Statement of G7 Finance Ministers and Central Bank Governors
Washington DC, September 25, 1999
We, the Finance Ministers of the
G7 countries, the Central Bank Governors of Canada, Japan, the United States, and the
United Kingdom, the Euro-11 Presidency, and the President of the European Central Bank,
met today with the Managing Director of the International Monetary Fund to review recent
developments in the world economy. The Finance Ministers and Central Bank Governors of the
G7 countries reviewed the progress underway towards strengthening the international
financial architecture; new strategies for addressing poverty reduction in the poorest
developing countries; building on the Cologne HIPC Initiative; and other issues.
We welcomed the improvement in prospects for recovery in the major industrial
economies and the world economy as a whole. At the same time, we noted that we still face
a number of challenges in fostering a strong and sustained world recovery with financial
stability to promote improved living standards.
The improved global economic outlook has been characterized by the beginnings of a
foundation for balanced and widely shared growth in the major industrial countries; a
solidifying recovery in emerging markets in Asia; signs of stability and even incipient
recovery in some of the other emerging markets that have come under pressure; more
differentiation in financial markets about risk in emerging market economies, with some
resumption of financing flows; and an environment of low inflation. In general, the
balance of risks in emerging market economies suggests a continuing need to focus on
reform to promote the basis for lasting growth.
We reaffirmed the importance of progress in achieving a more balanced pattern of
growth among the G7 economies.
We pledged to continue to work cooperatively to improve the international economic
outlook and to strengthen financial stability.
In the United States and Canada, prospects are favorable for another year of solid
growth and job creation in a low-inflation environment. Policies will be directed to
sustaining growth on a long-term basis by maintaining improvedfiscal conditions
and, in the United States, increasing national saving.
Growth in the United Kingdom has strengthened during this year. Economic policies will
continue to aim at sustaining growth and employment while meeting the government's
inflation target and fiscal rules.
Overall prospects in the euro area have improved
significantly, with stronger domestic demand. An appropriate mix of macroeconomic and
structural policies aimed at strengthening growth and employment over the medium term will
continue to be important.
Japan’s economy has shown signs of positive
growth, although prospects for continued recovery in private demand remain uncertain. In
these circumstances, and in view of the yen’s appreciation, the Japanese authorities
reiterated their intention to implement stimulus measures until domestic-demand-led growth
is solidly in place and, in the context of their zero interest rate policy, to provide
ample liquidity until deflationary concerns are dispelled. Banking system strengthening
measures, including bad asset disposal, and structural reforms will continue to be
important.
The international monetary system and exchange rates
We discussed developments in our exchange and financial markets. We shared
Japan’s concern about the potential impact of the yen’s appreciation for the
Japanese economy and the world economy. We welcomed indications by the Japanese
authorities that policies would be conducted appropriately in view of this potential
impact. We will continue to monitor developments in exchange markets and cooperate as
appropriate.
We discussed financial and economic developments in emerging markets. We welcome the
return of more stable conditions in many countries and early signs of renewed economic
growth in many Asian nations. Along with appropriate macroeconomic policies, we stress the
importance of full implementation of reforms in the financial and corporate sectors to
promote a resumption of strong sustainable growth. In Latin America, growth is expected to
resume across the region next year, as the financial turbulence of the last year has
receded and commodity prices have increased. However, a number of countries need to
support a resumption of growth and low inflation through sound macroeconomic policies and
deepening of economic reforms, including strengthening of the financial sector, which will
be crucial in supporting the external financing environment.
We welcome the recent signs of improvement in the Russian economy, although we note
that they may be the result of transitory or external factors. We urged the Russian
authorities to step up the process of economic reforms on which a sustained increase in
living standards and a reduction in the level of capital flight will depend. The IMF and the World Bank have played a critical
role in supporting the difficult and complex process of Russia’s economic transition.
It is important that they have the capacity to continue to help the Russian authorities
shape a credible program of reform and institution-building; the capacity of the IMF and
World Bank to help bring about effective policies depends upon the will and capacity of
Russian authorities and the Russian people to carry forward reforms in their national
interest.
In our discussions with our Russian colleagues, we emphasized the critical need for
intensified efforts to combat corruption in Russia and money laundering and the importance
of adequate safeguards to ensure that funds provided by the international financial
institutions are used for their intended purpose. In the case of the IMF, as agreed in the
context of Russia’s standby arrangement (SBA), IMF financing will be disbursed into
an SDR account for the purpose of repaying Russia’s obligations to the Fund.
