This was the first meeting of the new International Monetary and Financial Committee, which succeeded the Interim Committee last year, and as we started we reaffirmed the high ideals and public purpose that gave birth to the World Bank and the IMF more than 50 years ago: the belief that prosperity around the world was indivisible; our belief that prosperity, to be sustained, has to be shared; and our belief that the way forward is not to turn the clock back on globalization or to retreat from global economic cooperation but to strengthen international economic coordination with one aim—that coordination and cooperation involving all can achieve prosperity for all.
In this context, we discussed, first, strengthening the IMF’s role in the new global economy. We noted that the IMF had undergone continuous change to equip itself better to assist its member countries. We pledged to continue to work to make the IMF more effective, transparent, and accountable, strengthening its unique role as the cornerstone of the international monetary and financial system.
We agreed that the IMF’s financial operations should continue to adapt to the changing nature of the global economy, including the rapid growth and integration of international capital markets. We set out a number of principles that should underpin this, including the need to preserve the IMF’s ability to provide financial support to all member countries, the need to encourage countries to adopt strong measures to prevent crises, the importance of helping countries respond quickly and effectively to problems, and, where balance of payments difficulties are expected to be of a longer-term nature, supporting reforms that deal with structural problems.
In this light, we welcomed the progress that has been made to streamline and simplify the IMF’s facilities. We also agreed that progress is being made in developing greater transparency through codes of conduct and new standards and in extending surveillance to the changing global realities and strengthening it in key areas. We agreed that the IMF’s focus on financial vulnerabilities must be strengthened further, and we supported vulnerability analyses in IMF surveillance.
We recognized the importance of adherence to international standards and codes of good practice in reducing economic and financial vulnerabilities. We agreed that the IMF’s Article IV surveillance provides the appropriate framework within which to organize and discuss these issues. We also recognized the possible need for technical assistance for countries to meet these relevant standards. Because we believe that greater transparency and surveillance are the key to preventing crises, we welcomed the work of the IMF and the World Bank in preparing reports on the observance of standards and codes and encouraging their adoption by a growing number of countries. We encouraged the IMF to continue its work in this area. We agreed that greater transparency in policymaking has an important part to play in improving the functioning of national economies. We welcomed the progress that has been made in publicizing the results of surveillance—the Article IV Public Information Notices.
We agreed on the importance of prevention as the first line of defense against economic crises and noted that countries participating in international capital markets should seek to establish a strong and continuous dialogue with their private creditors. And we agreed the IMF has an important part to play in crisis resolution and discussed the importance of involving the private sector in that process.
The Committee discussed this afternoon the Initiative to help the heavily indebted poor countries [HIPC Initiative]. We welcomed the recent progress that has been made in implementing the enhanced HIPC Initiative, which is aimed at faster, deeper, and broader debt relief. We urged all those with a stake in the debt initiative to work for faster and effective implementation, and that the HIPC Initiative be given the highest priority to ensure that as many countries as possible can reach decision points by the end of this year.
We welcomed the establishment of a joint World Bank—IMF Committee to facilitate implementation of the initiative and the poverty reduction strategies for the poorest countries. We urged all countries involved to move ahead as quickly as possible with the preparation of their poverty reduction strategies. In this way, the richest countries, to whom much has been given, have joined with the poorest countries, whose needs are the greatest, in this alliance to free millions of people from poverty.
The committee thanked the authorities for their action today. The committee also went on to record appreciation for the work of Michel Camdessus, who retired as Managing Director a few weeks ago. We welcomed the appointment of Horst Köhler, who will take over on May 1. We thanked Stanley Fischer, who is with me today, for the work he has done as Acting Managing Director, for which we are all grateful.
In the past few weeks, all Group of Seven countries agreed that, on a bilateral basis, they will go to 100 percent debt relief. Other countries have indicated that they are going to act in a similar way. This is indeed progress from where we were even as late as December last year. At the same time, we had information that $2.4 billion has been pledged to the World Bank Trust Fund. Obviously, we want more money to make the initiative possible, but a large number of countries have come forward since October to offer their help. To ensure that more countries get through the process, Stanley Fischer and World Bank President Jim Wolfensohn have also set up the Joint Implementation Committee.
The other strand was a lengthy discussion of how to change our facilities so that we can use our financial resources to encourage prevention, particularly through the Contingent Credit Lines. The IMFC has asked the IMF’s Executive Board to take another look at the Contingent Credit Lines to see if they can be made more usable as a crisis prevention device.
But there should be a framework of principles and tools to deal with these issues. We agreed that in some cases a combination of official finance and policy adjustment should allow countries to regain full market access, whereas in other cases a broader spectrum of action by private creditors may be warranted to provide for adequately financed IMF programs. We are very much a part of the discussion about engaging private and public sectors in a world of very big private financial flows and about looking at how best we can deal with problems as they arise.
We are determined to move our poverty reduction strategies forward; we are determined to get as fast and as effective action as we can on debt relief. We are determined to reduce the risks from financial crises that are borne by the poor in so many cases, by creating a stronger system of crisis prevention and crisis resolution for the financial system.
We came forward with further proposals for the reform of the international financial system. Almost the whole of our afternoon discussion was about poverty reduction strategies and the HIPC Initiative. It makes us determined to move ahead with the reform agenda for the international financial institutions, while ensuring that we are in a position to provide greater prosperity for all countries, particularly those people who have too often been left behind.
Over the course of the next few months, the IMF and the World Bank and individual governments working together will try to remove all obstacles to debt relief and poverty reduction. That is a task we have set for ourselves as a result of these meetings today.
On whether interest rates should have been used to defend currencies, the consensus is that they should have been. Collapsing currencies leading to hyperinflation would have been far more destructive than what actually happened. The extraordinary recoveries in Asia—strongest in countries that actually followed IMF advice—are strong evidence that those strategies worked and worked well. One also needs to look at other crises, like the rapid recovery and turnaround in Brazil in 1999, which is under an IMF program.
I don’t doubt that surveillance will be significantly better now, because of the much greater focus on the sources of vulnerability, like the financial sector, the composition of external debt, and what is happening to exchange rates. But I also know that you never know enough to prevent all crises, either because something unexpected happens or because warnings are not listened to. We should not delude ourselves that crises are over. There should be fewer of them. But one reason we are strengthening our crisis response mode, as well as our crisis prevention mode, is that at some point we will have to deal with another crisis.