14 October 1996 - 25 November 2001
Statement to the International Monetary and Financial Committee
24 September 2000
In opening, we would like to take a small step back in time to pay tribute to Michel Camdessus. The Fund has come a long way since the Asian crisis and the advances we have made in many of the policy issues before us can, in no small part, be attributed directly or indirectly to his determination and effective leadership.
But, of course, the evolving nature of the world economy means that the work of international policy-makers is seldom complete. With that in mind, we welcome Horst Khler and the vigor that he has re-introduced to the debate. We look forward to hearing his vision of the Fund's future.
The Challenges of an Evolving Global Economy
With global economic growth projected to be its strongest in more than a decade, there continues to be much cause for optimism. Growth in the United States continues to be strong, while inflation remains subdued; the expansion in Europe is proving more robust; and there are further signs of improvement in the Japanese economy. There has been a consolidation of the recovery in Asia; improved activity in Africa; and a rebound from the slowdown in Latin America. As always, there are risks and uncertainties to challenge policy-makers. Moreover, we are struck by several aspects of the global economy, which may have profound implications for the way in which we think about economic policy.
The continuing rise in oil prices, if sustained, would pose significant adverse implications for non-inflationary growth for the international economy, especially for countries like Japan, Korea and the Philippines that are highly dependent on oil imports for their manufacturing base. It is critical that artificial constraints to oil supplies be removed to allow prices to fall to sustainable levels. In the short-run, we welcome the United States use of its strategic oil reserves.
Equally challenging are the questions raised by the large - apparently excessive - movements in the major currencies, and the widening external imbalances between these blocs. The Fund has tended to consider these questions in terms of the current imbalance in growth rates among the major currency areas, and the need to rebalance demand growth. But this is only part of the story, for we appear to have large currency movements that are unrelated to economic fundamentals. Yet these issues are of great importance for all members, in particular destabilizing smaller currencies and weakening confidence. We would therefore agree with the Managing Director's assessment that this is an area that warrants further urgent examination.
In this constituency, the Korean economy is expected to move to a sustainable growth in the latter half of 2000 with stable prices and moderate external surplus. The authorities are pledged to complete the remaining reforms in corporate and financial sectors by February 2001, opening the way for the economy to grow at its medium-term potential.
The Australian economy is expected to continue to grow strongly, with solid employment growth leading to further gradual reductions in the unemployment rate, and inflationary pressures remaining in check. The current account deficit is also expected to decline from recent high levels. The smooth introduction of the New Tax System will help ensure that the current economic expansion extends into its tenth year.
The New Zealand economy is expected to grow at around 3 per cent a year to 2003. At the macroeconomic level, the Government is continuing with a program of fiscal conservatism and monetary policy orthodoxy. The Government's strategy is to continue to run surpluses and pay down debt, while setting aside an allowance for future superannuation.
The Philippine economy continues to grow and inflationary pressures remain subdued in spite of concerns over the impact of external and internal shocks in recent months. These shocks have not hampered the authorities' continued efforts to implement structural reforms.
Reforming the Fund
As we contemplate the Fund's policy agenda, and the question of how the Fund might improve its performance, we should remember that the Fund has already undertaken a number of important policy reforms in responding to the lessons from Asia.
Transparent and Effective Surveillance
As the mainstay of the Fund's operations, it is important that surveillance be relevant and effective across the membership, and have regard to the changing global environment.
Building on the progress already made in improving transparency, we welcome the moves to extend the coverage, while improving the consistency, of the Fund's publication policy across the range of country documents, including the voluntary publication of use of Fund resources staff reports. Greater consistency will enhance the task of transmitting information to the `outside world' in an easily digestible form.
It will be particularly important to safeguard against any erosion, over time, of the candor and quality of reports by the staff to the Executive Board and in the Fund's advice to its members. We also place considerable importance on ensuring consistency of treatment among members: adherence to the principles for publication, including an appropriate uniform deletions policy, will be the key.
At the time of the last IMFC meeting, we stressed the importance of greater selectivity of content in surveillance, if it is to be more effective. Surveillance should focus on the core macroeconomic and financial issues, and take on a wider cast only where the issues are of macroeconomic relevance. The Fund's work on financial sector vulnerability and stability is an important aspect of Fund surveillance. On that score, it is important that the Financial Sector Assessment Program (FSAP) not be overloaded nor seen as a `cure all'. Ownership is essential - FSAPs should be sufficiently flexible to be tailored to country circumstances, focussing on macroeconomic relevance, and on qualitative, rather than prescriptive, assessments of vulnerabilities.
