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November 18-19, 2006

Meeting of Ministers and Governors 

G-20 Communiqué
Melbourne, Australia

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Related document:

• G-20 Reform Agenda 2006

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We, the Finance Ministers and Central Bank Governors of the G-20, held our eighth meeting in Melbourne, Australia, under the theme of 'Building and Sustaining Prosperity'.

Sustained economic growth is delivering rising living standards and permanent reductions in poverty. Deeper linkages are being forged between nations through trade, investment and the movement of people and capital. These developments provide unprecedented opportunities to spread the benefits of growth widely. Yet we also face shared challenges, including those arising from ageing populations in many countries and rapid population growth in much of the developing world. Meeting these challenges requires effective domestic policy responses supported by effective international policy cooperation and strong and inclusive international institutions.

Global outlook

G-20 members noted that the world economy continues to expand at a solid pace, with growth above its long-term average for the fourth consecutive year. The outlook remains positive. Global economic growth is expected to slow slightly from the rapid pace of the past few years. Growth in industrialised countries is expected to moderate slightly from its recent strong pace. Among emerging market countries, output growth is expected to remain strong, with key economies like China and India continuing their rapid expansion. Above average growth in the global economy has seen spare capacity decline which, combined with buoyant energy and mineral prices, has increased the risks to inflation.

Maintaining strong world growth and containing inflation will require ongoing adjustments to monetary and fiscal policies while ensuring appropriate exchange rate flexibility and structural reform. We need to take advantage of the present strength in the global economy to get policy settings right. Faced with potential inflationary pressures, the normalisation of monetary policy underway in many G-20 countries will need to continue. Fiscal policy needs to ensure that public-sector balance sheets are not vulnerable to slower revenue growth and higher expenditure when growth rates resume more normal trajectories, and that there is sufficient room for policy to respond if growth slows more sharply than currently anticipated. We are determined to implement these policies, which are also required to enable global imbalances between countries to unwind in an orderly manner.

Stable global economic growth depends on open trade. G-20 members warned of the threat to global prosperity from rising protectionism in trade and investment. The success of the Doha Development Round is essential to securing freer, more open trade, reducing the risk of economic and financial instability, and achieving faster economic growth, development and sustained reductions in poverty. G-20 members call for an early resumption of WTO negotiations and the achievement of an ambitious outcome for the benefit of all.

Global energy and minerals markets

G-20 consideration of global energy and minerals markets reflects the importance of resource consumption, production, investment and trade to the world economy.

Global demand for energy and minerals commodities is set to increase significantly over coming decades driven by a strong world economy, rising incomes, and ongoing industrialisation and urbanisation in many economies. While physical stocks exist to meet demand and investment is increasing, the expansion of supply to date has struggled to keep pace with demand growth, resulting in significant increases in prices. We agreed that enhancing global trade by strengthening markets, and ensuring sustainability by promoting investment and encouraging efficiency, are the best ways to deliver lasting resource security.

We discussed the challenges to macroeconomic policy presented by energy and minerals price cycles. Monetary authorities remain vigilant in keeping inflation low and stable and stand ready to contain second-round price effects. Flexible domestic economies and exchange rates help facilitate adjustment to large movements in traded goods prices. Finance ministers are also focused on key fiscal challenges such as managing revenue surges and the appropriate level of energy subsidies. We agreed that further reform of energy subsidies is a priority in order to improve fiscal sustainability, better target poverty, and ensure that price signals work to expand supply and induce efficiency.

We reaffirmed the commitment we made in the G-20 Accord for Sustained Growth in 2004 to direct domestic policies toward creating a favourable overall investment climate and enhancing domestic and international competition. We discussed how the current resources boom can be harnessed for growth and development, highlighting the importance of sound domestic policy and effective governance for boosting investment. We welcomed further work on principles for the efficient and effective governance of extractive firms, both private and state-owned. We noted the benefits of the Extractive Industries Transparency Initiative (EITI), a voluntary initiative to strengthen transparency, governance and investment-led development in resource-rich countries, and encourage governments and firms to support the initiative. We support continued progress on the World Bank-led Clean Energy Investment framework.

Long-term resource security and dealing with key global challenges, such as climate change, require effective international policy frameworks and actions. Well-functioning markets-characterised by clear price signals, open trade and investment, market transparency, good governance, and effective competition among firms-will support investment in new supply, bring forth efficiencies and new technologies, encourage the use of alternative and renewable energy sources, and allow knowledge and resources to flow across borders. We note the International Energy Agency's World Energy Outlook and its recommendations.

