Press Release No. 96/20

Press Release: Communiqué of the Interim Committee of the Board of Governors of the International Monetary Fund

April 22, 1996

1. The Interim Committee held its forty-sixth meeting in Washington, D.C. on April 22, 1996 under the Chairmanship of Mr. Philippe Maystadt, Deputy Prime Minister and Minister of Finance and of Foreign Trade of Belgium.

2. The Committee is encouraged by developments in the world economy.

• inflation has been brought down or kept low in most countries, and the broad movements in the exchange rates of the major currencies since the Committee meeting of April 1995 have improved the prospects for sustainable non-inflationary growth.
• in the developing world growth has been well sustained, helped by strong policies of macroeconomic adjustment and structural reform, leading to improved living standards for a large share of the world's population. In Asia, growth is expected to remain buoyant, albeit at a slightly slower rate than in 1995 reflecting, in part, tighter policies in some countries to resist overheating. In the Western Hemisphere, the far-reaching adjustment efforts of Mexico and other countries in the region have improved the prospects for recovery. In Africa and the Middle East sound policies are improving economic prospects.
• in the countries in transition progress toward market-based institutions and macroeconomic stability has contributed to stronger economic performance. The countries that have advanced furthest in this process provide encouraging evidence that perseverance with financial discipline and structural reforms creates the basis for sustained growth.
• in the industrial countries, recovery has begun in Japan and conditions are good for expansion to continue at a healthy rate in North America. In continental Europe, fiscal consolidation, subdued inflation, and their favorable impact on interest rates should help the expected pickup of growth in the course of 1996, following the recent pause.

3. The Committee notes that many of these favorable developments reflect implementation of key aspects of the common strategy set out by the Interim Committee in the Madrid Declaration of October 1994. The fall meeting of the Committee may be an appropriate occasion for updating the guidelines set out in the Madrid Declaration, and the Committee requests the Executive Board to consider this matter.

4. The Committee emphasizes that important challenges remain:

• fiscal consolidation remains a key priority in most countries, despite some progress in reducing budget deficits. Fiscal problems take many forms, including unproductive spending, narrow tax bases and high tax rates, inefficient state enterprises often subject to soft budget constraints, large off-budget or hidden imbalances, and extensive commitments, particularly in pensions and health care, given the prospective aging of populations. Greater transparency of fiscal operations and awareness of the implications of longer-term commitments are needed to build public consensus and support for determined policies to deal with these problems.
• removal of structural impediments to higher rates of non-inflationary growth is also critical, and labor market rigidities that contribute to unacceptably high unemployment in many industrial countries are of particular concern; progress in these areas would also assist fiscal consolidation.
• strengthened supervision of financial institutions and markets will facilitate the efficient allocation of financial resources and guard against potential sources of macroeconomic instability and fiscal costs.

5. The Committee recognizes the very strong efforts by the Fund to adapt its surveillance to the new global environment. Specifically, the Committee

• welcomes the report of the Managing Director on policies implemented in the context of country surveillance, which provides a useful bridge from the lessons of the Board's daily work on bilateral surveillance to the broader issues relevant to the Interim Committee in its oversight role. The Committee requests a further report on selected surveillance issues frequently arising in the Fund's dialogue with members.
• welcomes the establishment of the Special Data Dissemination Standard for members having or seeking access to international capital markets, and the early indications that a significant number of countries intend to subscribe; it encourages other members to subscribe. The Committee calls for early work by the Executive Board to establish the general standard for data dissemination for all members before the end of 1996.

