The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy. www.imf.org/external/pubs/ft/survey/so/home.aspx

Abstract

The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy. www.imf.org/external/pubs/ft/survey/so/home.aspx

Spring Meetings Overview Sustained Global Growth in Prospect, Debt Relief Initiative Progresses

Finance ministers and central bank governors of the IMF’s key policy advisory body—the Interim Committee of the Board of Governors of the IMF—met in Washington on April 22 to discuss the global economic outlook and assess members’ economic policies and performance in the framework of strengthened IMF surveillance. Ministers and Governors also reviewed the status of the Eleventh General Review of Quotas, options for financing a continuation of the IMF’s enhanced structural adjustment facility (ESAF), and proposals to expand IMF borrowing arrangements; considered proposals for debt relief for heavily indebted poor countries; and discussed the recent seminar on the SDR’s role and the IMF’s recently announced standards to guide members in publishing data (see page 158).

Ministers welcomed the favorable developments in the world economy: low inflation in most countries and recent exchange rate movements had improved prospects for sustained noninflationary growth—although challenges remained on the fiscal, structural, and financial fronts. Commenting further on exchange rates, Ministers and Governors of the Group of Seven industrial countries, meeting on April 21, expressed satisfaction with recent exchange rate developments and reaffirmed their commitment to reduce imbalances and cooperate closely in exchange markets.

The Interim Committee communiqué cited the “very strong efforts” of the IMF to adapt its surveillance to the new global environment. As part of this effort, the Interim Committee—chaired by Philippe Maystadt, Deputy Prime Minister, Minister of Finance, and Minister of Foreign Trade of Belgium—welcomed the IMF’s adoption of a “special data dissemination standard” to guide members having, or seeking, access to international capital markets in publishing timely and accurate economic and financial data. A significant number of countries had signaled their readiness to subscribe to the new data standard, and Ministers encouraged other IMF members to do so as well. At the same time, they asked the IMF to work toward establishing a general standard for data dissemination—which would apply to all IMF members—by the end of 1996.

Ministers also agreed that further action was justified to help a number of heavily indebted poor countries pursuing sound policies to deal with their unsustainable debt burdens. Following discussion by both the Interim Committee and the Development Committee (the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries) on a possible framework for assistance, Ministers identified principles to guide further work on specific solutions.

Assessing the Global Economy

In assessing global economic conditions and prospects, Ministers were encouraged by recent economic developments: recovery in Japan, prospects for continued healthy growth in North America, and the expectation of renewed growth in continental Europe. Among developing countries, growth was well sustained, helped by strong policies of macroeconomic adjustment and structural reform. And progress toward market-based institutions and macroeconomic stability in the countries in transition to market-oriented economies had bolstered their economic performance. (See summary of May 1996 World Economic Outlook, page 141.) Ministers attributed many of these favorable developments to implementation of key parts of the cooperative strategy to strengthen the global expansion embodied in the Madrid Declaration of October 1994. Nonetheless, they agreed that the fall 1996 meeting of the Interim Committee would be a good occasion to update the Declaration’s guidelines.

Notwithstanding the favorable economic developments, Committee members identified three primary challenges:

  • Despite some progress in reducing budget deficits, fiscal consolidation remained a high priority in most countries. Fiscal problems included unproductive spending, narrow tax bases and high tax rates, inefficient state enterprises often subject to soft budget constraints, large off-budget or hidden imbalances, and extensive commitments—particularly in pensions and health care, given the prospective aging of populations. Greater transparency of fiscal operations and awareness of the implications of longer-term commitments were needed to build public support for corrective policies.
  • Removal of structural impediments to higher rates of noninflationary growth was also critical. Labor market rigidities in particular were seen as contributing to unacceptably high unemployment in many industrial countries, and progress in these areas would reinforce fiscal consolidation.
  • Stronger supervision of financial institutions and markets would facilitate efficient allocation of financial resources and guard against potential sources of macroeconomic instability and high fiscal costs.

The Group of Ten, following its April 22 meeting, clarified its views on responding to any future sovereign liquidity crises. Given the need to contain moral hazard and the desirability of equitable burden sharing, G-10 Ministers affirmed that neither debtor countries nor their private creditors should expect to be insulated from the adverse consequences of their decisions by the provision of large-scale official financing in the event of a crisis. They agreed there should be no presumption that any type of debt to the private sector would be exempt from payments suspensions or restructurings in any future sovereign liquidity crisis. The G-10 upheld the current flexible, case-by-case approach for responding to sovereign liquidity crises and underscored that the official community’s main role in such crises remained the promotion of strong and effective adjustment policies by debtor countries in the context of IMF-supported programs.

G-10 Ministers also asked the Executive Board to review the IMF’s existing policy with respect to lending, under exceptional circumstances, to support effective adjustment programs prior to final resolution of a sovereign borrower’s arrears to private creditors. Specifically, they asked the Board to consider extending this policy to other forms of debt, while respecting the need for prudence and confidentiality.

Equipping the IMF

Interim Committee members noted the progress by the Executive Board in its work on the Eleventh General Review of Quotas. They stressed the need to ensure the adequacy of quotas to allow the IMF to carry out its mandate, given the changes in the world economy since the last quota increase in 1990 (quotas currently total SDR 145 billion). In view of the rapid prospective decline in the IMF’s liquidity position, the Committee asked the Board to agree on the outlines of the next quota increase as soon as possible. In a press conference following the Interim Committee meeting, IMF Managing Director Michel Camdessus said that most IMF members favored a significant increase—somewhere between 60 percent and a doubling.

A09ufig01

Structure of Indebtedness for Selected Heavily Indebted Poor Countries

Citation: IMF Survey 0025, 001; 10.5089/9781451937442.023.A009

Note: Consisting of 20 countries ‘possibly stressed” or with “unsustainable” debt burdens1The bulk of “Others” is: the Inter-American Development Bank, the Central American Bank for Economic Integration, the Asian Development Bank, the European Investment Bank, the European Development Fund, and the European Union, the OPEC Special Fund. The Arab Fund for Economic and Social Development, the Arab International Bank, the Islamic Development Bank, and the International Fund for Agricultural Development.Data: World Bank

The Committee also noted the progress toward doubling the borrowed resources currently available to the IMF under the General Arrangements to Borrow (GAB)—to about SDR 37 billion—to help the IMF cope with international financial emergencies. Ministers urged an early and successful conclusion to this work while emphasizing that borrowing was exceptional and that any new borrowing arrangements could not substitute for a quota increase—since quotas constitute the IMF’s main source of liquidity.

The Interim Committee repeated its support for continuation of the ESAF; it reaffirmed the ESAF as the centerpiece of the IMF’s efforts to assist low-income countries, including as an integral part of the initiative to assist heavily indebted poor countries (see below). Noting the time required to put in place the arrangements to finance a self-sustained ESAF, the Committee asked the Executive Board to wrap up its discussions as soon as possible with the aim of formulating financing proposals by the fall Annual Meetings.

Debt Relief Proposals

Both the Interim and Development Committees had extensive discussions on possible joint IMF-World Bank approaches to addressing the problems of a number of heavily indebted poor countries. Ministers welcomed the proposed framework to reduce to a sustainable level the external debt burden of countries maintaining sound policies. They considered that existing mechanisms were inadequate to secure a sustainable external position over the medium term. Further action was thus needed, in line with the following broad principles announced after the April 23 meeting of the Development Committee:

  • Overall debt sustainability is to be targeted on a case-by-case basis, thereby providing an exit strategy from the rescheduling process.
  • Action is envisaged only when the debtor has demonstrated its ability—through a track record—to put the exceptional support to good use.
  • New measures should build as much as possible on existing mechanisms.
  • Additional action should be coordinated among all creditors involved, with broad and equitable participation.
  • Any actions by multilateral creditors should preserve their financial integrity and preferred creditor status.
  • New external finance should be on appropriately concessional terms.

The Interim Committee asked the IMF, in conjunction with the World Bank and in close collaboration with all involved creditors and donors, to formulate specific proposals as soon as possible, with the aim of reaching decisions by the Annual Meetings.

Referring to the debt relief proposals, Managing Director Camdessus, at an April 18 press briefing, noted that between 8 and 20 heavily indebted poor countries (mostly African) were potentially eligible. He explained that the IMF’s preferred creditor status—which allowed it to take the steps necessary to help countries adjust—underlined the importance of Paris Club creditors playing a dominant role in providing such relief.

The SDR

The Interim Committee welcomed the report on the recent Seminar on the Future of the SDR (see IMF Survey, April 1). The seminar provided an opportunity for an exchange of views among a broad range of experts inside and outside the IMF on the SDR’s role in the future international monetary system. The Committee asked the Executive Board “to reflect further on proposals on the role of the SDR and to reach a consensus on a way for all members to receive an equitable share of cumulative SDR allocations.”

IDA Replenishment and Role of Development Banks

The Development Committee welcomed the recent agreement on the eleventh replenishment of the World Bank’s International Development Association (IDA)—which would allow disbursements of $22 billion over three years beginning in July 1996.

The Development Committee also endorsed the report of the Task Force on Multilateral Development Banks (MDBs). The report emphasized the importance of these institutions in a fast-changing world—particularly their support for poverty reduction and sustainable development, investment in infrastructure, promotion of the private sector, and orientation to “results on the ground.” It also called on the MDBs to enhance cooperation among themselves.

G-24 Perspective

In their communiqué, issued on April 21, the Group of 24 developing countries pointed to the developing countries’ contribution to the global recovery. At the same time, G-24 members were concerned that the proposed debt relief framework required longer adjustment periods than seemed desirable and more rigid adjustment guidelines than many poor indebted countries could fulfill. They underscored debtors’ need for more flexibility in implementing their own reforms.

While acknowledging that IMF surveillance had become more balanced, G-24 members called for yet more symmetric influence over policies of industrial countries. Commenting on the report on multilateral development banks, G-24 members questioned the appropriateness of these institutions providing policy advice in an effort to promote good governance and civil society—areas they considered to be the province of borrowing governments.

David Cheney

Editor, IMF Survey

Photo Credits: Denio Zara and Padraic Hughes for the IMF.

World Economic Outlook Outlook Is Favorable, But Fiscal Problems Persist Industrial Countries Need More Balanced Policy Mix

Despite a slight weakening in world economic growth in 1995, the short-term prognosis of the latest World Economic Outlook is cautiously upbeat. Noting that the small downturn in growth in 1995 to 3½ percent masked a significant slowdown among the industrial countries of western Europe and North America, the IMF’s biannual review of global prospects and policies nevertheless finds no evidence of the tensions and imbalances that typically presage a serious or prolonged downturn in activity. With no apparent grounds to expect a generalized slowdown, the IMF study projects that global growth will pick up to about 4 percent a year in 1996 and 1997.