We support the Joint Oil Data Initiative and see value in it being extended to other energy sectors, like gas, and incorporating a common definition of energy reserves. We encourage the development of clear principles to guide trade and investment for extractive industries. We agreed that the G-20 will work toward articulating these principles. We discussed the links between energy and climate change policy, including the role of market-based mechanisms, and agreed that the G-20 would monitor this issue.

We recognised the need for continued and enhanced dialogue between producers and consumers. We also met in a working lunch with global business leaders to discuss ways to strengthen energy and minerals markets.

Demographic change

While G-20 countries are at different stages of a major demographic transition, we recognise the importance of early consideration of policies to smooth the inevitable adjustments that will need to be made. This year we focused on the implications for financial markets, as well as further aspects of labour mobility.

Well-functioning and open financial markets can help smooth the economic impacts of demographic change. Improving the efficiency of financial markets and promoting financial innovation are important in facilitating adjustment. We also agreed to work together to raise people's awareness of their retirement income needs and improve their understanding of the available options.

We considered the role of labour mobility in the demographic change underway, recognising the potential benefits to both developed and developing countries. We reiterate our previous calls for international cooperation to improve remittance services and reduce transaction costs. We discussed the potential for improved portability of social security and health care payments to reduce the cost of migration, particularly for temporary migrants and invited the World Bank to quantify the costs and benefits of improved portability as a basis for further discussion in the G-20.

Reform of the Bretton Woods Institutions

The G-20 believes that the effectiveness and legitimacy of the IMF and World Bank must be enhanced through comprehensive governance reform and strategic policy review.

A strong, credible IMF that reflects today's global economic realities is in our shared interest. As such, we welcomed the support given by IMF Governors in Singapore for reform of quota and governance aimed at reflecting members' relative positions in the world economy and enhancing the voice of low-income countries in the Fund. We are pleased that the G-20 has been able to make a contribution to this historic outcome.

We are committed to the successful completion of a comprehensive set of reforms under the second stage of this process, delivered within the timeframes agreed by IMF Governors. To this end, we identified key issues on which agreement needs to be achieved in order to implement second-stage reforms, including: the main considerations underlying a new, transparent and simple quota formula which captures IMF members' relative economic positions; how to implement the new quota formula; and agreement on the increase in basic votes and how the share of basic votes can be protected over time.

We had candid discussion about these issues and agreed that the G-20 remain closely engaged with this work over the next year to achieve significant progress on the second stage of reform.

We progressed other issues addressed in our October 2005 Statement on Reforming the Bretton Woods Institutions. We welcomed the Development Committee's call for the World Bank to work with its shareholders to consider voice and participation in the governance of the Bank and agreed that the G-20 can play an important role in this renewed debate. We also agreed on the need for further G-20 consideration of strategic and policy issues facing the IMF and World Bank. These include: IMF surveillance; the Fund's role in emerging market economies, including a possible new liquidity instrument; the Fund's role in low-income countries; and collaboration between the Fund and Bank.

We emphasised the importance of modernising and strengthening IMF surveillance to meet the demands of globalisation and agreed to further consider broad directions in surveillance, focusing on desirable objectives and medium-term priorities, as input to IMF discussion on a remit for surveillance in the first half of 2007. We also welcomed the IMF review with a view to updating the 1977 decision on surveillance over exchange rate policies.

We welcomed the initiative taken in March 2006 by the heads of the two institutions to establish an External Review Committee on World Bank-IMF collaboration. We were joined by the chair of the Committee, Mr Pedro Malan, in our discussion of key issues around the responsibilities of the two institutions.

We reiterated the position expressed in our October 2005 Statement that the selection of senior management of the IMF and World Bank should be based on merit and ensure broad representation of all member countries. We welcomed consideration of any steps to ensure a fully transparent process for the selection of the IMF Managing Director and the World Bank President.

Advancing economic reform

The G-20 Accord for Sustained Growth provides robust principles for domestic growth-enhancing policies. We had a wide-ranging and pragmatic discussion, sharing experience on implementing and consolidating reforms. Our current policy priorities are outlined in the attached G-20 Reform Agenda.

