A far-reaching commitment to provide increased debt relief to the poorest developing countries was endorsed by the governors of the World Bank and the IMF at their fifty-fourth Annual Meetings, held in Washington, D.C. from September 28 to September 30. The governors also welcomed the progress many countries have made in recovering from the financial crises that had affected their economies in 1997-98 and early 1999, even though in a number of cases deep problems still remain.
The Annual Meetings opened on September 28 with the address of Mahesh Acharya, Finance Minister of Nepal, who chaired the meetings (see page 312). His remarks were followed by the opening addresses of IMF Managing Director Michel Camdessus and World Bank President James Wolfensohn.
Recovery from crisis
In his address, Camdessus stressed that “the recovery comes from the intense effort, the wisdom, and, most emphatically, the sense of cooperation of all concerned.” Building on this theme, he emphasized that, “in the new world of globalization, cooperation is a must”. A second lesson, he said, “is that we always run the risk, when economic prospects have improved, of moving too slowly to implement the reforms that are needed. There is still an urgent need for action.”
It is important, Camdessus said, to move ahead with building “a safer, more robust, more adaptable architecture” of the monetary and financial system. Essential elements of this new architecture, he observed, are measures to prevent crises, enhance transparency, improve financial sector stability, and define global standards to underpin stable, fair, efficient, and transparent markets. Ultimately, the Managing Director said, “finances and markets are about people and for people.” With the transformation of the Enhanced Structural Adjustment Facility (ESAF) into the Poverty Reduction and Growth Facility (PRGF); the deeper, faster, and broader debt relief provided by the new Initiative for Heavily Indebted Poor Countries (HIPC); and the strong link established between debt relief and increased expenditure on human development, he said, “the IMF is now well equipped to give a new impulse to the fight against poverty.”
This theme was echoed by the central bank governors and finance ministers of the IMF’s 182 member countries, who, in their addresses, were unanimous in welcoming the progress toward recovery in the crisis economies. At the same time, a number of speakers recognized the continuing problems that, despite progress, affect the Russian economy and the recent threats to Indonesia’s economic stability. Speakers also welcomed the progress that had been made in Brazil and other countries of Latin America in recovering from the recent crisis. Representatives of developing countries, in particular, welcomed the progress that had been made on the debt issue and stressed the urgent need to move forward in the fight against world poverty.
Action on debt
Announcing a significant commitment, U.S. President Bill Clinton said in the plenary session on September 29 that he was directing his administration to move to forgive 100 percent of the debt owed to the United States by the heavily indebted poor countries when they commit to using the money to finance basic human needs. A similar commitment was later made by Gordon Brown, the U.K. Chancellor of the Exchequer.
Under the terms of the agreement on debt, which is now being considered by the IMF Executive Board, the IMF would conduct off-market transactions with member countries, on the basis of market prices, of up to 14 million fine ounces of gold. The balance of the sales proceeds will be used for investments benefiting the ESAF-HIPC Trust (see page 308). The framework of the understanding on debt was outlined in the Cologne Debt Initiative, approved by the members of the Group of Eight countries in June 1999 (IMF Survey, July 5, page 209).
Consensus of the meetings
“These have been a truly productive few days,” Camdessus said in his concluding remarks on September 30 (see page 329). Summing up the consensus of the meetings, he welcomed the “striking unity” displayed by the governors in their assessment of current economic prospects; their “overwhelming endorsement” of the efforts to deal with the recent crises; and “above all, the enhancement of the HIPC Initiative, the launching of our Poverty Reduction and Growth Facility, and all that goes with these steps,” which have created a “strong new impetus to the war on poverty.”
Camdessus said he had detected three key themes in the discussions. These were the determination to avoid complacency; the encouraging impetus toward action and implementation in the twin areas of international monetary and financial reform and poverty reduction, with the IMF’s partnership with the World Bank being critical in the latter area; and the obligation to deliver on the part of both the international community and national governments.