The World Economic Outlook’s optimistic projections are based on a number of positive trends and developments:

  • Global inflationary pressures remain subdued.
  • Real long-term interest rates are significantly lower than during most of the period since the early 1980s.
  • Exchange rates among the major currencies have returned to levels more consistent with economic fundamentals, following an episode of misalignment in the spring of 1995.
  • World trade in goods and services, which grew by about 9 percent in 1995, is expected to increase by 6½-7 percent a year in 1996 and 1997, despite the recent slowdown in Europe and softening domestic demand in the United States.
  • Spillover effects from the Mexican financial crisis of December 1994 have been contained; capital flows to emerging market countries have been generally sustained; and activity remains buoyant in many of these countries, while the danger of overheating appears to have subsided.
  • The momentum of growth in the transition economies of central and eastern Europe is stronger than projected six months ago, with signs that output may have recovered in Russia.

Intensified adjustment efforts in some of the poorest countries, especially in Africa, have yielded strengthened growth performance and prospects.

The path of global expansion is not wholly free of obstructions, the World Economic Outlook cautions. Many problems still need to be addressed to ensure strong and sustained medium-term growth:

  • As growth performance and short-term prospects in Europe have deteriorated considerably since last year, macroeconomic policies must be reassessed. Also, labor market reforms remain essential to reduce structural unemployment and help alleviate fiscal imbalances.
  • Budgetary imbalances in industrial countries continue to put upward pressure on real interest rates, while reforms of pension and health systems are needed to pre-empt even greater budgetary costs in the future.
  • Many developing countries continue to run large fiscal deficits, diverting scarce resources from productive investment. Also, off-budget government involvement in economic activity stifles economic incentives and growth in many countries.
  • Despite notable progress toward macroeconomic stability in many transition economies, fiscal deficits are still too large, and continuing government intervention in the economy on behalf of ailing sectors remains a threat to the sustainability of lowered inflation.

Many of the macroeconomic and structural challenges relate to the fiscal area. This issue of the World Economic Outlook therefore devotes special attention to fiscal policy and its implications for the future.

Proper Policy Mix Is Key

The pace of expansion in most industrial countries slowed significantly during 1995—to an average of 2 percent—although the slowdown was far from uniform and the distribution across countries differed markedly from that expected six months ago. The U.S. economy—well into its fifth year of recovery—remained close to full capacity utilization, even with a slight dip in growth; and by early 1996 began picking up again. Economic activity in Japan remained lackluster for most of 1995, held back by a strong yen and uncertainties related to troubles in the financial sector; but there were growing signs of a recovery by year’s end. In Europe, by contrast, growth generally weakened, with significant variation across countries.

According to the World Economic Outlook, the slowdown is more serious and of greater concern in Germany, France, and several other European countries. After remaining sluggish during most of 1995, the Japanese economy appears to be responding well to a substantial easing of monetary and fiscal policies, a reversal since last spring of the sharp appreciation of the yen, and the authorities’ decision to implement a strategy to resolve the problems in the financial sector. For those countries whose expansion weakened—such as the United States, the United Kingdom, and Australia—activity slowed from rates considerably above potential to those more consistent with sustained noninflationary growth. For those countries where the recovery had made less headway and where there were still significant margins of slack, however, the weakening of growth is worrisome.

The performance in Europe differed between those countries whose currencies have depreciated in recent years—including Italy, the United Kingdom, Sweden, and Spain—and the strong currency countries—Germany, France, and other countries whose currencies have been kept closely linked to the deutsche mark, and Switzerland. In the former group—the “outer ring”—growth was sustained and the slowdown helped to contain above-average inflation rates. In the hard currency or “inner core” group, activity stagnated in the second half of 1995 and unemployment began rising.

The developing world’s resilience is strong proof against the possibility of global slowdown.

The economic slowdown in 1995 among the countries in relatively early stages of recovery—particularly the inner core of European countries—was generally unexpected. According to the World Economic Outlook, a substantial worldwide rise in long-term interest rates during 1994 apparently had more of a depressing effect on industrial country activity than expected. Although the differences in performance between the inner core and the outer ring of European countries owed something to differences in economic policies, for western Europe as a whole, the overall stance and mix of policies appears to have restrained performance more than previously thought—with the brunt of that restraint being borne by the strong currency countries. In the outer ring countries, large fiscal imbalances necessitated restrictive fiscal stances, but monetary conditions have eased during the past two or three years—especially taking into account declines in short-term interest rates and depreciations of the currencies of these countries in the wake of the 1992-93 crises in the European Monetary System (EMS). In the hard currency group, fiscal policies were also restrictive, but monetary conditions remained relatively tight as well, at least until recent months. The dampening effect of this restraint, according to the IMF study, has been amplified by unwarranted high wage settlements in Germany, uncertainties about the future stance of policies in European countries, and concern about the feasibility of meeting the Maastricht convergence criteria in time for the start-up of European economic and monetary union (EMU).

Despite the recent setbacks, the World Economic Outlook predicts that growth in Europe will pick up again in the course of 1996. Monetary conditions in the strong currency countries have eased markedly during the past year, and fiscal consolidation efforts are expected to strengthen, thus correcting the policy mix in a direction that is likely to be more conducive to growth. To facilitate a robust recovery, however, the IMF study notes that, especially in the hard currency countries, the available scope for further easing of monetary conditions should be fully exploited to provide support for economic activity without compromising the goal of medium-term price stability.

For all countries in Europe, the IMF study stresses, the continued need for fiscal consolidation reflects the paramount importance of re-establishing a more balanced policy mix. Additional fiscal consolidation is also vital to allow the Maastricht process toward EMU to proceed as planned. Further progress toward labor market reform is also essential.

Developing Countries Prosper

The developing world’s increased resilience to external disturbances—including recession in the industrial world—and the sustained healthy performance of many developing countries are fairly strong proof against the possibility of a generalized global slowdown. Output in developing countries increased by nearly 6 percent in 1995 for the fourth year in a row, and the World Economic Outlook projects rates of 6-6½ percent for 1996 and 1997.

A09ufig02

Selected World Indicators

(Percent)

Citation: IMF Survey 0025, 001; 10.5089/9781451937442.023.A009

Note: Shaded areas indicate IMF staff protections.1GDP-weighted average of ten-year (or nearest maturity) government bond rates for the United States, Japan, Germany, France, Italy, United Kingdom, and Canada; excluding Italy prior to 1972.Data: IMF, World Economic Outlook, May 1996

Among the positive aspects of the outlook for developing countries are:

  • recoveries in Mexico and Argentina following the adjustment undertaken in 1995;
  • stronger stabilization and reform efforts in many countries, particularly in Africa; and
  • continued robust growth in Asia, despite recent tightening of monetary policy in a number of countries—including Indonesia, Malaysia, and Thailand—to reduce excessive demand pressures.

Although inflation remains generally higher in the developing world than in the industrial countries, a large majority of developing countries have experienced a moderation of price increases in recent years. Prices are expected to decline further in 1996 for many countries in Latin America, Africa, and Asia, and to remain relatively moderate in the Middle East and Europe.

A number of developing countries experienced a resumption of large capital inflows in the closing months of 1995 and the beginning of 1996; these flows are expected to increase gradually to all developing country regions. For the most part, according to the World Economic Outlook, the inflows are attracted by prudent macroeconomic policies and prospects and should be sustained over the medium term provided that policymakers continue to contain inflationary pressures.

The debt burden of developing countries, as well as the countries in transition, is projected to ease further in 1996, reflecting the increased share of non-debt-creating flows in net external financing observed since 1994. In sub-Saharan Africa, however, debt and debt service remain a cause for serious concern, despite some improvement. The international financial institutions are examining ways to alleviate the debt problems of heavily indebted poor countries that are pursuing sound policies.

Transition Process Is Working

Most of the countries in transition to market-oriented economies made substantial progress toward low inflation and market-based economic structures in 1995. Most also saw improved growth performance and smaller output declines than in preceding years. The central and eastern Europe region (excluding Belarus and Ukraine) is expected to grow by 4 to 5 percent a year in 1996–97, with the potential for even stronger growth over the medium term if policy challenges are successfully addressed. Countries that began earliest and have persevered longest with macroeconomic stabilization and structural reforms—Poland, the Czech and Slovak Republics, and Slovenia, as well as Mongolia in central Asia—turned in the strongest performance.

Growth performance and prospects were mixed for those transition economies that have implemented reform policies more slowly or less consistently. Even for those countries where output rose in 1995—Armenia, Bulgaria, and Romania—future prospects are uncertain. Other countries that are less advanced in the transition have nevertheless made significant progress with structural reform, including price liberalization, privatization, and the dismantling of trade barriers. Output has shown signs of recovering in Russia, as well as in the Kyrgyz Republic, Georgia, and Uzbekistan. In other economies—such as Belarus, Ukraine, and Tajikistan—progress in achieving stability has been insufficient to prevent further steep drops in output.

Focus on Fiscal Consolidation

The past two decades have seen the development of a worrisome and unprecedented phenomenon—the ballooning of public debt in industrial countries during a period of general peace and economic prosperity. As the World Economic Outlook notes, in the past, large but temporary budget deficits arose in response to extreme circumstances, such as major wars or global economic depression. But these debt “spikes” were transitory, says the IMF study, because in their wake, governments tightened their belts and cut back on spending.

A striking characteristic of modern fiscal imbalances is that they originate in dramatically increased spending rather than falling revenues. A large component of this increase is in transfers (including public pensions), subsidies, and interest payments. As a result of the growing imbalances between expenditures and revenues, public debt has increased sharply in relation to GDP in almost all industrial countries—to about 70 percent in 1995 from about 40 percent in 1980. The debt situation, says the IMF study, is even more worrisome if the unfunded liabilities of public pensions are included.

The World Economic Outlook identifies several forces that may be behind these buildups in industrial country budget debt, including:

  • the growth of public pension and social spending, which is often related to the transformation of targeted safety nets into universal benefits;
  • unemployment benefits that replace high proportions of previous earnings and last for long periods, contributing to structural unemployment and thus exerting a doubly negative impact on budget deficits;
  • the productivity slowdown since the early 1970s, which has imposed a harsher budget constraint than policymakers and voters expected or seem to have realized; and
  • increased exchange rate flexibility since 1973 and growing integration of world capital markets, which make it easier for governments to run large budget deficits.

