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Annual Report of the Executive Board for the financial year ended April 30, 1999.
toggleI. Overview
Financial Crises Prompt Consideration of Proposals to Strengthen the Global Financial System
toggleII. The Global Economy
Chapter 1. Main Developments in the World Economy in 1998/99
Chapter 2. World Economic Outlook
Chapter 3. International Capital Markets
toggleIII. The IMF in 1998/99
Chapter 4. Evolution of the Economic Crisis in Emerging Market Economies
Chapter 5. Strengthening the Architecture of the International Financial System
Chapter 6. Surveillance
Chapter 7. Support for Member Countries’ Adjustment
Chapter 8. The ESAF and the HIPC Initiative
Chapter 9. Technical Assistance and Training
Chapter 10. Financial Operations and Policies
IV. IMF Organization, Staffing, and Budget
Chapter 11. Organization, Staffing, and Budget
toggleAppendices
Appendix I. International Reserves
Appendix II. Financial Operations and Transactions
Appendix III. Principal Policy Decisions of the Executive Board
Appendix IV. IMF Relations with Other International Organizations
Appendix V. External Relations
Appendix VI. Press Communiqués of the Interim Committee and the Development Committee
Appendix VII. Executive Directors and Voting Power on April 30, 1999
Appendix VIII. Changes in Membership of the Executive Board
Appendix IX. Financial Statements
Interim Committee of the Board of Governors of the International Monetary System
Fifty-First Meeting, Washington, D.C., October 4, 1998
2. Developments in the World Economy
a. Problems and Challenges in the World Economy and International Capital Market
b. Policy Responses to Recent Crises
3. Strengthening the Architecture of the International Monetary System
4. Reports on Other IMF Policies and Operations
a. IMF Liquidity, Quotas, NAB, and SDR Amendment
b. ESAF and HIPC Initiative—Implementation, Financing, and Lessons from Evaluation and Review; Postconfliet Assistance
c. Bank-Fund Collaboration
d. EMU and the Fund—Operational Issues
Annex: Interim Committee Attendance October 4, 1998
Fifty-Second Meeting, Washington, D.C, April 27, 1999
2. Developments in the World Economy; Policy Response in Recent Crises
a. Developments in the World Economy
b. Policy Response in Recent Crises
a. Forestalling and Resolving Financial Crises
b. Institutional Reform and Strengthening and/or Transforming the Interim Committee
c. Capital Movements
d. International Standards and Fund Surveillance
e. Transparency—Recent Progress and Perspectives
4. HIPC Initiative and ESAF
5. Fund Assistance to Post conflict Countries
6. Regional Economic Impact of the Kosovo Crisis
7. Quotas, NAB, and Fourth Amendment of the Articles
Annex: Interim Committee Attendance April 27, 1999
Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee)
Fifty-Eighth Meeting, Washington, D.C., October 5, 1998
Fifty-Ninth Meeting, Washington, D.C, April 28, 1999
PRESS COMMUNIQUÉS
1. The Interim Committee held its fifty-first meeting in Washington, D.C. on October 4, 1998 under the Chairmanship of Mr. Carlo Azeglio Ciampi, Minister of the Treasury of Italy. The Committee expressed its appreciation to the outgoing Chairman, Mr. Philippe Maystadt, former Deputy Prime Minister and Minister of Finance and Foreign Trade of Belgium, for his invaluable contribution to the Committee’s work.
The outlook for the world economy has worsened considerably since the Committee’s April meeting, with a scaling down of prospects for growth of output and trade. Recessions in Japan and several Asian emerging market economies have deepened; Russia’s financial crisis has contributed to a general retreat by investors from emerging markets; stock markets worldwide have declined significantly from their recent peaks; and commodity prices have weakened further. The downside risks to the current outlook have increased significantly. Many emerging market economies face a particularly difficult environment associated with reduced access to external financing and widening risk premiums. These developments also pose difficulties for financial systems and an orderly process of economic adjustment and push back prospects for economic growth. Recent problems have been aggravated by a general weakening of market confidence, reflecting the greater prevalence and intensity of contagion in an increasingly globalized economy. These contagion effects were most evident in those countries with weak policies and inadequate institutions, but many countries with sound fundamentals have also not been spared.
The Committee also noted that there are some positive features that, if reinforced, can help carry forward the response to the crisis. First, there is continuing, generally solid, growth in the industrial countries of North America and western Europe, amid low inflation and progress toward needed fiscal consolidation. Second, economic and monetary union in Europe, which is on the verge of being introduced, is already contributing to monetary stability. The Committee looks forward to a successful EMU, which contributes to growth and stability in the international monetary system. Third, there has been maintenance of growth in China and India, while progress in some of the Asian crisis countries toward financial stabilization and strengthened external positions has allowed the recent cautious easing of macroeconomic policies. Fourth, there has also been a considerable strengthening in recent years of economic fundamentals and underlying growth performance in several developing and transition countries, which has served to contain the crisis and limit the resort to market restrictions. Fifth, protectionist pressures have so far been kept in check.
The Committee considered at length the challenges facing the world economy. It is its unanimous view that forceful action is required on the part of member countries over a broad range of policies with the overriding aim of restoring market confidence and growth where needed.
In view of the seriousness of the present global situation, the Committee deemed it crucial that a strong cooperative effort be pursued by all countries and institutions to support those countries that have been most adversely affected by the recent developments and which are implementing strong economic adjustment programs. To contain the crisis, confidence restoring policy measures are needed to address domestic and external sources of vulnerability; in particular forceful and timely actions have to be taken in countries with deep-seated weaknesses.
The Committee reviewed and endorsed the overall strategy adopted by the international community in dealing with the Asian crisis. It noted that stability in the affected countries’ currencies should, if maintained, allow for a further cautious easing of monetary policies. The Committee nonetheless remained concerned about the depth of the recession in many countries of Asia and its negative impact on the welfare of large sections of their population. It supported the scope provided for fiscal policy to alleviate pressures on the real economy and, in particular, to back countries’ social safety nets, and to absorb the costs of bank restructuring. In order to secure the recovery of these economies, the Committee considered it essential that they continue to address forcefully the structural weaknesses in their financial and corporate sectors that lie at the heart of the recent loss of confidence, and to develop effective mechanisms to facilitate debt workouts.
Regarding Russia’s financial crisis, the Committee encouraged the new government to take immediate measures to reestablish confidence in the ruble, restore the payments mechanism, and work with its creditors to develop a cooperative solution to Russia’s debts. It also emphasized the need for vigorous action to tackle the root causes of the crisis, especially the persistent fiscal imbalances and inadequacies in the taxation system and the banking sector, while strengthening the rule of law, market competition, and the private enterprise sector and also minimizing the social impact of the crisis. Members reaffirmed that the international community, including the international financial institutions, stands ready to support convincing and effective measures to stabilize and reform the Russian economy. The IMF should continue to fully support those countries most affected by the Russian crisis that are performing adequately under their adjustment programs.