The plenary sessions were preceded by meetings of the Interim Committee of the IMF’s Board of Governors—the IMF’s principal advisory body—and of the Development Committee (the Joint Bank-IMF Committee on the Transfer of Real Resources to Developing Countries), as well as meetings of the Group of Seven industrial countries and the Group of 24 developing countries.
As a mark of the growing status of the Interim Committee, on September 30, the IMF Board of Governors adopted a resolution transforming the Committee into the International Monetary and Financial Committee of the Board of Governors (see page 318). In addition to the name change, there is now an explicit provision for preparatory meetings of committee deputies.
Annual Meetings 1999 on the web
In addition to the full transcripts of the speeches, communiqués, and press conferences covered in this issue, the IMF’s website (www.imf.org) has posted a number of items of interest related to the 1999 Annual Meetings (dates posted in parentheses).
Financial Sector Crisis and Restructuring: Lessons from Asia (the report and the transcript of the press briefing given by Stefan Ingves, Director, Monetary and Exchange Affairs Department, and other members of the department) (September 25).
Overview: Transforming the Enhanced Structural Adjustment Facility and the Debt Initiative for the Heavily Indebted Poor Countries (September 26).
Statement by the Managing Director on Progress in Strengthening the Architecture of the International Financial System (September 26).
Economic Prospects for the Countries of Southeast Europe in the Aftermath of the Kosovo Crisis (September 27).
The 1999 Per Jacobsson Lecture, “The Past and Future of European Integration: A Central Banker’s Perspective,” by Willem F. Duisenberg (September 27).
Debt Initiative for the Heavily Indebted Poor Countries: Progress Report (September 28).
Press Briefing on IMF Financing of Debt Relief, September 27, by Benedicte Christensen of the IMF Treasurer’s Department and Anthony R. Boote of the IMF Policy Development and Review Department (September 29).
Interim Committee meeting
In his capacity as Chair of the Interim Committee, Gordon Brown welcomed the agreement on debt relief as marking the birth of a “worldwide alliance against poverty.” Speaking at a joint press conference with the Managing Director following the Committee’s meeting on September 26, he said, “those to whom the world’s greatest wealth has been given have joined with those burdened down with the world’s greatest debt and destitution” (see page 315).
The increased emphasis on action on debt relief was symbolized by the first joint meeting of the Interim Committee and the Development Committee of the IMF and the World Bank, which was also held on September 26. This joint meeting, Brown said, was a sign of “the cooperation and commitment of all countries and institutions to the enhanced debt-relief initiative, which will provide faster, deeper, and broader debt relief with the central goal of reducing poverty in the world’s poorest countries.” The joint meeting, he explained, made progress in three areas: in reforms to deliver faster, deeper, and wider debt relief; in strengthening the focus on poverty reduction; and in agreeing on the financing arrangements for the enhanced HIPC Initiative through off-market gold transactions with IMF member countries (see page 314).
In its communiqué (see page 317), the Interim Committee welcomed the improvement in global economic and financial conditions since the beginning of 1999, and
noted that recovery was taking hold in the crisis-affected countries of Asia, but with further efforts needed to accelerate financial sector reform and corporate restructuring;
stressed the urgent need for further progress with reforms in Russia;
noted the need for stronger adjustment and reform efforts in much of Latin America;
noted the renewed opportunity for fiscal consolidation and economic diversification in countries in the Middle East and Africa that had benefited from higher oil prices; and
urged the heavily indebted countries of sub-Saharan Africa to take full advantage of the opportunity offered by debt relief under the enhanced HIPC Initiative to intensify and press ahead with reforms.
Regarding the industrial countries, the Committee noted that a sustained pickup in domestic demand in Europe and Japan, together with medium-term growth in the United States in line with potential, would help to achieve a more balanced pattern of growth among this group of countries. It called for continued efforts to strengthen the banking system and foster corporate restructuring in Japan, as well as further efforts toward fiscal consolidation and structural reform in Europe.
The Committee stressed that open and competitive markets were a key component of efforts to sustain growth and stability in the global economy. It stated that the proposed launch of new trade negotiations at the November 1999 meeting of the World Trade Organization in Seattle, Washington, provided an opportunity to make further progress in this direction.
