Chapter

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

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1990
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Press Communiqué—September 24, 1990

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-fifth meeting in Washington, D.C. on September 23-24, 1990 under the chairmanship of Mr. Michael H. Wilson, Minister of Finance of Canada. 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 several years of rapid expansion, growth is continuing, albeit at a slower pace. The recent rise in the world price of oil, were it to continue, may contribute to cost-price pressures and moderate growth, especially in oil importing countries.

It is therefore important that fiscal and monetary policies continue to focus on improving the conditions for strong, sustainable non-inflationary growth over the medium term. Attempts to insulate domestic energy prices through subsidies or price controls, or to compensate for higher oil prices by increasing nominal wages, would only serve to fuel inflationary expectations and require, at a later stage, tighter fiscal and monetary policies. While the consequences of recent developments in the Middle East are likely to complicate the task of fiscal consolidation in a number of countries, the need for credible actions to lower fiscal deficits remains urgent. Stability-oriented monetary policy has a crucial role to play in preventing a wage-price spiral. It is also essential that both industrial and developing countries continue to implement structural reforms aimed at fostering energy conservation, boosting saving and capital formation, and increasing efficiency through enhanced competition and liberalization of trade and domestic markets.

Such a policy stance in the face of recent events would contribute to strengthening the medium- and long-term outlook for the world economy and would help to maximize the gains expected from the accelerated integration of the European Community, the German unification, and the far-reaching changes now taking place in Central and Eastern Europe.

3. The Committee stressed that the resilience of the world economy and the success of market-oriented reforms and adjustment efforts in Central and Eastern Europe and in developing countries all depend importantly on an open, transparent, and competitive trading system. In this context, it strongly emphasized the vital importance of a successful Uruguay Round in reducing further the barriers to trade, in establishing trading rules and disciplines for the future, and in bringing into the multilateral trading system areas that have largely remained outside its framework. While welcoming the progress that has been made in certain areas of the Round, the Committee expressed deep concern over delays and noted that differences have yet to be resolved on several issues that are crucial to an overall agreement. The Committee urged all participants in the negotiations to make every effort to ensure a timely and successful conclusion of the Round and thereby create the conditions for higher rates of economic growth worldwide.

4. The Committee welcomed the continuing examination by the Executive Board of major issues in the evolving international monetary system, including the implications of policies of major countries, the progress toward European Monetary Union and the prospects for further moves toward convertibility in Eastern Europe, as well as work on exchange rate systems and on the determinants and systemic consequences of capital flows. The Committee emphasized the central responsibility of the Fund for evaluating continuously the functioning of the international monetary system and identifying improvements that could be implemented, especially through its bilateral and multilateral surveillance activities, support for the process of policy coordination, technical assistance, and its readiness to alleviate global liquidity shortages should they arise.

5. The Committee noted that once again unexpected events have adversely affected the world economy. The Committee welcomed the international efforts of individual countries to provide immediate and medium-term economic assistance to those countries seriously affected by the Persian Gulf crisis. It encouraged the Executive Board to continue to explore how the Fund can best support members’ efforts to deal with recent developments, including the increase in oil prices. Committee members noted that the Fund is well equipped to help members formulate appropriate and strong adjustment policies and catalyze support from other sources. The Committee agreed that the Fund should respond on an expedited basis to present difficulties through use and, as appropriate, adaptations of its existing instruments, including access to stand-by and extended arrangements, the compensatory and contingency financing facility, and the enhanced structural adjustment facility. The Committee invited the Executive Board expeditiously to develop the modalities of these adaptations and to take account of the requirements of current circumstances in tailoring members’ access to Fund resources, including ways to address the problems of certain members in servicing such new debt. The Committee hoped that all members that are in a position to do so will collaborate in these efforts to assist members that are severely affected by current developments in the Middle East.

