Developments in the world economy
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.
Group of Seven economies
We reaffirmed the importance of progress in achieving a more balanced pattern of growth among the Group of Seven 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 improved fiscal 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.
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.
Emerging market economies
We discussed financial and economic developments in emerging markets. We welcomed 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 stressed 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 past 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 a deepening of economic reforms, including strengthening of the financial sector, which will be crucial in supporting the external financing environment.
Debt reduction and poverty reduction
At the Cologne summit in June, our leaders agreed on a framework to enhance the Heavily Indebted Poor Countries (HIPC) Initiative, which would provide
- faster, deeper, and broader debt relief;
- for the international financial institutions 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 emphasized 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 [IMF] 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 sustainabil-ity 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 International Development Association, we welcomed progress toward 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 we 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 percent of official development assistance debt and up to 90 percent, 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 official development assistance 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.