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

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1988
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Press Communiqué September 26, 1988

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-first meeting in Berlin (West) on September 25–26, 1988, 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 assessing international economic developments and prospects, the Committee noted that growth in the industrial countries has been stronger than expected, world trade has been buoyant, and inflation has been kept moderate. Payments imbalances, though still large, have begun to narrow, and the strength of many non-oil commodity prices, together with improved policies, has caused strong growth of export earnings for some developing countries. These results are encouraging, but vigilance is still required to ensure sustainability of noninflationary growth, reduction of imbalances and stability in financial and exchange markets. The Committee also observed that the debt burden in a number of developing countries is still very high and that, despite economic expansion in the industrial world, current and projected growth in many developing countries remains inadequate.

In dealing with external payments imbalances, Committee members stressed that the economic policy coordination process initiated in 1985 remains valid. In the United States, the federal budget deficit should be reduced further and measures taken to raise private sector savings. In Europe, macroeconomic policies need to be complemented by structural changes to sustain the momentum of growth and reduce unemployment while facilitating the world adjustment process. In those European countries where external surpluses remain large, strong domestic demand growth is required. In Japan, where policy efforts have succeeded in raising domestic expenditure faster than output, structural reforms should be pursued to support and sustain the greater reliance on domestic demand-led growth. Committee members also noted the strong performance of the newly industrializing economies in Asia and the increased contribution some of them should make to the reduction in global imbalances.

With respect to the developing countries, Committee members reemphasized the importance of policies to strengthen financial stability, encourage saving, raise capital formation, and improve efficiency. It is also imperative that creditors provide timely and adequate financial support for resolute and well-conceived reform efforts.

Committee members stressed that industrial countries must maintain and improve a favorable international environment—including sustained noninflationary growth and more open markets for goods and services. Concern was expressed at the persistent strength of protectionist pressures, the continuing tendency toward an intensification of nontariff barriers to trade, and the adverse effects of distorting industrial and agricultural support policies of industrial countries on their own economies and on trading partners, including in particular developing countries. Committee members stressed the paramount importance of resisting protectionism and imparting renewed momentum to trade liberalization in the context of the Uruguay Round. Substantial progress must be made at the GATT midterm review in December 1988 in Montreal.

3. Committee members welcomed the progress made over the past three years, partly through the use of indicators, in strengthening the process of international economic policy coordination among the larger industrial countries. The challenge ahead is to build on that progress by improving the appropriateness, the consistency, and the timeliness of policy implementation. Toward that end, the Committee encouraged the Executive Board to explore the possible strengthening of surveillance, both in the fields of economic indicators and in the area of structural policies. It recalled that the Executive Board has a continuing responsibility under the Articles of Agreement to keep the working of the international monetary system under review, and to identify ways for its improved functioning within a multilateral framework.

4. The Committee reiterated its support for the current debt strategy. It emphasized the continued central role of the Fund in implementing the debt strategy by helping members design medium-term growth-oriented adjustment programs, monitoring the adjustment process, supporting these with its own resources, and mobilizing other financing. It noted the importance of close collaboration with the World Bank in these endeavors. In discussing the strategy, Committee members expressed concern that many countries continue to face severe financing and adjustment difficulties, which have become more severe due to the recent increase in interest rates. More forceful actions are needed in the context of the current cooperative, case-by-case approach to resolve these difficulties. In particular, Committee members underscored the continuing need for countries with debt-servicing problems to adopt credible growth-oriented adjustment programs that can help restore domestic and foreign confidence and thereby discourage capital flight and enhance these countries’ access to private capital markets. While recognizing that new money continues to be of primary importance in financing packages for countries undertaking adjustment but remains difficult to secure, the Committee agreed that the menu approach should be broadened further, including through voluntary market-based techniques which increase financial flows and which reduce the stock of debt without transferring risk from private lenders to official creditors. Banks should be encouraged to provide adequate refinancing and not only rescheduling of amortization payments. The Committee encouraged creditor countries to explore whether their tax and regulatory regimes are consistent with the continued broadening of the menu approach.

