The Honourable Jim Flaherty, Minister of Finance for Canada,
on behalf of Antigua and Barbuda, Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines.
This meeting of the International Monetary and Financial Committee (IMFC) presents us with an historic opportunity to reinvigorate the International Monetary Fund (IMF) and empower it as the guardian of the market-based international monetary system. The Strategic Review of the Fund’s role, launched by the Managing Director two years ago, stresses the importance of accountability and results. We have before us concrete suggestions to transform many aspects of the Fund’s surveillance, lending and capacity building in order to strengthen its partnership with all of its members. We must also address questions of governance, including the under-representation of a number of systemically important emerging market economies. As IMF members, we must act to renew the Fund and imbue it with a culture of accountability and achievement and with a strong voice in resolving global imbalances.
This meeting occurs in the context of a strong global economy, with growth continuing to exceed expectations. This prosperity has continued in the face of challenges, particularly the surge in oil prices. That these price increases have thus far had only a transitory effect on inflation is a testament to the work of our central banks in creating and defending an environment of low and stable inflation. Going forward, we need to set the stage for continued economic stability, in part by ensuring that the global imbalances, which are unsustainable in the long run, are resolved in an orderly manner. The current favourable environment of strong global growth provides a good opportunity to work toward this objective.
Let me now briefly turn to economic developments in Canada, Ireland and the Caribbean countries. The Canadian economy remains strong. In 2005 real gross domestic product (GDP) increased 2.9 per cent, the same pace as in 2004, underpinned by healthy consumer spending and non-residential business investment. Well-anchored expectations are helping to keep consumer price inflation low and stable. Solid personal income gains and still-low interest rates, coupled with Canada’s strong monetary and fiscal fundamentals, should continue to support Canadian growth in 2006 and 2007, with estimates of real GDP growth of about 3 per cent in both years.
Canada’s fiscal situation remains solid. Canada was the only Group of Seven (G7) country to record a fiscal surplus in each of the past three years and is expected to remain the only G7 country to record a surplus in 2006 and 2007. The federal debt, as a percentage of GDP, has declined steadily from a peak of over 68 per cent in 1995–96 to under 39 per cent in 2004–05.
The Irish economy continues to prosper. Real GDP grew by 4.7 per cent in 2005, and growth at a broadly similar rate is expected in 2006. Domestic demand was the main impetus to growth in 2005, while there was some deterioration in the current external account. Construction and house building were particularly strong, while the volume of consumption rose by 5.6 per cent. In 2005 employment grew by more than 4 per cent, with much of the increase being accounted for by inward migration. With a buoyant economy and rising oil prices, inflation has risen in recent months, with the European Union harmonized index of consumer prices averaging 2.2 per cent in 2005 and rising to 2.7 per cent in February 2006. Despite record levels of housing supply, house prices continue to rise sharply and have even accelerated somewhat in recent months. On average, house prices rose by more than 9 per cent in 2005.
In line with the policy of maintaining broad fiscal balance, the General Government balance recorded a small surplus of 0.4 per cent of GDP in 2005, while a small deficit is envisaged this year. The General Government debt ratio has fallen to less than 28 per cent of GDP. With its consistently high growth rate, low unemployment and broad fiscal balance over many years, the Irish economy remains well placed to face the challenges of the globalized economy.
The economic recovery in the Caribbean which began in 2003 continued in 2005. Growth was observed in the construction, mining and tourism sectors even as agricultural output was interrupted in those countries hit by hurricanes in 2005. The devastating human and economic impact of the hurricanes continues to highlight the vulnerability of these countries to shocks. Inflation remained stable in most economies but fiscal outcomes did not improve as expected following declines in the effective oil tax rates of several countries. While there was some improvement in the primary balance of several countries, meaningful debt reduction was difficult to achieve as governments struggled with the financing of hurricane reconstruction and dealt with the consequences of rising oil prices.
The IMF continues to provide valuable assistance to the Caribbean countries that I represent, through increased policy dialogue and through Fund-supported programs in two countries. In this regard, Dominica’s performance under the Poverty Reduction and Growth Facility has been exemplary, while Grenada has recently been approved to receive assistance under this facility. In other areas, the Caribbean moved with conviction to address other challenges by furthering structural reforms to improve their investment climate, strengthen competitiveness and enhance regional cooperation. Regarding regional cooperation, the first phase of the Caribbean Community Single Market and Economy came into effect in January 2006 with six countries signing and the remainder expected to sign by June 2006.
Revitalizing the IMF as Guardian of a Market-Based International Monetary System
The global financial and economic landscape has changed considerably over the last two decades, and our challenge is to forge a common view on the proper role of the IMF in a globalized international financial and monetary system. Canada, Ireland and the Caribbean reaffirm our support for a market-based international monetary system.
Among the most important developments in the global economy and international monetary system has been the enormous growth in recent years in private capital flows and the corresponding increase in cross-border holding of assets. Globalization has not only expanded consumption and investment opportunities, but has also allowed imbalances to grow and the scale of crises to increase. This has clear implications for the role of the Fund. First, it must approach its activities from the perspective of enhancing the efficiency and stability of markets. Second, to better support this market-based international monetary system, it must strengthen its effectiveness in persuading countries not to pursue policies that undermine the prosperity of their neighbours or the stability of the system as a whole. National borders now have little meaning; at least in terms of economics and finance, we are truly living in a "global village."
A market-based international monetary system requires clear "rules of the game" and adherence to them by all countries. As the institution at the centre of the system, it is essential that the IMF has both the capacity and an unambiguous mandate to monitor key economic and financial trends and, through analytically strong and effectively communicated policy advice, to help countries, regions and the world mitigate vulnerabilities before they become serious risks to national and international prosperity. In sum, we have a common objective—global prosperity—which can be best achieved through multilateralism and cooperation.
In designing a strengthened IMF, we need to adopt a "can do" attitude with an eye to pragmatism and results. The Managing Director has set out a comprehensive plan of action to reinforce the IMF’s position at the centre of the international monetary system. We welcome the proposals. In taking these forward, we should not lose sight of the fact that the IMF is most effective when it is most persuasive. And it will be most persuasive when it has at its disposal strong analytical resources, has the proper incentives for candour, and understands the importance of communicating its policy advice. The Fund should be straightforward in its public communications, particularly in cases where it believes that a country’s policies undermine its own prosperity and that of its neighbours. And in its role as confidential policy advisor, it should not hesitate to deliver messages in the most frank and hard-hitting manner possible.
Members of my constituency consider two aspects of the Managing Director’s reform agenda—governance and surveillance—to be particularly critical in breathing new life into the Fund and establishing a more valuable partnership between the Fund and its members.
On governance, concerns about the widening disparity between quota shares and the growing international economic weight of a number of emerging market members threaten to erode the legitimacy of the institution. We support action on this issue through a two-stage approach. The first stage would see ad hoc quota increases for a small number of systemically important emerging market economies at our next meeting in Singapore as a "downpayment" for additional governance reforms that would follow in the second stage. This second stage must have a clear deadline to ensure concrete action. At a minimum, reforms in the second stage should address the need to protect the voice of the poorest, clarify the roles of the Executive Board and management, and introduce greater transparency and the principle of merit into the selection of senior management. The Executive Board needs to focus on strategic issues and management needs to pay more attention to results.
Turning to surveillance, economic and financial integration has created new challenges, and the Fund and its membership must adapt accordingly. To be relevant, the IMF must focus on the right issues, and it must have the right processes in place to ensure that its advice has a real impact. Global financial markets underscore the need for increased emphasis on financial sector issues and public and corporate debt dynamics. The current global imbalances debate suggests the need for a closer look at regional and global linkages. Finally, the IMF must pay greater attention to exchange rate regimes and how country choices impact the allocation of benefits of globalization and risks to the global economy.
The most critical challenge facing the global community and the Fund today is the resolution of global imbalances, which reflect large current account deficits of some key economies mirrored by large current account surpluses of other nations. These imbalances are underpinned by mismatches of savings and investment on a global scale. The existence of a dual exchange rate system further aggravates the problem and delays the adjustment process.
The IMF has a critical role to play as global coordinator to help resolve these imbalances in an orderly fashion. Since global imbalances, as well as other issues of systemic importance, are problems not of just one country but of many, we need a multilateral format for consultations. We therefore support the proposed strengthening of multilateral consultation procedures. In this regard, yesterday’s Conference on Global Imbalances was an important step. But this needs to be followed by an agreement to strengthen the IMFC as the body for multilateral economic and financial policy coordination.
Ultimately, surveillance is about the promotion of good public policy. And surveillance will be most effective if it takes place in the context of good governance based on strong political and economic institutions. In addition to its long-standing Article IV surveillance activities, the IMF has more recently promoted good governance through support for the Standards and Codes initiative, launched in 1999 and operationalized through the targeted surveillance instruments of the Financial Sector Assessment Program and the Reports on the Observance of Standards and Codes (ROSCs).
These have unquestionably helped to promote domestic and international financial stability through the dissemination of international best practices in key areas of macroeconomic relevance—namely the financial sector, fiscal transparency, and data dissemination and quality. It is time to ask whether a more comprehensive approach, broadening surveillance to include some aspects of the political institutional context, should be considered to identify additional vulnerabilities and assess the efficacy of international efforts to foster good governance. This could take the form of a "ROSC for Governance," which could integrate the Fund’s existing work on good practices for fiscal, monetary and financial policy with broader perspectives, including those embodied in the World Bank’s Country Policy and Institutional Assessment methodology.
Devoting more resources to more relevant multilateral and regional surveillance, and to systemically important issues and countries, will entail trade-offs. We stand ready to support the proposed two-track country surveillance process under which greater resources would be devoted to systemically important countries and issues of systemic importance, and with a streamlined procedure for other countries. We also agree with other measures to streamline internal governance processes to assure more effective decision-making processes, while keeping costs low.
The Fund must also heed the call of emerging market economies, which have challenged the Fund to help them benefit from economic and financial integration. The Fund is responding with concrete proposals, including a new contingent financing instrument which requires careful examination. In our view, any new instrument must be consistent with the Fund’s exceptional access framework, which disciplines its lending activities, enhances risk management and provides greater certainty to markets. In designing the new instrument, the Fund must pay careful attention to lessons learned with similar instruments, including the Contingent Credit Line and the previous use of precautionary exceptional access for exit purposes. Finally, broad-based consultations will be necessary to ensure consistency with identified country needs, and to clarify access guidelines, pricing and the exogenous shocks to be covered by the instrument. We remain to be convinced that these complex issues can be resolved.
The Fund has made substantial progress in assisting low-income countries resume economic growth. Under the Multilateral Debt Relief Initiative, the Fund has made a clean break with the "lend and forgive" cycle by eliminating the debt owed by 19 small and poor countries. It has also introduced the Policy Support Instrument to foster a new non-borrowing relationship between the Fund and its small and poor members. The IMF has established the Exogenous Shocks Facility to assist small and poor members in recovering from financial difficulties outside of their control, including high oil prices. Canada has contributed to the costs of IMF debt cancellation and will contribute to the Exogenous Shocks Facility.
