restoring macroeconomic balance and domestic confidence and enhancing growth prospects so as to strengthen creditworthiness, induce a reflow of private capital, and ease a return to normal debtor-creditor relations. They also remarked that unilateral initiatives carry heavy risks for all parties.
Members reaffirmed the central role that the Fund had to continue to play in helping indebted countries develop appropriate growth-oriented adjustment strategies and in mobilizing finance. The need for continued close cooperation between the Fund and the Bank, especially in their structural adjustment lending, was also stressed. The increase in lending from multilateral development banks was seen as an encouraging development, as was the more open stance of export credit agencies for countries implementing sound economic policies.
Members welcomed the greater diversification in recently negotiated financing arrangements between creditors and debtors. The form and terms of such financing in turn need to reflect the economic situation and prospects of individual countries, with a view to supporting both normalization of their payments position and a return to more satisfactory rates of economic growth. The Committee considered that a further broadening of the range of mutually agreed market-oriented options can be of benefit in securing timely agreement on financing packages and rebuilding debtor-creditor relations. Of particular note was the introduction of various forms of new financial instruments and securities and of formulae that do not add further to the stock of debt. The Committee, however, expressed renewed concern about the apparent slowness in the recognition of strengthened creditworthiness following upon implementation of sound adjustment policies in certain heavily indebted countries—particularly some of the smaller middle-income countries. It stressed that delays in the provision of adequate commercial bank financing could jeopardize the timely implementation of these policies.
In view of the critical situation facing many low-income countries, the Committee noted the growing international recognition that exceptional assistance was needed and, in this context, it noted with satisfaction the longer grace and repayment periods extended in recent Paris Club reschedulings to some of these countries that are undertaking adjustment efforts. It also noted that the possibility of applying lower interest rates to existing official debts for the poorest countries was under consideration. It welcomed the conversion of official debt into grants, and measures with similar effects, by certain creditor countries for the poorest countries, and encouraged other official creditors to follow that example. It also encouraged private creditors to continue their efforts to find realistic responses to the debt-servicing difficulties and efforts at adjustment of these countries. The Committee also noted with satisfaction the increased emphasis on support for policy reforms by bilateral and multilateral donors.
6. The Committee noted that the Fund’s structural adjustment facility (SAF), and the policy framework papers developed jointly with the World Bank in conjunction with the SAF, have assisted the process of designing and monitoring implementation of growth-oriented programs in low-income countries. Members reiterated their view that sustainable growth in these countries can be attained only through comprehensive programs of macroeconomic and structural reform, and that such programs can be implemented successfully only if accompanied by adequate financing and improving world economic conditions.
The Committee recalled that it had expressed the hope at its last meeting that arrangements under the SAF would attract additional financial support. In this context, the Committee strongly endorsed the initiative of the Managing Director for a substantial increase in the resources available for lending in association with programs supported by the SAF, noting the complementarity between this initiative and those already taken or under consideration elsewhere in the international community, particularly the World Bank. The Committee welcomed the progress achieved thus far in exploring arrangements suitable to mobilize resources on the scale envisaged, consistent with the monetary character of the Fund. The Committee asked the Managing Director and the Executive Board to proceed as quickly as possible with further consultations with potential contributors, in order to conclude these discussions within this year.
7. The Committee noted that the Committee of the Whole on the Ninth General Review of Quotas has begun its work by considering preliminary quota calculations and reviewing issues bearing on the size of the Fund. The Committee urged Executive Directors to pursue their work on the Ninth General Review of Quotas so as to be in a position to make appropriate recommendations in due course.
8. The Committee discussed the Fund’s policy on enlarged access and the limits on access to the Fund’s resources in 1988. It reaffirmed the temporary character of the enlarged access policy and noted that this policy and the limits on access under it are to be reviewed before the end of 1987.
Noting the difficult external conditions facing many member countries in 1987 and the prospect of continuing sizable payments imbalances in 1988, the Committee agreed to continue the enlarged access policy and to retain the present access limits under that policy in 1988. It also noted that the Executive Board has concluded, in a recent review, that the Fund’s liquidity position remains satisfactory and is not an obstacle to the maintenance of these limits.
In connection with its review of access limits under the Fund’s special facilities, the Committee noted that the Executive Board is continuing its review of the compensatory financing facility; it encouraged the Executive Board to complete this review before the next meeting of the Committee and agreed that, for the time being, the limits on access under special facilities should be maintained.
The Committee requested the Executive Board to complete, before the end of this year, the necessary action in order to implement the agreement reached in the Committee.
9. The Committee heard a report from the Managing Director on the question of a resumption of SDR allocations. Most Committee members reiterated the view that there is a long-term global need to supplement existing reserve assets and that many countries have a need for reserve supplementation. They stressed the costs to members and the risks to the efficient functioning of the international monetary system of building reserve holdings through borrowing on international credit markets or through current account surpluses. Some other members of the Committee, however, continued to believe that the condition for an SDR allocation, i.e., the existence of a long-term global need, had not been demonstrated. The Committee asked the Executive Board to continue its examination of the question of allocation of SDRs and welcomed the Board’s intention to continue its examination of the functioning of the SDR with a view to enhancing its attractiveness as a reserve asset.
10. The Committee welcomed the decision by the Executive Board to carry out a comprehensive examination of adjustment programs and of supporting Fund arrangements in the context of growth-oriented strategies. Such an examination will also provide an opportunity to consider whether the Fund’s policies regarding conditionality need to be re-examined in light of changes in the conditions facing member countries since the last comprehensive review in 1978–79, and in light of the increased emphasis being placed on growth-oriented adjustment. An essential aspect of this examination will be to assess the role of the Fund in meeting member countries’ balance of payments needs, both from its own resources and through the mobilization of other sources of finance. It was stressed in this connection that the cooperative nature of the Fund and the need to preserve the revolving character of its resources require that members continue to give the highest priority to fulfilling their financial and other obligations to the institution.
The Committee welcomed the recent report of the Group of Twenty-Four on the role of the Fund in adjustment with growth, which complements earlier reports by both the Group of Ten and the Group of Twenty-Four. It noted that the Executive Board has begun its examination of the analyses and recommendations contained in the reports and requested it to report on the status of its work for the consideration of the Committee at its next meeting.
11. The Committee agreed to hold its next meeting in Washington, D.C. on April 14, 1988.
Interim Committee Composition—as of September 27–28, 1987
H.O. Ruding, Chairman
|Mohammad Abalkhail||Saudi Arabia|
|Abdul Malik A. Hamar||United Arab Emirates|
|James A. Baker III||United States|
|John G. Bestman||Liberia|
|Luiz Carlos Bresser Pereira||Brazil|
|Paul J. Keating2||Australia|
|Nigel Lawson||United Kingdom|
|Pay Pay wa Syakassighe||Zaïre|
|Juan Vital Sourrouille||Argentina|
|Gerhard Stoltenberg||Germany, Federal Republic|
|Narayan Datt Tiwari||India|
|Michael H. Wilson||Canada|