6. With respect to the Fund's financial resources and assistance to members, the Committee

• notes the progress made by the Executive Board in preparatory work for the Eleventh General Review of Quotas and stresses the need to ensure the adequacy of quotas for the Fund to continue to carry out its mandate, taking into account changes in the world economy since the last increase in quotas was agreed in 1990. In view of the prospective evolution in the Fund's liquidity position, the Committee requests the Executive Board to pursue work on quota issues with a view to reaching a conclusion as soon as possible.
• notes the report of the Chairman of the G10 Deputies, and welcomes the progress toward doubling the resources currently available to the Fund under the General Arrangements to Borrow, while re-emphasizing that borrowing should be exceptional and that the new arrangements are not a substitute for a quota increase. It welcomes in particular the agreement that has been reached on the broad principles that will guide the design of the new arrangements as well as the indication by a number of countries of their readiness to participate in borrowing arrangements on appropriate terms. It urges an early successful conclusion of this work.
• reiterates its support for continuation of the Enhanced Structural Adjustment Facility (ESAF), including establishment of a self-sustained ESAF, as the centerpiece of the Fund's strategy to help the low-income countries, including in the context of the initiative to assist the most heavily indebted poor countries. It discussed the report presented by the Managing Director and-taking into account the time required to put in place the financing arrangements for ESAF-requests the Executive Board to conclude its discussions as soon as possible with the aim of devising acceptable financing proposals by the time of the next Annual Meetings.
• welcomes the proposed framework presented by the Fund and the Bank on ways to address the problems of a limited number of heavily indebted poor countries following sound policies for which it is clear that existing mechanisms appear inadequate to secure a sustainable external debt position over the medium-term. It agrees that further action is needed, on a case-by-case basis, in line with broad principles agreed by the two Executive Boards, including contributions by the IFIs from their own resources, contributions by bilateral donors, and appropriate action by the Paris Club, and by other creditors. The Committee requests the Fund, in conjunction with the Bank and in close collaboration with all involved creditors and donors, to put forward specific proposals as soon as possible, with the aim of reaching decisions by the time of the next Annual Meetings.

7. The Committee welcomes the report on the Seminar on the Future of the SDR. It requests the Executive Board to reflect further on proposals on the role of the SDR and to reach a consensus on a way for all members to receive an equitable share of cumulative SDR allocations.

8. The Committee will meet again in Washington, D.C., on September 29, 1996.

Chairman

Philippe Maystadt, Minister of Finance, Belgium

Managing Director

Michel Camdessus

Members or Alternates

Ibrahim A. Al-Assaf, Minister of Finance and National Economy, Saudi Arabia
Sultan N. Al-Suwaidi, Governor, United Arab Emirates Central Bank (Alternate for Ahmed Humaid Al-Tayer, Minister of State for Financial and Industrial Affairs, United Arab Emirates)
Jean Arthuis, Minister of Economy and Finance, France
Erik Asbrink, Minister of Finance, Sweden
Antonio Casas Gonzalez, President, Banco Central de Venezuela
Roque Benjamin Fernandez, President, Banco Central de la Republica Argentina (Alternate for Domingo Felipe Cavallo, Minister of Economy and Public Works and Services, Argentina)
Kenneth Clarke, Chancellor of the Exchequer, United Kingdom
Jim Short, Assistant Treasurer, Australia (Alternate for Peter Costello, Treasurer, Australia)
Chen Yuan, Deputy Governor, People's Bank of China (Alternate for Dai Xianglong, Governor, People's Bank of China)
Mario Draghi, Director General, Ministry of the Treasury, Italy (p.m. session) and Antonio Fazio, Governor, Banca d'Italia (a.m. session) (Alternates for Lamberto Dini, Prime Minister and Minister of the Treasury, Italy)
J. Soedradjad Djiwandono, Governor, Bank Indonesia
Marcel Doupamby Matoka, Minister of Finance, Economy, Budget, and Equity Financing, Gabon
Sergei Dubinin, Chairman, Central Bank of the Russian Federation
Abdelouahab Keramane, Governor, Banque d'Algerie
Yasuo Matsushita, Governor, The Bank of Japan (Alternate for Wataru Kubo, Minister of Finance, Japan)
Pedro Sampaio Malan, Minister of Finance, Brazil
Paul Martin, Minister of Finance, Canada
Viktor Klima, Federal Minister of Finance, Austria (Alternate for Philippe Maystadt, Minister of Finance, Belgium)
Robert E. Rubin, Secretary of the Treasury, United States
Tomaz Augusto Salomao, Minister of Planning and Finance, Mozambique
C. Rangarajan, Governor, Reserve Bank of India (Alternate for Manmohan Singh, Minister of Finance, India)
Kaspar Villiger, Minister of Finance, Switzerland
Theo Waigel, Federal Minister of Finance, Germany
Gerrit Zalm, Minister of Finance, Netherlands

Observers

Andrew D. Crockett, General Manager, BIS
Yves-Thibault de Silguy, Commissioner for Economic, Monetary and Financial Affairs, CEC
Mohamed Kabbaj, Chairman, Joint Development Committee
Roger Lawrence, Director, Global Interdependence Division, UNCTAD
Jean-Claude Milleron, Under-Secretary-General for Economic and Social Information and Policy Analysis, UN
Jean-Claude Paye, Secretary-General, OECD
Jesus Seade, Deputy Director-General, WTO
James D. Wolfensohn, President, World Bank .