Persistently high levels of government debt are a threat to economic health, according to the World Economic Outlook. Government dissaving boosts real interest rates, slows the accumulation of private capital, and limits gains in living standards. High levels of government spending can also broadcast the wrong microeconomic signals and incentives. Subsidies, for example, reduce economic efficiency by shielding enterprises from competition, distorting price signals, and encouraging rent-seeking activities. The result is a misallocation of resources. Finally, persistent budget deficits may also result in a growth path for public debt that is not sustainable in the long run.

The Invisible Debt. Today’s weak budget positions, according to the World Economic Outlook, are only a way station on the fiscal track. Governments’ future budget positions have already been established by explicit and implicit liabilities. Aging populations in industrial countries are growing dramatically, which means more elderly people to support, much higher health care bills, and a smaller share of the population to work and pay taxes. These future liabilities—taken together with likely future tax revenues—dramatically worsen the budget prospects of industrial countries. The aging of populations in industrial countries has powerful implications for public pension plans, most of which are funded on a pay-as-you-go basis. According to IMF staff estimates, public pension liabilities in 1994 exceeded 68 percent of GDP, in net present value terms, in all major industrial countries except the United Kingdom and the United States, assuming that key pension parameters remain unchanged. In most of these countries, net pension liabilities (invisible liabilities) exceed the visible government debt. The situation is even worse when commitments to provide future health care benefits are taken into account. The bad news conveyed by these figures is that public pension programs are much more generous than governments are likely to be able to support. Future generations of workers will thus face either much higher tax burdens to maintain the levels of benefits or sharply reduced benefits.

In view of the long lead times for changing pension plan arrangements, governments need to move quickly to address these large future pension liabilities. As a basic principle, says the IMF study, benefit levels must be realistic and plans should be financially sustainable. Substantive reforms will undoubtedly entail high transition costs and may engender some social tension; however, the IMF study stresses that the earlier the need for appropriate reform is addressed, the better.

Consequences of Fiscal Consolidation. The heavy public debt burdens in most industrial countries make it imperative for governments to take remedial action. Governments have tended to resist consolidation, however, because of its potentially depressive effect on certain groups or on the economy and established social achievements. But, drawing on several recent studies of the effects of fiscal consolidation over the past twenty-five years, the IMF study finds that, under certain circumstances, these efforts were successful. Two major lessons emerged:

A09ufig03

Selected Industrial Countries: Ratio of Average Budget Balance to GDP1

(Percent of GDP)

Citation: IMF Survey 0025, 001; 10.5089/9781451937442.023.A009

1Simple average of Canada. France, Italy, Japan, the United Kingdom, and the United States.Data: IMF, World Economic Outlook, May 1996
  • Size. A strong commitment to fiscal consolidation is more likely to be successful than a timid one. Real short-term interest rates tend to decline in successful cases, suggesting that the strong commitment to consolidation helps restore financial market confidence and helps the monetary authorities ease the stance of monetary policy.
  • Composition. More emphasis on spending cuts than on revenue increases the chance for success. When governments try to solve their budget problems by raising taxes and not cutting back on spending on categories that are hard to rein in, the higher revenues tend to be absorbed, and the government’s share of the economy keeps rising.

To be successful, the World Economic Outlook concludes, reforms may have to change habits, social norms, and attitudes. Recent experiences of successful attempts to curb expansionary trends in public expenditures have one common feature: the reforms represented fundamental changes in the underlying policy regime.

Fiscal Issues in Developing and Transition Economies. For developing countries, the IMF study notes that many governments need to accelerate fiscal consolidation and to ensure that programs already initiated stay on track. All countries need to continuously evaluate expenditure priorities and to limit the extent of public sector intervention that may hinder private sector activity.

Most transition economies have made encouraging progress toward macroeconomic stabilization and the establishment of growing, market-oriented economies. Yet, the public finances of these economies are still at risk from weak revenue performance, continuing state support of nonprofitable activities, and quasi-fiscal subsidies and contingent liabilities. These risks, says the World Economic Outlook, reflect the fundamental challenges facing many transition countries: curtailing the role of the state in production and allocation decisions and establishing an effective and affordable social safety net.

Joint Press Conference Maystadt and Camdessus Discuss Debt Plan, ESAF Financing

Following are excerpts from the joint press conference given by Philippe Maystadt, Interim Committee Chairman, and IMF Managing Director Michel Camdessus in Washington on April 22.

Maystadt: In its morning session, the Interim Committee discussed the World Economic Outlook, emphasizing that important challenges remain, especially in three areas: fiscal consolidation; structural reform, especially regarding labor market rigidities; and the need for strengthened supervision of financial institutions and markets. The Committee also welcomed the establishment of the special data dissemination standard and the indication by a rather large number of members that they would subscribe to this new standard.

In the afternoon session, we discussed several issues relating to the IMF’s financial resources and assistance to members—including the Eleventh General Review of Quotas and the proposed new arrangements to borrow. We also had an interesting discussion about the ways to ensure the continuation of the enhanced structural adjustment facility (ESAF). Finally, we discussed ways to address the problems of a limited number of heavily indebted poor countries.

Let me emphasize this last issue because, after today’s meeting, I have the conviction that we might be approaching the point of decision on a satisfactory solution. Only six months ago, the discussion was still at an exploratory stage, and the idea of multilateral debt relief was still highly controversial. Thanks to the commitment of Mr. Camdessus and Mr. Wolfensohn, we are today discussing a broad action framework involving all creditors and providing for a comprehensive solution.

Let me briefly explain what we achieved today:

  • First, there is now clearly an agreement that a limited number of countries will not achieve a sustainable debt situation unless additional measures are taken. It was very clear today that all Interim Committee members agree that we need further action to help such heavily indebted poor countries that are following sound policies.
  • Second, we had a first round of discussions on the principles that should guide the design of the solution, and we expect these principles to be endorsed tomorrow at the Development Committee meeting.
  • Third, we concluded that the action framework proposed by the heads of the IMF and the World Bank provides a good basis for further work on specific solutions. Of course, many issues still remain to be resolved, and we will continue our discussion at the Development Committee meeting.

It has been clearly confirmed today that the IMF’s contribution will have to come from ESAF. Discussion on a self-sustained ESAF started some time ago. This discussion covered the financing effort to be made between the years 2000 and 2004, pending achievement of a self-sustained instrument after 2004. This discussion has taken on a new dimension, owing to the contribution the ESAF will have to make to the reduction of the debt burden of the heavily indebted poor countries. This new responsibility implies that discussions will have to start on the modalities of ESAF’s contribution to debt-relief operations, the financial impact of this contribution will have to be examined; and the old questions must be addressed with a new sense of urgency.

I believe we made a wise decision today to keep open all options for mobilizing the necessary financing. The financial proposals that were on the table remain on the table. Four possible avenues are under consideration: bilateral contributions; the investment income on the profits from the sale of a modest amount of the IMF’s gold; the use of resources in a special contingent account, the so-called SCA-2, which now protects claims of members coming out of arrears situations—with these resources first being refunded to member countries and then rechanneled to the IMF; and the early use of resources in the ESAF reserve account, which would inevitably diminish prospects for achieving a self-sustained ESAF later on.

I anticipate that some imaginative combination will be needed to mobilize the necessary support in time. In fact, the Managing Director has already proposed some combination of the first, second, and third options. We will need all of the Managing Director’s skill to find a good compromise and to transform the ideas expressed this afternoon into a workable solution. After today’s discussion, I am confident that we will find a compromise solution for the next Annual Meetings.

I have put special emphasis on this issue because finding a solution to the other important issues—for example, the quota increase or new arrangements to borrow—will require more time. I do not expect that we will arrive at solutions for these latter problems for our next meeting.

Question: Has there been any agreement on the precise number of the heavily indebted countries that could benefit from the joint IMF-Bank proposal? Second, has any progress been made in allaying the worries of countries concerned about gold sales?

Maystadt: Regarding your first question, we have agreed that the number of countries eligible for multilateral debt relief will be between 8 and 20.

Regarding your second question, the worries expressed by some members regarding the possibility of selling a limited amount of the IMF’s gold were discussed. The discussion was sometimes rather lively. Some members explained that in their own country the central bank had sold part of its gold. The Minister of the Netherlands explained that although its central bank had sold part of its gold reserve, it still enjoyed a very good—and perhaps even an improved—rating. You do not diminish the reserves of a central bank—nor of the IMF—if the gold that is sold is replaced by other kinds of reserves.

There was a good discussion on gold sales, and this discussion will continue over the next few months. We need to reflect on ways to take into account the legitimate concern of some members that the use of the IMF’s gold would become in the future an easy way to solve all kinds of problems. We should try to prevent a limited sale of gold from becoming a precedent for less legitimate purposes. We are therefore thinking about formulas that take into account these legitimate fears.

Question: Can you give us a time frame for the resolution of the special drawing rights, quota increase, and the General Arrangements to Borrow [GAB] issues? The SDR issue is like a desert mirage: you think you are going to get there, but the moment that you go near, it seems to vanish.

Maystadt: The communiqué says that for the quota review we should try to reach a conclusion “as soon as possible” and that “an early successful conclusion” is urged for work on the new arrangements to borrow. What does “as soon as possible” mean? I must confess it is not this year. We hope that in the course of next year we will be able to reach a conclusion on these two issues.

On the SDR, the Managing Director can, perhaps, make a guess, but I am not sure that we will go very quickly. Nevertheless, the Committee recognized that we should find a solution to the equity issue regarding the SDRs. My hope is that we try in the course of next year to agree on a package that we will all defend before our national parliaments. In this package, if possible, we should include the next quota increase and a solution for the equity issue regarding the SDRs.

Camdessus: With regard to the SDR, I must say that I am impressed by the language that the Chairman has suggested to the Committee. This language is rather unusual by Interim Committee standards. It says that the Committee “requests the Executive Board to reflect further on proposals on the role of the SDR and to reach a consensus on a way for all members to receive an equitable share of cumulative SDR allocations.” It places an obligation on the Board to reach a consensus. It is not very often that we are urged to reach a consensus; in general, the Ministers ask us for proposals or to report. In this case, however, they want us to reach agreement.

Question: A tally of the voting rights of the countries that have come out clearly against the sale of gold suggests that this proposal would not receive the required 85 percent majority. How can it remain on the table?