The IMF should build upon this strong base to strengthen further its assistance to low-income countries according to its mandate and comparative advantage. The IMF needs to work with low-income countries to prevent the re-emergence of unsustainable debt burdens. It should assist them to build and strengthen fiscal and debt management capacity and integrate debt sustainability considerations into Fund activities.
The Fund will need to work closely with the World Bank, which plays a leading role in coordinating assistance to low-income countries. We call on the Fund and the World Bank to clarify further their division of labour, based on clear accountabilities and a focus on results. The IMF plays an essential role in informing the macroeconomic policy choices of its small and poor members. But this role must be tempered with the need to work effectively with developing countries, the multilateral development banks, bilateral development agencies and the United Nations (especially in post-conflict cases).
The world will continue to change and barriers dividing us will continue to fall. We need strong international institutions, including a reinvigorated Fund, to ensure a well-functioning, market-based international financial system. But the Fund also needs us, its members, to empower it with the necessary support—cooperation, finance and attention. It is time to get to work.
We meet today at an extraordinarily important time for the International Monetary Fund (IMF) as it implements the Medium-Term Strategy proposed by Managing Director de Rato and endorsed by this Committee. There is increasing recognition across the IMF’s membership of the importance of implementing real reforms that will strengthen the Fund’s ability to fulfill its mandate to promote international financial stability in an increasingly globalized world. We need to make progress in a number of key areas. Quota reform is one of those areas. But quota reform is only one part of a broader package of needed reforms. Making surveillance more effective and modernizing the Fund’s governance structure are also vital. Real and lasting reform of the institution will require a renewed commitment to achieve agreement on a comprehensive second stage of reforms within two years. By reaffirming our commitment to the IMF, we will renew the institution and build a more flexible, market-based global financial system. At this critical juncture, the world is looking to us to show leadership and vision in carrying out this important and ambitious reform agenda.
This meeting occurs in the context of a continued strong global economy. We have seen stronger than expected growth in the first half of this year, and the global economy is expected to grow 5.1 per cent this year and 4.9 per cent in 2007. The outlook continues to be stable in the face of increasing inflationary pressures and high energy prices, though we do find ourselves faced with risks that are slanted to the downside. In particular, growing global inflationary pressures and inflation expectations may require further interest rate increases. Given the current environment, we need to encourage open communication of monetary policy to prevent uncertainty over policy direction from spilling over into global financial markets. Although no major disruption to global growth is expected, we need to be vigilant in monitoring early-stage expansions underway in many parts of the world and ensure that we continue positive work in the area of reducing global imbalances.
The Canadian economy remains strong. In 2005, real gross domestic product (GDP) increased 2.9 per cent, the same pace as in 2004, underpinned by healthy consumer spending and non-residential business investment. Well-anchored expectations are helping to keep consumer price inflation low and stable. Solid personal income gains and robust corporate profit growth, coupled with Canada’s strong monetary and fiscal fundamentals, should continue to support Canadian growth in 2006 and 2007, with estimated increases in real GDP of about 3 per cent in both years. This solid growth performance is especially noteworthy in a context in which Canada has experienced a substantial appreciation of its exchange rate, an appreciation that in part reflects a contribution to the resolution of global imbalances.
Canada’s fiscal situation remains solid. On a total government basis, Canada was the only Group of Seven (G7) country in surplus in 2005 and will likely be the only G7 country to remain in surplus in 2006 and 2007. Total government net debt, as a percentage of GDP, has declined steadily from a peak of over 69 per cent in 1995 to under 27 per cent in 2005. Canada has had the lowest net debt to GDP of any G7 country since 2004, and this situation is also expected to continue.
Irish and Caribbean Developments
Let me now turn to developments in Ireland and the Caribbean countries that form part of the Constituency I represent at the International Monetary and Financial Committee (IMFC). The growth prospects for the Irish economy remain positive. In recent years, growth has averaged close to 5 per cent per year and, in the absence of major shocks, this pattern seems likely to persist in 2006 and 2007. Employment growth has been a particular feature of the economy in recent years, while unemployment has remained stable at a little over 4 per cent. There has been very significant inwards migration, especially from Eastern Europe, in addition to a continuously rising labour participation rate.
With a high dependence on imported energy and with recent increases in European Central Bank official interest rates feeding into the consumer price index through the mortgage rate, there has been a recent spike in inflation to 4.2 per cent, although the underlying rate is less than 3 per cent. The tightening of monetary policy, however, should impact favourably on Irish inflation going forward. The overall fiscal position will again be close to balance in 2006, reflecting the health of the economy and spending restraint. Overall, the remarkable success of the Irish economy over the past 15 years is continuing and the economy is well placed to cope with shocks, should they occur.
There was increased economic activity in most of the Caribbean countries in the Constituency in 2006, underpinned by a pickup in tourist arrivals and a construction boom, the latter largely due to preparations for the 2007 Cricket World Cup. These countries, nonetheless, continue to face risks associated with large current account deficits, the macroeconomic impact of higher oil prices and elevated levels of debt. Stabilization and consolidation efforts continued in the two countries—Dominica and Grenada—receiving Fund financial support through the Poverty Reduction and Growth Facility. Dominica’s growth performance has been solid; while in Grenada, which was ravaged by storms in 2004 and 2005, the Fund supported program is providing the foundation for a comprehensive medium-term economic reform program.
The assistance being provided by the Caribbean Regional Technical Assistance Centre (CARTAC) has been invaluable to my Caribbean constituents. The current program cycle expires at the end of 2007 and an evaluation, coordinated by the Fund’s Office of Technical Assistance Management, is currently underway. We urge continued Fund and other donor support for Phase III of CARTAC for the period 2008-2010. With the first phase of the CARICOM (Caribbean Community) Single Market and Economy initiative having been formally adopted earlier this year, we urge the Fund to further strengthen its regional surveillance activities. We believe that new modalities may be needed to enhance regional surveillance, and we support work by the Fund in formalizing these modalities.
We are all aware of the fundamental changes that have taken place in the world economy in the last two decades. In concrete terms, globalization has translated into the ability of firms and individuals to easily invest in the markets of economies across the globe; into new and innovative financing for both private and public sector initiatives; and into massive flows of goods and capital across borders.
These developments have provided unparalleled opportunities for economic growth and private entrepreneurship, but at the same time have increased the costs of inappropriate policies. A key lesson to be drawn is that adaptability and innovation in response to change are vital to success. This lesson is as true for the IMF as it is for the rest of the world. Fundamental and innovative reforms are needed to ensure the IMF’s continued relevance in a world where the economic influence of emerging market countries is growing, where the smallest and poorest countries need to be better integrated into the world economy and not marginalized, and where even the largest countries can be affected by spillover affects from others’ policies. The Fund’s surveillance and lending roles need to continue to adapt to be relevant and effective in this new environment.
Under the guidance of Managing Director de Rato, we have before us a broad and innovative set of policy responses to the challenges facing the institution. A stable and equitable financing model for the IMF itself will need to be considered as part of the reform package. Moreover, ensuring that IMF financing facilities serve the needs of members, while promoting sound economic and financial policies, will be a difficult but important task.
Today, I would like to focus on the challenges of moving forward on the reform of quotas and voice, as well as the role of the IMF in bilateral and multilateral surveillance.
Quotas and Voice
Perhaps the most pressing issue of IMF governance is reform of Fund quotas. Quotas determine the amounts that countries can borrow from the Fund in cases of balance of payments or budgetary problems and the resources that countries in good financial health can be asked to provide the Fund to help other members. They are also the major factor in determining countries’ voting power at the Fund. Proper alignment of quotas with countries’ economic and financial weight in the global economy is essential to the Fund’s legitimacy as an international institution. Legitimacy in turn is key to ensuring that the Fund can serve as an appropriate forum for members and that the Fund’s policy advice is heeded.
The Managing Director has developed an innovative and workable two-stage process that is aimed at renewing the Fund’s governance structure. Canada fully supports Mr. de Rato’s planned reforms, including the initial ad hoc increase for four highly under-represented countries—China, Korea, Mexico and Turkey. We view this ad hoc quota increase as a meaningful "down payment" on more comprehensive reform. Looking ahead, we see considerable merit in a second round of ad hoc quota increases that would follow agreement on a new quota formula in the second stage of reforms. We remain committed to making meaningful changes in the quota formula to better reflect global economic realities, and we are committed to doing this in the two-year time frame proposed by the Managing Director.
The IMF’s legitimacy and effectiveness also require a stronger voice for low-income countries. Accordingly, we support at least a doubling of basic votes and an amendment to the IMF Articles that will introduce a mechanism to safeguard the share of basic votes in total voting power against erosion in the future.
Canada is also sensitive to the special challenges facing the offices of the two African Executive Directors at the IMF, who each represent constituencies of more than 20 countries. We support efforts currently underway to ensure that these offices are in a position to effectively represent the members of their large constituencies, many of which are involved in IMF lending and technical assistance programs.
As the IMF reforms its governance structure to better reflect the global economic weight of its members, we must all remember that IMF membership entails shared responsibilities and obligations. Indeed, as a member’s role and voice in a global institution increases, it is reasonable to expect that the scrutiny placed on its responsibility to its partners and the stability of the international system will increase as well. This point also has relevance for the reforms we are undertaking on surveillance.
The Managing Director has taken an important and very welcome step toward strengthening the effectiveness of IMF surveillance through the recent launch of a multilateral surveillance exercise aimed at promoting high-level dialogue among key members of the global economy to address global imbalances. I am encouraged by the progress being made in these consultations and look forward to a report on their outcome at the next meeting of the IMFC.
This multilateral consultation mechanism could provide an effective and useful forum in which to consider other issues critical to the smooth functioning of the global economy. Indeed, we believe that consultations led by the IMF with selected capitals on key global economic issues should become a regular feature of Fund surveillance, with partner countries selected in a flexible and pragmatic manner linked to critical issues affecting the global economy.
The effectiveness of multilateral consultations, and of the IMF’s surveillance activities more generally, will depend on an approach that combines the strong analytic competence of the IMF staff with a clear recognition of the underlying objectives of the consultations. This will require priority setting and accountability for results on the part of the Fund’s membership. This, in turn, requires a number of steps.
First, it will be important to define in a more rigorous fashion the principles upon which IMF surveillance should be based. Up to now, while imbalances and distortionary economic policies have often been highlighted in Article IV reviews of member economies, the Fund’s surveillance activities have been criticized for not being effective in reducing the likelihood of crises or in promoting stability. As well, the Fund has been reluctant to act forcefully when it identifies instances where countries failed to live up to their obligations, and, in particular, where countries are engaging in policies that negatively affect other members or even the stability of the international monetary system. A challenge of more effective IMF surveillance is, certainly, for the Fund to find the right balance between its role as a "trusted advisor" to governments, and its core responsibilities to support a well-functioning global economy.
Second, the Fund needs a clearer operational approach—specific rules to clarify how the Fund will discharge its responsibilities by undertaking surveillance of fiscal, monetary, exchange rate and financial sector policies, and identifying cases where domestic economic and financial policies can have adverse international spillovers. These rules should clarify the steps to be taken when countries are found to be engaging in currency manipulation and/or competitive devaluation—activities prohibited by the Fund’s Articles of Agreement—and should provide a firm basis for actions to address the situation.
