Communiqué of the G-7 Finance Ministers
Washington, D.C., October 30, 1998

    The financial problems that began in Asia last year have exposed weaknesses in emerging market countries and in the international financial system.

    At our meeting in Washington on October 3, we, the Finance Ministers and Central Bank Governors of the Group of Seven countries, agreed on the importance of intensified cooperation among us in meeting the challenges of the current situation and on the need to work together quickly on a wide range of reforms to strengthen the international financial system. Today, our leaders announced agreement on a number of follow-up steps to this end that we will be implementing as rapidly as possible.

Meeting the Challenges of the Current Situation

    We welcome the positive developments since our meeting on October 3. As we said following that meeting, we reaffirm our commitment to create or sustain the conditions for strong, domestic demand-led growth and financial stability in each of our economies. The authorities will continue to be vigilant in the light of the shift in the balance of risks on a global basis. There has also been important progress in a number of other areas:

• We welcome the positive steps that have been taken toward the implementation of the IMF quota increase and the New Arrangements to Borrow. We call for these to be implemented as soon as possible. Together, they will provide additional resources of $90 billion for the IMF, which should be used to ensure the stability of the international financial system.
  
• In consultation with our partners, we further commit ourselves to supplement the IMF’s resources where necessary through the activation of the New Arrangements to Borrow and the General Arrangements to Borrow.
  
• In response to the current exceptional circumstances in the international capital markets, we are agreed that strengthened arrangements for dealing with contagion are needed. The central element would be the establishment of an enhanced IMF facility that would provide a contingent short-term line of credit for countries pursuing strong IMF-approved policies. This facility could be drawn upon in times of need and would entail appropriate interest rates along with shorter maturities. The facility would be accompanied by appropriate private sector involvement. In appropriate circumstances the facility could be complemented, in individual cases, by bilateral contingent financing activated alongside the IMF facility. It would remain up to individual Group of Seven governments and other governments concerned to decide in each case whether to provide such bilateral financing.

Reforms to the International Financial System

    Following detailed discussions, including with colleagues from other industrial and emerging market economies, we are now agreed on the following specific reforms to strengthen the international financial system. We have agreed to carry these forward through our own actions and in the appropriate international financial institutions and forums.

    These reforms are designed to increase the transparency and openness of the international financial system;identify and disseminate international principles, standards, and codes of best practice; strengthen incentives to meet these international standards; and strengthen official assistance to help developing countries reinforce their economic and financial infrastructures. They also include policies and processes to ensure the stability and improve the surveillance of the international financial system. Finally, they aim at reforming the international financial institutions, such as the IMF, while deepening cooperation among industrialized and developing countries.

Crisis Prevention

    We agree on the need for greater transparency and openness in the financial operations of individual countries, of financial and corporate institutions, and of the international financial institutions. The corner-stone for this is stronger and more comprehensive internationally agreed principles, standards, and codes of best practice, as well as the extension of international surveillance of their implementation.

    We agree in the public sector to deliver greater transparency in economic policymaking and in disclosure of economic statistics and key indicators. We therefore commit ourselves to:

• Comply with the IMF’s Code of Good Practices on Fiscal Transparency.
  
• Comply with an internationally agreed Code of Conduct on Monetary and Financial Policy. We urge the IMF quickly to complete its work on the code by the 1999 spring meetings.
  
• Disseminate regular and timely information about the aggregate foreign exchange liquidity position of our public sectors and to work cooperatively to improve the compilation and dissemination of similar information in relation to financial and corporate sectors.
  
• Support efforts under way in the IMF to reach decisions by the end of 1998 on steps to strengthen the SDDS [Special Data Dissemination Standard], including the provision of more comprehensive information on reserves and improving statistics on external debt and a country’s international investment position.

Stability of the International Financial System

    We agree that better processes are needed for monitoring and promoting stability in the financial system and for the international financial institutions, working closely with the international supervisory and regulatory bodies, to conduct surveillance of national financial sectors and their regulatory and supervisory regimes with all relevant information accessible to them. We agree therefore that we will support the establishment of a process for strengthened financial sector surveillance using national and international regulatory and supervisory expertise, including through a process of peer review, and the IMF’s regular surveillance of its member countries under Article IV; and, to this end, bring together the key international institutions and key national authorities involved in financial sector stability to better cooperate and to coordinate their activities in the management and development of policies to foster stability and reduce systemic risk in the international financial system and to exchange information more systematically on risks in the international financial system.

IMF Reforms

    As our Executive Directors at the IMF have outlined [see page 362], we have agreed to support a broader range of reforms to improve the effectiveness of the IMF, including transparency and accountability of the IMF, changes in lending, policies and terms of lending, and improved conditionality.

    In particular, we call upon all international financial institutions to adopt a presumption in favor of release of information except where this might compromise confidentiality, and the IMF to develop a formal mechanism for systematic evaluation, involving external input, of the effectiveness of its operations, programs, policies, and procedures.

Next Steps

    We agree to take immediately the actions to which we have committed ourselves. These measures will strengthen the fundamentals of the international financial system and assist crisis-affected countries to find a route out of their current difficulties.

    We will initiate further work on a number of other important areas to identify additional concrete steps to strengthen the international financial architecture. These include:

• Examining, in addition to the measures already described, the scope for strengthened prudential regulation in industrial countries to encourage sound analysis and careful weighing of risks and rewards, including consideration of appropriate transparency and disclosure standards for all financial market participants;
  
• Further strengthening prudential regulation and financial systems in emerging markets by examining the scope for measures to increase the resilience of financial systems and to promote the adoption of international standards and best practice, for example by maximizing market disciplines and other legal and regulatory means to motivate countries to adopt and enforce international standards and practices;
  
• Consideration of the elements necessary for the maintenance of sustainable exchange rate regimes in emerging markets, including consistent macroeconomic policies that promote stability in individual countries and in the system as a whole;

  Assessing proposals for strengthening the IMF, so as to improve its programs and procedures in crisis prevention and resolution, and assessing proposals for strengthening the Interim and Development Committees of the IMF and World Bank; and

• Minimizing the human cost of financial crises and encouraging the adoption of policies that better protect the most vulnerable in society.

    The reform of the international financial system is in the interest of all countries and all need to be involved in the process. We therefore commit ourselves to consult widely throughout the international community, particularly  with emerging market and other industrial countries, to build a broad consensus in support of this declaration, and to encourage others to take similar action. We will therefore ask the relevant international institutions and organizations to carry forward the proposals above and report back to us by the time of the spring meetings.