As for other emerging market and developing economies, with capital markets highly sensitive to any sign of policy deficiencies, it is essential that they persevere with sound policies to reduce vulnerability to changes in investor sentiment. The Committee noted that many countries in Asia and in other regions are dealing effectively with the spillover effects from the crisis. It also welcomed the reaffirmation of China’s commitment not to devalue its currency, which has provided an important anchor to the region. In Latin America, while progress during the past decade in macroeconomic policies and structural reforms has enabled many countries to cope with the recent financial market turbulence, there still remains a strong need in some countries for fiscal consolidation and strengthening of financial systems.
The Committee stressed the importance of the role that the industrial countries have to play in sustaining global growth, containing deflationary risks, and creating environments conducive to a smooth resolution of financial crises. While noting the recent steps in this direction, the Committee considered it essential that Japan should take prompt and resolute action to strengthen its banking system and to provide sufficient and sustained stimulus to revive domestic demand and restore confidence until the recovery is well established. In most other industrial countries, growth is sufficiently robust for fiscal policy not to be diverted from medium-term objectives. In view of the favorable inflation and growth prospects in these countries and the seriousness of the global financial market crisis and its spillover effects, the Committee welcomed the recent interest rate cut in the United States as a useful step in this regard and the convergence of interest rates in the countries participating in the euro towards the lowest levels prevailing in the area. Should there be a worsening of the crisis or a further slowdown in economic activity, additional action on both domestic and international grounds would be required by both emerging market countries and industrial countries.
The Committee agreed to explore a strengthened capacity, based in the IMF and together with the general increase of IMF quotas and establishment of the New Arrangements to Borrow, to provide more effectively contingent finance to help countries pursuing sound policies to maintain stability in the face of difficult global financial conditions.
The Committee welcomed the progress that has been made during the past six months in the work on aspects related to the strengthening of the architecture of the international monetary system. Recent crises have, however, exposed broader and deeper difficulties in the system, underscoring the need to widen the scope of recent work to encompass other crucial aspects with respect to the management and resolution of financial crises. These pertain, in particular, to mechanisms for the allocation of capital and for the management of risk, the regulation and supervision of financial sectors, and standards of transparency. The roles of the various institutional components of the system also need a thorough review, including the possibility for strengthening and/or transforming the Interim Committee. Members invited the Executive Board to develop its work in these directions and to report to the Committee at its next meeting.
On a number of points of great importance for the stability of the international financial system and the effective functioning of global capital markets, preparatory work is already well under way, and agreement around them is broad. Now is the time to follow up with concrete and rapid action. The following points were emphasized:
There is an urgent need to further develop and disseminate internationally accepted norms as a means to raise the transparency of economic policy and to enable financial markets to better assess borrowers’ creditworthiness, as well as standards as benchmarks for the assessment of good practices. Furthermore, appropriate means should be sought to encourage offshore financial centers to comply with such norms and standards. The Committee welcomed the introduction by the IMF of the code of conduct on fiscal transparency, as well as the ongoing work on the code of monetary and financial policies, and called on the Executive Board to complete its work in this area urgently. The Committee also noted the need for similar agreed codes and standards on corporate governance, accountancy, and insolvency regimes, and called on the IMF to collaborate closely with relevant international financial institutions and other standard-setting bodies in these areas of less direct operational concern to the IMF.
Greater transparency and reporting by both the public and private sectors is critical for better functioning financial markets. Comprehensive, frequent, and timely disclosure of countries’ international reserve positions and external exposure is needed. Work must proceed expeditiously to improve the availability of data on reserves, external debt, and other capital flows, particularly short-term private flows. To this end, the Committee endorsed the current proposals to strengthen the Special Data Dissemination Standard, and the agreement on a minimum standard for data provision to the IMF with respect to reserves and related items. The Committee urged the Inter-Agency Task Force on Finance Statistics convened by the IMF to accelerate the work to improve the systems for reporting external debt, as a matter of priority.
Greater transparency is also needed on the part of financial market participants and may require additional regulatory and disclosure measures. In that context, the Committee called for an in-depth analysis by concerned agencies of the prudential and supervisory implications arising from the operations of international institutional investors, including highly leveraged operations, with a view to determining whether additional disclosure requirements or regulations are appropriate to allow better public assessment of the risks involved.
The IMF, for its part, is contributing to transparency through greater openness, about its own policies and the advice it provides to members. These efforts should be strengthened through a wider use of Public Information Notices (PINs), (including on IMF policy decisions); the broader publication of Letters of Intent (LOIs) and Policy Framework Papers (PFPs) underpinning IMF-supported programs; and more public information on, and evaluations of, the IMF’s operation and policies.
Private Sector Contribution
Greater involvement of the private sector is also of critical importance both in preventing and resolving financial crises. The Committee recognized that the issues involved in this domain are complex. The IMF could build on the experience from the several cases, over the past nine months, in which member countries, creditors, and the IMF found practical approaches for rapid and effective action. In this regard, the Committee asked the Board to study further the use of market-based mechanisms to cope with the risk of sudden changes in investor sentiment leading to financial crises.
Introducing or tightening capital controls is not appropriate to deal effectively with fundamental economic imbalances. Any temporary breathing space such measures might bring would be outweighed by the long-term damage to investor confidence and the distortionary effects in resource allocation. These controls are no substitute for addressing at the source weaknesses in dealing with structural or macroeconomic imbalances. Temporary impediments to capital movements, however, have been used under certain circumstances, and in this regard, the Committee asked the Board to review the experience with the use of controls on capital movements, and the circumstances under which such measures may be appropriate.
As regards capital movements, the preconditions for a successful opening of national markets must be carefully ascertained and created. It is essential to prevent participation in global capital markets from becoming a channel or a source of financial instability (in the domestic economy), with the attendant risk of negative spillovers onto the rest of the world economy. The opening of the capital account must be carried out in an orderly, gradual, and well sequenced manner, keeping its pace in line with the strengthening of countries’ ability to sustain its consequences. The Committee underscored the crucial importance in this regard of solid domestic financial systems and of an effective prudential framework. To this end, the IMF was encouraged to continue its work, in the context of its surveillance activities and adjustment programs, to prompt countries to adopt adequate measures and to support these efforts, in close collaboration with the World Bank, through several means, including technical assistance and dissemination of standards.
IMF Support
The Committee endorsed the Board’s recent reaffirrmation of the 1989 policy of lending into arrears and its agreement to consider extending this policy, under carefully designed conditions and on a case-by-case basis.