Maystadt: There was a very positive discussion. Even those members expressing reservations about the idea of selling a limited amount [up to 5 percent] of the IMF’s gold did not take overly hard positions. In other words, they did not definitely close the door. That is why I am saying that it is still possible to work out a compromise involving several elements, including, perhaps, the sale of a limited amount of gold.

Camdessus: What was striking about this afternoon’s discussion was that the debate was not so much about selling gold; it was about the safest way to preserve the IMF’s financial integrity. On this matter, the debate is quite open, and everybody is still thinking about solutions. Some members prefer pledging to selling. Others point out that if you pledge and there is an accident down the road, this could lead to a sale of gold that would shrink the balance sheet and the reserves of the IMF. It is a remote risk, but it is a risk.

If you sell gold, keep the product of the sale on your balance sheet, and use only the income on the profits from that sale for the purpose of ESAF, you do not shrink the IMF’s balance sheet. The reserves of the IMF will have been diversified, but the financial integrity of the IMF will not have been put at risk. The formula for selling gold that I have proposed is probably much safer in terms of preserving the financial integrity of the institution than pledging. That is why I prefer this avenue to the other. In any event, I believe that the debate today has suggested further thoughts to several of the Ministers and Governors.

Question: How confident are you that any package of IMF proposals can contain another Mexico-style crisis, given the inter-dependence of global economies? And what would you say to critics who argue that lending $3 billion to Venezuela is risky, if not a bad investment?

Camdessus: To answer your first question, we have tried to draw lessons from the Mexican experience in two ways. The first is probably the more important, namely, to strengthen our surveillance and to have countries care more about their own situation and their own policies. Strengthening surveillance also helps reassure the markets, as it will provide them with better and more timely information and help them avoid being taken by surprise. Surveillance has been strengthened; this is now well in place.

We are working on the second lesson from the Mexican experience—namely, to strengthen the IMF’s ability to respond financially to dangers. What is central to this issue is the size of the IMF—its quotas. I am quite impressed that most members of the Interim Committee favor a very significant quota increase, somewhere between 60 percent and a doubling. The Board has now been given the mandate to complete the quota exercise as soon as possible. In addition, the doubling of the GAB is well on its way.

All these initiatives are extremely good, provided that the quota increase is adopted in a timely fashion. If we were able to act decisively in the case of Mexico—and I believe we did so—it was because our liquidity at that time allowed us to put on the table the amount of money needed to reassure the markets that Mexico would have the means to honor its signature while strengthening its economic base. If the next crisis came tomorrow, we would still have sufficient money. But the liquidity ratio of the IMF is declining rapidly. This gives us very strong reasons to accelerate our work in preparing the quota increase.

With respect to Venezuela, the program that the IMF, the World Bank, and the Inter-American Development Bank are supporting is extraordinary. It entails a full liberalization of exchange controls and interest rates and should bring about a very significant improvement in the budgetary position. The program kills one of the sacred cows of the Venezuelan economy—namely, that gasoline and electricity should be so underpriced in economic terms as to be virtually free. In acting to help Venezuela, the IMF does only what it is mandated to do by its Articles—namely, to extend temporary support to a country taking all the necessary steps to put its economy on a sound footing.

Question: In terms of the shape of the GAB, is it more likely now that we will have the parallel new arrangements to borrow rather than an enlarged GAB?

Maystadt: There is already agreement on five principles, one of which is that the GAB will be maintained. It is thus more likely that the working group on this issue will try to reach an agreement on a parallel new arrangement—respecting, of course, the principle of equal rights and equal responsibilities.

Camdessus: Two things are important from the IMF’s point of view. First, a prompt decision is necessary. The system will work better once this kind of broad financial safety net is in place, together with a substantial increase in quotas. Second, whatever the final structure, two concerns must be reconciled: exceptionality—these reserves must be tapped only in situations of systemic crisis—and agility. Once it has been decided to activate the arrangements to borrow, the decision-making process must be extremely expeditious because a situation of crisis requires action. I hope, therefore, that the Group of Ten Deputies and the working group will give high priority to the need for a very effective decision-making process.

Question: How did Africa figure in your discussions?

Camdessus: While Africa does not appear as a heading as such in this communiqué, it should be recognized that the most heavily indebted countries referred to are mostly in Africa. Also, when we talk about the improvement in the world economic situation, we talk particularly about Africa. This is the first year in at least 20 years when the per capita income of Africa is set to increase by about two percentage points in real terms. This is not an accident. It is not the windfall of good commodity prices. It is essentially the result of the application of good policies in these countries.

At present, 26 countries have programs with us or are in very advanced stages of negotiation. These programs provide the potential for continued progress. Also, when we talk about making ESAF a permanent instrument, it is essentially for Africa’s benefit. I would like the African people to be aware of this renewed sense of confidence that Africa will be able to avoid marginalization in this globalized world.

Question: U.S. Treasury Secretary Rubin recently noted concerns about growth trends in Europe in the lead up to meeting Maastricht convergence criteria. Is this a worry of the Managing Director?

Camdessus: We in the IMF believe that Europe’s progress toward monetary unity cannot but be favorable for the prospects for sustainable growth. All the European countries need fiscal consolidation, Maastricht or not. If anything, the Maastricht process helps them move together in the same direction.

Interim Committee Communiqué Fiscal and Structural Problems Need to Be Addressed

Following is the text of the communiqué issued after the April 22 meeting of the Interim Committee of the Board of Governors of the IMF.

1. The Interim Committee held its forty-sixth meeting in Washington, on April 22, 1996, under the Chairmanship of Philippe Maystadt, Deputy Prime Minister and Minister of Finance and of Foreign Trade of Belgium.

2. The Committee is encouraged by developments in the world economy:

  • Inflation has been brought down or kept low in most countries, and the broad movements in the exchange rates of the major currencies since the Committee meeting of April 1995 have improved the prospects for sustainable noninflationary growth.
  • In the developing world, growth has been well sustained, helped by strong policies of macroeconomic adjustment and structural reform, leading to improved living standards for a large share of the world’s population. In Asia, growth is expected to remain buoyant, albeit at a slightly slower rate than in 1995, reflecting in part tighter policies in some countries to resist overheating. In the Western Hemisphere, the far-reaching adjustment efforts of Mexico and other countries in the region have improved the prospects for recovery. In Africa and the Middle East sound policies are improving economic prospects.
  • In the countries in transition, progress toward market-based institutions and macroeconomic stability has contributed to stronger economic performance. The countries that have advanced furthest in this process provide encouraging evidence that perseverance with financial discipline and structural reforms creates the basis for sustained growth.
  • In the industrial countries, recovery has begun in Japan and conditions are good for expansion to continue at a healthy rate in North America. In continental Europe, fiscal consolidation, subdued inflation, and their favorable impact on interest rates should help the expected pickup of growth in the course of 1996, following the recent pause.

3. The Committee notes that many of these favorable developments reflect implementation of key aspects of the common strategy set out by the Interim Committee in the Madrid Declaration of October 1994. The fall meeting of the Committee may be an appropriate occasion for updating the guidelines set out in the Madrid Declaration, and the Committee requests the Executive Board to consider this matter.

4. The Committee emphasizes that important challenges remain:

  • Fiscal consolidation remains a key priority in most countries, despite some progress in reducing budget deficits. Fiscal problems take many forms, including unproductive spending, narrow tax bases and high tax rates, inefficient state enterprises often subject to soft budget constraints, large off-budget or hidden imbalances, and extensive commitments, particularly in pensions and health care, given the prospective aging of populations. Greater transparency of fiscal operations and awareness of the implications of longer-term commitments are needed to build public consensus and support for determined policies to deal with these problems.
  • Removal of structural impediments to higher rates of noninflationary growth is also critical, and labor market rigidities that contribute to un-acceptably high unemployment in many industrial countries are of particular concern. Progress in these areas would also assist fiscal consolidation.
  • Strengthened supervision of financial institutions and markets will facilitate the efficient allocation of financial resources and guard against potential sources of macroeconomic instability and fiscal costs.

5. The Committee recognizes the very strong efforts by the IMF to adapt its surveillance to the new global environment. Specifically, the Committee:

  • Welcomes the report of the Managing Director on policies implemented in the context of country surveillance, which provides a useful bridge from the lessons of the Board’s daily work on bilateral surveillance to the broader issues relevant to the Interim Committee in its oversight role. The Committee requests a further report on selected surveillance issues frequently arising in the IMF’s dialogue with members.
  • Welcomes the establishment of the special data dissemination standard for members having or seeking access to international capital markets, and the early indications that a significant number of countries intend to subscribe; it encourages other members to subscribe. The Committee calls for early work by the Executive Board to establish the general standard for data dissemination for all members before the end of 1996.

6. With respect to the IMF’s financial resources and assistance to members, the Committee:

  • Notes the progress made by the Executive Board in preparatory work for the Eleventh General Review of Quotas and stresses the need to ensure the adequacy of quotas for the IMF to continue to carry out its mandate, taking into account changes in the world economy since the last increase in quotas was agreed in 1990. In view of the prospective evolution in the Fund’s liquidity position, the Committee requests the Executive Board to pursue work on quota issues with a view to reaching a conclusion as soon as possible.
  • Notes the report of the Chairman of the G-10 Deputies, and welcomes the progress toward doubling the resources currently available to the IMF under the General Arrangements to Borrow, while re-emphasizing that borrowing should be exceptional and that the new arrangements are not a substitute for a quota increase. It welcomes in particular the agreement that has been reached on the broad principles that will guide the design of the new arrangements as well as the indication by a number of countries of their readiness to participate in borrowing arrangements on appropriate terms. It urges an early successful conclusion of this work.
  • Reiterates its support for continuation of the enhanced structural adjustment facility (ESAF), including establishment of a self-sustained ESAF, as the centerpiece of the IMF’s strategy to help the low-income countries, including in the context of the initiative to assist the most heavily indebted poor countries. It discussed the report presented by the Managing Director and—taking into account the time required to put in place the financing arrangements for ESAF—requests the Executive Board to conclude its discussions as soon as possible with the aim of devising acceptable financing proposals by the time of the next Annual Meetings.
  • Welcomes the proposed framework presented by the IMF and the Bank on ways to address the problems of a limited number of heavily indebted poor countries following sound policies for which it is clear that existing mechanisms appear inadequate to secure a sustainable external debt position over the medium term. It agrees that further action is needed, on a case-by-case basis, in line with broad principles agreed by the two Executive Boards, including contributions by the international financial institutions from their own resources, contributions by bilateral donors, and appropriate action by the Paris Club and by other creditors.

