Following is the full text of the communiqué issued by the International Monetary and Financial Committee (IMFC) after its meeting in Washington, D.C., on April 14. The meeting was chaired by Gordon Brown, Chancellor of the Exchequer of the United Kingdom.
The global economy and financial market outlook
The Committee welcomes the continued strong, broad-based expansion of the global economy. Growth is becoming regionally more balanced and is expected to remain strong in 2007 and 2008. Global financial stability continues to be underpinned by solid economic foundations. Downside risks requiring continued vigilance arise from the possibility of a reassessment of risks in global financial market conditions, of a sharper-than-expected slowdown in the U.S. economy, and of a revival of inflationary pressures as output gaps close or if oil prices rebound. The risk to the global economy from a possible rise in protectionism and the substantial forgone growth should the Doha Round fail makes trade policy a key medium-term concern. The Committee welcomes progress and continued focus, in IMF surveillance, on the agreed strategy for promoting an orderly unwinding of global imbalances over the medium term. It encourages policies that allow countries to take advantage of financial globalization while containing vulnerabilities.
In the advanced economies, monetary policy needs to remain committed to maintaining price stability while taking account of the situation of different countries. Fiscal positions are strengthening, and now is a good time to further advance fiscal consolidation and the fundamental reforms that will help ensure fiscal sustainability in the long term. The focus should be on measures to ensure the viability of health care and pension systems in the face of population aging. Potential growth will be bolstered by reforms to enhance the capacity of labor to adapt to, and take full advantage of, globalization, complemented in many countries by further steps to enhance productivity and competition in product and services markets and further steps for free trade and market access.
Emerging market and other developing countries continue to perform strongly and are making progress in improving their resilience to possible turbulence in financial markets and volatility in commodity prices. To consolidate this performance and promote sustained growth that is broadly shared, continued efforts are needed to strengthen budgetary positions and improve debt management practices, entrench the credibility of monetary and fiscal policies, and ensure the sustainability of external positions. Advancing reforms to improve the functioning of domestic financial markets and enhance the business and investment environment remains a key medium-term priority. Among some surplus countries, there is a continued need to boost domestic demand and allow for greater exchange rate flexibility.
The Committee is particularly encouraged by the continued robust growth in low-income countries, including in sub-Saharan Africa. It calls on poor countries and donors to continue working in partnership to build on this strong performance so as to accelerate progress toward achieving the Millennium Development Goals (MDGs). Countries should persevere with sound macroeconomic policies and reforms to foster vibrant and diversified market-based economies. The international community should support these countries’ efforts with increased and more efficient aid, including through fulfilling the pledges made by donors to double aid to sub-Saharan Africa by 2010. The Committee also stresses the importance of further trade liberalization and delivering Aid for Trade commitments. In this context, it looks forward to the early establishment of the enhanced Integrated Framework.
The Committee welcomes the report it has received from IMF Managing Director [Rodrigo de Rato] and the participants in the multilateral consultation on global imbalances launched following the spring 2006 IMFC meeting. It agrees that resolving imbalances in a manner compatible with sustained global growth is a shared responsibility and notes that the policy plans set out by the participants—China, the euro area, Japan, Saudi Arabia, and the United States—represent further progress in the implementation of the strategy the Committee has previously set forth and endorsed. The Committee also notes the assessment by Fund staff that, as these policies are implemented, they will make a significant contribution to reducing global imbalances. It considers that the experience gained so far demonstrates that the multilateral consultation approach has been useful for addressing global issues through discussion and cooperation among members and should prove to be a valuable instrument going forward for enhancing and deepening Fund surveillance. It looks forward to the Executive Board’s review of the experience with the process and the conclusions of the first multilateral consultation and of the lessons for the future.
The Committee welcomes the resumption of the Doha Round trade negotiations and calls on WTO [World Trade Organization] members to work with a renewed commitment to urgently achieve an ambitious outcome. Benefiting from the report by WTO Director-General Pascal Lamy on the current status of the negotiations, the Committee looks for strong political leadership from those countries now playing a central role in the negotiations to forge the necessary breakthrough. The Committee emphasizes that all members stand to benefit from a Doha Development Round outcome that promotes growth and fosters economic development by reducing trade barriers and strengthening the multilateral trade system. The Committee considers it critically important to ensure that the benefits of globalization are widely shared and help reduce poverty and income disparities.
Implementation of the IMF’s Medium-Term Strategy
The Committee welcomes the steps being taken to strengthen and modernize IMF surveillance to ensure its effectiveness as globalization deepens. It calls on the Executive Board to continue to give priority to further work on all aspects of this reform, including updating the 1977 Decision on Surveillance over Exchange Rate Policies. The goal should be to improve the quality of surveillance, its focus, candor, and evenhandedness. In this context, ensuring a medium-term perspective and external stability is important. In this connection, the Committee looks forward to the discussion of the Independent Evaluation Office’s (IEO) report on the Evaluation of the IMF’s Advice on Exchange Rate Policy. The Committee, with a view to gaining broad support across the membership, agrees that the following principles should guide further work: first, there should be no new obligations, and dialogue and persuasion should remain key pillars of effective surveillance; second, it should pay due regard to country circumstances and emphasize the need for evenhandedness; and third, it should retain flexibility to allow surveillance to continue evolving.
