1. The world economic outlook
remains uncertain. Current projections indicate a continuation of weak economic growth,
slowdown in trade volume expansion, depressed primary commodity prices and declining
capital inflows to developing countries. It is essential that additional policy actions be
taken now in a pre-emptive manner to deal effectively with these adverse trends in the
world economy.
2. Ministers welcome the broad-based easing of
monetary conditions in the industrial countries, in particular the recent reduction of
interest rates by the European Central Bank. They appreciate the determined efforts of the
Japanese authorities to turn around the negative trends in the economy and welcome the
fiscal stimulus introduced recently. They observe, however, a constellation of forces at
work that does not appear to yield to traditional instruments of macroeconomic policy.
Ministers are convinced that in addition to well-coordinated macropolicy actions,
comprehensive structural reforms, mainly in the financial and corporate sectors, and labor
markets, are crucial to the achievement of sustainable economic growth.
3. Ministers express concern about the pressure
in some industrialized countries for resort to protectionism through various devices. They
underscore the necessity of resisting such tendencies and emphasize the advantages of a
further opening up of markets for the exports of developing countries.
4. While welcoming the successful launching of
the euro at the beginning of the year, Ministers reiterate the critical need for greater
exchange rate stability among the major international currencies in order to create a
conducive external environment in which developing countries could continue with their
economic liberalization measures and structural reforms, thereby enabling these countries
to maximize the benefits of globalization.
5. While there are indications of incipient
recovery in some parts of the developing world, contractionary tendencies remain dominant
as a result of the sharp decline in primary commodity prices and massive reversals of
private capital flows. Ministers pointed out that access to private capital markets is
hindered even for emerging market economies with sound economic fundamentals and the cost
of borrowing has been on the high side. They added that excessive reliance on short-term,
volatile capital flows as sources of financing should be avoided.
6. Ministers note that some of the
policies initially adopted for managing the crises of recent years may have inadvertently
contributed to adverse effects through restrictive fiscal measures and high interest
rates, which have discouraged investment and retarded the process of recovery. They
welcome the subsequent flexibility shown by the IMF in taking into account the
circumstances of individual countries and unforeseen developments. In this context,
Ministers underline the need to keep adjustment measures and mechanisms under constant
review, with a view to ensuring flexibility in policy recommendations to promote growth
prospects.
II. Strengthening the
Architecture of the International Financial System
7. Ministers underscore the necessity of
comprehensive reforms of the international monetary and financial systems, geared to
prevent costly economic crises and to manage them effectively when they occur. They are of
the view that improvements in the system be built around the existing international
institutions and emphasize the need for developing countries to have an equitable
representation in this process. In this regard, Ministers reiterate their call for the
establishment of a task force with participation from industrial countries and
representatives from a wide range of developing countries to engage in an in-depth
examination of issues related to the reform of the international monetary and financial
system.
8. Ministers welcome the role played by the IMF
as crisis manager and encourage it to continue with its efforts for strengthening the
architecture of the system. They appreciate the actions of the Fund, in concert with the
World Bank and the regional development banks, to serve as lenders in crisis situations.
9. Ministers welcome the establishment of the
Contingency Credit Line (CCL) as a follow-up to the Supplemental Reserve Facility (SRF) to
protect countries with sound fundamentals from the potential risks of financial contagion.
They expect that the eligibility criteria for access to the CCL to be administered in a
manner that will provide incentives and equal opportunities for member countries. It is
also desirable to avoid preconditions of parallel arrangements for private contingency
financing, which would make it too costly to resort to the CCL. Ministers believe that the
economic difficulties that facilities such as the SRF and the CCL seek to address have
their roots in systemic weaknesses of a global character, and that their effective
solutions will also have to be global. In this context, proposals for developing a global
lender of last resort deserve further study and discussion.
10. Ministers are aware that any idea of the
foregoing nature will raise issues of moral hazard. While recognizing the complexity of
"bailing-in" measures, including the need to make them as voluntary as possible,
Ministers welcome the many avenues being explored to involve the private sector in both
forestalling and resolving financial crises. Among those that contribute to forestalling
crises are private contingency lines of credit and intensified debtor/creditor
consultations and amending sovereign bond clauses by incorporating sharing and minimum
majority clauses, in which the industrial countries should take the lead. Among those that
could both forestall and resolve crises are the possibility of the Fund lending into
arrears and amending Article VIII, Section 2 (b) to allow the Fund to sanction a temporary
stay on creditor litigation in extreme situations in order to facilitate orderly debt
restructuring.
11. Ministers are convinced that integration into
the global financial market remains a fundamental objective of the developing world. They
believe, however, that the benefits of such integration can only be obtained in full
measure if both the volatility and instability of short-term capital flows manifested in
recent financial crises are contained. They consider that the pace and content of
liberalization should be aligned with the ongoing process of strengthening the prudential
supervisory regulations as they apply to financial institutions and to their corporate
customers, especially the more highly leveraged ones, within both capital-receiving and
capital-source countries. While this infrastructure is being developed, it is necessary to
leave open the possibility of applying selective market-based controls on capital
movements of a potentially disruptive character. Ministers underline that the process of
capital account liberalization should be properly sequenced, and that the pace of
liberalization should take full account of individual country circumstances. In this
context, they visualize the FundÆs role as a facilitator of liberalization, keeping in
mind the exchange regime and balance of payments implications of progress toward the
opening of capital accounts and paying due attention to the creation of more orderly
conditions in international capital markets. In addition, Ministers underline the
importance of appropriate technical assistance to help countries strengthen their
financial systems.