The Committee requests the IMF, in conjunction with the Bank and in close collaboration with all involved creditors and donors, to put forward specific proposals as soon as possible, with the aim of reaching decisions by the time of the next Annual Meetings.

7. The Committee welcomes the report on the Seminar on the Future of the SDR. It requests the Executive Board to reflect further on proposals on the role of the SDR and to reach a consensus on a way for all members to receive an equitable share of cumulative SDR allocations.

8. The Committee will meet again in Washington, on September 29, 1996.

Development Committee Communiqué Ministers Urge Swift Progress On Debt Relief Initiative

Following is the text of the communiqué issued after the April 23 meeting of the Development Committee.

1. The fifty-second meeting of the Development Committee was held on April 23, under the chairmanship of Mohamed Kabbaj, Minister of Finance and Foreign Investment of Morocco.

2. International Development Association (IDA). Ministers expressed appreciation to all donors that contributed to the three-year funding arrangement agreed upon in March 1996, and extended special recognition to those donors contributing to the FY97 Interim Trust Fund. Ministers noted that the funding pledged by donors, together with other resources expected to be available to IDA, will allow IDA to lend up to $22 billion over three years, commencing in July 1996. While this represents a significant achievement, reached under difficult circumstances, it leaves IDA with seriously constrained financial capacity to respond to countries’ improved policy performance. Ministers praised those countries that have become new IDA donors and encouraged others to take similar action. They also thanked those that have made supplementary or increased contributions to IDA.

3. Ministers emphasized that the IDA 11 agreement reflects a strong consensus on IDA’s importance to the support of effective development policies and programs in the poorest countries, with its core objective of poverty reduction supported by economic growth and environmental sustainability. Ministers urged IDA to raise its effectiveness and development impact.

4. Ministers reiterated the importance of maintaining IDA’s capacity to transfer resources to countries with sound policy performance. They stressed the importance of fair burden-sharing among IDA donors, and called upon donors to honor their commitments on a timely basis to ensure successful implementation of IDA-11.

5. Noting with great concern the difficulties encountered in the replenishment of IDA-11, Ministers agreed that the prospects for IDA funding be a key issue for discussion by the Committee in a year’s time.

6. Ministers urged that rapid progress also be made in ensuring the continued financing of the IMF’s enhanced structural adjustment facility (ESAF), a vital complement to IDA, for the multilateral effort to be fully effective.

7. Resolving debt problems of the heavily indebted poor countries (HIPCs). Ministers welcomed a Framework for Action presented by Bank and IMF managements. The Committee noted the progress achieved since its last meeting and expressed appreciation for the joint efforts of the Bank and the IMF.

8. Ministers agreed with the analysis of IMF and Bank staff that there were a number of HIPCs for whom the burden of debt, including multi-lateral debt, was likely to remain above sustainable levels over the medium term, even with strong policies and full use of existing debt-relief mechanisms.

9. Ministers agreed that for these countries further action is needed to address their debt problems, building on actions already being taken by official bilateral and commercial creditors. This would involve use of both existing mechanisms and new arrangements, including contributions by the international financial institutions from their own resources, contributions by bilateral donors, and appropriate action by the Paris Club and by other creditors.

Stand-By, EFF, SAF, and ESAF Arrangements As of March 31

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Note: EFF = extended Fund facility.SAF = structural adjustment facility.ESAF = enhanced structural adjustment facility.Figures may not add to totals owing to rounding.Data: IMF Treasurer’s Department

10. Ministers agreed that the principal goal of the proposed framework should be to ensure, for these countries, that adjustment and reform efforts are not put at risk by continued high debt and debt-service burdens. They endorsed the following six principles to guide further action: (1) The objective should be to target overall debt sustainability on a case-by-case basis, thus providing an exit strategy from the rescheduling process. (2) Action will be envisaged only when the debtor has shown, through a track record, ability to put to good use whatever exceptional support is provided. (3) New measures will build, as much as possible, on existing mechanisms. (4) Additional action will be coordinated among all creditors involved, with broad and equitable participation. (5) Actions by the multilateral creditors will preserve their financial integrity and preferred creditor status. (6) New external finance for the countries concerned will be on appropriately concessional terms.

11. While recognizing that many important aspects of the proposed framework of action need to be further developed and refined, Ministers agreed, nevertheless, that it provided an appropriate basis for further work. They requested that the Bank and IMF—in close consultation with concerned bilateral creditors/donors/debtors, the Paris Club, and other multilateral institutions—move swiftly to produce a program of action. Ministers urged that a decision be reached on this program and its financing as soon as possible, aiming to do so by the next IMF-World Bank Annual Meetings.

12. Report of the Task Force on Multilateral Development Banks [MDBs]. The Committee welcomed this balanced and objective report prepared by its MDB Task Force. Ministers appreciated that it presented, for the first time, an overall assessment of the multilateral development banks.

13. Ministers believe the report provides an excellent analysis of the importance of multilateralism and the role of MDBs in a rapidly changing world. The Committee appreciated the report’s careful assessment of the performance of these five quite different institutions, with particular reference to its support for poverty reduction and sustainable development, investment in infrastructure, promotion of the private sector, operational orientation toward results on the ground, and to increasing cooperation among the MDBs.

14. The Committee generally agreed with the report’s conclusions and recommendations, recognizing that not all apply equally to each institution. Bearing in mind the value of diversity among the MDBs, Ministers urged the MDBs to act upon relevant recommendations as a matter of priority to strengthen further their policies and practices. Ministers invited the Presidents of the MDBs to advise the Committee, in about two years’ time, on progress achieved in implementing the Task Force’s major recommendations.

15. The Committee expressed its great appreciation and gratitude to Mr. Abdlatif Al-Hamad for his leadership as Chairman of the Task Force, as well as to the Task Force Members and the Secretariat for their dedicated and productive work over the past 15 months. The Committee requested that the report be published and widely distributed.

16. The Committee’s next meeting will be held on September 30, 1996, in Washington.

Group of Ten Communiqué Ministers Call for Conclusion Of Talks on GAB Expansion

Following is the press communiqué issued after the April 22 meeting of the Finance Ministers and Central Bank Governors of the Group of Ten (G-10) countries.

1. Ministers and Central Bank Governors of the countries participating in the General Arrangements to Borrow (GAB) met in Washington on April 22, 1996, under the chairmanship of Gerrit Zalm, Minister of Finance of the Netherlands.

2. Ministers and Governors took note of ongoing discussions between the G-10 countries and other countries with the capacity to support the international monetary system aimed at developing new financing arrangements which would double the supplementary resources currently available to the IMF under the GAB for coping with international financial emergencies. They welcomed the progress that has been made in reaching agreement on broad principles guiding the design of the new arrangements and stressed the desirability of bringing the discussions to a successful conclusion as soon as possible.

3. Ministers and Governors commended the report of the Working Party on the Resolution of Sovereign Liquidity Crises, prepared under the auspices of their Deputies, and agreed that the report should be released to the public. They affirmed that, given the need to contain moral hazard and the desirability of equitable burden-sharing, neither debtor countries nor their private creditors should expect to be insulated from any adverse financial consequences of their decisions by the provision of large-scale official financing in the event of a crisis. Moreover, there should be no presumption that any type of debt to the private sector will be exempt from payments suspensions or restructuring in any future sovereign liquidity crisis.

4. Ministers and Governors recognized that the current flexible, case-by-case practices and procedures, as they have evolved over the years, are an appropriate starting point for considering how to respond to sovereign liquidity crises, and that improvements should continue to be evolutionary. In this connection, they endorsed the conclusions of the report, which also appear in the Executive Summary. They underlined their concurrence with the recommendations concerning actions that could be taken to improve existing practices and procedures and stressed that it was desirable for the appropriate private sector groups to take the lead in developing any new contractual arrangements. They affirmed that the official community’s primary role in the resolution of sovereign liquidity crises should remain centered on the promotion of strong and effective adjustments by debtor countries in the context of IMF-supported programs.

5. Ministers and Governors expressed support for the work being done by the Basle Committee on Banking Supervision, the International Organization of Securities Commissions and other bodies to foster the soundness of financial institutions and markets. In this context, they welcomed the efforts to increase cooperation among authorities responsible for supervision and the stability of financial markets, and concluded that they provided a helpful basis for further work in this area. They also emphasized the importance of adherence to credible and consistent economic policies and endorsed actions to reinforce market discipline through the establishment of data dissemination standards by the IMF and the strengthening of surveillance procedures.

Group of 24 Communiqué G-24 Calls for Flexible Debt Relief Guidelines, More Symmetrical Surveillance

Following is the text of the press communiqué issued after the meeting of the Ministers of the Intergovernmental Group of 24 (G-24) on International Monetary Affairs, on April 21.

World Economic Outlook

1. Ministers noted with satisfaction the continued good performance of the world economy, to which developing countries had contributed markedly through their much stronger performance, which was largely the outcome of their sustained macroeconomic and structural reform efforts. They noted, in particular, the growth momentum of many developing countries and their increased resilience in the face of an adverse external environment.

2. Ministers were encouraged by the prospects of greater price and exchange rate stability and the resumption of growth in Japan and signs of recovery in Europe. However, they expressed concern about the slow progress toward fiscal consolidation and the persistence of large financial imbalances and structural rigidities in some industrial countries. The associated growth of public debt, combined with high levels of unemployment, intensified risks of greater protectionism. In addition to constraining the effectiveness of fiscal policy and placing an excessive burden on monetary policy, the drain on world saving resulting from these fiscal deficits was primarily responsible for the persistence of high real interest rates. Ministers emphasized that this had serious consequences for investment, especially for developing countries, whose growing integration into global capital markets has made them far more sensitive to movements in international interest rates.

3. While noting the improved performance of countries in sub-Saharan Africa, which resulted largely from their own adjustment and reform efforts, Ministers were concerned that growth remained fragile and insufficient to evoke any marked alleviation of poverty. The weaker trend in prices for both fuel and non-fuel commodities projected for the next few years would constitute a serious impediment to growth in the region. Ministers stressed the need for a comprehensive program for addressing the problems of these countries in a manner that would match strong reform and adjustment efforts with adequate inflows of concessional assistance, including significant and timely debt relief for heavily indebted poor countries.

Surveillance

4. Noting the impact that policy developments in the principal industrial countries have on growth prospects, exchange and interest rates, and trade patterns in the world economy, Ministers emphasized the continuing need for enhanced policy coordination and transparency to avoid the misalignments among major currencies and the disruptive shifts in capital flows that can prove costly to the adjustment efforts of the developing countries.