Computer Date Change
In connection with these discussions, the Committee urged all countries to prepare expeditiously for a smooth transition to the year 2000 computer date change, and invited the IMF to contribute to raising awareness of the associated problem in the context of its surveillance and program activities.
The Committee requested the Executive Board to advance its work in all of these areas, in cooperation with other institutions and fora, and to report to the Committee at its next meeting.
The Committee expressed serious concern over the IMF’s tight liquidity position. It stressed the critical importance in current conditions of augmenting the IMF’s resources and urged all members to accelerate the process leading to the implementation of the agreed quota increase. The Committee also called for the completion of countries’ adherence to the New Arrangements to Borrow and for the early acceptance of the Fourth Amendment of the Articles of Agreement allowing for the special one-time allocation of SDRs. These were viewed as indispensable actions in present circumstances.
The Committee welcomed the progress made in the implementation of the HIPC Initiative, the extension by the Executive Board of the original two-year period for countries to begin qualifying for assistance until end- 2000, as well as the Board’s decision to add a degree of flexibility in its evaluation of track records of policy performance for countries receiving post-conflict assistance. The Committee strongly encouraged potentially eligible countries to start the necessary program of adjustment as soon as possible as a prerequisite to benefit from the Initiative, so that every eligible country is in the process by the year 2000.
The Committee stressed the urgency of securing the financing of the ESAF and the HIPC Initiative and requested the Executive Board to take the necessary decisions soon after the Annual Meetings. It called upon industrial countries that have not contributed to the ESAF-HIPC Trust Fund to come forward with their contributions without delay.
The Committee supported proposals based on the recent internal and external reviews of ESAF operations, to achieve better design and implementation of ESAF-supported programs. It regarded them as part of a continuing effort to adapt the IMF’s strategy for the purpose of promoting growth and adjustment; in this context, it encouraged the deepening of the dialogue between the IMF and other relevant organizations.
The Committee took note of the joint Bank-Fund report on assistance to post-conflict countries and requested that the Executive Board consider the issues quickly and explore further viable proposals that recognize the special needs of poor post-conflict countries, especially those with arrears to IFIs.
The Committee considered recent initiatives to strengthen collaboration between the Bank and the IMF. While recognizing the specific mandates of the two institutions, it stressed the importance of their working together, including in joint missions, to assist countries in implementing integrated stabilization and structural reform programs. Enhanced collaboration would maximize the effectiveness of the two institutions at a time of high demands on their resources. The Committee attached particular importance to stronger cooperation in helping countries strengthen financial systems.
The Committee welcomed the decision of the European Union (EU) that 11 EU members will move to the third and final stage of economic and monetary union (EMU) on January 1, 1999. EMU will necessitate some changes in the IMF’s operational procedures, including those related both to surveillance and to the financing of the IMF. In light of the importance of the euro area, the IMF should develop its surveillance activities in this domain and complete its work to deal with the operational implications of the advent of EMU. In this context, the Committee underlined the importance of establishing an effective exchange of views with relevant EU institutions, especially the ECB.
The next meeting of the Interim Committee will be held in Washington, D.C. and is provisionally scheduled for April 27, 1999.
Michel Camdessus
Members or
Ibrahim A. Al-Assaf, Minister of Finance and National Economy, Saudi Arabia
Gordon Brown, Chancellor of the Exchequer, United Kingdom
Chatu Mongol Sonakul, Governor, Bank of Thailand
Antonio Fazio, Governor, Banca d’Ttalia (Alternate for Carlo Azeglio Ciampi, Minister of the Treasury, Italy)
E.A. Evans, Secretary, Commonwealth Treasury of Australia (Alternate for Peter Costello, Treasurer, Australia)
Dai Xianglong, Governor, People’s Bank of China
Marcel Doupamby Matoka, Minister of Finance, Economy, Budget and Equity Financing, Gabon
Roque B. Fernandez, Minister of Economy and Public Works and Services, Argentina
Viktor Gerashchenko, Chairman, Central Bank of the Russian Federation
José Angel Gurria, Secretary of Finance and Public Credit, Mexico
Marianne Jelved, Minister of Economic Affairs, Denmark
Abdelouahab Keramane, Governor, Banque d’Algérie
Trevor A. Manuel, Minister of Finance, South Africa
Sultan Bin Nasser Al-Suwaidi, Governor, United Arab Emirates Central Bank (Alternate for Mohammed K. Khirbash, Minister of State for Finance and Industry, United Arab Emirates)
Pedro Sampaio Malan, Minister of Finance, Brazil
Paul Martin, Minister of Finance, Canada
Robert E. Rubin, Secretary of the Treasury, United States
Yashwant Sinha, Minister of Finance, India
Dominique Strauss-Kahn, Minister of Economy, Finance and Industry, France
Sadakazu Tanigaki, State Secretary for Finance, Ministry of Finance, Japan
Kaspar Villiger, Minister of Finance, Switzerland
Jean-Jacques Viseur, Minister of Finance, Belgium
Hans Tietmeyer, President, Deutsche Bundesbank, Germany (Alternate for Theo Waigel, Federal Minister of Finance, Germany)
Gerrit Zalm, Minister of Finance, Netherlands
Yilmaz Akyuz, Chief, Macro-Economics and Development Policies Branch, UNCTAD
Andrew D. Crockett, General Manager, BIS
Nitin Desai, Under-Secretary-General for Economic and Social Affairs, UN
Yves-Thibault de Silguy, Commissioner for Economic, Monetary and Financial Affairs, EC
Wim F. Duisenberg, President, ECB
Donald J. Johnston, Secretary-General, OECD
Renato Ruggiero, Director-General, WTO
Tarrin Nimmanahaeminda, Chairman, Joint Development Committee
James D. Wolfensohn, President, World Bank
1. The Interim Committee held its fifty-second meeting in Washington, D.C. on April 27, 1999 under the Chairmanship of Mr. Carlo Azeglio Ciampi, Minister of the Treasury of Italy.
The Committee was encouraged by a number of policy actions and developments since its October 1998 meeting that have helped to improve market confidence and reduce the risks of a global recession. Nonetheless, the outlook is for world output growth to remain sluggish in 1999 while a moderate recovery is foreseen for 2000. Serious challenges remain that will take some time to resolve.
Among the positive developments, the Committee noted that:
Activity in most of the Asian crisis economies seems to be turning towards recovery. Continued progress with structural reforms will help to restore and maintain economic dynamism in the longer run.
In Brazil, the situation has stabilized since early March. Spillovers to financial markets elsewhere in the region have generally been moderate, reflecting in part the past decade’s efforts to strengthen fiscal positions and to build sound financial systems.
The U.S. and Canadian economies have continued to grow remarkably strongly, while inflation has remained subdued.
