1. The Finance Ministers and the Central Bank Governors of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States met today in Washington. They assessed developments in their countries in light of their agreement of January 25 to intensify cooperative efforts to strengthen world economic growth with price stability and considered the appropriateness of further actions to this end. The managing Director of the IMF participated in the discussions.
2. The Ministers and Governors noted that additional signs of recovery had emerged in some of their countries. Inflation has declined significantly and inflationary pressures remain subdued in most of their countries. Short term interest rates have fallen substantially in some of their countries. Consumer and business indebtedness problems have been reduced. External imbalances have been substantially reduced in most countries, though imbalances are persistent in some countries.
3. Nevertheless, the Ministers and Governors remained concerned that aggregate G-7 economic activity this year would be below potential and growth would be inadequate to achieve a reduction in unemployment. In some countries recovery is still delayed, while growth has slowed significantly in other countries which had experienced relatively stronger growth earlier. They agreed that strengthening consumer and investor confidence and restoring sustained non-inflationary growth are essential to increase employment, to promote growth in the developing world, as well as to support the successful transformation to market economies of the emerging democracies in Eastern Europe and the newly independent states of the former Soviet Union, and to preserve an open world trading system.
4. Against this background, the Ministers and the Governors reviewed their economic policies with a view to strengthening world growth. With regard to fiscal policies, they emphasized the importance of movement to reduce government demands on private savings to facilitate needed capital spending. In that context, they underline the need to reduce fiscal deficits in all countries with large budgetary imbalances through credible medium term consolidation strategies. This is important both for countries with large fiscal deficits, relatively high inflation, excessive wage developments and tight monetary policy should follow a balanced policy approach to facilitate improved growth. Certain other countries with large deficits that have experienced weak growth should avoid actions that would jeopardize medium term efforts to consolidate budget positions. In those countries where fiscal imbalances have been contained and where recession has been avoided, appropriate measures should be pursued to enhance medium term growth prospects while maintaining public expenditures under control. In those countries with large surpluses and declining growth, policy makers should be mindful of the possibilities of strengthening domestic demand through appropriate measures.
5. On monetary policies, the Ministers and Governors welcomed the reductions in cost and price pressures in most of their countries, which have permitted significantly lower interest rates in several cases. Nevertheless, real interest rates remain high, hampering global investment and growth. They were of the view that satisfactory progress on inflation, curbing excessive wage pressure, and progress in consolidating fiscal positions would create the basis for lower interest rates.
6. The Ministers and Governors underscored the need for all countries to pursue vigorous structural reforms that would promote economic efficiency and enhance the role of market forces in the allocation of resources. In particular, they stressed the need to reduce subsidies and rigidities. Such policies will permit higher rates of growth without inflation as their economies expand. Improved market access and sustained expansion in world trade will also contribute to improved growth. In this connection, they reemphasized the importance of bringing the Uruguay Round to a rapid and successful conclusion.
7. The Ministers and Governors also reviewed developments in foreign exchange markets. Exchange markets have been generally stable in recent months, though they noted that the decline of the yen since their last meeting was not contributing to the adjustment process. They agreed to continue to monitor market developments and reaffirmed their commitment to close cooperation in exchange markets, which can contribute to facilitating recovery.
8. The Ministers and Governors welcomed the early membership of the new states of the former Soviet Union in the IMF and World Bank. They stressed the importance of the new states adopting policies to stabilize and reform their economies on the basis of market principles. They encouraged all new states to create appropriate legal frameworks for market economies. They encouraged all new states to move forward rapidly to develop economic adjustment programs that can be supported by the international institutions. The Ministers and Governors underscored the readiness of their countries to assist the newly independent states in implementing effective and comprehensive market reforms. They underlined the importance of restoring creditworthiness, in particular by meeting their payment obligations. They welcomed the signing by additional new states of the Memorandum of Understanding on External Debt.
9. The Ministers and Governors were firmly of the view that the IMF must have adequate resources to support the historic changes underway in the former Soviet Union and other parts of the world. They therefore strongly encouraged all members of the IMF to take on an urgent basis, the necessary steps to implement the agreed increase in IMF quotas and the related Third Amendment of the IMF's Articles.
10. The Ministers and Governors underscored the importance they attach to the work of the EBRD. They welcomed the intention of the Bank to give priority, within its energy operation, to nuclear power safety. They stressed their belief that the Bank should assist the transformation of the economies of Eastern Europe and of the new states. They believe the EBRD can best promote this objective by focusing its efforts on its present intensive program of private sector development and privatization of state-owned industry.
11. The Ministers and Governors noted the importance of the continuing development of third world countries and welcomed the most recent forecasts regarding their growth prospects. They welcomed the progress in the international debt strategy, including the recent Argentine debt agreement, and encouraged the conclusion of negotiations between other countries and their commercial banks. The Ministers and Governors also welcomed the recent implementation by the Paris Club of their agreement to introduce enhanced debt relief for the poorest, most heavily indebted countries on a case by case basis and noted the continued examination of the special situation of some lower middle-income countries on a case by case basis.
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