5. Ministers considered that the growing integration of financial markets and the massive increase in the volume of private capital flows had greatly intensified the need for effective IMF surveillance to contain the contagion effects associated with market disturbances or sudden policy changes. They welcomed the greater forthrightness in the IMF’s treatment of sensitive issues, in particular the exchange rate policies of the major industrial countries and the policy mix and timing of action to prevent overheating in fast-growing emerging market economies.

6. Ministers commended the IMF management for the progress made toward greater balance in the exercise of surveillance. They noted, however, that the IMF continued to exert an asymmetric influence on the policies of developing and transition countries, owing to their need for financial assistance. They encouraged the IMF to work toward achieving greater influence on the policies of industrial countries, so as to eliminate this asymmetry.

7. Ministers wecomed the establishment by the IMF of the special data dissemination standard to guide members in publishing a regular and timely flow of economic and financial data. They underscored that, for a number of countries with less developed statistical systems, even the general standard could be achieved only over time and with substantial technical assistance from the IMF.

IMF Quotas and Borrowing Arrangements

8. Ministers highlighted the need to strengthen the IMF’s financial resources in the face of continued and potential demands on the IMF and the ongoing decline in the liquidity ratio. They stressed the need to ensure that the IMF was equipped to effectively perform its growing responsibilities in a global economy characterized by volatile capital flows. In this regard, Ministers reiterated their position that the IMF should rely primarily on quotas and that a doubling of quotas would be commensurate with its evolving role.

Ministers emphasized the important contribution made by the ESAF in helping poor countries adjust.

9. Ministers emphasized the importance of maintaining a proper balance in the representation of members and regions within the Executive Board of the IMF and expressed serious concerns about the relative decline in the quota share of developing countries over time. They stressed that the quota increase under the Eleventh General Review of Quotas should be predominately equiproportional to ensure an adequate increase in quotas for all members and to help maintain the quota share of the developing countries.

10. They also called for a review of the number of basic votes, which would enhance the participation of developing countries, especially a number of smaller ones, in decision making in the IMF. They stressed, however, that any such review should not lead to a delay in concluding the Eleventh Review.

11. Ministers were concerned that discussions on enlarging the size and scope of the General Arrangements to Borrow (GAB) were being held outside the IMF, and stressed that:

  • final decisions on enlargement should be taken in close consultation with the IMF;
  • new contributors should participate in the policy decision-making and implementation process;
  • activation procedures should be streamlined; and
  • there should be no distinction between contributors and others in terms of access.

In addition, Ministers emphasized that these and any other borrowing arrangements should not be regarded as substitutes for an adequate increase in quotas.

12. Ministers cautioned against the introduction of higher rates of charge or surcharges on large-scale uses of IMF resources either as a means to strengthen the IMF’s financial position or for any other purpose.

Role of the SDR

13. Ministers noted that, for many countries, the cost of acquiring reserves through borrowing in capital markets was substantial. In addition, a number of countries lacked access to private capital markets and were forced to obtain reserves by compressing imports, consumption, and investment. Moreover, countries are facing difficulties in obtaining sufficient amounts of SDRs to reconstitute their reserve positions in the IMF, or, at times, repurchase SDRs to meet their obligations to the IMF. Thus, SDR allocations have an important role to play in the international monetary system, not only to protect the role of the SDR as a reserve asset, but also as a means to promote equity among members.

14. Against this background, Ministers welcomed the recent IMF seminar on the role of the SDR, and noted with interest the proposals put forward, especially those made by representatives from developing countries. In reiterating their continued support for a general SDR allocation in accordance with the IMF’s existing Articles of Agreement, Ministers also expressed their willingness to consider further proposals to secure greater participation and equity in the SDR system and to realize the full potential of the SDR as a source of both conditional and unconditional liquidity.

15. Ministers encouraged the IMF to review further the issues related to the future role of the SDR, including its possible role in preventing, or alleviating, systemic crises by providing a channel for large-scale financing on a temporary basis.

Continuation of ESAF Operations

16. Ministers emphasized the important contribution made by the enhanced structural adjustment facility (ESAF) in helping low-income developing countries to implement the comprehensive macroeconomic and structural policies needed to strengthen their balance of payments positions, foster growth, and attract private capital. While noting the consensus in the IMF’s Executive Board on the establishment of a self-sustained ESAF, they expressed concerns about the difficulties being encountered in reaching agreement on financing the ESAF. They stressed the need to maintain ESAF funding at an adequate level and to assure the continuation of the self-sustained ESAF on a concessional basis. They urged the membership to resolve the remaining issues promptly in order also to assure the IMF’s contribution to the proposed framework for resolving the debt problems of the heavily indebted poor countries.

Debt Problems of Heavily Indebted Poor Countries

17. Ministers noted the joint proposal put forward by the World Bank and IMF managements for resolving the debt problems of heavily indebted poor countries, including their debts to the multilateral institutions. They emphasized that any workable solution would require additionality of resources, so as to preclude any transfer of limited concessional resources from one set of objectives to another. It would also have to be comprehensive in character and deal with the total debt of heavily indebted poor countries, rather than only their multilateral obligations. In this regard, they supported the World Bank and IMF managements’ proposal that Paris Club creditors provide net present value concessionality of up to 90 percent in flow rescheduling and stock of debt operations.

18. Ministers cautioned, however, that the eligibility criteria prescribed for beneficiary countries should not be so restrictive as to exclude some of the countries for whom this facility is intended. In this context, Ministers felt that debt sustainability analyses should be more realistic as to export projections, aid availabilities, and the fiscal constraints of debtor governments, while taking into account the overall debt/GDP ratio. Ministers emphasized that such analyses should be carried out with due participation by the debtor governments, contributing donors, and the Bretton Woods Institutions.

19. Ministers recognized the need for recipient countries to steadfastly pursue programs of economic reform. However, they considered that the proposed periods for the establishment of a track record were excessively long and rigid. They felt that flexibility with respect to the eligibility criteria, the timetables, and the scale of relief would help governments sustain their reform efforts. The Ministers called upon all concerned multilateral and bilateral creditors to work toward an early finalization of an action plan that would be commensurate with the vigorous adjustment efforts of these countries.

International Development Association (IDA)

20. Ministers took note of the recently concluded agreement regarding the Eleventh Replenishment of IDA and the creative approaches adopted to maintain the broad multilateral character of IDA and ensure a successful outcome, despite growing resistance in leading donor countries. Ministers regretted that bilateral donor contributions to IDA-11 would be less than those for IDA-9 and IDA-10 and expressed serious concerns regarding the longer-term prospects of IDA. They urged donor countries to make every effort to ensure the continuity of this important source of development assistance for the poorest countries.

Multilateral Development Bank (MDBs) Task Force Report

21. Ministers commended the report for its primary emphasis on poverty reduction in the developing world and were generally supportive of the recommendations contained in it. They endorsed the importance of country ownership of programs and projects. Noting that the MDBs would remain an important source of external resource flows to a majority of developing countries, Ministers stressed that the effectiveness of the MDBs hinges on their continued access to concessional financing.

22. Ministers had reservations about whether the MDBs could be an appropriate source of policy advice in the area of promoting good governance and civil society—issues that fall within the jurisdiction of borrowing governments. Given the mandates of the MDBs, the conditions attached to financial assistance should be directly relevant to the success of the programs they support and performance should be judged on the basis of objectively measurable criteria. Ministers expressed serious concerns about the use of environmental, governance, human rights, labor standards, or other issues to further protectionist interests in industrial countries.

Selected IMF Rates

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The SDR interest rate and the rate of remuneration are equal to a weighted average of interest rates on specified short-term domestic obligations in the money markets of the five countries whose currencies constitute the SDR valuation basket (the U.S. dollar, weighted 39 percent; deutsche mark, 21 percent. Japanese yen, 18 percent; French franc, 11 percent; and U.K. pound, 11 percent). The rate of remuneration is the rate of return on members’ remunerated reserve tranche positions. The rate of charge, a proportion (currently 102.5 percent) of the SDR interest rate, is the cost of using the IMF’s financial resources. All three rates are computed each Friday for the following week. The basic rates of remuneration and charge are further adjusted to reflect burden-sharing arrangements. For the latest rates, call (202) 623-7171.

Data: IMF Treasurer’s Department

From the Executive Board

Argentina: Stand-By

The IMF approved a stand-by credit for Argentina authorizing drawings up to the equivalent of SDR 720 million (about $1.0 billion) over the next 21 months, in support of the government’s 1996-97 economic and financial program.

With the adoption of the Convertibility Plan in March 1991, Argentina pegged the peso to the U.S. dollar, abolished indexation and capital controls, drastically reined in central bank credit, and launched an extensive program of structural reforms. Inflation declined from over 2,000 percent in 1990 to 3.9 percent in 1994, while average real GDP expanded by 7.7 percent a year during 1991-94, reflecting structural transformation, large reflows of private capital, and the expansionary effect of rapid disinflation on domestic demand.

The combination of fiscal adjustment and economic restructuring gave credibility to the exchange rate anchor and helped reduce inflationary expectations. In the public sector, almost all federal enterprises were sold off, the federal social security system was revamped, markets deregulated, all price and exchange controls removed, trade liberalized, and distortionary taxes abolished. Exports grew rapidly in 1993-94, as exporters modernized plant and equipment and rationalized employment. Shipments of manufactured goods rose by 27 percent a year, while imports, led by capital goods, more than quadrupled from 1990 to 1994.

The crisis in Mexico in late 1994, together with growing fiscal instability, triggered a slump in confidence. Argentina experienced large outflows of capital and by April 1995 international reserves had fallen by one third. The implementation in April 1995 of an IMF-supported program, which included a strong package of fiscal measures, helped stabilize the financial situation. As confidence gradually strengthened, deposits reflowed into the country, interest rates declined, and access to foreign borrowing was restored. While real GDP contracted by 4.4 percent, inflation declined to 1.6 percent in 1995, the lowest level in 50 years. The external current account deficit narrowed by more than 2 percentage points of GDP from 1994, mainly due to an increase of more than 30 percent in exports.

The 1996-97 Program

The economic program for 1996-97, which the stand-by credit supports, seeks to restore economic growth under conditions of low inflation and external viability, increase savings and investment, deepen the process of structural reform, and improve efficiency in the economy. In 1996, economic activity is expected to recover rapidly, with inflation remaining around 2 percent, and the external current account deficit would remain at about the same level in relation to GDP as in 1995. Export performance should continue to improve, though at a lower pace than last year, while imports are expected to recover with the pickup in economic activity.