Investor sentiment toward emerging markets has broadly improved since the beginning of the year. In mature financial markets, sentiment has improved markedly since last October, as concerns about the risk of a liquidity shortage have subsided.
Not withstanding these positive developments, there have also been some concerns. The crisis in Brazil, although it has abated since early March, has imparted a contractionary impulse to other Latin American countries and to the world economy. In Japan, despite some improvement, short-term prospects remain uncertain, and growth in much of Europe has further slowed below potential. In Russia, economic activity has been recovering from the low point in September and monthly inflation has decreased, but the fiscal and debt imbalances remain unsustainable. Commodity-exporting countries—many of which have incurred steep losses in export revenues since the start of the Asian crisis—face significant adjustment challenges.
The Committee considered the policies that would be required to address the downside risks to growth and other policy challenges—in particular, the continuing uneven pattern of growth among the United States, the euro area, and Japan, which has contributed to a marked widening of global trade imbalances. Priority should be given to an appropriate mix of macroeconomic and structural measures aimed at generating early, vigorous, and sustained recoveries in the crisis afflicted emerging market countries; to policies of financial restructuring and domestic demand-led growth in Japan; and to policies for supporting domestic demand in Europe. In this connection, the Committee recognized the important policy initiatives in Japan aimed at stimulating domestic demand and easing financial sector strains, but stressed the importance of Japan implementing stimulus measures until growth is restored, using all available tools. The Committee welcomed the recent interest rate reduction by the European Central Bank. The Committee emphasized the importance of open and competitive markets as a key component of efforts to sustain growth and stability in the global economy. It encouraged further trade liberalization, including market access for developing country exports, and looked forward to the launch of a new round of trade negotiations at the WTO in November with a balanced agenda that addresses the concerns of all WTO member countries.
The Committee welcomed the start of European Economic and Monetary Union (EMU), which should contribute to financial stability and sustainable growth in the euro area and globally. Members of the euro area need to attack the root causes of high unemployment. An appropriate policy mix to support stronger domestic demand, accompanied by structural reforms in labor, capital, and product markets, is essential to enhancing growth and employment prospects, especially in the medium term, in order for the euro area to be a major source of growth in the world economy.
The Committee endorsed the broad strategy adopted, and noted the lessons learned, by the international community in dealing with the Asian financial crisis. It pointed to the progress made by Korea, Thailand, the Philippines, and Indonesia under IMF-supported programs, which had been responsive to evolving circumstances—including through the strengthening of social safety nets—and had benefited from the support of the international community. While noting that the worst of the crisis was over, the Committee stressed that serious challenges remain ahead and thus urged the countries affected to persevere with the needed reforms, and so lay the basis for a resumption of sustainable and high quality growth.
Drawing lessons from the crisis, the Committee emphasized, in particular, the need to address in a timely way the sources of economic vulnerabilities, such as inappropriate policy mixes, leading in particular to significant exchange rate misalignments; excessive debt accumulation; imprudent debt management policies; financial sector fragility particularly in a situation of weak financial supervision and regulation; limitations in information available to markets; weaknesses in corporate structures; inappropriate sequencing of capital account liberalization; and deficient risk management by creditors. It also emphasized the critical importance of strong national ownership of programs.
On Brazil, where public sector imbalances have been at the root of the crisis, the Committee expressed support for the authorities’ revised economic program and emphasized the importance of its full implementation as well as the continued support of the private financial community for Brazil.
In reviewing prospects for Russia, the Committee stressed that, despite recent improvements, vigorous action is needed to tackle the root causes of the crisis, especially persistent fiscal imbalances, structural rigidities, and financial sector weaknesses.
Regarding exchange rate regimes, the Committee noted that desirable arrangements may vary across countries, and that any regime must be supported by disciplined policies and robust financial systems. Recent crises have demonstrated that the policy requirements of maintaining a pegged rate are demanding, in particular in an environment of increased mobility of international capital. However, at the same time, the Committee observed that a number of economies with fixed exchange rate arrangements, including under currency boards, had been successful in maintaining exchange rate parities. It requested the Executive Board to consider further the issue of appropriate exchange rate arrangements, including in the context of large-scale official financing.
Building upon the useful review by the Executive Board of IMF-supported programs in the Asian financial crisis, the Committee requested the Executive Board to discuss ways to further improve IMF surveillance and programs so that they better reflect the changes in the world economy, in particular potentially abrupt large-scale cross border capital movements.
The Committee noted that broad agreement had been reached on key aspects of a strengthened architecture and welcomed the actions by the IMF in a number of important areas. Nevertheless, it remains to develop some issues further and to implement several of the proposals that have been put forward. The international financial system needs to be strengthened to reduce the risks posed by weaknesses in policy and by the volatility of capital flows, and also to facilitate access to capital markets by the many countries that have not yet benefited from globalization. With that in mind, the Committee considered several of the interrelated elements of the reform agenda and called on the private sector, national authorities, as well as on the IMF and other institutions and forums to carry forward this work in the months ahead. The Committee requested the Executive Board to consider further the systemic aspects of prevention. It recognized the central importance of IMF surveillance in carrying forward this reform agenda.
The Committee emphasized that prevention of crises remains the key. It endorsed the Executive Board’s decision to establish a contingent credit line in the IMF. This new instrument is an important component of the ongoing effort to strengthen the architecture of the international monetary system. The new contingent credit line will help countries pursuing sound and sustainable policies to maintain stability, even in the face of deteriorating global financial conditions. This facility will provide an important instrument of crisis prevention, by creating further incentives for countries to adopt strong policies, notably debt management and sustainable exchange rate policies; to adhere to internationally accepted standards; and to involve the private sector in a constructive manner—thereby containing the risks of financial market contagion, while taking into account the potential impact on the IMF’s liquidity.
Further work is needed on crisis prevention, in particular in conjunction with the private sector: improved risk assessment and its reflection in pricing; better data, including on private sector capital flows; strengthened monitoring of capital flows, in particular short-term flows; more information about countries’ policies and the IMF’s assessment of these policies; adherence to internationally recognized standards; stronger financial systems, and improved regulatory oversight of highly leveraged institutions, including hedge funds, and of offshore banking centers.
The Committee endorsed the IMF’s intention to intensify its work with member governments to put in place as soon as possible mechanisms that could facilitate the avoidance or orderly resolution of crises, inter alia:
Adhere to sound principles of debt management, avoid excessive accumulation of short-term debt and, more generally, maintain an appropriate structure of liabilities;
Establish systems for high-frequency monitoring of private external liabilities;
Maintain effective communication with private capital markets;
Maintain adequate foreign exchange liquidity, including by considering the establishment of contingent credit lines, call options, or similar arrangements with private creditors;
Support proposals that seek to eliminate the present regulatory bias in favor of short-term interbank credit lines;
Identify other arrangements that could better assure continuing private financing in times of potential stress.