Furthermore, we agreed that the Central Bank of Russia (CBR), prior to disbursement of the
next tranche of the SBA, should take steps identified by the IMF to improve internal
controls and to initiate quarterly audits of CBR reserve management practices that will be
made public before future IMF tranches are disbursed. The Russian government, in
cooperation with the IMF and the World Bank, is expected to put in place, prior to
disbursement of the next IMF tranche, a system of financial and budgetary controls to
ensure proper use of budgetary support from the international financial institutions. We
urged the Russian government, in cooperation with the IMF and World Bank, to review all
its systems of budgetary and financial management and agree on specific measures to
improve financial accountability.
In the case of the World Bank, we welcomed the new safeguards, involving greater
control and auditing of World Bank funds, introduced in June, and called on the World Bank
to work with Russia on additional safeguards. We
also agreed that World Bank structural adjustment lending should be provided only in the
context of implementation of broad and significant structural and institutional reforms to
promote private investment, jobs, and growth and to combat corruption.
We welcomed the commitment of the Russian authorities to strengthen its capacity to
combat money laundering, to resubmit to the Duma for passage, at the earliest possible
opportunity, a strong anti-money laundering law in conformity with international standards
and to cooperate fully with cross-border money laundering investigations.
We look forward to the September 28 meeting of the High Level Steering Group, which
has been tasked by the G8 Leaders with guiding the economic assistance strategy for
Kosovo and Southeast Europe. We reaffirmed the importance of progress towards agreement on
the interim economic policy framework and administration for Kosovo; ways to accelerate
economic reform in Southeast Europe as a whole; and regional integration initiatives that
would yield the greatest economic benefits.
At the Cologne Summit in June, our Leaders agreed on a framework to enhance the
Heavily Indebted Poor Country (HIPC) Initiative which would provide:
faster, deeper, and broader debt relief;
for the international financial institutions (IFIs) to help make it possible for
three-fourths of eligible countries to reach their decision points by 2000 and for the
remaining countries to embark on the HIPC process as soon as possible; and,
a strengthened link between debt relief and poverty reduction.
As a key part of this framework, we emphasize the importance of a new, coordinated
approach by the World Bank and the IMF to support, consistent with their mandates, a
growth-oriented strategy aimed at reducing poverty and stressed the importance of its
effective implementation. In that context, we welcome tomorrow’s joint session of the
Interim and Development Committees to discuss HIPC. We also welcomed the Managing
Director’s intention to announce a successor arrangement to the Enhanced Structural
Adjustment Facility (ESAF) to be called the Poverty Reduction and Growth Facility. The new
integrated strategy should promote good governance and be based on five pillars:
increased and more effective fiscal expenditures for poverty reduction, with better
targeting of budgetary resources, especially on social priorities in basic education and
health, including the prevention and treatment of AIDS and measures to improve child
survival;
enhanced transparency, including monitoring and quality control over fiscal
expenditures;
stronger country ownership of the reform and poverty reduction process and programs,
involving public participation;
stronger monitorable performance indicators for follow-through on poverty reduction;
and,
ensuring macroeconomic stability and sustainability, and reducing barriers to access by
the poor to the benefits of growth.
The IMF has identified ways to cover its costs from its own resources without
impairing its financial integrity. We look forward to the Interim Committee settling this
issue at its meeting tomorrow. In relation to the World Bank and IDA, we welcomed progress
towards a solution that would enable the Bank, using the resources available to it, to
finance substantially all of the costs of its participation in the expanded HIPC
initiative without compromising its ability to deliver concessional resources, and look
forward to the resolution of this issue in the Development Committee. Taking this into
account, we reaffirmed our commitment going forward to ensuring an adequate supply of
multilateral concessional resources for the poorest countries. We have also agreed to
consider in good faith bilateral contributions, based on appropriate burden sharing as
agreed in Cologne, to an expanded HIPC Trust Fund, to meet the costs falling to the
multilateral development banks, in particular the African Development Bank and the
Inter-American Development Bank. We and other bilateral creditors have borne and will
continue to bear the greatest part of the cost of the HIPC initiative by forgiving 100% of
ODA debt and up to 90%, and more if necessary, of commercial debt in the Paris Club. We
repeat our call for all other creditor countries to forgive bilaterally, based on a menu
of options, all ODA debt and urge all bilateral creditors to make future official
development assistance to HIPCs primarily in the form of grants to help ensure that they
do not face debt problems in the future.