Argentina’s basic economic strategy will continue to be the maintenance of fiscal and monetary discipline in the context of the Convertibility Law. For 1996, the program targets a reduction in the federal government deficit to 0.8 percent of GDP, from 1.3 percent of GDP in 1995. The provinces are also expected to show financial improvement, further strengthening the overall public sector position. In an effort to accelerate the reform process, the Executive Branch has been authorized by Congress to implement additional measures on a temporary basis in the tax area, and to carry out a reform of the national administration.

Recent Use of IMF Credit

(million SDRs)

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Note: EFF = extended Fund facility.CCFF = compensatory and contingency financing facility.STF = systemic transformation facility.SAF = structural adjustment facility.ESAF = enhanced structural adjustment facility.Figures may not add to totals shown owing to rounding.Data: IMF Treasurer’s Department

Argentina: Selected Economic Indicators

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Program.

Data: Argentine authorities and IMF staff estimates

Structural Reforms

Structural reforms during 1996 and 1997 will center on the restructuring of the federal and provincial governments. A number of public institutions will be either merged or eliminated to achieve further efficiency gains. This reform will increase the efficiency and quality of government services resulting in important budgetary savings over the medium term and assist in achieving the expenditure objectives for 1996.

Provincial government reforms will include strengthening provincial tax administration, the privatization of enterprises and banks, and a gradual transfer of pension systems to the federal government. These measures are expected to reduce the overall provincial deficit and clear provincial wage and pension arrears that accumulated in 1995. In 1996, the authorities also intend to privatize the remaining state-owned electricity companies and to sell share holdings in a number of companies already under private majority ownership. To foster employment, the government implemented the last stage of a 30 percent reduction in employer social security contributions; is implementing the law on work-related accidents, which is expected to lower industrial wage costs by up to 9 percent; and plans to seek further reform of collective bargaining arrangements and to make collective agreements more flexible as these come up for renegotiation. The health care sector will be reformed to promote competition and attain greater efficiency in the management of health care funds.

The Challenge Ahead

The outcome of the economic program for 1996-97 is predicated on the speed of the economic recovery and the effectiveness of tax administration measures in 1996. It is therefore crucial that fiscal developments, particularly revenue collections, be monitored closely in the coming months. Implementation of structural reforms will be essential for attaining a sustained increase in employment.

Argentina joined the IMF on September 20, 1956. Its quota is SDR 1.5 billion (about $2.2 billion). Its outstanding use of IMF credit currently totals the equivalent of SDR 4.3 billion (about $6.2 billion).

Press Release, No. 96/15, April 12

Djibouti: Stand-By

The IMF approved a request by Djibouti for a stand-by credit equivalent to SDR 4.6 million (about $6.7 million) over the next 14 months to support the government’s 1996 economic reform program. This is the first use of IMF credit by Djibouti, which became a member on December 29, 1978. Djibouti’s quota in the IMF is SDR 11.5 million (about $16.7 million).

In the past few years, Djibouti’s economic and financial performance has been adversely affected by regional instability, an influx of refugees, a domestic armed conflict, and, more recently, a decline in foreign assistance and increased competition from the neighboring ports of Assab and Berbera. As a result, real GDP has declined, unemployment has soared, and budget deficits have grown larger. Indications are that the economic and financial situation deteriorated further in 1995, with economic activity declining by 3.1 percent, primarily because of depressed port activity and lower domestic demand. Although the budget deficit declined as a percentage of GDP, the government had to undertake further borrowing from commercial banks and public enterprises, while the external position deteriorated, leading to a loss of gross international reserves.

The 1996 Program

The authorities initiated a reform process in October 1995. The key elements of the 1996 program, supported by the stand-by credit, are a substantial tightening of financial policy, emphasizing prompt budgetary adjustment and restructuring; continued full adherence to the present currency board arrangement; maintenance of a restriction-free exchange and trade regime and a prudent foreign debt policy; comprehensive structural reforms to promote competitiveness and enhance the supply responsiveness of the economy; adequate concessional external financing; and technical assistance to strengthen the macroeconomic database and administrative capacity.

The authorities recognize that fiscal adjustment holds the key to macroeconomic stability. Consequently, the 1996 program relies primarily on a significant, front-loaded, sustained reduction and restructuring of budgetary expenditures. This adjustment will be achieved primarily through measures to reduce permanently the wage bill (which was equal to over 80 percent of government revenue in 1994), starting this year. To this end, the authorities intend to implement cutbacks in the nominal wage bill in 1996, a demobilization program involving over 9,000 defense and security personnel starting in June 1996 (for which World Bank and other donor assistance has been requested), and reform of the civil service over the medium term.

Djibouti: Selected Economic Indicators

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Preliminary.

Program.

Data: Djibouti authorities and IMF staff estimates

The 1996 program envisages a stabilization of real GDP, a reduction of the current account deficit, and an increase in the level of international reserves to the equivalent of 5.2 months of imports. To achieve these objectives, the consolidated budget deficit will be cut from 11.7 percent of GDP in 1995 to 6.1 percent by reducing expenditures, including the wage bill, and by increasing revenues through a number of tax-related measures. Despite the reduction in the deficit, however, the government intends to increase budgetary allocations for education and health.

Structural Reforms

In addition to the fiscal measures adopted by the government, there is also an urgent need to reform the public enterprises by making them more efficient, restoring their capacity for self-financing, and allowing private sector participation in their capital. These reforms will initially focus on the five largest enterprises—the port, the airport, the electricity company, the water company, and telecommunications—with particular emphasis on the port, which has been losing traffic because of generally higher tariffs, administrative obstacles, and the lack of efficient land transportation between Djibouti and Addis Ababa. Because the labor market is handicapped by outdated legislation, the authorities will undertake a comprehensive revision of the labor code and will formulate a private sector development plan with assistance from the World Bank.

Addressing Social Costs

The authorities recognize the need for social safety net provisions to mitigate the impact of adjustment on the most vulnerable sectors of the population, particularly in view of the projected retrenchment of military and security personnel. Thus, allocations for health and education have been protected in the 1996 budget, and an evaluation of poverty will be conducted in order to identify the most vulnerable segments of the population and their needs to better target humanitarian aid.

The Challenge Ahead

The policy objectives and measures contained in the program are appropriate for reducing Djibouti’s macroeconomic imbalances and making headway in addressing the deep-seated structural weaknesses. If fully implemented, the program provides the foundation for a comprehensive medium-term program that could eventually be supported by an ESAF loan from the IMF.

Press Release No. 96/16, April 15

Guyana: Second Annual ESAF

The IMF approved the second annual loan for Guyana in an amount equivalent to SDR 17.9 million (about $26 million) under the enhanced structural adjustment facility (ESAF) to support the government’s economic reform program for 1996. The loan will be disbursed in two equal installments, the first of which will be available on April 30, 1996.

Within the framework of the present ESAF arrangement, Guyana’s economic performance in 1995 was satisfactory. Real GDP growth was 5 percent, a decline from the 8.5 percent growth achieved in 1994 that reflected stagnant sugar production due to drought and lower output of gold and bauxite; inflation was halved to 8.1 percent in 1995, from 16.1 percent in 1994, as the Bank of Guyana continued to pursue a cautious monetary policy; and the overall deficit of the nonfinancial public sector was contained at an estimated 8.5 percent of GDP. As a result of a planned large increase in public investment, the external current account deficit widened to 12 percent of GDP in 1995, from 9 percent in 1994, while gross international reserves, which the program required to be not less than seven months’ imports, stood at the equivalent of eight months of imports at the end of 1995, after ten months in 1994. After some delays, implementation of structural reforms picked up in the latter part of the year, and significant efforts were made in accelerating steps toward integrating the cambio and official foreign exchange markets; liberalizing the exchange and trade system; and strengthening tax administration. All performance benchmarks were observed.

Medium-Term Objectives and 1996 Program

Guyana’s medium-term objectives for 1996-98 are to achieve real GDP growth of about 5½ percent a year; to reduce inflation to about 4 percent by the end of the period; and to strengthen the balance of payments sufficiently for official reserves coverage of imports to be maintained at around current levels. Consistent with these medium-term goals, the macroeconomic objectives of Guyana’s 1996 program, which the ESAF loan supports, are to reach a growth rate of about 6.5 percent; to reduce inflation to an annual rate of 5.6 percent; and to maintain international gross reserves at the equivalent of eight months of imports.

Fiscal policy—supported by monetary and structural reforms—will play a central role in achieving these ends. The budget for the central government and the operational plans of the nonfinancial public enterprises aim at reducing the overall deficit of the nonfinancial public sector by more than 2½ percentage points of GDP to 5.6 percent. Public sector savings are programmed to almost double to 10 percent of GDP, and investment outlays are targeted to rise by 2½ percentage points to 18 percent of GDP. These objectives will be achieved through the reorientation and containment of current outlays; strengthening tax administration; and improving the performance of the public enterprises.

Guyana: Selected Economic Indicators

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Estimate.

Program.

Data: Guyanese authorities and IMF staff estimates

Monetary policy is geared toward a further deceleration of inflation and safeguarding the international reserve position, while supporting private sector activity. To support the program’s aim of moving toward external payments viability in the context of a liberalized exchange and trade system, the exchange rate will continue to be market-determined, and it is intended fully to integrate the official and cambio markets by the end of 1996. As part of its debt-management strategy, the government is seeking debt reduction from the Paris Club and other bilateral creditors, as well as an increase in the concessionality of the remaining debt and future debt flows.

Structural Reforms

In addition to strengthening tax administration as noted above, structural reforms will focus on increasing the efficiency of the public sector through reforms which include the privatization of a number of financial and nonfinancial enterprises; improving utility services, in particular power and water supply; implementing sectoral programs to exploit the potential of the natural resource base on a sustainable basis; protecting the environment; and strengthening the statistical base. On the trade side, the authorities are committed to further liberalizing the regime along the lines established under the Caribbean Community.

Addressing Social Problems

The government has been following a two-pronged strategy aimed at achieving sustainable progress in poverty reduction. Through its macroeconomic policies, it has been seeking to foster the creation of employment opportunities and it has been targeting basic social services to the poor. The Social Impact Amelioration Program, introduced in 1988 to alleviate poverty and the possible adverse effects of economic adjustment on the poor, is to be reorganized to improve its efficiency and to ensure that its benefits are well targeted.