The Committee also noted that, in future international bond issues, sovereigns should consider the inclusion of provisions that would facilitate orderly resolution of debt crises. The Committee invited the Board and other relevant forums to explore appropriate ways to introduce collective action clauses in sovereign bond issues.
The Committee also encouraged further consideration of the appropriate response in cases of severe liquidity crises, and stressed the importance of seeking appropriate involvement of the private sector in a cooperative way. The Committee reaffirmed the general principle that borrowers should honor their debts. It noted the IMF’s preparedness, under appropriate conditions, and in extreme situations to lend in the presence of arrears to private creditors, thus allowing the IMF to promote effective balance of payments adjustment during possibly protracted negotiations with creditors. The Committee asked the Executive Board to continue its work on all these issues, and report to the Interim Committee, including on ways to assure more orderly debt workouts.
The Committee agreed that the IMF should remain at the center of the international monetary system, while improving in a pragmatic manner the modus operandi of its institutional components and cooperation with other institutions and forums.
The Committee asked its deputies and the Executive Board to explore further the scope for institutional improvements, including of the Interim Committee, and to report at the next meeting of the Interim Committee.
The Committee encouraged the IMF to continue its work on the appropriate pace and sequencing of capital account opening and, in particular, to further refine its analysis of the experience of countries with the use of capital controls, and to explore further issues related to the IMF’s role in an orderly and well-supported approach to capital account liberalization.
The Committee reiterated the importance of timely and comprehensive data on capital flows for effective IMF surveillance of this area. It welcomed the agreement to improve data on short-term liabilities of the official sector in the context of strengthening the Special Data Dissemination Standard (SDDS) as an important first step, and the arrangements to facilitate access to creditor-side external debt data prepared by the IMF, the World Bank, the BIS, and the OECD. The Committee urged moving forward expeditiously with the efforts under way to improve data on capital flows.
The Committee welcomed the IMF’s progress in developing, disseminating, and monitoring the implementation of internationally recognized standards, given the contribution that the observance of standards will make to strengthening the international financial system. In particular, the Committee welcomed:
The strengthening of the SDDS, notably by adopting a comprehensive template for the dissemination of data on international reserves and related liabilities. The Committee strongly encouraged members that have not subscribed to do so. It also called for increased efforts at participation in the General Data Dissemination System. The Committee called on all subscribers to the SDDS to begin disseminating data according to the reserves template, and encouraged completion of the work on transition plans for external debt data and indicators of financial sector soundness.
The completion of the Manual on Fiscal Transparency to assist members in implementing the Code of Good Practices on Fiscal Transparency. The Committee encouraged all members to work toward improving fiscal transparency in line with the Code.
The progress achieved in developing a draft Code of Good Practices on Transparency in Monetary and Financial Policies; and the broad collaborative effort to this end by the IMF and other international agencies and bodies. The Committee encouraged the Board to complete its work ojnti the development of the Code as soon as possible, and not later than the Annual Meetings, and to proceed promptly in preparing, in cooperation with appropriate institutions, a supporting document to the Code.
The Committee also took note of the progress made in developing other standards relevant for the functioning of the international financial system (accounting, auditing, banking supervision, bankruptcy, corporate governance, insurance and securities market regulations, payment systems, etc.). It encouraged standard-setting bodies and organizations to continue their efforts to develop comprehensive standards. The Committee welcomed the IMF’s work in the area of insolvency laws. It called on the IMF to continue its collaboration with the World Bank, United Nations Commission on International Trade Law (UNCITRAL), and other relevant institutions in promoting effective insolvency systems. While noting their voluntary nature, the Committee also encouraged countries to adopt the new standards as they are being developed.
In the context of IMF surveillance, the Committee encouraged the IMF to develop the process to encompass the standards and codes relevant to international financial stability. It welcomed the IMF’s use of experimental case studies in the preparation of transparency reports and the planned financial system stability assessments, in order to better identify and address the practical issues that need to be considered. The Committee encouraged the broadening of the experiment to a large group of countries and to take stock of these experiences to improve work in this field, and also encouraged the IMF to use transparency reports on a trial basis as a part of its surveillance.
The Committee underscored the importance of greatly increased transparency—of national government policies, of private sector reporting, and of international financial institutions, including the IMF. It welcomed the progress that had been made by the IMF in furthering transparency in members’ economic policies and its own operations, including:
greater use of Public Information Notices (PINs) for IMF policy discussions;
a presumption toward release of Letters of Intent/Memoranda of Economic and Financial Policies and Policy Framework Papers underpinning IMF-supported programs;
the issuance of a Chairman’s statement capturing the key points of the Board discussion following Board approval or review of members’ arrangements;
the liberalization of access to the IMF’s archives; and
a pilot project for voluntary public release of Article IV staff reports.
The Committee requested the Executive Board to continue work on furthering transparency and urged more countries to participate in the pilot project to ensure its success. The Committee underscored that efforts on transparency should not undermine the role of the IMF as confidential advisor to members. It reaffirmed the importance of strengthening the IMF’s contribution to transparency by more public information on, and evaluations of, the IMF’s operations and policies.
The Committee noted that the time had come to give new impetus to efforts to further reduce the debt of low-income countries undertaking strong adjustment programs. The Committee welcomed the further review of the HIPC Initiative and encouraged the Executive Board of the IMF—together with the Board of the World Bank—to develop more specific proposals to strengthen the current framework so as to enhance debt relief to countries in need in a way that strengthens incentives for the adoption of strong programs of adjustment, reform, and good governance. This relief should provide a clear exit from unsustainable debt burdens. In this context, the Committee recognized the need for appropriate burden sharing among creditors. The Committee looked forward to a report at its next meeting on ways to enhance the link between HIPC Initiative assistance and poverty reduction.
In light of the increased costs associated with the proposed modifications to the HIPC Initiative, and since contributions remain significantly below the financing needs of interim ESAF and HIPC Initiative, the Committee stressed the need to redouble efforts to secure the full financing of these initiatives. It also urged the Executive Board to adopt as soon as possible the decisions needed to ensure that the initiatives are fully funded. The Committee welcomed the substantial progress that has been made in securing additional loan resources for the current ESAF. Members were encouraged to come forward as soon as possible with the resources required to support ESAF operations until the start of the interim ESAF in 2001.
The Committee welcomed the measures agreed by the Executive Board to enhance IMF assistance to post-conflict countries, including improving the terms of emergency post-conflict assistance and providing higher access over a longer period in appropriate circumstances. It also welcomed the Executive Board’s preparedness to consider, for those post-conflict countries with arrears to the IMF, on a case-by-case basis, relaxing the requirement for payments to the IMF as a test of cooperation, provided the member is cooperating on policies and that other multilateral institutions take at least comparable action. The Committee noted that the debt burden of the heavily indebted poor post conflict countries would eventually need to be addressed under the HIPC Initiative. The Committee asked the Executive Board to consider further steps in cooperation with the World Bank.