In this context, I welcome the ongoing work by Fund staff and Executive Directors to revisit the 1977 Decision on Surveillance over Exchange Rate Policies, which should lead to a clearer and more effective understanding of IMF members’ responsibilities and the Fund’s role in supporting the international financial system.
Third, there must be clear accountability for results, based on the priorities agreed and endorsed by the Fund’s membership. In this respect, an important step forward was the agreement at the last meeting of the IMFC on a new annual remit for both bilateral and multilateral surveillance through which the Managing Director, the Executive Board and the staff would be accountable for the quality of surveillance. We look forward to working with other Fund members, as well as the Managing Director and IMF staff, to develop a first remit that identifies key priorities for Fund surveillance in the year ahead.
This approach, implemented in the Fund’s ongoing multilateral and bilateral surveillance activities, together with effective use of innovative mechanisms such as the current exercise on global imbalances, will make a major contribution to strengthening the IMF’s role in promoting the stability of the international system.
In the quest to reinvigorate the IMF, the successes here in Singapore are real and significant. The progress on quota reform will greatly improve the governance structure of the Fund. IMF reform, however, goes beyond quota reform alone: there is an important agenda we need to pursue in the areas of surveillance, Fund financing, and crisis prevention and resolution before the IMF can be fully transformed into the modern and representative international institution the world needs to safeguard global financial stability. We can take credit for what we have achieved at Singapore, but we need to press on with these important remaining challenges.
The Honourable Jim Flaherty, Minister of Finance for Canada,
on behalf of Antigua and Barbuda, Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines
It is striking that one key theme discussed by Ministers this weekend is similar to what my own government has identified as an important domestic priority. In particular, I would highlight the Government of Canada’s commitment to strengthening its system of public governance to increase accountability. Accountability is a universal issue, transcending national boundaries. Given their mandates and relationship with their members, the Bretton Woods institutions have a strong role to play in promoting accountability and good governance.
Strengthening accountability is a shared responsibility. Donors and developing countries must work together to ensure that aid is used effectively to achieve concrete development results. Appropriate monitoring of policies is key to ensuring that we stay on track in fulfilling our commitment to achieve the Millennium Development Goals (MDGs). In recent years, we have seen a stronger collaboration between the Bank, the United Nations and the Organisation for Economic Co-operation and Development in developing a broader global monitoring framework to track progress in meeting the individual MDGs. However, more can be done to improve this process.
Measuring results is a key element in the development paradigm. The collection of accurate, timely, useful statistics is critical to gaining an accurate understanding of progress achieved and the challenges that remain. Timely and reliable statistics are a key input to a results agenda.
As a national capacity to gather and assess statistics is critical to our efforts to monitor progress towards the MDGs, we must continue to support the Bank’s Statistical Capacity Building Program.
As part of Canada’s approach to development, the Canadian International Development Agency and Statistics Canada are working more closely together to help developing countries strengthen statistical systems, institutional capacity and planning. The strength of individual countries’ statistical agencies should be regularly assessed and supported by increased technical assistance. Given its importance in monitoring progress towards the MDGs, we would like to see countries’ statistical capacity routinely appraised in the context of Country Assistance Strategies.
Reaching the MDGs—A Shared Responsibility
By any measure, we are still too far from reaching the MDGs in too many parts of the world. We are encouraged that significant progress is being made in aggregate, due in part to the relatively favourable economic environment. However, we are concerned that progress has been uneven across countries and regions, with many being left behind, particularly in Sub-Saharan Africa. In the relatively short period remaining until 2015, it is clear that we need to strengthen our efforts to ensure that the promise of the MDGs translates into reality for the world’s poorest citizens.
Canada is strongly committed to working in partnership with developed and developing countries, in an environment of mutual accountability, to reach the MDGs by the 2015 target. Reaching the MDGs will require greater efforts by developed countries to increase aid effectiveness and to ensure that aid is delivered in ways that support strengthening developing countries’ governance structures. It will also require efforts on the part of developing countries to strengthen governance and accountability, to manage their economies more effectively, and to follow through on national poverty reduction strategies.
Ireland has also made strides in ensuring its aid dollars work better. Ireland has set a target of increasing its international assistance to 0.5 per cent of gross national product (GNP) by 2007 and to 0.7 per cent of GNP in 2012. It is well on track to meeting these targets, with assistance projected to reach 0.47 per cent of GNP in 2006. In Ireland, the increase in aid of over 24 per cent in 2006 is the largest additional amount of funding that has ever been provided in any one year. Ireland’s Official Development Assistance (ODA) budget has more than quadrupled over the last decade, rising from 0.30 per cent of GNP in 1996 to 0.47 per cent in 2006.
Canada and Ireland both supported the Multilateral Debt Relief Initiative (MDRI), which has been implemented at the International Monetary Fund (IMF) and is being implemented at the International Development Association and the African Development Fund. We are committed to maintaining the financing capacities of these institutions. Ireland will address this by paying its entire share of the MDRI in 2006. Canada has already paid its share of the IMF’s costs. It will be critical to ensure that this debt relief frees up fiscal space for important investments in areas such as health and education. In this context, we will want to ensure that the MDRI and the associated Debt Sustainability Framework do not lead to any adverse impacts on the flow of transfers to developing countries.
We need to ensure that this assistance is used effectively, and that any increase in aid resources translates into a commensurate increase in poverty reduction. Mutual accountability between donors and recipients is critical to promote the partnership spirit from the Monterrey Consensus. Developing countries must improve their performance to attract financial support, through both ODA and private sector investment, and to improve their domestic resource mobilization. For their part, donors need to do a much better job of supporting developing country ownership of poverty reduction strategies, aligning assistance to developing country priorities and coordinating assistance efforts with recipient countries and with each other. The 2005 Paris Declaration on Aid Effectiveness lays out a practical, action-orientated roadmap to improve the quality of aid and its impact on development. At the international level, it constitutes a mechanism through which donors and recipients of aid are held mutually accountable for meeting partnership commitments. At the country level, the Paris Declaration encourages donors and partners to jointly assess their mutual progress in implementing agreed commitments on aid effectiveness.
I would also reaffirm the importance of more concentrated efforts within the context of the World Trade Organization Doha Development Round to ensure that developing countries gain market access, which is key to achieving the economic growth required to meet the MDGs. Since the launch of the Round in 2001, serious challenges have arisen and important milestones have been missed. Clearly, we need to make significant progress on these negotiations to realize the promise of the Doha Development Round and reap its benefits. We need to work collectively to reach our goal of achieving substantive reductions in tariffs and agriculture subsidies by the end of the year. We expect the IMF and World Bank to strengthen their engagement under the "Aid for Trade" agenda as a necessary and complementary element to help countries benefit from further trade liberalization.
The Challenge of Governance
The composition of the Bank’s lending portfolio has been shifting over the last decade, with a greater focus on those countries with a proven commitment to use assistance effectively. We know that strong policy environments, institutions and governance are essential for aid effectiveness. Countries with strong performance can absorb higher levels of aid and are likely to be more effective in converting aid into economic growth and poverty reduction.
Providing effective development support to countries with poor governance records remains a key challenge for the World Bank. The Bank has identified corruption as one of the single greatest obstacles to economic and social development. It undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the poor, who are hardest hit by economic decline, most reliant on the provision of public services, and least capable of paying the extra costs associated with bribery, fraud and the misappropriation of economic wealth.
As the Bank continues to tackle issues of poor governance, we need to ensure greater clarity in the Bank’s approach and a consistent application of its policies to borrowing members where weak governance, including corruption, is judged to represent significant risk. To this end, we look forward to early consideration by the Executive Board of a set of guidelines that will steer the Bank’s operations in high-risk countries.
A Strategy for Middle-Income Countries
I would also like to address middle-income countries (MICs), where we have seen progress in achieving the MDGs. An example, highlighted in the Global Monitoring Report, is in the area of education, where there have been significant improvements in primary education completion rates. However, there remain significant disparities within MICs and we cannot be complacent.
While the Bank’s role in low-income countries (LICs) is well understood, the institution’s role in MICs is more complex. Many of these countries have access to alternative sources of financing that elude the LICs. Since a majority of the world’s poorest live in MICs, the Bank must remain involved; however, its engagement must be clearly based on its comparative advantage. The World Bank’s poverty reduction focus must be the touchstone of the Bank’s efforts in these countries.
We see several areas where the Bank’s strategy in MICs can be improved. The Bank has recognized that complex operational procedures are a burden for borrowing countries, and it has made recent progress in reducing transaction costs, speeding up delivery of support, and reducing or eliminating conditionality of investment operations. More progress is required, however, in simplifying procurement and disbursements. Greater attention must be given to the Bank’s role in synthesizing and disseminating knowledge and advice to MICs.
Another area where we urgently need progress is in financial sector reform. Strong financial sectors are the best defence against financial crises and the impact they have on the poorest. Strong financial sectors are also needed to channel financing to the poorest to enable them to help themselves. Despite years of Bank lending to these countries for financial sector reform, stronger financial sectors have not been developed in many MICs. In defining its strategy for financial sector development in MICs, the Bank should set performance targets, such as healthier banking sector balance sheets and increased lending to small and medium-sized enterprises.
A results-driven approach to MICs means that over time we should see these countries become less dependent on aid dollars and able to attract more private sector financing, including through foreign direct investment (FDI). Currently, only five emerging market economies receive 60 per cent of all FDI inflows to developing countries. I would like to see the Bank’s work focus on increasing the number of recipients of significant FDI over the next decade.
Meeting the Needs of Small States
Efforts to advance the development agenda cannot overlook the particular challenges of small states, including those in the Caribbean. We know these states are highly vulnerable to damage from recurring hurricanes, particularly in their low-lying coastal areas. Immediate attention is needed for small island states to help mitigate the risks of natural disasters. To this end, the World Bank’s efforts to study possible insurance schemes for public assets and the International Finance Corporation’s work to find new mechanisms to insure private dwellings are critical. We will continue to support the Bank’s development of this new approach to comprehensive catastrophe risk insurance in the Caribbean and other small states, and call upon other donor governments and the private sector to join these efforts.
A longer-term challenge is the transfer of existing and new technologies required for adaptation to new weather patterns, particularly in the key sectors relating to agriculture and associated water resource management. However, these countries also face other challenges. These include faster-than-anticipated erosion of trade preferences, which are severely impacting several small states; the challenges of complying with more rigorous financial services regulations; and the underlying problem of small domestic markets aggravated by geographical dispersion. The latter leads to high per-unit costs, precludes economies of scale, raises transportation costs and undercuts efforts to foster regional integration. The World Bank has an important role to play assisting small island states to meet these challenges.
These meetings provide a valuable opportunity for us to reflect on our achievements and, more importantly, on areas where we need to redouble our efforts. We have spent much of this weekend discussing how to sustain and build momentum through our collective efforts to achieve concrete development results in support of the Millennium Development Goals (MDGs).