The Challenge Ahead

Over the medium term, Guyana’s main challenge will be to maintain economic growth that is sufficient to reduce unemployment and poverty, while establishing a sustainable external position. The authorities’ strategy emphasizes raising the level of domestic savings, improving further the conditions for investment by the private sector, and encouraging a steady inflow of foreign savings. For this approach to succeed, it will be important that Guyana continue resolutely to pursue prudent fiscal and credit policies, intensify and deepen the process of structural reform, and secure comprehensive debt restructuring and a significant increase in concessional financing in the years ahead.

Guyana joined the IMF on September 26, 1966; its quota is SDR 67.2 million (about $97 million). Guyana’s outstanding use of IMF credit currently totals SDR 108.9 million (about $157 million).

Press Release No. 96/17, April 15

Mauritania: Second Annual ESAF

The IMF approved the second annual loan for Mauritania under the enhanced structural adjustment facility (ESAF), equivalent to SDR 14.3 million (about $21 million), in support of the government’s 1996 macro-economic and structural adjustment program. The loan will be disbursed in two equal semiannual installments, the first of which is available on April 24. The three-year ESAF credit, for the equivalent of SDR 42.8 million (about $62 million) was approved on January 25, 1995 (see Press Release No. 95/5, IMF Survey, February 6, 1995).

IMF Approves Special Data Dissemination Standard

Following is the text of Press Release No. 96/18, issued on April 16. It describes the special data dissemination standard approved by the IMF’s Executive Board to guide IMF members with—or seekingaccess to international capital markets in the provision of comprehensive, timely, accessible, and reliable statistical data to the public:

The Executive Board of the IMF has approved the special data dissemination standard (SDDS) for provision of economic and financial statistics to the public by member countries. The SDDS sets norms for release to the public of data by IMF members that choose to subscribe. These are expected to be countries that participate in international capital markets or aspire to do so, and would include many industrial and emerging market countries. Subscription to the SDDS will be voluntary and the IMF will make public the list of subscribers. The SDDS was approved by the Executive Board following extensive consultations with members and after receiving comments on preliminary proposals from market participants and other interested parties. Invitations for subscription to the SDDS have been sent to all IMF member countries and a detailed package of subscription materials will be sent forthwith. For the information of the public, materials on the SDDS have also been released, and are available from the IMF on request. Members of the press will be able to obtain this information from the IMF’s Information Division, telephone (202) 623-7100; and members of the general public from the IMF’s Public Affairs Division, telephone (202) 623-7300.

In the aftermath of the Mexican financial crisis of early 1995, the IMF’s Interim Committee emphasized at its April 26, 1995 meeting that timely publication by members of comprehensive economic and financial data would give greater transparency to members’ economic policies. The Committee requested the Executive Board to work toward the establishment of standards to guide members in the provision of economic and financial data to the public and subsequently endorsed the establishment by the IMF of such standards at its meeting on October 8, 1995. At an early stage, it was decided that two sets of standards would be developed. Work is under way within the IMF on the general data dissemination standard toward which the Fund would work with all its members. A proposal in this regard is expected to be considered by the Executive Board in late 1996.

The purpose of the newly established SDDS is to guide IMF members in the provision to the public of comprehensive, timely, accessible, and reliable economic and financial statistics in a world of increasing economic and financial integration. The SDDS comprises four elements:

  • Coverage, periodicity, and timeliness of data. Comprehensive economic and financial data are essential for the transparency of macroeconomic policy and performance. The SDDS specifies dissemination of economic data covering the real, fiscal, financial, and external sectors with the components, periodicity, and timeliness for the several data categories. For example, the SDDS prescribes the dissemination of GDP on a quarterly basis within one quarter, and of international reserves data on a monthly basis within one week.
  • Access by the public. Dissemination of official statistics is an essential feature of statistics as a public good. In this connection, ready and equal access is a principal requirement. To support ready and equal access, the SDDS calls for advance dissemination of data release calendars and the simultaneous release of data to all interested parties.
  • Integrity. To fulfill the purpose of providing the public with information, official statistics must have the confidence of their users. In turn, confidence in the statistics ultimately becomes a matter of confidence in the objectivity and professionalism of the agency producing them. Thus, transparency of practices and procedures is a key element in creating this confidence. The features of the SDDS that support the element of integrity in production of statistics comprise: dissemination of the terms and conditions under which official statistics are produced, including those relating to the confidentiality of individually identifiable information; identification of internal government access to data before release; identification of ministerial commentary on the occasion of statistical releases; and the provision of information about revision and advance notice of major changes in methodology.
  • Quality. A set of standards that deals with data coverage, periodicity, and timeliness must also address the quality of statistics. Although quality is difficult to judge, monitorable proxies, designed to focus on information the user needs to judge quality, can be useful. The SDDS prescribes the following practices to assist data users in their efforts to monitor data quality: the dissemination of documentation on methodology and sources used in preparing statistics; and the dissemination of component detail, reconciliations with related data, and statistical frameworks that support cross-checks and provide assurance of reasonableness.

As a cornerstone of the implementation of the SDDS, the IMF will establish and maintain an electronic Dissemination Standards Bulletin Board (DSBB) on the Internet, which will identify members subscribing to the SDDS and which will provide wide and easy access to information about their statistical practices (so-called “metadata”) prescribed under the SDDS. The IMF is also looking into ways to establish easy electronic links from this bulletin board to sites where actual country economic data can be found.

IMF members that subscribe to the SDDS on a voluntary basis may communicate their subscription by a notification to the Managing Director of the IMF. No later than three months after its subscription, the member would be expected to provide most information describing its data dissemination practices. Such practices will be reviewed to ensure they are comprehensive and presented in a reasonably internationally comparable way.

The DSBB is expected to be open to the public by the end of August 1996. Thereafter, the information posted on the DSBB may be amended on the basis of information to be provided by subscribing members.

The SDDS will operate in a transition period running through December 31, 1998. During this period, an IMF member may subscribe to the SDDS even though it is not able to observe it in full. In these circumstances, the member would identify the elements on which its data dissemination practices do not meet the SDDS and would present a plan to bring its practices to the level of the SDDS by the end of the transition period. Members will of course also be able to subscribe to the SDDS after the transition period, on the basis of full observance of the SDDS. Members that subscribe to the DDS will be expected to observe it, and during the transition the IMF will, in a dialogue with members, fully elaborate the procedures to deal with cases of severe and persistent nonobservance.

Mauritania’s economic reform efforts during the past three years have produced positive results. Over 1993-95, the average annual GDP growth has been sustained at an estimated rate of nearly 5 percent, and the rate of inflation has been reduced to 6.5 percent in 1995 from 9.3 percent in 1993. The budget deficit has almost been eliminated and the balance of payments has strengthened considerably. Structural reforms have been implemented in a number of areas, including the establishment of a unified and market-determined exchange rate, the introduction of a value-added tax (VAT) despite technical difficulties in its implementation, and significant progress in the financial sector and other areas.

Mauritania: Selected Economic Indicators

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Estimated.

Projected.

Data: Mauritanian authorities and IMF staff estimates and projections

The 1996 Program

The government’s program for 1996 is consistent with the medium-term strategy of further reducing the external current account deficit while creating an environment supportive of private investment as a basis for accelerated economic growth and low inflation. The main macroeconomic objectives for 1996 are to maintain average annual economic growth at 4.7 percent, stabilize the inflation rate at about 3.5 percent, further reduce the external current account deficit (excluding official transfers) to 6.4 percent of GDP, and increase official exchange reserves to the equivalent of 3.1 months of imports. To these ends, the program emphasizes the steadfast pursuit of tight fiscal and monetary policies, the creation of a transparent and market-based exchange regime, and the implementation of structural reforms in a number of sectors, notably fisheries.

Structural Reforms

The promotion of private sector development is a key objective of the 1996 program. Building upon the liberalization of the exchange and trade system to encourage export-oriented investment, the authorities envisage a revision of the commercial code, arbitration and bankruptcy laws, and civil and commercial judicial procedures. They plan to rationalize the investment code and to simplify procedures for the establishment of new enterprises. In addition, tax administration, in particular of the VAT, and public expenditure control will be strengthened. Import tariff reform aimed at lowering protection and broadening the tax base will be initiated.

Addressing Social Issues

The government’s primary social objectives for 1996-98 are to further increase the literacy and school enrollment rates, to improve primary health care services, to strengthen the participation of women in the development process, and to reduce the demographic pressure on the economy. In addition, the government has introduced a program for grassroots development and poverty alleviation—including protection of vulnerable groups—and employment generation, particularly in the informal urban sector, rural areas, and the artisanal fisheries. A plan of action based on a program of labor-intensive public works, credit arrangements, and microenterprise promotion is under way.

The Challenge Ahead

To succeed, Mauritania’s reform efforts will need to be backed by further donor support in the form of new lending at concessional interest rates, a debt stock reduction with the Paris Club, and support from non-Paris Club bilateral creditors. To obtain such external financial support on the scale needed, it is essential for the authorities to continue their strong commitment to carrying out their reform program.

Mauritania joined the IMF on September 10, 1963. Its quota is SDR 47.5 million (about $69 million), and its outstanding use of IMF credit currently totals SDR 65.6 million (about $95 million).

Press Release No. 96/19, April 17

The spring edition of the World Economic Outlook will be published on May 10. Copies will be available for $35.00 (academic rate: $24.00) and may be ordered from Publication Services, Box XS600, International Monetary Fund, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430; fax: (202) 623-7201; Internet: publications@imf.org

David M. Cheney, Editor

Sara Kane • John Starrels

Senior Editors

Sheila Meehan • Sharon Metzger

Assistant Editor Editorial Assistant

Lijun Li

Staff Assistant

Philip Torsani • In-Ok Yoon

Art Editor Graphic Artist

The IMF Survey (ISSN 0047-083X) is published by the International Monetary Fund 23 times a year, in addition to an annual Supplement on the IMF, an annual Index, and other occasional supplements. Editions are also published in French and Spanish. Opinions and materials in the IMF Survey, including any legal aspects, do not necessarily reflect the official views of the IMF. Address editorial correspondence to Current Publications Division, Room IS9-1300, International Monetary Fund, Washington, DC 20431 U.S.A. Telephone: (202) 623-8585. The IMF Survey is mailed by first class mail in Canada, Mexico, and the United States, and by airspeed elsewhere. Private firms and individuals are charged an annual rate of US$79.00. Apply for subscriptions to Publication Services, Box XS600, IMF, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430. Cable: Interfund. Fax: (202) 623-7201. Internet: publications@imf.org.

IMF Survey: Volume 25 1996
Author: International Monetary Fund. External Relations Dept.