The Committee endorsed the need for a rapid, substantial, and coordinated response by the international community to the economic consequences of the Kosovo crisis. Such a response is urgently needed to ensure that sufficient aid is provided to alleviate the suffering of the refugees from Kosovo and to ensure that countries in the vicinity of the crisis have access to external financing to support their efforts towards macroeconomic stability and structural reform. The Committee stressed that it would be highly regrettable if the considerable progress being made by the affected countries in reforming their economies was set back because of a lack of external financing, on appropriate terms, to meet these increased needs. It emphasized that all humanitarian relief costs should be financed by external aid and grants. Other external financing needs arising as a direct consequence of the crisis should be met from both bilateral and multilateral sources. The international financial institutions should play an important role in this effort. External financing of balance of payments and budget costs in affected countries that are ESAF-eligible should also be provided on highly concessional terms and the Committee looked forward to the ongoing discussions of the affected countries’ external debt positions in the framework of the Paris Club. The Committee asked the IMF and the Bank staffs to continue their work in coordinating the international response to the economic impact of the crisis in close cooperation with other interested agencies and donors.
The Committee welcomed the coming into effect of the New Arrangements to Borrow (NAB) and the increase in quotas approved under the Eleventh General Review, which will provide the IMF with the financial resources that will enable it to carry out its mandate at the center of the international monetary system. The Committee noted the relatively slow progress in members’ acceptance of the Fourth Amendment of the Articles, allowing for the special one-time allocation of SDRs. The Committee called on members that have not done so to complete the necessary procedures promptly.
The next meeting of the Interim Committee will be held in Washington, D.C. on September 26, 1999
Members or Alternates
Antonio Casas Gonzalez, President, Banco Central de Venezuela
Antonio Fazio, Governor, Banca d’Italia (Alternate for Carlo Azeglio Ciampi, Minister of the Treasury, Italy)
Peter Costello, Treasurer, Australia
Liu Mingkang, Deputy Governor, People’s Bank of China (Alternate for Dai Xianglong, Governor, People’s Bank of China)
Emile Doumba, Minister of Finance, Economy, Budget and Privatization, Gabon
Hans Eichel, Minister of Finance, Germany
Pedro Pou, President, Central Bank of Argentina (Alternate for Roque B. Fernandez, Minister of Economy and Public Works and Services, Argentina)
Kiichi Miyazawa, Minister of Finance, Japan
Syahril Sabirin, Governor, Bank Indonesia
Bimal Jalan, Governor, Reserve Bank of India (Alternate for Yashwant Sinha, Minister of Finance, India)
Yves-Thibault de Silguy, Commissioner for Economic, Monetary and Financial Affairs, European Commission
Katherine Ann Hagen, Deputy Director-General, ILO
John Toye, Director, Division on Globalization and Development Strategies, UNCTAD
Javad Yarjani, Head, Petroleum Market Analysis Department, OPEC
1. The fifty-eighth meeting of the Development Committee was held in Washington, D.C. on October 5, 1998 under the chairmanship of Mr. Tarrin Nimmanahaeminda, Minister of Finance of Thailand.1
2. Anwar Ibrahim. The Committee expressed its great appreciation to Mr. Anwar Ibrahim, who had served so ably as Chairman of the Committee.
3. Implications of the Asian Crisis. The Committee paid particular attention on this occasion to development priorities and the response of the World Bank Group.
4. Ministers recognized that the economic and social aftershocks of the crisis were more severe than earlier anticipated. The crisis had now spread beyond Indonesia, Korea, Thailand, and Malaysia, and its global ramifications had increased the vulnerability of all countries. Ministers therefore noted the need to support an early and sustained recovery in East Asia and contain the risks of crises elsewhere, and to assist countries more generally to develop the prerequisites for sustainable economic growth in a more integrated international financial and economic system.
5. Ministers agreed that a concerted strategy for restoring sustainable growth and reversing the dramatic increase in poverty in East Asia should include the following key elements: (i) maintaining and accelerating progress on structural reforms, including governance structures required for the efficient working of markets; (ii) restructuring the banking system and corporate sectors and, in the short term, restoring credit to viable businesses; (iii) mobilizing necessary resources to finance growth; (iv) regenerating demand; and (v) protecting the environment. Crucial to all these elements is a focus on social concerns and the need to mitigate the most harmful effects of the crisis on the poor.
6. Ministers further noted that, if it were allowed to continue, financial turmoil could result in major setbacks to the global economy, and particularly to the progress most developing countries had achieved in the 1990s. The Committee agreed that actions were needed to help restore confidence and prevent contagion in the event of market pressures. Emerging market countries should strengthen their policies and institutions at an early stage to minimize their vulnerability to adverse shifts in investor sentiment. Industrial countries should take early and decisive actions to help regain or maintain growth momentum and global financial stability. All countries should continue the process of market opening and resist protectionism. All countries and the international financial institutions (IFIs) need to attach high priority to the promotion of good governance and the elimination of corruption.
7. Ministers stressed that, given the magnitude of reversals in capital flows that East Asia and other regions had experienced, resumption of private flows was key to recovery. Ministers also emphasized the important catalytic role played by official flows from multilateral agencies and bilateral sources.
8. In this context, the Committee agreed that, beyond responding to the immediate crisis, and in parallel with ongoing efforts to improve the international financial architecture, concerted actions were needed to help countries bolster their structural and social policies and institutions. These include strengthening the financial sector; establishing a sound business environment; improving public and private sector governance, particularly transparency and accountability; and strengthening social protection. Ministers noted that the primary role of the World Bank was to help eliminate poverty and improve social well-being, in line with international development goals. They therefore encouraged the World Bank to work with the United Nations, the IMF, and other partners to develop general principles of good practice in structural and social policies (including labor standards).
9. Bank Group Response. The Committee welcomed the prompt response of the Bank Group to the crisis, including the pledge of up to $17 billion in financing for affected countries in the region. Ministers expressed appreciation for the significant steps already taken by the Bank Group to assist countries to address the social consequences of the crisis; restructure their financial and corporate sectors; and strengthen structural reforms. They welcomed the Bank Group’s intention to further enhance, within the Strategic Compact, its capacity (including through consideration of new instruments) to support member governments’ structural and social development programs.
10. The Committee noted the decisions and recommendations recently made by the Executive Board related to the Bank’s income dynamics. Given the increasing demands on the Bank’s financial resources, Ministers asked the Executive Board to explore appropriate options to ensure that the Bank remains able to respond quickly and effectively to the development needs of its members. Ministers reaffirmed the fundamental importance of maintaining a financially strong Bank.