Governance and Corruption
Accountability and effectiveness are key themes for discussion this weekend. We had very successful discussions on quota reform and improved surveillance yesterday at the International Monetary and Financial Committee, which will contribute to a more effective and representative International Monetary Fund (IMF). Within this committee, we have focused on how promoting good governance, including fighting corruption, and mutual accountability are essential to efforts to accelerate progress towards the MDGs. We know that aid is less effective in countries plagued by weak governance. While I think we have made good progress in recent months on this issue, significant challenges lie before us.
Ultimately, we need to recognize that only countries themselves—led by their own governments—can provide the leadership and ownership needed to strengthen governance. However, donors and international agencies can and should help with this process. Aid must be delivered in ways that support our partners’ capacity to govern and promote accountability in the use of public resources.
The World Bank has demonstrated that it is a leader in governance and anti-corruption. We welcome the Bank’s efforts since we met last spring to articulate a broad strategy to promote a more coherent, transparent and results-oriented approach. Going forward, we need to deepen our understanding of the challenges that weak governance and corruption pose for the development process and address more specifically how the Bank can meaningfully address these issues. As well, there remains a need for clear operational guidelines to better understand how decisions should be taken on World Bank support in situations where weak governance and corruption present real risks.
In countries where corruption is a challenge, we need to have clearer rules on the Bank’s terms of engagement. We continue to urge the Bank to remain engaged even in countries where corruption represents a significant challenge, because without the Bank’s efforts, there may be little progress forward. But the World Bank cannot tackle these issues on its own, and we look to continued progress in developing a common approach to tackling corruption, involving other donor partners as well as other multilateral development banks.
In effect, we all need to engage in the fight against corruption. International institutions must ensure that their in-house operations meet high integrity standards and that their interventions in member countries promote good governance. Developed countries must lead by example by trying to ensure that the operations of their governments and corporations are models of transparency and accountability.
Canada, Ireland and the Commonwealth Caribbean countries are strongly committed to working in partnership with others in an environment of mutual accountability to reach the MDGs by the 2015 target. Meeting these goals requires that, in addition to strengthening governance and accountability, developing countries manage their economies effectively and follow through on national poverty reduction strategies. For their part, donor countries must increase the effectiveness of their aid. Ensuring predictability of aid flows is critical to allowing developing partners to commit to essential reform and capacity-building measures. Developing countries also need to receive longer-term commitments to core areas of funding, especially for the provision of services to the poor.
We urge donors to reduce the aid management burden, particularly on the poorest and smallest states, in line with commitments under the Paris Declaration on Aid Effectiveness. Progress on these issues is important to secure stronger results on the ground. The Bank should draw on its recent experience in Africa and continue to promote stronger donor alignment, harmonization and coordination. In this regard, we encourage the expansion of recent efforts by the World Bank to prepare Joint Assistance Strategies with other donors based on national development strategies, such as Poverty Reduction Strategy Papers. And because the collection of accurate and timely statistics is critical to gaining an accurate understanding of progress achieved and the challenges that remain, I would reiterate my earlier suggestion that countries’ statistical capacity be routinely appraised in the context of Country Assistance Strategies.
Investing in People
Today, there are 115 million children who have never entered school and another 130 million who will never complete primary school. Yet we know that investment in basic education is essential to achieve significant and sustainable results in poverty reduction. Canada believes that the international community has an important role to play in advancing efforts to achieve improvements in school enrolment as well as in primary school completion rates. This will require investments in bricks and mortar, in staff training and salaries, in teaching materials and in incentive schemes to encourage parents to enrol their sons and daughters.
Canada’s investments in basic education in Africa have almost quadrupled since 2000, reaching $100 million annually by 2005. This has produced concrete results, contributing to more than 9 million additional enrolments in primary schools, with more than half of these places going to girls. We will continue to invest in education for African children, increasing our bilateral funding to $150 million a year over the next four years. Canada is also a strong supporter of the Education For All-Fast Track Initiative (EFA-FTI), which encourages donor and recipient countries to work in a spirit of partnership to achieve the education MDGs. Canada recently announced it will provide a $25-million contribution towards multilateral engagement with the EFA-FTI. This is in addition to the $46 million that Canada has committed through its bilateral aid program to the EFA.
More than 7 million people die annually from infectious diseases like pneumococcus, malaria, HIV/AIDS and tuberculosis, mostly in poor countries. Compounding this loss of life is the economic burden that disease places on families, and the repercussions for national economic development. We have spent much of the past year exploring a number of innovative finance proposals to help address international development challenges, particularly those in global health. To this end, the Advance Market Commitment (AMC) pilot appears to us to be a particularly promising initiative. Canada is ready to contribute $100 million to support an AMC pilot project, which should be ready to launch by the end of this year, to develop vaccines. We urge donors to demonstrate support for an AMC pilot for a pneumococcus vaccine by providing the necessary financial commitments to ensure that we can launch this important project this year.
And in recognition that gender issues remain an area where more work is needed, we are encouraged by the World Bank’s renewed attention and efforts to advance women’s economic empowerment to achieve growth, poverty reduction and meet the MDGs. We believe that gender equality is an area in which the Bank has a comparative advantage and can provide strong leadership.
Renewing the Trade Agenda
The Doha Development Round was seen by many as an opportunity to further integrate developing countries into the multilateral trading systems. While we recognize the impasse, we continue to believe that a successful outcome to the Round would be the best way to realize the potential of trade as a tool for development. We stand ready to work with other World Trade Organization (WTO) members and the Director General of the WTO to find a way forward. In the meantime, we encourage all donors to meet their "Aid for Trade" commitments and support the continued strengthening of the Enhanced Integrated Framework as an effective collaborative mechanism for the identification, delivery and assessment of trade-related assistance. We also look to the World Bank and the IMF to continue their advocacy work on trade liberalization and to continue their support of furthering the Aid for Trade agenda.
The international development community has made great progress in debt reduction for the poorest countries. The Multilateral Debt Relief Initiative (MDRI) became effective at the IMF in January 2006 and at the International Development Association (IDA) in July 2006. We have every expectation that it will shortly become effective at the African Development Fund (AfDF).
Canada and Ireland are strong supporters of the ongoing work to address unsustainable debt burdens in low-income countries. In this context, it is important that we ensure that the MDRI leads to increased development resources. To achieve this, international financial institutions must be fully compensated for the costs of the MDRI and funding must be additional. We are committed to maintaining the financing capacities of the IMF, IDA and the AfDF as these institutions implement the MDRI. Ireland is paying its IDA share of MDRI costs up front. Canada has already paid its IMF share of MDRI costs and will begin making its payments to IDA and the AfDF as planned.
A growing concern, however, is that significant debt reduction creates substantial new borrowing room in some countries, which if not managed carefully could rapidly be filled with unproductive new financing. This new financing could reverse recent efforts to maintain debt sustainability under the World Bank-IMF Debt Sustainability Framework (DSF) and result in a rapid re-accumulation of debt in poor countries. We believe that more can and should be done to break such a "lend-and-forgive" cycle and ensure long-term debt sustainability. The review of the DSF in the context of the IDA14 Mid-Term Review will be important to advance this issue. It will also be important for borrowers to improve their debt management capacity, which is an area where the World Bank can provide expertise. Creditors must also do their part. A coordinated approach by all creditors, based on the analysis underlying the DSF, could help mitigate the risk of excessive borrowing.
Canada welcomes the World Bank’s ongoing support for fragile states, including in post-conflict situations. Canada is actively involved in assisting a number of fragile states, with large development assistance programs, for example, in Afghanistan and Haiti.
While it is clear that the Bank has made considerable progress in its involvement in fragile states over the past four years, more needs to be done. Canada is working with the Bank to set up a Fragile States Partnership and Knowledge Initiative to develop and strengthen knowledge about effective approaches in fragile states. One area for further work is the Bank’s aid allocation system. While we support a performance-based allocation system to determine IDA aid volume, we believe that there is scope to refine the system to be more effective in responding to the special challenges of state fragility. In this area, the IDA14 Mid-Term Review provides an opportunity to make real progress as we prepare for IDA15.
While there is also scope to continue to improve the Bank’s state-building, governance and capacity development work, the Bank provides real value added in this area. This area requires long-term engagement and sustained investments in order to achieve lasting results. The Bank’s financing predictability through IDA and long-term focus have allowed it to take on a leadership role in this area.
International Bank for Reconstruction and Development (IBRD) Partner Countries
We welcome the World Bank’s recent evaluation of its role in IBRD partner countries. Bank engagement must be based on its comparative advantage, and poverty reduction must remain the focus of its efforts in these countries. In that vein, the Bank must continue to increase the effectiveness of its collaboration with other international players, including the IMF, bilateral donors and the private sector, in developing a comprehensive strategy to guide the Bank’s involvement in these countries over the longer term.
As a measure of success, these countries should become less dependent on aid dollars over time and better able to attract private sector financing, including foreign direct investment (FDI). Currently, five emerging market economies account for 60 per cent of all FDI inflows into developing countries. The Bank should work to increase the number of recipients receiving significant FDI flows over the next decade.
Meeting the Needs of Small States
Efforts to advance the development agenda cannot overlook the particular challenges of small states, including those in the Caribbean. The international community, led by the World Bank, must play an enhanced role in assisting small states to position themselves for success in the global economy. Despite the strong global economic growth in recent years, the economic growth of small states has failed to keep pace with larger low- and middle-income countries. In some cases, this has reflected the faster than anticipated erosion of trade preferences. As a consequence, many of these economies are falling short of reaching the MDGs. To rectify this situation, there is a dire need for better analytical work on options for growth, competitiveness, economic diversification and international trade.
The continuing loss of critical skills in small states as a result of migration also needs to be addressed. Support for human resource development is crucial as these countries expand service exports and other areas where they are competitive. On the related issue of remittances, which are an important source of foreign exchange and capital for many small states, we encourage the Bank to continue its work with other international financial institutions and partner countries to better understand these arrangements and help facilitate these transfers.
The small island states of our constituency remain at risk of natural disasters. The Bank needs to continue to work with these countries and their partners to mitigate these risks. We continue to support the Bank’s development of a Catastrophe Risk Insurance Facility in the Caribbean and other small states, and call upon other donor governments and the private sector to join these efforts. A longer-term challenge is the transfer of existing and new technologies required for adaptation to new weather patterns, particularly in the key sectors relating to agriculture and water resource management. We strongly support the Bank’s plan to expand analytical work to develop screening tools to assess the nature of climate risks to development projects, build the capacity of institutions and communities to better cope with the risk of natural disasters, and support the development of new and more innovative risk management tools.
1. The International Monetary and Financial Committee held its thirteenth meeting in Washington, D.C. on April 22, 2006 under the Chairmanship of Mr. Gordon Brown, Chancellor of the Exchequer of the United Kingdom.