On this basis, we urge the international financial institutions, bilateral
creditors and donors to implement the Cologne framework quickly. The next eligible
countries to come forward for HIPC relief will be treated under this framework, which will
also be applied retroactively to those that have already received HIPC relief.
Open and competitive international markets for trade and investment are essential
for efficient global resource allocation, sustainable growth, stability and shared
prosperity. We support the launch of a new trade round.
We also encourage the IMF and World Bank to renew their commitment to
coherence in global economic policy making in partnership with the WTO, with due regard to their respective roles in the
global economy. They should make progress in coordinating programs of support for
developing countries, recognizing and reinforcing the efforts of developing countries to
negotiate and implement multilateral trade commitments, including the necessary structural
reform, allowing them to secure the full benefits of participation in the world trading
system.
Strengthening the international financial and monetary system
We reviewed the state of work to strengthen the international financial
architecture in line with the plan that G7 Finance Ministers set out at the Cologne
Summit in June in their report to G7 Heads of State or Government on Strengthening the
International Financial Architecture. We noted with satisfaction work that had been done
since the Cologne Summit, and we will continue to work to ensure the full implementation
of all of the reforms that were endorsed at the Cologne Summit. Looking forward, we attach
particular importance to reducing the vulnerabilities to financial crisis of individual
countries and of the system as a whole and fostering well-functioning international
capital markets by implementing the agreed G7 framework on private sector involvement in
crises. These priorities, and progress made in other areas, are highlighted in the annex
to this statement.
In our June Report to Heads, we underlined the importance of enhancing the
global economic and financial arrangements to reflect the changing nature of the world
economy. Consistent with that, we support steps to reinforce the role of the Interim
Committee, by transforming it into the permanent "International Monetary and
Financial Committee" and by holding preparatory meetings at the Deputy-level twice a
year.
In addition, as agreed in Cologne, we propose to establish a new mechanism
for informal dialogue in the framework of the Bretton Woods institutional system, to
broaden the dialogue on key economic and financial policy issues among systemically
significant economies and promote cooperation to achieve stable and sustainable world
economic growth that benefits all. We believe that discussions held in this group will
prove useful to complement and reinforce the role of the governing bodies of the Bretton
Woods institutions.
Accordingly, in December in Berlin, we will invite our counterparts from a number of
systemically important countries from regions around the world to launch this new group.
The EU Presidency and European Central Bank will be invited. In addition, to ensure
effective liaison with the IMF and World Bank, we will invite the World Bank President,
IMF Managing Director and Interim and Development Committee chairmen to serve as ex
officio members of the group. We are grateful to Paul Martin of Canada for agreeing to
lead this group as Chairman for its first two years.
We note the importance of work underway in the Financial Stability Forum and look
forward to recommendations in the areas of highly-leveraged financial institutions,
capital flows and offshore financial centers in the spring.
Recent events highlight the importance of fighting corruption and financial crime.
In this context, we discussed the broad implications of corruption and money
laundering on the credibility and effectiveness of IFI programs. This is a complex issue
which is critical to the integrity of the IFIs. We therefore call on the IMF and the World
Bank to perform an authoritative review of their procedures and controls and those of
recipients of IMF and World Bank credit to identify ways to strengthen safeguards on the
use of their funds. The reviews should also identify ways to strengthen governance and
anti-corruption measures in programs supported by the IMF and World Bank. In particular,
we encourage the IMF to look at the potential to expand circumstances under which advance
repayment can be required and more broadly, as we proposed in June, to pursue enhanced
monitoring of policy commitments while drawings on the Fund remain outstanding but after
program conditionality has ended. More broadly, we will also urge the international
financial institutions to encourage countries, in the context of financial sector reform
programs, to adopt anti-money laundering policies and measures. We draw the attention of
all firms and institutions participating in financial markets to the importance of robust
systems for alerting them promptly and effectively to financial flows that may involve the
laundering of the proceeds of crime.
We remain committed to confront the threat of international corruption to
investment and economic growth and to the ability of countries to respond to financial
crises. We will work for full ratification and implementation of the OECD Anti-Bribery
Convention and for complete elimination of tax deductibility for bribes. We also will
continue to urge the multilateral development banks to develop uniform procurement rules
and documents, and we will encourage all official international financial institutions to
increase their activities to promote good governance and public sector integrity and to
combat all forms of corruption.