Aid commitments and effectiveness

Building on the G-20 Statement on Global Development Issues in 2005, we welcome recent increases in aid and debt relief and underscore the importance of pledges of further aid increases being fulfilled, along with renewed efforts to improve the quality of aid. We also underscored the importance of helping countries reap the benefits of higher aid and debt relief, and avoid a new build-up of unsustainable debt. Increased development financing must be accompanied by improved aid effectiveness to achieve the Millennium Development Goals. All G-20 members have pledged their support for the Paris Declaration on Aid Effectiveness. We agreed that the G-20 will work toward improving aid effectiveness and good governance in the period ahead.

Other business

Further to our 2004 commitment to achieving high standards of transparency and exchange of information for tax purposes, we welcome the release of the Global Forum on Taxation 2006 assessment which shows that progress has been made in the implementation of those standards. Further progress is needed and we encourage continuing implementation efforts and call on those countries and territories that have not yet implemented high standards of transparency and exchange of information to do so.

We welcomed ongoing efforts by a growing number of borrowing countries and private-sector creditors on the Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets to improve financial stability and enhance market access of emerging market economies.

We reaffirmed our commitment to take action against money laundering and terrorist and illicit financing. We commend and encourage closer cooperation between the IMF and World Bank and the Financial Action Task Force (FATF) as well as FATF-style regional bodies in promoting stronger implementation of international AML/CFT standards. We call on FATF and FATF-style regional bodies to continue to broaden the support base for their work and for all countries to strengthen their AML/CFT regimes and publish their comprehensive country evaluations.

We thanked our Australian hosts for their leadership of the G-20 this year and hosting us in Melbourne. We look forward to further effective collaboration in the G-20 next year under South Africa's leadership. We welcome Brazil as the chair of the G-20 in 2008.

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G-20 Reform Agenda 2006

Agreed actions to implement the G-20 Accord for Sustained Growth

1. We, the Finance Ministers and Central Bank Governors of the G-20, have adopted the reform agenda below that translates our G-20 Accord for Sustained Growth into concrete policy measures for our countries.

2. The United States continues to build on the growth-enhancing policy actions of the recent past and has new proposals to raise growth prospects. Lowering marginal rates and reducing the bias against capital formation in the tax code has been key. Fostering more open foreign trade and investment, improving the quality of education, developing more confidence in corporations through improved corporate governance standards, and establishing more confidence in retirement security have also helped growth prospects, while maintaining price stability. A new dialogue with China and the American Competitiveness Initiative are two areas with promise for future economic growth. Canada is focused on promoting a more competitive and productive economy. It is committed to sound monetary policy, debt reduction and tighter spending control, and to strengthening government framework policies and Canada's economic union, promoting a competitive and efficient tax system, and making effective government investments in key drivers of growth such as education, infrastructure and science and technology. Brazil will continue to ensure macroeconomic stability, implement further microeconomic reforms, increase infrastructure investment and deepen domestic financial markets. In Mexico, significant accomplishments were made during President Fox's administration (2000-2006) on budget and fiscal responsibility, securities market, credit and savings and economic competition. Pending areas remain the pension system for public sector employees, labour market, corporate governance of state-owned enterprises and fiscal reform.

3. Members of the European Union will pursue further structural reforms, which are coordinated as part of the Lisbon strategy. At the level of EU Member States, such reforms focus on raising potential growth and increasing employment through enhanced environmentally sustainable competitiveness and innovation. They include product market liberalisation, growing financial market integration, more flexible labour markets that maintain employment security, support for entrepreneurship, lighter regulation and actions to boost R&D. At the EU level, important progress is also being made. In particular, freeing up the cross-border provision of services is expected to boost competitiveness. The final adoption of the Services Directive is expected by the end of 2006. Germany remains committed to continuing the reforms already begun to consolidate state finances and to enhance the foundations for growth and employment. The structural deficits of all levels of government will be reduced by a comprehensive consolidation package. Framework conditions for investment and innovation are being improved by structural reforms in corporate taxation, the reduction of administrative costs and the new high-tech strategy. Other structural reforms, such as increasing the retirement age or measures to promote improvements in health care or in the basic allowance for job-seekers, will help to ensure the sustainability and efficiency of the social security system. The reform priority for France will be to focus on further enhancing job creation, by delivering a fairer tax system that facilitates the transition from welfare into work, and eliminating social contributions at low salary levels for small firms. France is also committed to achieving fiscal balance in the medium-term by meeting constant real spending targets and reducing its public debt. In addition, higher private sector investments in research and development will be promoted. Recent pension and health care reforms have also delivered major results, and further improvements are also underway. To raise productivity and employment, Italy plans to improve the efficiency of the public administration and simplify the regulatory environment, foster framework conditions conducive to enhanced competition and private investment and reduce the restrictions that hamper competition in the product market. The United Kingdom is committed to entrenching stability and to building a flexible, enterprising economy with a highly-skilled, high-productivity workforce and a strong science and innovation sector. It is determined to ensure fairness alongside flexibility, providing security and support for those that need it. It is also delivering lasting improvements in public services through sustained investment and reform.