The Committee expressed great interest in the intention of Japan to extend, on a case-by-case basis, additional financing through the Export-Import Bank of Japan—in the form of untied loans at below-market rates in parallel with Fund arrangements—mainly to middle-income countries undertaking Fund-supported adjustment programs. The Committee invited the Executive Board to study the modalities of this proposal through which Japan intends to promote growth in developing countries and to contribute to the solution of the debt problem.

The Committee welcomed the recent adaptations in Fund facilities, including the commencement of operations of the enchanced structural adjustment facility (ESAF) to assist low-income countries, the modifications in the operational modalities of the extended Fund facility (EFF), and the establishment of the compensatory and contingency financing facility (CCFF). The Committee emphasized that it was now essential for low-income countries to come forward with programs that could merit support of the ESAF and urged countries that have not already done so to contribute to the facility.

The Committee warmly welcomed the agreement by governments of creditor countries to provide additional debt relief through Paris Club reschedulings and by multilateral development institutions to provide concessional assistance to the poorest of the indebted countries that are implementing growth-oriented adjustment programs. The Committee urged close coordination of the form, timing, and conditions of the official assistance provided in support of such adjustment programs.

5. The Committee had an exchange of views on the question of overdue financial obligations to the Fund. The Committee stressed the adverse impact of overdue obligations on the effectiveness of the Fund as a cooperative monetary institution, as well as the heavy financial burdens they impose on other debtors and on creditors of the Fund, while recognizing the extremely severe plight of some of these countries. It welcomed the intention of the Executive Board to pursue a multifaceted approach to this problem involving preventive measures and intensified collaboration where members with overdue obligations are cooperating with the Fund. Intensified collaboration will need to involve coordinated assistance, provision of bilateral financing to members that undertake strong programs of economic reform and seek to regularize their relations with the Fund, and prospective support from the international financial institutions. The Committee urged all members, within the limits of their laws, to treat the Fund as a preferred creditor and to lend their active and tangible support to this cooperative endeavor, so as to bring countries with overdue obligations back into the mainstream of international economic relations. The Committee requested the Executive Board to pursue its work on the modalities of this cooperative approach and to report back to the Committee at its meeting in April 1989.

6. The Committee discussed the Fund’s policy on enlarged access and agreed that the present access limits should be maintained for 1989. The Committee indicated that the enlarged access policy should be reviewed in the light of the outcome of the Ninth General Review of Quotas.

7. In connection with the Ninth General Review of Quotas, which also would reduce the reliance of the Fund on borrowing, the Committee noted the progress made and urged the Executive Board to give high priority to its work on the Review and to report to the Committee before the Committee’s next meeting so that appropriate proposals can be made to the Board of Governors not later than April 30, 1989, as agreed.

8. The Committee noted that the Executive Board had continued to monitor developments in international liquidity and to examine the implications of these developments for the role of the SDR in the international monetary system. The Committee welcomed the consideration of issues related to the concept and measurement of international liquidity and it requested the Executive Board to pursue its work in this area. In assessing the potential role of the SDR in improving the performance of the international monetary system, the Committee encouraged the Executive Board to continue its study of how to increase the usefulness of the SDR as a reserve asset. The question of a resumption of SDR allocations during the remainder of the fifth basic period from 1988-91 should be kept under consideration.

9. The Committee agreed to hold its next meeting in Washington, D.C. on April 3, 1989.

Interim Committee Composition as of September 25-26, 1988

H.O. Ruding, Chairman
Mohammad AbalkhailSaudi Arabia
Hikmat Omar Al-HadithiIraq
Giuliano AmatoItaly
Pierre BérégovoyFrance
Nicholas F. BradyUnited States
S.B. ChavanIndia
Daim ZainuddinMalaysia
Paul J. KeatingAustralia
Nigel LawsonUnited Kingdom
Li Guixian1China
Philippe MaystadtBelgium
Kiichi Miyazawa2Japan
Mailson Ferreira da NobregaBrazil
Bader-Eddine NouiouaAlgeria
Chu S.P. OkongwuNigeria
Pay Pay wa SyakassigheZaire
Niels Helveg PetersenDenmark
H.O. Ruding3Netherlands
Carlos SolchagaSpain
Juan Vital SourrouilleArgentina
Gerhard StoltenbergGermany, Federal Republic of
Michael H. WilsonCanada

Alternate attending for the member:

Qiu Qing

Satoshi Sumita

W.F. Duisenberg

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