11. Bank-Fund Collaboration. The Committee noted the important roles to be played by the International Financial Institutions in meeting the range of new challenges facing the international community. In this context, the Committee expressed its appreciation for the major efforts undertaken by the IMF and Bank to help countries deal with the crisis and its broad consequences. They stressed the importance they attached to effective coordination between the Bank and the IMF. Ministers noted the joint report from the IMF’s Managing Director and the Bank’s President that set out the respective responsibilities of the two institutions and how each would support the macroeconomic policy and structural reform agendas of member governments. Ministers welcomed the proposed measures to improve operational mechanisms and the environment for collaboration, including information sharing, so as to enhance the institutions’ capacity to serve member countries. Ministers requested that the Bank and IMF Executive Boards keep implementation of these actions, as well as the scope for further strengthening of collaboration, under review.
12. Ministers also encouraged the Executive Boards of the IMF and Bank to review the roles of the Interim and Development Committees as part of the ongoing consideration of steps to strengthen the international financial architecture.
13. Partnerships. Ministers also welcomed the continued deepening of the partnerships between the World Bank, the Asian and African Development Banks, and other multilateral and bilateral agencies in addressing the crisis and its longerterm impact. (Ministers looked forward to receiving at the Committee’s next meeting the Bank President’s report on progress achieved in strengthening World Bank cooperation with regional development banks.) Given the importance of trade for sustained recovery, Ministers urged the IFIs to intensify cooperation in the Integrated Framework for Trade Related Technical Assistance for the Least Developing Countries. They also encouraged the World Bank to work closely with WTO, UNCTAD, and other interested parties in building poor countries’ capacity to prepare for a new global trade round. Ministers also urged enhanced cooperation between IFIs and the United Nations system at the country level.
14. Implementation of the Debt Initiative for Heavily Indebted Poor Countries (HIPC). Ministers were encouraged by the progress made during the Initiative’s first two years. They noted that nine countries have so far reached the decision point, and total commitments to the seven requiring assistance under the Initiative amount to about $6.1 billion in nominal debt-service relief ($3.1 billion in net present value (NPV) terms). Ministers welcomed the fact that Bolivia had reached its completion point, based on continued strong policy performance; savings in nominal debt service were about $760 million (or about $450 million in NPV terms). The Committee also welcomed the recent agreement that Mali had reached its decision point and was expected to reach its completion point in December 1999.
15. Ministers expressed continued strong support for the Initiative. They endorsed the extension of the entry deadline, from September 1998 until the end of 2000, and the decision to add a degree of flexibility in its evaluation of track records of policy performance for countries receiving post conflict assistance. Ministers encouraged potentially eligible countries, including those emerging from conflict, to undertake the necessary Bank/IMF-supported programs as soon as possible so that by the year 2000 every eligible country is included in the Initiative. They also stressed the importance of additional contributions to the Initiative to assist all multilateral institutions to meet their share of the cost, including, in particular, the African Development Bank.
16. Ministers encouraged the establishment of closer ties between debt relief and support for poverty reduction, as ways of making progress toward achievement of the international development targets. Ministers also supported the plan to carry out a comprehensive review of the Initiative, including an update of cost estimates, as early as 1999.
17. Assistance to Post conflict Countries. Ministers discussed the special problems faced by post conflict countries. They noted that a wide range of support had been provided these countries by the Bank and IMF, along with the UN System and bilateral partners. Ministers encouraged them, within their respective mandates, to assist these countries with effective conflict prevention policies, thereby paving the way for a durable and successful post conflict resolution. Ministers recognized, however, that in a number of cases, especially those with large and protracted arrears to multilateral institutions, the international community should explore additional ways to provide assistance more quickly and effectively. In particular, Ministers emphasized the need to provide (and, where needed, increase) positive net transfers from official creditors to post conflict countries that are adopting sound economic and social policies. The Committee welcomed the initial work done by the Bank and the IMF in identifying the issues. Ministers recognized that providing additional assistance, especially from the IFIs, raised significant policy and resource issues which would need to be considered more fully. Given the need to provide more effective support to post conflict countries, Ministers requested that the Bank and the IMF, in cooperation with the African Development Bank and other major creditors, develop an approach to guide assistance to these countries on a case-by-case basis, taking account of the specific capabilities of each institution. The Bank and IMF were asked to report back to the Committee at its next meeting.
18. IMF and IDA Resources. Ministers urged all members to implement the agreed IMF quota increase without delay to ensure the IMF has adequate resources to meet the substantial additional demands placed upon it. Ministers also stressed the urgency of securing the financing of the ESAF. Moreover, given the vital need for concessional resources to sustain support for poverty reduction in poor countries, particularly in Africa, they urged IDA Deputies to reach a successful conclusion of IDA 12 negotiations before the end of 1998.
19. Executive Secretary. The Committee extended Alexander Shakow’s term as Executive Secretary until October 1999.
20. Next Meeting. The Committee’s next meeting is provisionally scheduled for April 28, 1999 in Washington, D.C.
1. The fifty-ninth meeting of the Development Committee was held in Washington, D.C, on April 28, 1999 under the chairmanship of Mr. Tarrin Nimmanahaeminda, Minister of Finance of Thailand.2
2. Debt Initiative for Heavily Indebted Poor Countries (HIPC). Encouraged by the progress made over the last two and half years, Ministers expressed their continued strong support for the Initiative and reaffirmed its overarching objective of poverty reduction. They discussed ways to strengthen the Initiative and welcomed the results of the extensive external consultation process in this regard. The Committee endorsed the current review and examination of options designed to enable HIPC Initiative debt relief to be broader, deeper, and faster. Ministers reiterated the importance of ensuring a clear link between debt relief and the goals of sustainable development and poverty reduction and looked forward to the results of ongoing consultations in this area. From the outset, the underlying reform programs should have an integral pro-poor growth focus. Programs for HIPC should fully reflect social concerns by protecting social expenditures.
3. Ministers endorsed a set of principles that should be used in considering changes to the current HIPC framework. These guiding principles include recommendations that debt relief should: (i) reinforce the wider tools of the international community to promote sustainable development and poverty reduction; (ii) strengthen the incentives for debtor countries to adopt and implement economic and social reform programs; (iii) provide a clear exit from an unsustainable debt burden—taking into account external vulnerabilities of each eligible country; and (iv) be consistent with the need to preserve the financial integrity of the IFIs. Moreover, any changes should simplify implementation of the Initiative.