We are deeply concerned there has been growth in illicit international
financial transactions, including money laundering, broad scale tax evasion, and other
financial crimes. We will therefore ensure that our experts on such matters will
coordinate and actively seek to contribute to ongoing efforts to address these problems
through mutually reinforcing initiatives within the Financial Action task Force (FATF) and
the Organization for Economic Cooperation and Development (OECD). We are pleased that the
FATF Ad Hoc Group on Non-Cooperative Countries or Territories has now defined the criteria
against which countries and territories are to be measured, and we encourage the FATF now
to identify countries and territories that appear to meet those criteria, begin to consult
with them, and, if consultations are not productive, recommend action designed to convince
them to modify their harmful laws and practices to protect the international financial
system against criminal proceeds.
Harmful Tax Competition and International Tax Evasion
We reaffirm our support for the work of the OECD’s Forum on Harmful Tax
Practices in implementing the guidelines and recommendations adopted by the OECD with
respect to the harmful effects of unfair tax practices. We strongly endorse the work
program of the Forum, in particular the efforts to identify tax havens and to engage in
dialogues with jurisdictions identified through this process. We are encouraged by the
willingness of jurisdictions to engage in a dialogue aimed at reforming harmful practices
in the tax area and we urge that the Forum’s work continue to be given a high
priority. We also support the ongoing work of the OECD regarding harmful tax practices in
member countries and note the EU’s work to implement the code of conduct.
We welcome the recent progress by the FATF to require reporting of suspicious
transactions regardless of whether they are also thought to involve tax matters and we
encourage further cooperation between the OECD’s Committee on Fiscal Affairs and the
FATF to explore further the links between tax evasion and avoidance and money laundering,
and in particular to ensure the effective flow of information to tax authorities without
undermining the effectiveness of anti-money laundering systems. We continue to support
efforts within the OECD to improve information exchange between tax authorities by
addressing the barriers imposed by excessive bank secrecy rules.
We discussed our preparations for Y2K and arrangements for dealing with any
international liquidity problems that might arise around the century date change. It
remains important that public and private sector officials press forward this autumn with
contingency plans in the financial sector and between the financial sector and other
critical sectors, such as power and telecommunications. We welcome the establishment by
the IMF of a temporary, special facility to enable it to respond promptly if Y2K-related
balance-of-payment difficulties arise in its member countries.
G7 Finance Ministers and Central Bank Governors reviewed the progress made so far
to strengthen the international financial architecture in line with the plan set out at
the Cologne Summit in June in the Finance Ministers’ report on Strengthening the
International Financial Architecture and agreed on priorities for further work.
The Financial Stability Forum met on September 15th to review the progress
made by the three working groups which it has established to take work forward on
highly-leveraged institutions, capital flows, and offshore financial centers. Reflecting
our earlier commitment to expand membership in the Forum to include significant financial
centers, in a format that provides for effective dialogue, four new members of the Forum
– Australia, Hong Kong, the Netherlands and Singapore – participated in this
meeting.
We look forward to the final reports of the Financial Stability Forum's working groups
on highly-leveraged financial institutions, capital flows and offshore financial centers
in the spring. We also look forward to the results, anticipated by the Forum's spring
meeting, of work on development of international best practices for deposit insurance
schemes, and, later in 2000, to ongoing efforts to assess the desirability and the
feasibility of enhanced public disclosures by financial institutions.
To build stronger financial systems, the IMF and World Bank have developed proposals to
work more closely on financial sector issues, and the Financial Stability Forum has drawn
together a prototype compendium of standards and best practices, now available on its
web-site, which when fully developed should be a valuable tool for promoting the
implementation of standards. We discussed the IMF proposal for a mechanism for
surveillance of implementation of the internationally-agreed codes of transparency and
standards of best practice. We agree that this surveillance process should be carried out
on a modular basis covering a wide range of standards and codes, with the Fund responsible
for its core areas of expertise, and other institutions, such as the World Bank, OECD and
Basel Committee, taking responsibility for other areas. The IMF’s Article IV process
should be placed at the center of this surveillance process, building on input from other
institutions as necessary. We look forward to further refinements to the FSF compendium,
including mechanisms for countries to publicly state their intentions to implement
standards. We also look forward to further strengthening of the SDDS at the next review to
include indicators of financial sector soundness.
