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Ottawa meetings: Ministers agree to tackle economic slowdown, money laundering and terrorist financing

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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The world’s top financial leaders agreed that the international community must stand ready to take further timely action to combat the global economic slowdown, and called on all countries to move aggressively to stamp out money laundering and terrorist financing, when they met in Ottawa on November 17 for the biannual meeting of the International Monetary and Financial Committee (IMFC). The meeting—originally scheduled for late September at IMF headquarters but postponed in the wake of the September 11 terrorist attacks—was a reaffirmation of the need for the global community to work together to address the challenges facing the world economy.

IMF Managing Director Horst Köhler—speaking at a joint press conference with IMFC Chair Gordon Brown, the U.K. Chancellor of the Exchequer—termed the outcome of the meeting “a milestone to build up confidence and make clear that the international community is united in its fight against money laundering and the financing of terrorism.” Brown said “there is a new determination and political will to make the changes that are necessary to make the international economy work better, particularly in the interest of those people who are presently excluded” (see IMFC press briefing, page 365).

Economic slowdown deepens(annual percent change unless otherwise noted)
Current projections
1999200020012002
World output3.64.72.42.4
Advanced economies3.43.81.00.8
United States4.14.11.10.7
Japan0.81.5-0.9-1.3
European Union2.63.41.71.4
Newly industrialized Asian economies7.98.20.31.7
Developing countries4.05.84.04.4
Africa2.52.83.53.6
Asia6.16.85.65.6
Western Hemisphere0.14.11.11.7
Middle East, Malta, and Turkey2.05.91.74.0
World trade volume (goods and services)5.412.41.32.6
Commodity prices (U.S. dollars)
Oil137.556.9-11.4-16.0
Nonfuel2-7.01.8-5.11.7
Consumer prices
Advanced economies1.42.32.41.4
Developing countries6.85.96.05.2
Countries in transition43.920.116.511.0
LIBOR (percent)3
On U.S. dollar deposits5.56.63.82.8
Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during September 17–October 16, 2001.

Simple average of spot prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil. The average price of oil in U.S. dollars a barrel was $28.21 in 2000; the assumed price is $25.00 in 2001 and $21.00 in 2002.

Average based on world commodity export weights.

Six-month London interbank offered rate.

Data: IMF data

Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during September 17–October 16, 2001.

Simple average of spot prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil. The average price of oil in U.S. dollars a barrel was $28.21 in 2000; the assumed price is $25.00 in 2001 and $21.00 in 2002.

Average based on world commodity export weights.

Six-month London interbank offered rate.

Data: IMF data

Combating the slowdown

For the financial leaders, the need to revive flagging growth topped the agenda. A joint statement by Köhler and World Bank President James Wolfensohn on supporting low-income countries noted that in the aftermath of the terrorist attacks, “economic policy throughout the world will need to be framed in an environment of unusually large uncertainty. Short-term economic forecasts have been revised downward for virtually all major economies; capital markets have tightened considerably, with a flight to quality across many investor categories; and slower world growth prospects have been translated into lower demand for developing country exports and lower prices for many primary commodities” (see joint statement, page 360). In recent weeks, the IMF has cut its global growth forecast to 2.4 percent for this year and next, just half of the growth registered last year (see table).

Even so, Köhler and Wolfensohn held out the expectation of a recovery during 2002. “Fortunately, economic fundamentals in many countries were on a reasonably sure footing, and policy responses have already taken place or are under way to deal with the economic downturn and the September 11 aftermath.”

In its communiqué, the IMFC emphasized the key responsibility of the advanced economies to promote early recovery in global growth. The communiqué also welcomed the decision at the World Trade Organization ministerial meeting in Doha, Qatar, to launch a new trade round that will give special weight to the needs of developing countries, as “increased trade opportunities will play a vital role in the recovery” (see IMFC communiqué, page 363).

The IMFC expressed particular concern about the impact on the poorest countries of the global slowdown. “There is likely to be an adverse, but manageable, impact on most low-income countries’ external financing needs, although this will vary widely among individual countries,” Köhler and Wolfensohn said. They urged the low-income countries themselves to pursue sound macroeconomic policies and poverty reduction strategies, and they urged advanced economies to be proactive in providing support. The IMF and the World Bank stand ready to help, but “our actions must be part of an approach of stronger support from the entire international community to do more, through trade liberalization, increased official development assistance, full participation in providing debt relief, and better alignment of donor development assistance with country-owned poverty reduction strategies.”