The Global Economy and Financial Markets—Outlook, Risks, and Policy Responses
2. The Committee welcomes the continued strong expansion of the global economy, despite higher oil prices. The expansion is becoming geographically more broadly based, and global growth is expected to remain strong in the next couple of years. Inflation and inflationary expectations remain well contained—although with excess capacity diminishing, continued vigilance will be required. The Committee notes that downside risks arise from continued high and volatile oil prices, the potential for an abrupt shift in global financial market conditions, a rise in protectionism, and a possible avian flu pandemic. The major risks posed by underlying vulnerabilities, including from widening global imbalances, have yet to be comprehensively addressed.
3. The Committee reiterates that action for orderly medium-term resolution of global imbalances is a shared responsibility, and will bring greater benefit to members and the international community than actions taken individually. While progress has been made, more concerted and sustained implementation—with every country doing its part—is needed to help reduce medium-term risks associated with the imbalances. Following the discussion at the Global Imbalances Conference held at the IMF on April 21, the Committee confirms that the agreed policy strategy to address imbalances remains valid. Key elements include raising national saving in the United States—with measures to reduce the budget deficit and spur private saving; implementing structural reforms to sustain growth potential and boost domestic demand in the euro area and several other countries; further structural reforms, including fiscal consolidation, in Japan; allowing greater exchange rate flexibility in a number of surplus countries in emerging Asia; and promoting efficient absorption of higher oil revenues in oil-exporting countries with strong macroeconomic policies. Given economic interlinkages, all countries and regions will have a role to play by increasing the flexibility of their economies and adapting to changing global demand patterns. The Committee therefore asks the IMF to work on modalities, in consultation with country authorities, aimed at encouraging actions needed to reduce the imbalances, and calls for a report at its next meeting. More generally, the new multilateral consultations, as outlined in the Managing Director’s report on implementing the IMF’s medium-term strategy, can play a role in promoting multilateral action.
4. The Committee welcomes the actions already taken to address capacity constraints in oil production. Building on this progress, it calls for further measures to improve the supply-demand balance in oil markets over the medium term, with oil producers, oil consumers, and oil companies all playing their part, including through closer dialogue. The Committee emphasizes the importance of further upstream and downstream investment, policies to promote energy efficiency, conservation, and alternative sources of energy, reducing subsidies on oil products, and further efforts to improve the quality and transparency of oil market data. The Committee will review progress on these issues at its next meeting.
5. Steps to strengthen medium-term fiscal positions remain crucial to support growth and stability, and improve resilience against future shocks. Greater advantage should be taken of the economic expansion to reduce fiscal deficits, and to move forward with reforms to ensure the sustainability of pension and health systems. The Committee also underscores that faster progress to remove constraints to growth in labor and product markets and improve the business and investment climate is essential to reap the benefits of globalization. The Committee welcomes the continued strength of the global financial system, and calls for continued vigilance by financial supervisors, especially regarding the potential impact of a turn in the credit cycle. The Committee calls on members to ensure the robustness of essential economic and financial infrastructure as part of a broad strategy to address the risk of an avian flu pandemic and, in this context, supports the IMF’s outreach initiative to promote business continuity planning among financial institutions.
6. The Committee emphasizes the importance of an ambitious and successful outcome to the Doha Round by the end of 2006 for global growth and poverty reduction. The Committee calls on all members to resist protectionism in both trade and foreign direct investment. With time running increasingly short, all members must urgently contribute to reaching agreement on the key elements of a comprehensive package supporting a strengthened multilateral trading system. The Committee also calls for continued efforts to help countries take full advantage of the opportunities of global integration arising from ambitious trade liberalization. For poor countries in particular, the Committee urges Aid for Trade assistance firmly grounded in national development strategies and full use of existing and enhanced mechanisms for trade-related technical assistance.
7. The improving growth prospects in poor countries, including in Sub-Saharan Africa, are encouraging. The Committee emphasizes that achieving the Millennium Development Goals (MDGs) requires a partnership between poor countries and donors. Developing countries should continue to pursue sound macroeconomic policies and growth-critical reforms, including further substantial efforts to build sound, accountable, and transparent institutions. The international community should follow through expeditiously on its commitment to provide additional resources.
Implementing the IMF’s Medium-Term Strategy
8. The Committee welcomes the Managing Director’s report on implementing the IMF’s medium-term strategy, and appreciates the public debate on the role of the IMF. It calls on management and the Executive Board to complete their considerations and then move rapidly to implementation.
9. The Committee reiterates that the IMF’s effectiveness and credibility as a cooperative institution must be safeguarded and its governance further enhanced, emphasizing the importance of fair voice and representation for all members. We underscore the role an ad hoc increase in quotas would play in improving the distribution of quotas to reflect important changes in the weight and role of countries in the world economy. The Committee agrees on the need for fundamental reforms. The Committee calls upon the Managing Director to work with the IMFC and Executive Board to come forward with concrete proposals for agreement at the Annual Meetings.
10. The Committee reiterates the importance of making IMF surveillance more effective and supports a review of the 1977 Surveillance Decision. In the context of the Managing Director’s medium-term strategy, the Committee proposes a new framework for IMF surveillance which will consist of four elements. First, a new focus of surveillance on multilateral issues, including global financial issues, and especially the spillovers from one economy on others. Second, a restatement of the commitments which member countries and their institutions make to each other under Article IV on which surveillance can focus on monetary, financial, fiscal and exchange rate policies. Third, the Managing Director should implement his proposal for a new procedure, which will involve the IMFC and the Executive Board, for multilateral surveillance. Fourth, the IMFC should set a new annual remit for both bilateral and multilateral surveillance through which the Managing Director, the Executive Board and the staff are accountable for the quality of surveillance. This should involve the independence of Fund surveillance, greater transparency and the Independent Evaluation Office.
11. As emerging market members pursue sound policies and integrate effectively into world trade and capital markets, they make a welcome contribution to global economic stability and avoidance of financial crises. The Committee welcomes the IMF’s efforts to respond to the new challenges and needs of emerging market members. Financial and capital markets issues should be increasingly at the center of the IMF’s work in these countries. The Committee supports further examination of the Managing Director’s proposal on a possible new instrument to provide high access contingent financing for countries that have strong macroeconomic policies, sustainable debt, and transparent reporting but remain vulnerable to shocks. The Committee encourages the IMF to explore the role it can play in supporting regional arrangements for pooling reserves. A review is also needed of the operational aspects of the IMF’s policy on lending into arrears.
12. The Committee stresses that the IMF has a critical role in low-income countries, including in helping to ensure that expected increases in aid flows and debt relief are absorbed effectively and in a manner consistent with macroeconomic stability. The IMF needs to play its part within its areas of core competence in monitoring progress toward the MDGs. The Committee welcomes the establishment of new instruments that will strengthen the IMF’s support for low-income countries, including the Policy Support Instrument and the Exogenous Shocks Facility, and underlines the importance of further contributions to enable the IMF to provide timely concessional shock financing. The Committee welcomes debt relief provided by the IMF and other institutions under the HIPC Initiative and Multilateral Debt Relief Initiative (MDRI). It also welcomes the agreement on the final list of potentially eligible members that meet the criteria of the HIPC Initiative. The Committee underscores the importance of ensuring debt sustainability in countries receiving debt relief by refining the joint IMF-World Bank debt sustainability framework, and helping countries to implement sound medium-term debt strategies and strong public expenditure management and tax systems. The Committee notes the importance of countries avoiding the re-accumulation of unsustainable debt and the potentially adverse consequences of nonconcessional borrowing for debt sustainability. It urges all creditors to work with the IMF and the World Bank to adhere to responsible lending. The Committee considers it critical for the effectiveness of the IMF’s work in low-income countries that its policy advice, support for capacity building, and financial assistance are closely aligned with the countries’ evolving needs and poverty reduction strategies, and focused on macroeconomic issues, including institutions relevant to financial stability, trade, and economic growth.
13. The Committee supports efforts to clarify the division of responsibilities and accountabilities of the IMF and the World Bank, and to improve their collaboration. It welcomes the establishment of the External Review Committee on World Bank-IMF Collaboration, and looks forward to its conclusions.
14. The Committee notes that the IMF’s budgetary position has changed following the recent decline in IMF credit, and this requires actions on both income and expenditure. The Committee calls on the Managing Director to develop proposals expeditiously for more predictable and stable sources of income. The Committee welcomes that the medium-term strategy is formulated in a budget-neutral way, and encourages the IMF to further prioritize and streamline its work.
15. The Committee recommends members’ acceptance of the Fourth Amendment of the Articles of Agreement. The Committee calls for continued actions by all countries to develop strong programs on anti-money laundering and combating the financing of terrorism (AML/CFT), and supports the comprehensive assessment of these programs within the context of the Financial Sector Assessment Program.
16. The Committee notes the upcoming discussion by the Executive Board of the external evaluation of the Independent Evaluation Office (IEO), and looks forward to the continuing contribution of the IEO to the IMF’s work.
17. The next meeting of the IMFC will be held in Singapore, on September 17, 2006.
1. The International Monetary and Financial Committee held its fourteenth meeting in Singapore on September 17, 2006 under the Chairmanship of Mr. Gordon Brown, Chancellor of the Exchequer of the United Kingdom. The Committee expresses its gratitude to the Singapore authorities for the excellent arrangements.
Quota and Voice Reform in the IMF
2. Following the call at our last meeting to safeguard and enhance the IMF’s effectiveness and credibility, the Committee stresses the importance of IMF quota and voice reforms. The Executive Board has submitted a comprehensive two-year program of quota and voice reforms in a draft resolution to the Board of Governors. Subject to the adoption of the resolution, the September 2006 meetings would initiate an integrated set of reforms, to be completed no later than by the 2008 Annual Meetings. Starting with initial quota increases for China, Korea, Mexico, and Turkey, this package of reforms, when implemented, would make significant progress in realigning quota shares with members’ relative positions in the world economy and, equally important, in enhancing the participation and voice of low-income countries in the IMF as set out in the resolution. The Committee urges the Executive Board to work constructively and expeditiously on all elements of the reforms so as to garner the broadest possible support, underlines the importance of timely implementation of the program, and calls on the Managing Director to provide a status report at its next meeting.
The Global Economy and Financial Markets—Outlook, Risks, and Policy Responses
3. The Committee welcomes the ongoing strong and broad-based global economic expansion. Growth is expected to remain robust in 2007. However, there are downside risks from the possibility of a continued build-up of inflationary pressures, a slowdown in consumption in a number of countries, continuing high and volatile energy prices, and the spread of protectionism. The Committee agrees that in the period ahead the IMF should focus on supporting its members in promoting policies for: reducing global imbalances while sustaining global growth; addressing the impact of high oil prices, in particular on the most vulnerable countries; managing the likely transition to less generous liquidity conditions; and ensuring medium-term fiscal sustainability and financial stability. The Committee underscores that reinvigorating the momentum of multilateral trade liberalization is critical so as to sustain and strengthen the foundations of global growth.
4. In the advanced economies, monetary policy will need to continue solidly anchoring inflation expectations and to balance the relative risks to price stability and growth. The current favorable economic environment provides an opportunity for ambitious fiscal consolidation, backed up with credible policy measures to put social security and health care systems on sounder footings to cope with the challenges of population aging. Growth prospects should be bolstered by structural reforms needed in many countries to improve the business environment and product market flexibility, enhance the capacity of labor to adapt to globalization, and spur productivity advances.