4. The Russian Federation will concentrate on improving human well-being and increasing the effectiveness of its social policy through further reforms of public health and education systems. Russia will also focus on developing infrastructure, stimulating innovations, supporting manufactured export and attracting foreign investment. Civil service and administrative reforms will be continued. Turkey will undertake reform of public finances, including restructuring the social security system and broadening the tax base, as well improving the regulation and supervision of the financial sector.

5. In South Africa, the government is committed to a number of interventions, given the fiscal space created on the basis of sound public finances over the last decade. The basis of the reforms will be done under the framework of the Accelerated and Shared Growth Initiative for SA (AsgiSA), which focuses on increasing public investment; enhancing the efficiency of parastatal firms; skills development; improving public service delivery; expanding the social security system; reducing the interest cost of government debt; and reforming tax policy and administration. Saudi Arabia places high priority on diversifying the economy, reducing dependence on oil, enhancing the investment-friendly environment, maintaining monetary and financial stability and expanding employment opportunities. To achieve these objectives, wide-ranging economic and structural reforms have been undertaken, including encouragement of the private sector, further strengthening and expansion of the financial system and labour market reforms.

6. In India, the objective of the reform program is to achieve sustained higher growth along with social equity and inclusiveness. The Government is also alive to the fact that growth can be constrained by inadequate infrastructure. It is, accordingly, the endeavour to provide quality roads, railways, ports, airports, power supply and communication to the industry to improve its competitiveness. The objective of fiscal policy is to achieve fiscal consolidation and ensure elimination of the revenue deficit by the end of fiscal year 2008-09. This process will be revenue-led and will involve rationalising the tax structure and improving the tax GDP ratio. In addition, India's financial sector is being gradually reformed within a well-defined road map to improve the quality of financial services and upgrading credit delivery systems. Indonesia will focus on fiscal consolidation and transparency, while continuing to strengthen its public debt management. It will give a high priority to enhancing private sector involvement in the economy through credible and fair policy and risk-sharing frameworks and creating a better investment climate, namely by removing infrastructure constraints, introducing a public-private partnership scheme by improving regulatory frameworks and financing sources, and maintaining monetary and financial stability. It is also committed to enhancing domestic and international competitiveness, empowering the people and reducing poverty.

7. Japan

will continue its reform agenda that includes measures to promote further reform of the financial system, to advance privatization, such as in postal services, and to address more vigorously the problem of fiscal sustainability. Korea will continue to closely monitor macroeconomic developments in order to address in a timely manner the dual economic risks of slower growth and recent housing price rise. Economic policy will focus on raising Korea's growth potential through structural reforms. Key among these are the continued developments of the financial system by deregulating capital markets and steps to enhance productivity in the services sector. Korea will also continue to address large expenditure pressures from population aging by tackling health care and pension related problems. Economic reform in China aims at establishing and improving the modern enterprise system, setting up a pricing system in reflection of market demand and supply and the scarcity of resources, allowing market forces to play a bigger role in resource allocation in a bid to increase allocation efficiency, thus further developing the market economy. The reform also targets at coordinated economic and social development and social harmony that enables every citizen to share the benefits of reform and development. At the current stage, priorities include: accelerating the reform of state-owned shares in large SOEs; speeding up comprehensive rural reform; deepening fiscal, tax, investment and pricing reforms; pressing ahead with the social security system reform; and further improving the socialist market economy.

8. Australia

is committed to improving nation-wide efficiency in the provision of water, transport, and electricity; improving health services and skills recognition; reducing the regulatory burden on Australian business; simplifying superannuation taxation; facilitating the transition from welfare to work; and establishing a national workplace relations system. Australia will also maintain its strong record of macroeconomic management through the ongoing operation of medium-term fiscal and monetary policy frameworks.