They projected that the demand for resources for the Poverty Reduction and Growth Facility—the IMF’s concessional loan facility—could be as much as $1.5–2.0 billion next year. “While this is high by historical standards, it should be manageable with existing resources, if limited to one year,” they said. They also pledged that their institutions would “analyze the impact of recent events” on the heavily indebted poor countries (HIPC) to see if more debt relief would be needed under the HIPC Initiative.

On November 18, the Development Committee, chaired by Indian Finance Minister Yashwant Sinha, said that a “substantial increase” in current levels of official aid will be required “if the opportunities emerging from policy improvements in low-income countries are to be realized” and the Millennium Development Goals are to be met (see Development Committee communiqué, page 368).

He told a press conference after the meeting that “it is a different world after the eleventh of September. It is a more integrated world. There is greater awareness that we must be able to stand together, developed as well as developing countries, because alienation, poverty, deprivation, violence, anger, impatience anywhere is a threat to peace, prosperity, and all that we hold and cherish everywhere in the world.”

Wolfensohn said that “the notion of two worlds of rich and poor or developed and developing collapsed at the time of the World Trade Center.” He added that “there is a growing awareness in the streets that the purpose of foreign development assistance is not just charity. It is self-interest. As we enter a world that is becoming more integrated, and where all the growth is going to come in the developing countries, we better have a better balance in the world.”

No more safe havens

The second key agenda item–combating money laundering and halting the flow of terrorist financing–saw ministers move aggressively in the wake of the September terrorist attacks. The IMFC called on all member countries to ratify and implement fully the United Nations instruments to counter terrorism and supported the recommendations of the Financial Action Task Force (FATF) to combat terrorist financing. It said “each member should freeze, within its jurisdiction, the assets of terrorists and their associates; close their access to the international financial system; and, consistent with its laws, make public the list of terrorists whose assets are subject to freezing and the amount of assets frozen, if any, with monthly reports.”

The IMFC also endorsed the IMF’s action plan to “intensify, where consistent with its mandate and expertise,” its contribution by

• extending the IMF’s involvement beyond anti-money laundering to efforts aimed at countering terrorism financing;

• expanding its anti-money-laundering work to legal and institutional frameworks;

• accelerating its program of Offshore Financial Center assessments and undertaking onshore assessments in the context of the Financial Sector Assessment Program;

• helping countries identify gaps in their anti-money-laundering and anti-terrorist financing regimes;

• enhancing its collaboration with the FATF on developing a global standard and working to apply the standard on a uniform, cooperative, and voluntary basis; and

• increasing technical assistance to enable members to implement effectively the agreed international standards.

These steps build on the IMF’s recent review of how it could best join the international effort to halt money laundering and terrorist financing (see box).

The IMFC also called for

• all countries to establish financial intelligence units to receive and process reports of suspicious transactions from the country’s financial sector and to monitor and analyze suspected terrorist funds;

• provisions to ensure the sharing of information and cooperation between national financial intelligence units; and

• the deployment of technical assistance to ensure that every country can play its part, either based on bilateral support or through funds held in an international trust.

Ministers urged countries to take these measures as soon as possible, preferably by February 1, 2002, and they asked the IMF to give a progress report at its April 2002 meeting, with a full report at its 2002 Annual Meeting.

The Group of 20–which includes the major industrial countries and a number of other countries—also met in Ottawa that weekend and issued its own action plan to “deny terrorists and their associates access to our financial systems.” This was being done “in the name of global peace and security,” its communiqué said, calling on other countries to take similar steps (see Group of 20 communiqué, page 375).

Money laundering and terrorist financing

On November 12, the IMF’s Executive Board explored ways to intensify efforts to combat money laundering and the financing of terrorism. Directors stressed that the IMF has a key role to play as part of international efforts “to prevent the abuse of financial systems and to protect and enhance the integrity of the international financial system.” They said the IMF’s primary efforts should be in assessing compliance with financial supervisory principles and providing corresponding technical assistance. They also confirmed that it would be inappropriate for the IMF to become involved in law enforcement issues.

Directors further agreed that a key element in this battle would be more effective information sharing and cooperation among national authorities and international agencies. They called upon governments “to create mechanisms to enable collection and sharing, including cross-border sharing of relevant financial information with appropriate supervisory and law enforcement activities.” Directors stressed that primary responsibility, however, would continue to rest with national authorities.

The full text of IMF Public Information Notice No. 01/120 is available on the IMF’s website (www.imf.org).

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