5. In emerging market and other developing countries, improved fundamentals have underpinned the resilience of growth to high oil prices and tighter global financial conditions. Growth performance, especially in emerging Asia, has benefited from market-oriented reforms, open trade, and competition. In countries where vulnerabilities remain, further efforts are needed to strengthen public sector balance sheets, anchor inflation expectations, improve the functioning of financial sectors, and ensure the sustainability of external positions.
6. Growth in low-income countries overall, including in Sub-Saharan Africa, remains strong. The Committee emphasizes the importance of a strong partnership between poor countries and donors to underpin further efforts to accelerate growth to help achieve the Millennium Development Goals (MDGs). Countries should persevere with sound macroeconomic policies, strengthening institutions, and growth-critical reforms. The international community should also support countries’ own poverty reduction efforts with increased and more effective aid, agreed debt relief, and bold market-opening initiatives.
7. The Committee calls for sustained actions to implement the agreed policy strategy to underpin an orderly unwinding of global imbalances. The strategy involves: steps to boost national saving in the United States, including fiscal consolidation; further progress on growth-enhancing reforms in Europe; further structural reforms, including fiscal consolidation, in Japan; reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries; and increased spending consistent with absorptive capacity and macroeconomic stability in oil producing countries. The Committee welcomes the multilateral consultation by the IMF, which provides an opportunity to support the agreed policy strategy.
8. The Committee remains concerned about high and volatile prices in world energy markets. It welcomes the actions taken to address capacity constraints in oil production, and calls for continued measures from all sides to improve the supply-demand balance in oil markets over the medium term. This will involve increased investment to build up adequate production and refining capacity, incentives to encourage energy conservation by consumers, steps to improve the quality and transparency of oil data, and closer dialogue among oil producers and consumers. The Committee also calls on the IMF to continue to provide advice and support—in particular, to its low-income members—to help countries adjust to high oil prices.
9. Following our meeting with business leaders, we reconfirm our shared commitment to strengthen the foundations of a globalized economic and financial system that promotes growth and poverty reduction and provides equitable opportunities for all. The Committee also received a report on the current status of the multilateral trade negotiations under the Doha Round from Mr. Pascal Lamy, Director-General of the WTO. The Committee expresses its deep disappointment that the trade negotiations have been suspended. It urges all WTO members to maintain their commitment to the rules-based multilateral trading system, resist protectionist calls, and preserve progress that has already been made. The Committee calls for leadership from the major trading nations to work urgently toward an early resumption of the negotiations, and an ambitious, successful outcome by the end of the year, based on a commitment to a comprehensive package on agriculture, industrial products, and services, to which all countries will need to contribute.
10. The Committee recognizes the importance of achieving the MDGs. In this context it also stresses the importance of implementing Aid-for-Trade assistance, which is firmly grounded in national development strategies, independent of progress on the Doha Round. We welcome the reports of the taskforces on the Integrated Framework and on Aid for Trade and the financing commitments by donors for the enhanced Integrated Framework.
Implementation of the IMF’s Medium-Term Strategy
11. Following the agreement at its last meeting, the Committee welcomes the progress made in the reform of the IMF surveillance framework. It welcomes the steps to put greater focus on financial and capital market issues in the IMF’s work. The Committee welcomes the multilateral consultation approach, which aims at fostering discussion and cooperation on common economic and financial issues. The Committee looks forward to the conclusions of the first multilateral consultation on global imbalances, and proposals by the Managing Director for possible further consultations and work on issues of multilateral concern. The Committee welcomes the ongoing review with a view to updating the 1977 Decision on Surveillance over Exchange Rate Policies to secure a common understanding and consensus on the responsibilities under Article IV and the foundations and objectives of surveillance, covering monetary, fiscal, financial, and exchange rate policies. The Committee takes note of the work to date by the Board on a remit for surveillance, which would provide a statement of objectives, priorities, and responsibilities for the medium term, and it looks forward to further work as part of the wider program to improve the effectiveness of surveillance. The Committee will discuss progress on the remit at its Spring meeting.
12. The Committee supports the strengthening of IMF policies to better assist its emerging market members. The Committee welcomes the recent discussion in the Executive Board on a new liquidity instrument for countries that are active in international capital markets, aimed at supporting these countries’ own strong policies, and ensuring that substantial financing will be available if needed while safeguarding IMF resources. The Committee calls on the Executive Board to continue its work on the necessary design features of a new instrument, while paying due regard to the interaction with existing IMF facilities, and invites the Managing Director to present a concrete proposal by the time of its next meeting. The Committee also looks forward to the upcoming review of the IMF’s policy on lending into arrears.
13. The Committee considers that the IMF should give priority to enhancing the effectiveness of its work in low-income countries by focusing on sustainable growth and macro-critical areas that support the achievement of the MDGs. It welcomes implementation of the MDRI by the IMF, World Bank, and African Development Bank; the provision of debt relief under the HIPC Initiative to two further countries (Cameroon and Malawi); and the decision to grandfather all eligible HIPCs when the sunset clause of the HIPC Initiative takes effect at end-2006. The Committee underscores the importance of helping countries reap the benefits of higher aid and debt relief, and avoid a new build-up of unsustainable debt. The Committee stresses that the debt sustainability framework jointly developed by the IMF and the World Bank is the primary tool to be used by borrowers and creditors in assessing alternative financing strategies, identifying emerging debt-related vulnerabilities, and developing coherent lending practices, and urges all creditors and borrowers to use the framework in their lending and borrowing decisions. The Committee urges all creditors to work with the IMF and the World Bank to adhere to responsible lending. The Committee looks forward to further refinements to the framework and the development of practical guidelines for borrowers and creditors.
14. At its next meeting, the Committee will consider further work on ways to enhance collaboration and clarify the division of responsibilities and accountabilities between the IMF and the World Bank, taking account of the work of the External Review Committee on World Bank-IMF Collaboration.
15. The Committee looks forward to the development of proposals for more predictable and stable sources of IMF income, in the context of the IMF’s overall budgetary position. It looks forward to the recommendations of the Committee of Eminent Persons appointed by the Managing Director.
16. The Committee calls for closer cooperation between the IMF and Financial Action Task Force in promoting stronger implementation of international anti-money laundering and combating terrorist financing (AML/CFT) standards and encourages publication of comprehensive country evaluations.
17. The Committee recommends members’ acceptance of the Fourth Amendment of the Articles of Agreement.
18. The Committee welcomes the external evaluation of the Independent Evaluation Office (IEO). The IEO is continuing to make a valuable contribution to the IMF’s learning culture and facilitating oversight and governance.
19. The Committee expresses its heartfelt appreciation to Anne Krueger for her exceptional contributions to a shared vision of a globalized economy providing equitable opportunities for all, and for serving the IMF and its membership with unwavering dedication and decisive intellectual leadership. It extends a warm welcome to John Lipsky, who has succeeded her as First Deputy Managing Director. The Committee also expresses its appreciation of the work of Raghuram Rajan as Economic Counsellor.
20. The next meeting of the IMFC will be held in Washington, D.C. on April 14, 2007.
1. Following the important commitments made last year to increase the quantity, quality and effective use of resources for development, we reviewed progress towards the Millennium Development Goals (MDGs) based on an assessment in the third annual Global Monitoring Report. We reaffirmed the principle of mutual accountability of developing countries, developed countries, and the international financial institutions for making progress on this agenda, focusing on aid, trade and governance. We also discussed clean energy and development, an issue that requires as a priority the attention of global policy makers.
2. We welcomed recent progress made in reducing income poverty, reflecting both a favorable global economic environment and improved economic management in many countries. We are encouraged that growth in Sub-Saharan Africa exceeded 5% for the third consecutive year. We recognized that progress is uneven and insufficient, particularly in Sub-Saharan Africa and in some regions of middle income countries (MICs). There are also signs of better progress towards the human development MDGs. Yet, on current trends many developing countries will fail to meet the MDGs, in particular those related to human development. Achieving rapid, sustained, and shared growth will require further actions to improve the business climate, access to infrastructure, enhanced market access and trade opportunities as well as measures to address issues of equity, including gender equity.
3. We welcomed the rising trend in the volume of official development assistance (ODA), not only from the OECD Development Assistance Committee members, but also from non-DAC countries. We called on all donors to fully implement the commitments they have made for substantial increases in aid volumes. We urged those donors that have not done so to make concrete efforts towards the target of 0.7 percent of GNI as ODA in accordance with their commitments. We noted progress made on the International Finance Facility for immunization and on Advance Market Commitments for vaccines, increased support for an airline ticket solidarity levy and its implementation by several countries, and continuing work on the scope for greater use of blending arrangements. We noted the key role of the World Bank and the IMF in helping countries ensure that increases in aid volumes can be absorbed effectively, consistent with macro-economic stability and growth objectives. We welcomed creation of the Exogenous Shocks Facility and Policy Support Instrument at the Fund, both of which help improve its flexibility in engaging with low-income countries.
We also noted the rising trend of net private flows to developing countries, including remittances.
4. We called for rapid progress in implementing the framework agreed in the Paris Declaration for enhancing aid effectiveness through improved modalities and a stronger focus on results. Developing countries need to strengthen their management of financial resources, and improve their domestic resource mobilization as well as governance and delivery of basic services. Donors and other partners need to improve the quality of aid, modalities of aid delivery to reduce volatility, achieve greater predictability, and provide stronger alignment with national poverty reduction strategies. To this end, we encouraged donors where possible to move towards multiyear plans and commitments, and to be ready to finance recurrent costs where sector policies are sound and fiduciary conditions are adequate. We asked the World Bank and other partners to intensify their coordination at the country level, particularly in strengthening health systems and improving access to good quality education, to reduce transaction costs and to help increase absorptive capacity. We emphasized the importance of universal access to primary education and sustained support for good quality education plans, and the key role the Education for All - Fast Track Initiative could play in all qualifying low income countries. We called on donors to fill the current financing gap. We asked for a progress report on Education for All by our next meeting. We encouraged the Bank to implement the proposal to hold annual Results and Resources Consultative Groups in its Africa Action Plan. We also emphasized the need for the multilateral development banks (MDBs) to strengthen their results orientation, so as to contribute better to improved country outcomes. We look forward to the first World Bank report on results monitoring and systems to strengthen both country and institutional incentives and assure learning from results. In this context, we urged all MDBs and all donors to step up support for strengthening statistical and related institutional capacity in partner countries.
5. We noted the importance of continued development progress in MICs and emerging market countries, and asked the Bank to refine and enhance its engagement strategy with these countries by our next meeting, taking into account their contributions to poverty reduction and global public goods, access to market financing, and remaining development challenges.
