IMFC press conference: Ministers agree on ways to better prevent and resolve financial crises

Following are edited excerpts from a joint press conference, at the close of the International Monetary and Financial Committee (IMFC) meeting on September 28, with IMFC Chair Gordon Brown and IMF Managing Director Horst Köhler. The full text of the press conference is available on the IMF’s website (


Following are edited excerpts from a joint press conference, at the close of the International Monetary and Financial Committee (IMFC) meeting on September 28, with IMFC Chair Gordon Brown and IMF Managing Director Horst Köhler. The full text of the press conference is available on the IMF’s website (

Brown: We meet here in Washington at a testing time for the world economy, with 20 countries accounting for half the world’s output having been at some point in the past year or this year in recession. The committee as it met today recognized that, in part reflecting the determined international response, there are continuing indications that the recovery is proceeding, although at a slower pace than earlier this year. More than usually, the IMFC has enjoyed a full and thorough review of the world economy and the nature of risks and vulnerabilities. There was strong agreement, indeed broad agreement, on the need for vigilance and that we should stand ready to act if risks exist.

On the world economy, first of all, while remaining vigilant, there was a strong sense of common purpose. We agreed on a common course of action to maintain the conditions for stability and growth in the world economy. Indeed, we are agreed on the contributions that each of our continents should make. In the United States, actions are under way to strengthen corporate governance, accounting, and auditing. In Europe, we agreed that further reforms in labor and product markets are needed. In Japan, we agreed that banking and corporate restructuring should be vigorously pursued. We are now more than ever aware of our interdependence and that it is only by each country taking necessary action that we shall secure the economic growth we wish to see.

Second, on the world economy, particularly on the problem of emerging markets, we are agreed on the need to strengthen the mechanisms for crisis prevention and crisis resolution. On crisis prevention, we agreed on the need for increasing integration into IMF surveillance of codes and standards, and in particular of the importance of enhanced standards and principles on corporate governance, accounting, and auditing, and of stronger national practice.

On crisis resolution, where we had a discussion during the course of this morning and at lunch, we agreed to continue to work together on a two-track approach for the official community, the private sector, and sovereign debt issues to continue to work together to develop collective action clauses, and we called on the IMF to develop a concrete proposal for consideration at our next meeting of a statutory sovereign debt restructuring mechanism (SDRM).

Third, we are united in our belief that, at this time of economic recovery, there is an imperative to shape a new deal between developed and developing countries so that all countries can share in the benefits of globalization. Specifically, the committee has reaffirmed its commitment to the full financing of the Heavily Indebted Poor Countries (HIPC) Initiative. We noted that the financing shortfall in the HIPC Trust Fund could be up to $1 billion and called on donor governments to make firm pledges and contributions as a matter of urgency. Over the past two days, 15 countries have pledged support, and I expect further announcements to be made in the coming days.

Finally, we are united in our belief in the importance for global growth and effective development of achieving substantial trade liberalization at the Doha Round of multilateral trade negotiations. We are agreed on the need for urgent progress in enlarging market access for developing countries and phasing out distorting trade subsidies in developed countries. Today we are setting a common course of action. We enter a period of implementation in a broad program of reform in our international institutions as well as in domestic economies. Indeed, there was strong agreement that it is only through international cooperation based on common purpose that we will maintain the conditions for stability and growth that will ensure that the benefits of global prosperity are shared by all. I think that the IMF—its staff, Executive Board, and management—can take this meeting as an endorsement of its stance and as encouragement to continue with the ideas and the work program that have been defined. And, very important, I sense from this meeting that there is cohesion in the international community to face the challenges and find appropriate responses.

Question: There is a great deal of opposition to the Krueger plan for sovereign debt restructuring. Is it the intention to pursue it in the teeth of private sector opposition?

Brown: The IMFC welcomed the recent decision by many countries to include collective action clauses and called on the IMF to consider the issues further and, for our April meeting next year, to develop a concrete proposal for a statutory sovereign debt restructuring mechanism to be considered by the membership.

Köhler: The IMF in its further work will, of course, continue and even intensify the outreach with the private sector and others involved.

Question: What are the specific issues on the sovereign debt restructuring mechanism that you want to see the IMF address as it works out its proposal over the next six months?