The Committee supports the efforts being made to strengthen the way financial sector, capital market, and exchange rate issues are addressed in surveillance, and to enhance the focus of surveillance on key risks facing members and on cross-country spillovers. It notes the effort of the Fund in enhancing the methodology for assessing the effectiveness of surveillance. The Committee welcomes the continuing work by the Board on independence and accountability in surveillance, as well as on a remit, which could provide a clear statement of surveillance priorities. The Committee welcomes the priority being given by the Fund to enhancing and deepening the international community’s understanding of financial stability issues, which will need to be an increasing focus of the Fund’s surveillance. It looks forward to further steps by the Fund to promote dialogue on how financial markets and innovation can work to foster economic growth and financial stability, including possibly in the context of further multilateral consultations. The Committee looks forward to the review of streamlined Article IV consultations.
Recognizing the need for more predictable and stable sources of Fund income, the Committee expresses its gratitude to the Committee of Eminent Persons to Study Sustainable Long-Term Financing of the IMF for its report recommending a package of measures to better align the IMF’s income with its diverse activities. The Committee considers that the report provides a sound basis for further work on the development of a new income model aimed at broadening its income base that can garner broad support across the membership. It looks forward to proposals on a new income model by the Managing Director for consideration by the Executive Board. The Committee underscores that ensuring a sustainable overall budgetary position to underpin the implementation of the IMF’s Medium-Term Strategy also requires action on the expenditure side. This now includes real spending reductions. The Committee welcomes the Fund’s ongoing efforts to improve resource allocation and cost-effectiveness in line with the priorities of the Medium-Term Strategy. The Committee looks forward to a report on progress on expenditure issues.
The Committee reiterates the importance of implementing the program of quota and voice reforms adopted by the Board of Governors in Singapore, in line with the timetable set out in the Resolution. It welcomes the broad consensus reached in the Executive Board on the legal framework of an amendment of the Articles of Agreement regarding basic votes. The Committee welcomes the initial informal Board discussions on a new quota formula and stresses the importance of agreeing on a new formula, which should be simple and transparent and should capture members’ relative positions in the world economy. This reform would result in higher shares for dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased. The Committee also stresses the importance of enhancing the voice and participation of low-income countries, a key mechanism for which is an increase in basic votes, at a minimum preserving the voting share of low-income countries. The Committee calls on the Executive Board to continue its work on the reform package as a matter of priority.
The Committee attaches high importance to further steps by the IMF to strengthen its engagement with emerging market economies. It welcomes the recent progress made in clarifying some key aspects of the design of a new liquidity instrument for market access countries. It calls on the IMF to accelerate its work on addressing the design challenges in developing an instrument that would enhance IMF support for these countries’ own strong policies and ensure that substantial and timely financing will be available if needed, while safeguarding IMF resources and paying due regard to the interaction with existing IMF facilities.
The Committee looks forward to progress on steps to assist members to deepen financial sectors, including local capital markets. It also looks forward to a review of the Fund’s policy on lending into arrears. The Board should also conclude its review of charges for Fund financial assistance and its maturity structure.
The Committee stresses that the IMF should remain fully engaged with its low-income members in helping them achieve macroeconomic stability supportive of sustainable growth, critical to the achievement of the MDGs. This includes well-designed financial and policy support in the context of surveillance, Fund arrangements, and technical assistance. The Committee calls for continued efforts to help countries reap the benefits of higher aid and debt relief and avoid a new buildup of unsustainable debt. The Committee welcomes the recent enhancements to the debt sustainability framework for low-income countries. It urges all creditors and borrowers to work with the World Bank and the IMF to use the framework as a tool for fostering coherent and responsible lending practices, identifying emerging debt-related vulnerabilities, and elaborating country-owned debt strategies. The Committee looks forward to further work on the IMF’s role in the poverty reduction strategy process and its collaboration with donors.
The Committee expresses its gratitude for the work of the members of the External Review Committee on IMF-World Bank Collaboration. The Committee welcomes the report’s message that a culture of close cooperation between the IMF and the World Bank, taking into account each institution’s comparative advantages, respective mandate, and responsibilities, is key to delivering services to members more effectively and efficiently. The Committee looks forward to proposals from the two institutions to strengthen collaboration.
The Committee calls for closer cooperation between the IMF and the Financial Action Task Force in promoting stronger implementation of international anti-money-laundering and combating terrorist financing standards and encourages publication of comprehensive country evaluations.
The Committee recommends members’ acceptance of the Fourth Amendment of the Articles of Agreement for a special onetime allocation of SDRs.
The Committee values highly the contribution of the IEO to the learning culture of the IMF and to facilitating oversight and governance. It welcomes the evaluation of the IMF and Aid to Sub-Saharan Africa and the steps being taken to ensure that the IEO recommendations endorsed by the Executive Board are effectively internalized in the work of the IMF.
The Committee expresses its appreciation of the work of Agustin Carstens as Deputy Managing Director and wishes him success in his new responsibilities as Secretary of Finance and Public Credit of Mexico and Chairman of the Development Committee.
The next meeting of the IMFC will be held in Washington, D.C., on October 20, 2007.