6. Promoting good governance, including fighting corruption, and mutual accountability are essential to efforts to achieve the MDGs. We agreed on the need for efforts to improve governance in all countries, to help build effective states with strong national systems and to work together on implementing global initiatives to improve governance, increase transparency and build demand for good governance at the country level in a way that strengthens ownership. The Bank and Fund should play a full supporting role. We asked the Bank to further develop disaggregated and actionable indicators in areas such as quality of public financial management, and procurement practices. We noted the diagnosis in the Global Monitoring Report that a significant level of corruption is a symptom of poor governance. Building on work over the last decade, we called on the Bank to lay out a broad strategy, to be discussed at our next meeting, for helping member countries strengthen governance and deepen the fight against corruption, working closely with the Fund, other multilateral development banks and the membership, to ensure a coherent, fair and effective approach. This strategy should lead to clear guidelines for operations.
7. We welcomed the progress made in implementing the Multilateral Debt Relief Initiative (MDRI) in the Fund, the International Development Association (IDA), and the African Development Fund, and, in particular, cancellation by the IMF of the MDRI debt of the first 19 countries, and, in the Bank, the approval of the required Resolution by the IDA Governors leading to final agreement on the Initiative. We urged donor countries to secure their financing commitments to achieve full compensation of IDA’s foregone reflows and to ensure that this initiative is truly additional to existing commitments. We called on the Bank and the Fund in consultation with the membership to bring forward proposals to further refine the debt sustainability framework for low-income countries to support growth and avoid accumulation of unsustainable debt, and, in this context, to further elaborate and implement an effective approach to deal with the issue of "free-riding" where non-concessional lenders may indirectly obtain financial gain from IDA’s grants and debt forgiveness. We called for participation of all export credit agencies, IFIs, and other official creditors, in such an approach and encouraged them to use the debt sustainability framework in their lending decisions. We also noted the final list of potentially eligible countries for the HIPC initiative and the initial cost estimate of debt relief for these countries.
8. Implementation of the Doha Development Agenda is a critical complement to other efforts to increase growth and reduce global poverty. After modest progress at the Hong Kong ministerial meeting in December 2005, we urged all WTO members to step up their efforts to reach a successful conclusion to the Doha Round by the end of this year. We welcomed a significant increase in donor commitments for aid for trade, and creation of a task force in the WTO to make recommendations on how to operationalize aid for trade, recognizing that this is a complement not a substitute for a successful Doha Round. We asked the Bank and the Fund to further examine cross-country and regional aid for trade needs by our next meeting and deepen their work to integrate trade-related needs into their support for country programs. We also asked the Bank and the Fund to continue their global advocacy on trade and development.
9. The global community faces a major challenge in securing affordable and cost-effective energy supplies to underpin economic growth and poverty reduction while preserving the environment. These need not be conflicting goals. We recognized lack of access to energy as an acute problem in many low income countries. We agreed to explore ways to help developing countries enhance their access to affordable, sustainable and reliable modern energy services over the long term, while paying attention to local and global environmental considerations. We also urged them to do so through policy reform to attract domestic and international investment in clean and efficient energy services. We also noted that adaptation to climate change for poor countries is a critical development issue. We reaffirmed our commitment to the goals of the United Nations Framework Convention on Climate Change. We found broad support for the Bank’s approach in addressing 1) developing country energy needs and access to energy services, 2) efforts to control greenhouse gas emissions, and 3) helping developing countries adapt to climate risks, and the two track work program. We asked the Bank to review, in close coordination with other partners, existing financial instruments, taking into account the role of the private sector; and to explore the potential value of new financial instruments to accelerate investment in clean, sustainable, cost effective and efficient energy; so as to report on progress towards an investment framework by our next meeting. We urged member countries of the Global Environment Facility to conclude the fourth replenishment negotiation as soon as possible.
10. Avian Influenza poses a major risk for all countries but more particularly for developing countries. We called for continued coordination and planning by countries and agencies at the international and regional levels and, within countries, continued coordination across relevant ministries. We also welcomed the Bank’s rapid operational response under the Global Program for Avian Influenza.
11. We welcomed the interim report on how fiscal policy can best support long term growth, and its emphasis on specific country experiences. We look forward to the final report in early 2007.
12. We noted the creation of the External Review Committee to review various aspects of Bank-Fund collaboration, and look forward to considering its findings and recommendations. We ask the Bank and Fund to ensure that their institutional responsibilities continue to cover all the critical issues relating to reaching the MDGs within their mandates.
13. We welcomed the discussion of quota and voice issues in the Fund, and confirmed our intention to continue our discussions with a view to building the necessary political consensus on the voice issue in the Bank.
14. We welcomed the new Chairman Alberto Carrasquilla. We thanked Zia Qureshi for his services as Interim Executive Secretary to the Committee and welcomed the appointment of Kiyoshi Kodera as new Executive Secretary.
15. The Committee’s next meeting is scheduled for September 18, 2006 in Singapore.
1. We met today to discuss progress in implementing the development agenda for achieving the Millennium Development Goals (MDGs). We reviewed the World Bank’s proposed governance and anticorruption strategy, and the priorities for its evolving engagement with middle-income countries. We also celebrated the 50th anniversary of the International Finance Corporation, which has contributed to fostering sustainable private sector development and promoting market development in developing countries.
2. Building on five consecutive years of strong growth, policymakers in developing countries now need to prepare for a more challenging global environment. This will entail maintaining macroeconomic stability, further strengthening public sector financial management, and continuing to improve domestic resource mobilization. More also needs to be done to improve the business climate and governance.
3. The pledges made last year to substantially increase the volume of official development assistance (ODA), including a doubling of aid to Africa by 2010, must be delivered in a predictable manner. We urged those donors that have not done so to make concrete efforts towards the target of 0.7 percent of Gross National Income as ODA in accordance with their commitments. We look forward to a successful IDA 15 replenishment next year and urged donors to ensure that their commitments to make the multilateral debt relief initiative (MDRI) and the Heavily Indebted Poor Countries (HIPC) Initiative additional to other aid flows be met. We noted the substantial progress made on Advance Market Commitments for vaccines and the work in progress in order to launch a pilot project by the end of 2006. We also welcomed the launch of the International Financing Facility for Immunization and of the International Drug Purchase Facility. We asked the Bank, within its overall strategy, to develop a framework for its role in the provision of global and regional public goods including criteria for its involvement and financing modalities.
4. The international commitments to improve aid effectiveness embodied in the principles of the Paris Declaration must now be consistently translated into action at the country level. We called on the Bank to deliver on its commitments to scaling up and aid effectiveness, including the implementation of the best practice principles identified in the Bank’s conditionality review. We noted the country-based "results and resources meetings" approach to facilitate scaling up aid now being piloted in several African countries with the help of the Bank and the Development Assistance Committee, and urged developing countries to prepare well-defined and costed programs for using scaled up aid to step up the poverty reduction effort. Noting the Bank’s role in helping to ensure that additional assistance is effectively coordinated and aligned with country priorities, we asked for a progress report on the Bank’s Africa Action Plan at our next meeting. We welcomed the Bank’s Gender Action Plan to expand women’s economic opportunities in developing countries. We also looked forward to hearing about progress towards achieving the gender MDGs in the next Global Monitoring Report.
5. We welcomed the progress report on Education for All-Fast Track Initiative (EFA-FTI), and the contribution it is making to increasing primary school completion rates. The initiative offers a promising approach to donor harmonization and scaling up at the sectoral level. We recognized the importance of country ownership and the quality of education, and the need to expand the initiative to larger countries and fragile states. We called for predictable and long-term funding for this initiative, including domestic funding. We also urged the Bank to strengthen its work on measurement of learning outcomes in order to ensure continuous attention to the quality of education. In this regard, we look forward to a further update on progress to the Board.
6. September 2006 marks the tenth anniversary of the HIPC Initiative. We welcomed the substantial reduction of debt stocks and noted the increase of poverty-reducing expenditures of the 29 HIPCs that have reached the decision point. We also welcomed the decision to allow the sunset clause to take effect at end-2006 and to grandfather the countries that are assessed to have met the HIPC criteria based on end-2004 data. We welcomed the implementation of the MDRI by the IMF, IDA and the African Development Fund. Debt relief has provided many low-income countries with additional resources that can be used to make progress towards the MDGs. We cautioned against excessive borrowing after the relief which may lead to re-emergence of debt distress. We therefore underscored the importance of the Joint Debt Sustainability Framework of the Fund and the Bank for low-income countries in helping ensure that new borrowing in post-MDRI countries does not undermine their long-term debt sustainability, and look forward to the review of the framework. We asked all the multilateral development banks, bilateral donors, export credit agencies and commercial creditors to adhere to this framework. We stressed the importance of implementing the Bank’s approach to deal with the issue of free riding and the need to address the issues of official creditors’ coordination. We also stressed the importance of Bank and IMF support for strengthening public financial management including, debt management.
7. The de facto suspension of the Doha negotiations represents a setback in our effort to make more rapid progress towards achieving the MDGs. We re-emphasized the importance of the multilateral trading system and called upon all WTO members to avoid backsliding and provide trade ministers with the necessary flexibility to resume the negotiations by the end of the year. We also called on the Bank and the Fund to continue their global advocacy role on trade and development, and to foster the integration of trade into country programs. While recognizing that aid for trade is not a substitute for trade liberalization, we reiterated our commitment to expanding the funding and strengthening the mechanisms for Aid for Trade. We welcomed the recommendations of the WTO Task Forces on Aid for Trade and the Integrated Framework (IF), both of which explicitly recognize the need to adhere to the Paris Declaration on aid effectiveness. We took note of the new governance mechanisms proposed for the enhanced IF, and reiterated the importance of working through established channels with proven development expertise. We noted the interest in extending a similar process to other poor countries that are not Least Developed Countries. We urged the Bank to work with these countries to incorporate trade needs into their national development strategies. We also agreed on the need to improve existing instruments to address cross-country and regional projects and strengthen the monitoring of regional initiatives and funding.
8. Actions to promote good governance are crucial to successful development and poverty reduction, and helping member countries on these issues is therefore important to the Bank’s mission and to achieving the MDGs. Tackling corruption effectively and firmly is a significant part of this. The principal objective of the Bank’s governance work should be to help develop capable and accountable states to deliver services to the poor, promote, private sector led growth and tackle corruption effectively. We supported the Bank’s engagement in governance and anticorruption work. Country ownership and leadership are key to successful implementation. Governments are the key partners of the Bank in governance and anticorruption programs, while, within its mandate, the Bank should be open to involvement with a broad range of domestic institutions taking into account the specificities of each country. We also emphasized that predictability, transparency, and consistent and equal treatment across member countries are the Bank’s guiding principles. In stepping up attention to governance and anticorruption in Country Assistance Strategies, we asked the Bank to further develop and use disaggregated and actionable indicators, recognizing that IDA resources will continue to be allocated through the existing Country Performance and Institutional Assessment and Performance Based Allocation system. We recognized that the strategy will evolve with implementation and in the light of experience, but the paper sets out a framework for continued Bank engagement in this work and the further consultation which is planned with partner countries, with the Fund and with other donors and multilaterals, with civil society, and with the private sector. Given the importance of this issue, we stressed the importance of Board oversight of the strategy as it is further developed and then implemented, and we look forward to a report from the Board at our next meeting.