4. Ministers took note of the updated and higher cost estimates of the current framework, as the alternative costs of potential enhancements to the Initiative, and the importance of early debt-service reduction. They emphasized that the review of options for change should continue to be based on cost estimates provided by the Bank and the IMF that take into account those countries likely to qualify for relief, and an estimate of total resources required as well as the likely time period of expenditures. The review would need to be matched by a broad-based effort to find appropriate and equitable financing solutions. In particular, there is a need for increased bilateral contributions—with fair burden sharing—to the HIPC Trust Fund to help those multilateral creditors unable to meet additional costs from their own resources. In addition, ministers stressed the need to secure financing for the IMF ESAF/HIPC Trust. While acknowledging the financial constraints facing multilateral creditors, ministers encouraged them to examine further the funding they can provide for the HIPC Initiative. Ministers requested that changes to the HIPC Initiative framework and financing plans be presented for their consideration at the Committee’s next meeting, including specific proposals for multilateral institutions to provide cash flow relief between the decision and completion points.
5. Ministers also welcomed the proposals from bilateral creditors to consider enhanced debt relief, including more relief of the eligible HIPCs’ ODA debts. The Committee supported a better coordinated effort to ensure that new financing to HIPCs be in the form of grants or on highly concessional terms. Ministers urged an intensification of efforts on both the aid and trade fronts, emphasizing that HIPC Initiative debt relief alone would be insufficient to reach the overarching International Development Goal of halving the proportion of people living in absolute poverty by 2015.
6. Assistance to Post conflict Countries. Ministers noted the progress achieved by the Bank and the IMF in enhancing their capacity to assist postconflict countries. They welcomed the recent agreement by the IMF Executive Board to enhance postconflict emergency financial assistance and to take into account, on a case-by-case basis, the special circumstances of postconflict countries with arrears to the IMF. The Committee also welcomed the Bank’s progress in designing financial instruments aimed at providing positive net transfers to post-conflict countries implementing policies conducive to stabilization, growth, and poverty reduction. Ministers stressed the need, where relevant, to link such efforts to preparing countries for participation in the HIPC Initiative. They encouraged the two institutions to continue to work together, and with UN agencies, bilateral partners, and other institutions, to strengthen their assistance to postconflict countries and to implement enhanced assistance in individual countries as soon as possible, in the context of appropriate macroeconomic and structural policies. They stressed that these initiatives would need to complement strengthened efforts by the international community to assist in the early and orderly transition from conflict to stabilization and economic growth. They emphasized the need for demonstrated commitment to lasting peace by the previously conflicting parties to enable donors and creditors to provide exceptional support.
7. Bank Group Financial Capacity. The Committee welcomed the successful conclusion of the IDA-12 replenishment agreement and the MIGA general capital increase that will provide essential resources for two key parts of the World Bank Group. Ministers also welcomed the attention being devoted by the Bank’s Executive Board and management to the financial strength of the IBRD and the International Finance Corporation (IFC). Ministers reaffirmed their strong commitment to preserve the IBRD’s and IFC’s financial integrity. They recognized that the institutions must respect appropriate financial limits in the conduct of their operations. Ministers accordingly asked that the Executive Board review IBRD and IFC priorities, particularly in light of recent global economic and financial developments, and report back to the Committee at its next meeting with balanced options for maintaining and supporting the institutions’ financial capacity to help them meet the future development needs of borrowing member countries.
8. Comprehensive Development Framework (CDF). The Committee welcomed the holistic approach to sustainable development envisaged in the CDF. Ministers appreciated that the CDF emphasizes the ultimate importance of country ownership of decision making as well as partnership and coordination between government, civil society, the private sector, and other multilateral and bilateral actors, in pursuit of poverty reduction—the Bank’s central goal. They underscored the importance, within the CDF, of each partner sharpening its focus. They noted that many governments had expressed interest in working as partners with the Bank in helping to develop the CDF. Ministers recognized that the ultimate test of the CDF would be in its implementation, and they called on the Executive Board to monitor and evaluate progress in the pilot country cases as they evolve over the next 18 months.
9. Multilateral Development Bank (MDB) Cooperation. Ministers welcomed the President’s report on strengthened World Bank cooperation with regional development banks, an important set of development partners. They underscored the importance of continuing to strengthen cooperation between the World Bank, regional development banks, and the IMF. Ministers believe such enhanced collaboration, while respecting each institution’s unique mandate, can improve lending efficiency and effectiveness; they urged further concrete steps be taken by the MDBs as, for example, in developing comparable methods for evaluating development effectiveness and in establishing best-practice MDB procurement rules.
10. Principles and Good Practice in Social Policy. Ministers noted the important contributions of the Bank and the IMF in current efforts to strengthen the architecture of the international financial system through their participation in the formulation of international standards, principles, and best practices. Reflecting on the lessons of the recent financial crisis, Ministers reiterated the importance of concerted action to help countries bolster their social policies and institutions. They considered a draft note on principles and good practice in social policy, prepared at the Committee’s request by the World Bank in cooperation with the UN and others. Ministers agreed that further development of these basic social principles was best pursued within the framework of the United Nations, as part of the international community’s follow- up on the Copenhagen Declaration of the World Summit for Social Development. Ministers encouraged the Bank to help countries mobilize the necessary domestic and external resources to implement these principles and to share best practice on the effective use of such resources. Ministers emphasized the importance of the Bank concentrating on strengthening its support for member countries in translating broad principles into practical country-specific results, based on the Bank’s extensive operational role in promoting broad-based, poverty-reducing development—experience of best practice that should be an important part of the Bank’s contribution to the United Nations discussion of principles. They emphasized the importance and urgency of work by the Bank and the IMF to help countries be better prepared for crisis situations, and to ensure that when crisis strikes the most vulnerable groups are protected and the process of longer-term development is sustained; ministers asked the World Bank to report back to the Committee at the Annual Meetings on associated policies and practices that could support national and international implementation of these objectives.
11. Strengthening International Forums. Ministers discussed a number of options for strengthening the Development and Interim Committees. They recognized the importance of reaching agreement as soon as possible and asked the two Executive Boards to develop proposals for consideration by the Committees at their next meetings.
12. The Balkan Crisis. Ministers were informed of the results of the special high-level meeting of governments and international agencies held on April 27. Convened by the World Bank and the International Monetary Fund, the meeting focused on the economic impact of the Kosovo crisis on neighboring countries in the Balkan region. The Committee welcomed the attention being paid to the region’s short-term financial needs, as well as a medium-term approach to economic stability in these countries. They emphasized that conflict and postconflict situations elsewhere also required a high level of attention by the international community. Ministers welcomed the request that the World Bank and the European Union coordinate these efforts for the Balkan crisis. Ministers looked forward to being informed of follow-up actions in due course.
13. Next Meeting. The Committee’s next meeting is scheduled for September 27, 1999 in Washington D.C.