6. The Committee welcomed the progress made by a number of heavily indebted countries in undertaking measures designed to restore macroeconomic balance and re-establish the conditions for sustained growth. The successful experience of these countries illustrates the central importance for members with debt difficulties of adopting policies to improve efficiency and to foster saving, investment, and private capital inflows, including a return of flight capital. It underscores also the crucial role of prompt and adequate external financing in support of such policies. The early and successful conclusion of financing arrangements in the context of the strengthened debt strategy has been a key element in fostering an improved economic performance in heavily indebted countries. The timely assistance of the Fund and the World Bank to these members in support of growth-oriented adjustment programs is of critical importance in their efforts to normalize relations with all external creditors and mobilize the necessary additional financial resources.

In this light, the Committee noted with concern the difficult prospects facing many low-income and lower middle-income countries indebted mainly to official creditors, and the likely worsening of payments imbalances in many countries on account of the recent developments in the Middle East. The Committee urged those countries to adopt and sustain the necessary corrective policies. The Committee also noted with concern the slow progress of some negotiations between commercial banks and members. With respect to commercial bank financing packages, it called on all parties concerned to expedite negotiations and resolve outstanding arrears problems. As regards official bilateral debts, the Committee welcomed the continuing support of creditors for members’ efforts to pursue adjustment and regain external viability. It noted in that connection the helpful actions taken by some creditor countries to provide new money or to reduce debt and debt-service burdens, including through cancellation of official development assistance obligations. It also welcomed the recent decisions of the Paris Club to permit debt/equity and other debt conversion in reschedulings and to extend longer repayment periods on a case-by-case basis to lower middle-income countries, as well as the continuing review of additional options. It invited the Paris Club to consider recent initiatives and proposals to enlarge the scope of official debt relief. The Committee welcomed the U.S. effort to implement the “Enterprise for the Americas Initiative” designed to promote investment, growth, and debt reduction in Latin America.

7. The Committee welcomed the progress achieved in some Central and Eastern European countries in reducing imbalances and observed that the process of structural change on which the region is embarking will require action in many fields—particularly in light of recent oil market developments—and over an extended period. Safety nets will be necessary to protect the vulnerable segments of society. It will be important for these economies to be opened to foreign trade and investment as rapidly as possible. While remaining mindful of the need to continue to address the needs of other countries facing similar difficulties, the international community should support the programs of stabilization and reform of these countries by improving the access of their exports to world markets and increasing its financial and technical assistance. In this connection, the support provided by national governments and regional and multilateral institutions, and its effective coordination, was welcomed.

The Committee welcomed the entry of the Czech and Slovak Federal Republic and the prospective entry of Bulgaria and Namibia into the Bretton Woods institutions. Together with the membership applications of Mongolia and Switzerland, these developments enhance the universal character of the Fund and the Bank.

8. The Committee welcomed the role of the Fund in convening work, undertaken jointly with the World Bank, the OECD, and the designated President of the EBRD, and in close consultation with the Commission of the European Communities, on a detailed study of the economy of the Soviet Union.

9. The Committee stressed the importance of bringing into effect the quota increases under the Ninth General Review at the earliest possible date, particularly in view of recent events and uncertainties in the world economy. The Committee called upon all members to consent to the quota increase and accept the associated Third Amendment of the Articles of Agreement as soon as possible.

10. The Committee agreed to hold its next meeting in Washington, D.C. on April 29, 1991.

Interim Committee Composition

as of September 23–24, 1990

Michael H. Wilson, Chairman

Mohammad AbalkhailSaudi Arabia
Abubakar AlhajiNigeria
Pierre BérégovoyFrance
Nicholas F. BradyUnited States
Zelia Maria Cardoso de MelloBrazil
Guido CarliItaly
Madhu DandavateIndia
Antonio Erman GonzalezArgentina
Abderrahmane Hadj-NacerAlgeria
Ryutaro HashimotoJapan
Paul J. Keating1Australia
Wim KokNetherlands
Rolf KullbergFinland
LI Guixian2China
Alternate attending for the member:
John MajorUnited Kingdom
Philippe MaystadtBelgium
Adrianus MooyIndonesia
Pay Pay wa SyakassigheZaïre
Mohammed Mehdi Saleh3Iraq
Pedro R. TinocoVenezuela
Theo WaigelGermany, Federal Republic of
Michael H. Wilson4Canada

Simon Crean

CHEN Yuan

Abdul Malik Al Hamar, United Arab Emirates

John W. Crow

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