Although short-term prospects for global economic growth have weakened significantly since September 2000, it is likely that the current slowdown will be short-lived, the International Monetary and Financial Committee (IMFC) stated in its communiqué following its April 29 meeting in Washington. While it acknowledged that the “downside risks have increased” since its last meeting in September 2000 (IMF Survey, October 9, 2000, page 314), the IMFC noted that “underlying inflationary pressures generally remain subdued.” (For the text of the IMFC communiqué, see page 136.)
Speaking at a joint press conference with IMF Managing Director Horst Köhler following the meeting, IMFC Chair Gordon Brown, the U.K. Chancellor of the Exchequer, emphasized that “the approach to the slowing of the [global] economy is that we would be both forward looking and outward looking.” He added: “There was a general recognition of our shared interests as a global community. We recognized that we should not retreat from cooperation but indeed should strengthen it.”
In facing economic events, we should be vigilant, Brown said, but we should be forward looking in creating the conditions for growth, in maintaining the momentum for economic reform in our own national economies, and in continuing the pace of reform in the international financial architecture. In particular, he stressed the importance of the communiqué’s call for “the resumption of multilateral trade talks [later in 2001] as important to the development of the world economy.” (For an edited transcript of the IMFC press briefing, see page 140.)
IMF’s crisis prevention role
The IMFC also gave its strong support to the Managing Director’s proposals for improving the crisis prevention mechanisms of the IMF, stressing in its communiqué that “strong and effective crisis prevention is a top priority.” Köhler said at the press briefing that the Committee’s support for recent moves to refocus the IMF and for its current work program would “hasten our progress toward an IMF that is more effective, especially at crisis prevention and promoting financial sector stability.” He also disclosed that agreement in principle had been reached at the meeting to provide IMF financial support for the new economic programs of Argentina and Turkey, both of which have recently been experiencing severe economic difficulties.
Brown responded to the critics of globalization by saying that “instead of retreating from global cooperation, we are strengthening it, and it is by strengthening global cooperation that we are better placed to deal with difficulties as they arise.”
World economic prospects
To assist its review of world economic prospects, the IMFC had before it the IMF staff’s latest projections in the World Economic Outlook (see page 162 for a report on the press briefing conducted by Michael Mussa, the IMF’s Economic Counsellor). In its communiqué, the IMFC noted
- a marked deceleration of economic activity in the United States. While it considered that the easing of monetary policy in recent months is timely and welcome, it said that monetary policy should remain directed at restoring growth potential while maintaining price stability;
- the introduction of a new monetary policy framework in Japan and underscored the importance of a commitment by the authorities to an expansionary policy stance until the risk of deflation could be eliminated;
- growth in the euro area as being relatively well sustained and underscored the importance of a further deepening and acceleration of structural reforms to boost longer-term growth potential;
- the adverse impact on other countries affected by both the slowdown in growth in the advanced economies and the deterioration of conditions in international financial markets. At the same time it noted that growth is expected to be relatively well maintained in China and India; and
- particular concern that the slowdown in global growth risks is having an adverse effect on the poorest IMF member countries. This requires both adequate flows of official development assistance and carrying forward the Heavily Indebted Poor Countries (HIPC) Initiative to deliver sustainable debt levels and open the markets of the advanced economies to the exports of developing countries.
Underscoring the importance of open markets to strengthen the global economy, the IMFC urged all countries—developed and developing—to find common ground for the launch of new multilateral trade negotiations in 2001. The Committee also expressed its unanimous view that a “recourse to protectionism would be the wrong response to the global economic slowdown and the attendant difficulties in particular sectors.”
IMF in the process of change
The IMFC received a report from the Managing Director, “The IMF in the Process of Change” and said in its communiqué that the IMF is appropriately focusing on
- promoting macroeconomic and financial stability as a precondition for sustained economic growth;
- promoting the stability and integrity of the international monetary and financial system as a global public good; and
- helping its members develop sound financial sectors to protect against vulnerability, mobilize financing for productive investment, and take advantage of the opportunities of global financial markets.
The IMFC endorsed the efforts being made to strengthen collaboration between the IMF and other organizations, particularly the World Bank. It also noted the experience in applying the framework for private sector involvement in crisis prevention and management, with its reliance on voluntary, market-based approaches.
The Committee welcomed the appointment of Montek Singh Ahluwalia as Director of the IMF’s new independent Evaluation Office (see press release, page 164). It also noted the draft report on the process of selecting the IMF’s Managing Director and the President of the World Bank. (The text of this report is available on the IMF’s website: www.imf.org.)
IMFC-Development Committee meeting
The communiqué issued following the joint meeting of the IMFC and the Development Committee reported that the two committees had focused their attention “on progress in strengthening this partnership [of the IMF and the World Bank] in fighting poverty and strengthening growth in the world’s poorest countries.” (For the text of the IMFC-Development Committee communiqué, see page 144).
At the press conference following the joint meeting, Development Committee Chair Yashwant Sinha emphasized that “the world community is completely committed to the processes of poverty reduction and growth, to debt forgiveness, to enhanced flows of official development assistance, to peace and conflict resolution, and to the question of better market access for the products of the developing countries—especially the HIPCs—to all markets, especially the markets of the developed countries.”
IMFC Chair Brown welcomed the language of the communiqué as “the strongest statement yet that what we can achieve together … is so much greater than what we can achieve on our own.” He added: “By creating a virtuous circle of debt reduction, poverty reduction, and sustainable development, we can meet the development target for 2015 to which we have all subscribed.” (For excerpts from the press conference, see page 146.)
The Development Committee broadly endorsed the work of the IMF and the World Bank in supporting middle-income countries. In its communiqué, it noted that “good policies, and the institutions to implement them, were at the core of successful development programs, and [it] welcomed that an increasing number of countries were adopting this approach.”
At a press conference following the meeting, Chair Yashwant Sinha said that while the HIPCs should receive priority attention, programs in the middle-income countries were important because the largest number of poor people lived in those countries. IMF Deputy Managing Director Eduardo Aninat noted that there had been some progress and some improvement in dealing with the duration and extension of crises. Working with the World Bank, he said, the IMF had focused on improving its surveillance capacity and on strengthening the underlying financial institutions in its member countries.
The full texts of all communiqués, press conferences, the Managing Director’s statement “The IMF in the Process of Change,” the statements by ministers and others representing the IMF’s member countries, and other materials can be found on the IMF’s website: www.imf.org.