The Interim Committee endorsed the replacement of the IMF’s ESAF by a new Poverty Re-duction and Growth Facility, which will aim to make poverty-reduction efforts among low-income member countries a more explicit element of a renewed growth-oriented economic strategy. Under this new approach,
each country will prepare a comprehensive Poverty Reduction Strategy Paper, with assistance from the IMF and the World Bank, to guide the design of programs;
social and sectoral programs to reduce poverty will be taken fully into account in the design of growth-oriented economic policies;
great emphasis will be accorded to good governance through greater transparency, improved monitoring, anticorruption initiatives, accountability, and involvement of all sectors of society; and
high priority will be given to key reforms designed to achieve governments’ social goals.
The Committee also welcomed the agreement on financing the HIPC Initiative and the IMF’s continued lending for growth and poverty reduction in its low-income member countries. It stated that the planned off-market transactions of up to 14 million fine ounces of gold would be an exceptional measure and part of a broader financing package to allow the IMF to contribute to resolving the debt problems of the HIPCs at the turn of the millennium.
The Committee welcomed the progress made in developing and monitoring standards of importance for the international monetary and financial system. In particular, it adopted the Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles, developed by the IMF staff.
The Committee also reiterated the importance of greater transparency in policymaking. It welcomed the widespread release of Public Information Notices (PINs) and many other papers and reports; the decisions of 46 countries to participate in the pilot program to release Article IV reports; and the presumption in favor of publishing Letters of Intent, Memorandums of Economic and Financial Policies, and Policy Framework Papers.
Corruption and money laundering raise important issues for the credibility of IMF programs, the Committee warned. It called on the IMF to review its procedures and controls to identify ways to strengthen safeguards on the use of its funds and to report at the Committee’s next meeting on April 16, 2000. It emphasized that further actions to strengthen governance at both the national and international levels were crucial.
The Committee welcomed the further measures toward greater transparency that had been adopted, including the progress made in financial sector reform and bank restructuring in the context of IMF surveillance; the external evaluation of IMF surveillance and research activities (IMF Survey, September 27, page 303); the continuing efforts to involve the private sector in forestalling and resolving financial crises; and recent work on the appropriate pace and sequencing of capital account opening. It called on all member countries to put in place millennium contingency plans and endorsed the IMF Executive Board’s decision to introduce a temporary facility to help members facing Y2K-related payments needs (see page 335).
The HIPC Initiative was also the major issue of concern at the meeting of the Development Committee, chaired by Tarrin Nimmanahaeminda, the Thai finance minister.
In its communiqué (see page 326), the Development Committee endorsed the enhancements to the HIPC Initiative and expressed support for lowering the debt sustainability thresholds; providing faster debt relief through interim assistance; introducing floating completion points to focus on positive achievements and outcomes; and, as a consequence, increasing the number of countries eligible for debt relief.
Board of Governors envisions off-market gold sales to finance debt relief
On September 30, the IMF announced it was considering a onetime gold sales operation as part of a broader financing package. The text of Press Release No. 99/47, which is also available on the IMF’s website (www.imf.org), follows.
The IMF Executive Board is considering conducting off-market transactions of up to 14 million fine ounces of gold. On the basis of market prices, the IMF will sell gold to some central banks of member countries with repayment obligations to the IMF, on the understanding that these central banks will use the gold to make the repayment. These transactions will allow the IMF to place an amount of the sales proceeds equivalent to SDR 35 an ounce in the General Resources Account, and the balance in the Special Disbursement Account for investments benefiting the ESAF-HIPC Trust.
According to a resolution adopted by the Board of Governors on September 30, “off-market transactions of up to 14 million ounces of gold by the IMF that are envisaged will be a onetime operation of a highly exceptional nature that is part of a broader financing package to allow the IMF to contribute to the resolutions of the debt problems of the HIPCs at the turn of the millennium and to the continuation of concessional operations to support countries’ efforts to achieve sustained growth and poverty reduction.”