12. Ministers welcome the progress made on issues
of transparency, but they emphasize the importance of concentrating on areas related to
the core activities of the Fund. They reiterate their concern that publication of Fund
staff surveillance reports is likely to compromise the quality and candor of discussions
with member countries, thereby undermining the effectiveness of the Fund's surveillance
function. This issue is especially pertinent in the case of a number of countries for
which the publication of documents might lead to disproportionately large effects,
because¾ notwithstanding countries' own publications¾ the Fund staff analysis might be
the most visible external assessment of their policies. Ministers emphasize the need for
enhancing transparency in the working of private financial entities, especially the
highly-leveraged institutions.
13. Ministers recognize that the development and
implementation of internationally recognized standards are critical to the proper
accountability of international financial institutions. However, they emphasize the need
for a symmetrical application of transparency criteria between public institutions and the
private sector. Ministers also note that countries at different stages of development will
necessarily proceed at different speeds and will require extensive technical assistance in
the process of applying these norms, the implementation of which should be voluntary and
not undermine the development of their financial sectors.
14. Ministers welcome the efforts to
strengthen the decision-making processes of the Bretton Woods institutions. Strengthening
the existing instruments of international cooperation appears to be the best way of
proceeding instead of experimenting with new institutional modalities. This would include
strengthening the working procedures for the Interim and Development Committees¾ without
undermining the role of the Executive Boards¾ in order to enhance their effectiveness. In
view of the unique relationship of the Fund and the Bank, they consider it appropriate to
give the President of the Bank the right to participate in the Interim Committee
deliberations.
III. Development Financing
15. Ministers welcome the
growing consensus on the need to restructure the HIPC Initiative. They support the recent
proposals for improving the depth and breadth of the debt relief under the Initiative, the
suggestions for relaxing the eligibility criteria, increasing the magnitude of debt
relief, shortening the period required to benefit from the Initiative, and providing
additional resources during the interim period. Ministers are aware that implementing
these improvements will increase the cost of providing debt relief and that funding
sources currently under consideration¾ the intended sale of a portion of the Fund's gold
holdings and the transfer of balances from the SCA-2 Account¾ will provide only a small
proportion of the required resources. They emphasize the necessity of appropriate
burdensharing and of finding sufficient alternative financing mechanisms to provide
additional relief, while at the same time to work on the modalities of gold sales to
minimize any negative impact on the international price, and therefore on the economies of
gold producing developing countries. Ministers welcome the recent expressions of intent by
the G-7, as well as other creditor countries, to support the idea of restructuring the
Initiative, and their willingness to forgive poor countries' ODA debt. They hope that this
will not be at the expense of new ODA flows. Ministers urge these donor countries to
complement their contributions to the HIPC Initiative and take steps to reverse the
disturbing decline in ODA, which remains critical for the poorest countries even after the
completion of comprehensive debt relief operations. While they appreciate the successful
conclusion of the IDA-12 replenishment, they express their serious concern about the
persistently declining ODA flows, which now stand at 0.20 percent of DAC countries' GNP.
16. Ministers support proposals to enhance
assistance to post-conflict countries. They welcome the suggestion for additional Fund
assistance up to 25 percent of quota in the second phase to provide required resources as
well as a longer time-period for the countries to rebuild their productive capacities.
Ministers expect that Fund assistance for post-conflict countries from its General
Resources Account (GRA) be transformed into sufficient funding of a concessional character
to permit eligible members to repay their nonconcessional drawings from the Fund.
Ministers appreciate World Bank proposals to address some of the major issues in
post-conflict countries that have protracted arrears. They consider it essential to
develop a collaborative approach that would be compatible with the policies on protracted
arrears enunciated by the respective international financial institutions.
17. Ministers also welcome the proposals being
discussed in the World Bank with regard to broadening the concept of conflict countries to
include countries that are affected by conflict situations or at risk of conflict. With a
view to achieving the Bank's overall goal of poverty alleviation, Ministers urge that
appropriate mechanisms be developed by the Bank to assist these countries.
18. Ministers note that the Partnership for
African Capacity Building Initiative has reached an advanced stage of preparation. As the
lack of human and institutional capacity is perceived as a major constraint in the
economic development efforts of sub-Saharan Africa, Ministers strongly urge the Bretton
Woods institutions and bilateral and other multilateral donors to provide adequate
resources and assistance to launch the Initiative and ensure its successful
implementation.
19. Ministers agree in principle that a
comprehensive development framework (CDF) is essential to maintain a balance between
macroeconomic and social concerns. However, they are concerned about the planning capacity
of members and external partners and the cost implications for borrowers in this regard.
Ministers urge caution about the social and political sensitivity of the governance issues
involved. They note that the CDF is still in an evolving mode and a number of details
regarding the implementation strategy need to be further elaborated and developed.
Ministers urge that the Bank closely monitors the Pilot Programs under the CDF and the
experience be used as an opportunity for further refining the approach.
20. Ministers endorse the basic principles on
promoting social development stipulated by the "Copenhagen Declaration," and
support the UN agenciesÆ coordination on the implementation of such principles. The
Bretton Woods institutions and the regional development banks should participate according
to their respective mandates and comparative advantages. Large differences exist among
countries in terms of social development levels, policies, and stages of economic
development. Therefore, when formulating principles and good practices in social policy,
country characteristics and their social standards must be respected.
21. Ministers attach importance to the UN
initiative on a high-level forum on financing for development, scheduled for 2001. In view
of the importance of the subject for the Group and the Bretton Woods institutions,
Ministers urge joint collaboration by the UN and the Bretton Woods institutions to ensure
the success of the initiative.
22. The G-24 Ministers will meet again on
September 25, 1999.