To help ensure that social policies are in place to ease adjustment during times of
crisis and prevent the burden of adjustment from falling disproportionately on the poorest
and most vulnerable groups in society, the World Bank is working to develop principles and
good practices in social policy. These now need to be given operational effect so that IMF
and World Bank programs take full account of the social dimensions.
We will continue to work to ensure the full implementation of all of the reforms
that were endorsed by our Heads of State and Government at the Cologne Summit. Looking
forward, we plan to emphasize three major areas:
We will continue our efforts to reduce the vulnerabilities to financial crisis of
individual countries and of the system as a whole. Specific steps in this area include:
We reaffirm our view that the international community should not provide significant
official financing for a country intervening heavily to support a particular exchange rate
level, except where that level is judged sustainable and certain conditions have been met,
such as where the exchange rate policy is backed by a strong and credible commitment with
supporting arrangements, and by consistent domestic policies.
Further work is needed on appropriate exchange rate regimes for emerging market
economies. The choice of regime is critical for their economic development and financial
and economic stability, and it also has important implications for the world economy. We
call on the IMF to focus on this issue, in the context of its surveillance and program
work. We look forward to discussing this issue at the spring meetings.
We have improved our understanding of the important issues involved in managing the
risks posed by large-scale capital flows – including the importance of sound
financial systems and strong prudential frameworks in this context, country experiences
with the use and liberalization of capital controls, and the need for proactive monitoring
of the overall currency and maturity composition of a country’s financial obligations
and the need for prudent management of debt and liquidity. We welcome the impetus provided
the FSF to the joint work of the IMF and the World Bank, in co-operation with
national debt management experts, to develop a set of best practices in public debt
management by the spring to assist countries in their efforts to reduce vulnerability.
We welcome the closer cooperation between the IMF and World Bank on financial sector
issues, and call for further improvements in the coordination of their advice to emerging
economies in this and other areas. In addition, we welcome the work that will soon
commence, within the Forum to further promote implementation of financial and economic
policy standards, including prioritization of core standards contained in the Compendium;
development of incentives for national implementation of these standards; consideration of
institutional responsibilities for assessing implementation; technical assistance to
enhance the capacity of countries to implement standards; and mobilizing the human
resources required to perform such assessments.
II. Implementing the Cologne Framework on Private Sector Involvement in Crisis
Resolution.
We will continue to support approaches to specific cases within the framework of
principles and tools that we endorsed in our Report on Strengthening the Financial
Architecture in June. These were aimed at fostering well-functioning international capital
markets that would support a stable flow of finance to emerging markets that reflected
market judgements of countries’ economic and financial prospects.
Recent experience has confirmed the need to maintain sufficient flexibility to
address diverse cases effectively as we move forward to apply the framework we laid out in
Cologne. When a country's underlying capacity to pay is strong and prospects for the
spontaneous restoration of market access on viable terms are good, the combination of
official financing and policy adjustment should allow the country to regain full market
access with voluntary approaches. In other cases, the early restoration of full market
access on terms consistent with medium term external sustainability may not be realistic,
and the use of a broader spectrum of tools may be warranted to provide for an adequately
financed program and a sustainable medium term payments profile. In these cases,
responsibility lies with debtors and creditors to work cooperatively to find a solution to
the country's debt problems within the context of an IMF program that addresses the
country’s immediate financing gap, provides an appropriate balance between official
and private financing, with Paris Club comparability as appropriate, and is sustainable
over the medium term. No one category of credits should be regarded as inherently
privileged relative to others in a similar position.
We attach a high priority to this in building a constructive dialogue with private
market participants and emerging markets aimed at communicating the improvements in crisis
management which we aim to achieve through this approach. And we look forward to making
further progress in our examination over the next year of establishing mechanisms to
prevent financial crises within the context of the framework agreed upon in June.
III. Safeguards to Ensure the Proper Use of IFI Funding
Recent events highlight the importance of fighting corruption and financial crime.
Our statement emphasizes the broad implications of these problems for the credibility and
effectiveness of IFI programs. This complex issue is critical to the integrity of the
IFIs. We remain committed to confront the threat of international corruption to investment
and economic growth and to the ability of countries to respond to financial crises.