Köhler: The sovereign debt restructuring mechanism is part of an integrated concept for better crisis prevention. It is intended to strengthen the international financial architecture and, in particular, have better instruments within the IMF to support countries rapidly, with a high degree of automaticity through financial support in case there is a turbulence or a shock they have no influence on. So this is a bigger discussion, not just about the SDRM.

This bigger context also makes clear that the SDRM will not undermine the credit culture in the global economy—that is, credits have to be paid back. It is a last resort and fills a gap in the financial architecture. Among the specific questions we are working on, the most important is to make clear how the decision making about collective action is organized. Our suggestion is that the sovereign debtor and the super-majority of creditors make this decision, not the IMF. Second, we need to go into detail on the kind of dispute settlement that we organize. Our idea again is that it is not the IMF that is in this business, but a small group of independent, very experienced experts. Third, we need, of course, to sort out further the scope of the debt involved in a restructuring operation. We need to discuss with the Paris Club, for instance, how official bilateral debt is handled in this. The IMF has a lot to do and there is a lot of further discussion. I look forward to putting forward to the IMFC something for further consideration after more hard work.

Question: How short are we in terms of meeting the Millennium Development Goals, and what do you propose to do about it? One proposal is that the IMF should be able to issue special drawing rights temporarily to meet any special needs and retire them when the needs are met.

Köhler: The IMFC endorsed the IMF’s participation in the international effort to fight poverty. This is based on the two pillars defined in Monterrey and Johannesburg—one of countries’ self-responsibility for good governance and creating a good investment climate, and the other for better, faster, more comprehensive support from the international community. The IMF is exercising this mainly through the poverty reduction strategy papers, by working hard to implement further the HIPC Initiative, and by implementing now the review of our conditionality concept, which means streamlining and focusing conditionality, and on this basis working to strengthen country ownership. I also made clear that the governors have endorsed that the IMF should be part of the process of monitoring the achievement of the development goals. The concept for that needs to be worked out, and here I see the World Bank in the lead. Regarding SDRs, that was not an issue discussed here.

Brown: I think everybody wanted to welcome the progress in Doha, in trade negotiations that will help developing countries, in European and U.S. pledges of an extra $12 billion for aid by 2006, in the new International Development Association agreement, and in debt relief, where 15 donor countries have pledged to help meet the shortfall in the HIPC Trust Fund. I think the Trust Fund can move forward with great confidence.

Question: Can you tell us how much these 15 countries have actually pledged toward the HIPC Trust Fund shortfall?

Brown: Of the 15 countries, some have actually given us the exact figure they will put in, some have indicated they will do it as a percentage, and some are returning to us shortly with the absolute figure they are going to give. But I am confident that if we can add to these 15 countries, then we are in a position to meet that commitment. This has been a great success; I believe it shows that the world community, even in a time of difficulty, is prepared to come together to meet obligations that I know large numbers of people in the developing world—indeed, large numbers of campaign groups, including the churches around the world—want us to meet.

Question: Mr. Managing Director, both you and Ms. Krueger have expressed confidence in the past few days about the situation in Brazil, but the markets keep going down and down and down. Why do you think the situation is going to turn around after the election? Aren’t the markets putting the country in a completely impossible situation? Does this situation convince you that some approach involving IMF rescues that include comprehensive restructuring of the debt is the way to go?

Köhler: I do not think that markets are concentrated on Brazil. Markets are in general nervous, irritated, in confusion. And the causes for this volatility vary from the oil market, to questions about whether the worst i behind us with the corporate scandals, to possible vulnerabilities in emerging market countries. This is not a special Brazil-driven development.

I expressed my confidence that Brazil will see a smooth transition because of facts. First, this country has a huge potential for growth, job creation, and trade. Second, this country has, in principle, seen in the past year a remarkable improvement in its economic, financial, and monetary fundamentals. The endorsement by the major candidates of the crucial elements of the IMF work program with Brazil is, for me, a further confirmation that the most likely outcome of this will be a smooth transition and that Brazil will come out of this situation without a debt restructuring because it has the potential for growth and servicing its debt.

I also made clear that the governors have endorsed that the IMF should be part of the process of monitoring the achievement of the development goals.

–Horst Köhler

IMF Survey, Volume 31, Issue 18
Author: International Monetary Fund. External Relations Dept.