This constituency shares the wider international community's concerns about money laundering and tax evasion, and notes the work being done by the Financial Action Task Force (FATF) and the Asia-Pacific Group (APG) on Money Laundering. To the extent that offshore financial centers (OFCs) do not comply with international standards, this may pose a risk to global financial stability, with a potential role for Fund assessment and assistance. However, the success of such an exercise will depend on a number of factors, including the following: i) the process has to be unambiguously objective and evenhanded; ii) in particular, a mechanism for those OFCs that meet international standards of supervision is needed to enable them to `clear their name'; iii) capacity constraints in a number of OFCs mean technical assistance and sharing of information at the regional level will be important; and iv) similarly, Fund and Bank resource constraints and technical capacity should not be over-stretched. Finally, it is also worth noting the significant role onshore supervisors in the major financial jurisdictions, such as the US, the UK, Japan, and EU, could play with consolidated supervision, including constraints on financial institutions in their jurisdictions in respect of their dealings with entities based in or connected with OFCs.
The Review of Fund Facilities
Following earlier progress in streamlining the Fund's facilities (through the elimination of facilities that no longer serve a useful purpose), the Executive Board has finalized expeditiously the review of Fund facilities. In particular, the Board has reached a difficult compromise on modifying the main lending facilities of the Fund.
While we favor clearer eligibility for and tighter access to the Extended Fund Facility, we continue to believe that this facility should not be overly constrained. The reality is that there will be many cases where longer-term involvement by the Fund is needed to achieve capacity or institution building.
The Contingent Credit Line (CCL) marks a shift in the type of business the Fund potentially undertakes. The modified facility will be more attractive in its terms and accessibility. That said, it remains important that monitoring of CCL members remain stringent, and that where necessary the issue of `exit' be managed effectively.
In respect of the changes to the terms of general Fund arrangements, we believe that the introduction of an early repurchase expectation is an important and valid step, and should further the revolving nature of the Fund's resources over time. We consider it particularly important that existing purchases will be "grandfathered" and will not be subject to the access-based surcharge.
However, in our view, the more crucial issues in improving the effectiveness of the Fund are in the realm of program design and conditionality. We place considerable importance on progressing these issues in a realistic way.
Bringing the independent Evaluation Office to fruition is one of the successes of the past six months, but, of course, it is actual operation that is important for the ongoing effectiveness of the Fund's activities. We will watch with interest as it commences its operations.
Governance of the Fund
The need to review the basis on which quotas, and representation in the Fund, are determined is increasingly pressing. We welcome the recent work and preliminary discussion by the Executive Board on quota formulae, and look forward to this issue being progressed.
Private Sector Involvement
It is pleasing that different perceptions of the issue of greater private sector involvement in forestalling and resolving financial crises seem to have lessened. Some incremental, but worthwhile, developments include:
- efforts by the Fund to improve communication with the private sector, including by the Managing Director's initiative to establish a Capital Markets Consultative Group, are welcome, as is the willingness of the private sector to more actively engage in discussions of the issue;
- recent cases of successful private sector involvement without litigation have been encouraging; and
- we are pleased that the Executive Board is finally coming to grips with "standstills" as an important tool for private sector involvement.
In regard to standstills, facilitation and leadership is required by the Fund _ which should provide guidance and, where appropriate, public comment of support for actions of national authorities to aid the credibility and market acceptance of these tools. Recent progress in reaching agreement that lending into arrears to private creditors under a standstill may be appropriate is welcome. However, further work is needed to enhance our understanding of the dynamics and role of the Fund in standstills.
We need further progress in making tools for private sector involvement operational. In this regard, it is a little disappointing that the leadership shown by the UK, Canada and Germany in embodying collective action clauses in sovereign bonds has not been more broadly emulated. We continue to encourage the Fund to offer guidance on how national authorities could develop and implement collective action clauses and better communication between creditors and debtors. We also encourage further progress in promoting appropriate reforms to insolvency law in developing and emerging economies.
Enhanced HIPC & Poverty Reduction and Growth Strategies
We welcome the efforts of the Fund and Bank to ensure implementation of the enhanced HIPC Initiative in a timely and effective manner. In particular, we welcome the establishment of the Joint Implementation Committee, the objective of which is to facilitate effective implementation of the enhanced initiative and the new poverty reduction strategy approach, and the decision of President Wolfensohn and Managing Director Khler to monitor more actively progress over coming months. We also welcome the progress that has been achieved in implementing the HIPC initiative, with 10 countries having reached their decision points, and the aim of a further 10 countries having agreements in place by the end of this year.
We welcome the substantial progress that has been achieved by multilateral creditors in securing the necessary funding to ensure their participation in the Initiative. Non-Paris Club bilateral creditors also need to play their part, although some face complex issues and may require special attention. On the Fund's financing, we reiterate the need to arrive at an early decision on the remaining five-fourteenths of investment income from gold profits, and urge all bilateral creditors to make their pledged contributions effective at the soonest possible time.
Finally, we again underscore the need for the Bank and the Fund to be more proactive in reporting each country's progress through the initiative and, for more difficult cases, outlining the reasons for delay and steps to be taken to address these.
The International Monetary and Financial Committee statement on behalf of the constituency comprising Australia, Kiribati, Korea, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Palau, Papua New Guinea, the Philippines, Samoa, Seychelles, Solomon Islands, and Vanuatu.