9. Middle income and emerging market countries (MICs), partner countries of the IBRD, are home to 70% of the world’s poor. They constitute an extremely diverse group of countries. While many of them have made dramatic improvements in economic management and governance over the past two decades, as a group they still face major challenges of poverty reduction and development and in their contribution to provision of important regional and global public goods. We strongly endorsed the statement of the Bank’s corporate role and mission to eradicate poverty in its partnership with MICs. We reviewed the Bank’s proposals to strengthen the IBRD’s value-added and engagement in response to the evolving and diverse needs of middle-income countries. We recognized that as MICs develop they will eventually graduate from IBRD lending. We also noted that in parallel, in implementing its medium-term strategy, the IMF is making efforts to adapt, better focus, and enhance its engagement with emerging market countries. We welcomed the Bank’s proposals to deliver better and more flexible country partnership strategies reflecting diverse country circumstances; to reduce the cost of doing business with the Bank by streamlining internal Bank procedures; to simplify loan pricing and make its products more competitive; to develop new ways to help countries facing external shocks; to increase provision of fee based expert services, unbundled from lending; to continue to work towards scaling up Bank Group lending to sub-national entities within frameworks agreed with national governments; and to better exploit synergies between the different arms of the Bank Group within their respective mandates. Increasing the use of country systems where mutually agreed and verifiable standards are in place to ensure effective execution is an important part of this agenda for scaling up development impact. We encouraged the Bank to give greater emphasis to issues of regional and global concern in areas where it has a comparative advantage. We also called for deeper cooperation between the Bank, regional development banks and other development partners in their engagement with MICs, and encouraged the Bank to develop a menu of options to respond to country demand-driven initiatives for targeted blending of concessional donor support with multilateral development bank loans in cases of market failure or where there are affordability issues.
10. We welcomed the progress made in developing a Clean Energy Investment Framework, including the review of the adequacy of existing financial instruments. The global community faces a major challenge in securing affordable and cost-effective energy supplies to underpin economic growth and poverty reduction while preserving the local and global environment. We agreed that this challenge requires sound country energy policies and regulatory frameworks. We found broad support for the Bank’s approach in addressing the three inter-related issues of: (i) energy for development and access to affordable energy for the poor; (ii) the transition to a low carbon economy; and (iii) adaptation, and support continued work on each of them. In particular, we recognized lack of access to energy as an acute problem in many low income countries, especially in Sub Saharan Africa, supported the Action Plan for improved energy access and urged donors to provide additional funding and other assistance required. We encouraged activities that cost-effectively and sustainably promote the transition to a low-carbon economy, respecting circumstances of individual economies, without hindering the growth of developing countries and mitigating the incremental costs to them. We asked the Bank to work with the regional development banks, United Nations agencies, the Global Environment Facility (GEF), private sectors and other interested parties to maximize the use of existing instruments. We support further examination of the future Bank role in the transition to a lower-carbon economy, taking into account all issues raised in the progress report and recognizing the primary institutional responsibility of the UN Framework Convention Climate Change. We asked the Bank, in close coordination with the GEF, to continue to work on further exploring financing options to support investment in clean energy for development. We welcomed the Bank’s proposal to consider new means and mechanisms to make pricing of existing instruments more transparent and competitive to provide incentives and resources to countries to pursue clean energy alternatives. We also stressed the need to develop strategies, tools and financing to help meet the challenge of adaptation to increased climate variability, which can adversely affect the livelihoods of people, especially the poor, and undermines the achievement of the MDGs. We noted the value of protecting future investments from climate volatility.
11. We look forward to considering the findings of the External Review Committee to review various aspects of Bank-Fund collaboration. We asked the Bank and the Fund to ensure that their institutional responsibilities continue to cover all the critical issues relating to reaching the MDGs within their mandates.
12. We welcomed the Managing Director’s report on progress made in the reform of IMF quotas and voice. Acknowledging the measures already taken by the Bank to enhance capacity in EDs’ offices and capitals of developing and transition countries, we asked the Bank to work with its shareholders to consider enhancement in voice and participation in the governance of the Bank.
13. We wish to thank the authorities and people of Singapore for their excellent hospitality and facilities.
14. The Committee’s next meeting is scheduled for April 15, 2007 in Washington, D.C.
IMF-related assets declined by 10 per cent in FY2006 compared to FY2005, reflecting the recent decline in outstanding credit to member countries. The table of IMF resource flows illustrates that the flow of repayments was larger than the flow of disbursements; the table of outstanding IMF credit shows the distribution of the impacts of these repayments.
Official Holdings of Reserve Assets as of April 30
|(billions of SDRs)|
|Reserve positions in the Fund||28.6||22.2|
|1 As of March 2006|
IMF Resource Flows (January 1 to December 31)
|(billions of SDRs)|
|General Resources Account (GRA)||2.3||2.4|
|Poverty Reduction and Growth Facility (PRGF)||0.4||0.5|
Outstanding Credit by Facility and Policy as of April 30
|(millions of SDRs)|
|Supplemental Reserve Facility||4,569||–|
|Compensatory and Contingency Financing Facility||84||84|
|Systemic Transformation Facility||18||–|
|Structural Adjustment Facility arrangements||45||9|
The remainder of the tables in this annex are an overview of consolidated balance sheets and related consolidated statements of income, changes in reserves and resources and cash flows.
The IMF conducts its operations and transactions through the General Department and the Special Drawing Rights Department (the SDR Department). The General Department consists of the General Resources Account (GRA), the Special Disbursement Account (SDA), including the Multilateral Debt Relief Initiative-I Trust (MDRI-I Trust), over which the SDA has substantial control, and the Investment Account.
General Department. The GRA holds the general resources of the IMF, which reflect the payment of quota subscriptions, use and repayment of IMF credit, collection of charges on the use of credit, payment of remuneration on creditor positions, borrowings, and payment of interest and repayment of borrowings. The assets and resources of the SDA are held separately from the GRA and the Investment Account. The SDA is the vehicle for receiving and investing profits from the sale of the IMF’s gold and for making transfers to other accounts for special purposes authorized in the Articles, in particular for financial assistance on special terms to low-income members of the IMF. Transfers to the Investment Account from the GRA were approved on April 30, 2006, and were made subsequent to FY2006.
Special Drawing Rights Department. The SDR is an international interest-bearing reserve asset created by the IMF. All transactions and operations involving SDRs are conducted through the SDR Department. SDRs may be allocated by the IMF, as a supplement to existing reserve assets, to members participating in the SDR Department. The resources of the SDR Department are held separately from the assets of all the other accounts of, or administered by, the IMF. They may not be used to meet the liability, obligations or losses of the Fund incurred in the operations of the General Department or other accounts. However, the SDR Department reimburses the General Department for expenses incurred in conducting the business of the SDR Department.
The IMF also administers trusts and accounts established to perform financial and technical services and financial operations consistent with the purposes of the IMF. Members or the IMF contribute the resources of these trusts and accounts through the SDA. With the exception of the MDRI-I Trust, whose financial statements are consolidated with those of the General Department, the financial statements of the SDR Department and these trusts and accounts are presented separately. More details on the purpose and administration of these accounts are available in the 2006 IMF Annual Report.
Highlights of IMF Financial Statements
|(millions of SDRs)|
|Net income (loss)||461||(2,320)|
|Usable currencies and SDRs at end of FY||122,963||154,773|
|(millions of SDRs)|
|Total receipts of SDRs||10,632||13,005|
|Total uses of SDRs||10,632||13,005|
|Cash flows from operating activities||–||–|
|Total holdings at end of FY||21,522||21,469|
|Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust||FY2005||FY2006|
|(millions of SDRs)|
|Net income (loss)||68,696||(545,765)|
|Cash and cash equivalents at end of FY||1,946||747|
|PRGF-HIPC Trust and Related Accounts||FY2005||FY2006|
|(millions of SDRs)|
|Resource balance at end of FY||599||640|
|Cash and cash equivalents at end of FY||503||347|
|Multilateral Debt Relief Initiative-II Trust||FY2005||FY2006|
|(millions of SDRs)|
|Balance at end of FY||n/a||–|
|Cash and cash equivalents at end of FY||n/a||44|
Operational highlights and key financial indicators for World Bank Group associations are summarized in the following table. As shown in the table, World Bank Group operations continued to grow during fiscal year 2006 (ending June 30, 2006). The IBRD increased its lending commitments by 3.5 per cent and IDA increased its concessional lending activities by 9 per cent in FY2006 compared to FY2005. The IFC increased private sector investment activities by 11 per cent and MIGA increased its political insurance activities by 6 per cent in FY2006 compared to FY2005.
World Bank Group institutions all continue to maintain strong financial positions. The IBRD achieved a return on average assets of 0.8 per cent in FY2006 and maintained a sustainable debt-to-equity ratio that grew 2.7 per cent to 33 per cent in FY2006. IDA posted operating losses in FY2006 due to a change in the way operating income is calculated. As of FY2005, development grants are charged to income upon approval by IDA’s Executive Directors rather than upon signing of the grant agreement by the recipient country. IDA total sources of development resources declined in FY2006 due to increased provisions for debt relief through the Heavily Indebted Poor Countries Debt Initiative and the MDRI. The IFC continues to grow rapidly and posted a strong return on investment of 3.6 per cent in FY2006 compared to 5.4 per cent in FY2005. Compared to FY2005, MIGA maintained nearly constant risk levels in its underwriting activities and continued to make a sustainable return on operating capital before provisions of 2 per cent.
Operational Highlights and Key Financial Indicators
for World Bank Group Associations
|International Bank for Reconstruction and Development||FY2005||FY2006|
|(millions of US dollars)|
|Number of projects||118||112|
|Principal repayments including prepayments||14,809||13,600|
|Return on average assets1 (per cent)||0.6||0.8|
|Equity-to-loans ratio (per cent)||30.3||33|
|International Development Association||FY2005||FY2006|
|(millions of US dollars)|
|Operating income (loss)||(986)||(2,043)|
|Total appliccations of development resources||130,378||102,871|
|Number of projects||160||167|
|International Finance Corporation||FY2005||FY2006|
|(millions of US dollars)|
|Number of projects||236||284|
|Loan and equity investments, net||11,489||12,731|
|Return on average assets1 (per cent)||5.4||3.6|
|Multilateral Investment Guarantee Agency||FY2005||FY2006|
|(millions of US dollars)|
|Administrative and other expenses||32.3||31.3|
|Statutory underwriting capacity||10,216|
|Cumulative guarantees issued||14,700||16,000|
|Fiscal-year guarantees issued||1,226||1,302|
|Number of projects||41||41|
|Operating capital/net exposure (per cent)||26.4||26.1|
|Return on operating capital, before provisions (per cent)||2.9||2.0|
|1 Return on average assets is defined as operating income for the fiscal year as a percentage of the average of total assets at the end of such fiscal year and the previous fiscal year.
2 Net exposure is maximum aggregate liability less reinsurance.
Active IMF Lending Arrangements—As of December 31, 2006
|Date of Arrangement||Expiration Date||Amount Approved||Undrawn Balance|
|(in SDR millions)|
|Bulgaria||August 6, 2004||March 31, 2007||100||100|
|Dominican Republic||January 31, 2005||May 31, 2007||438||193|
|Iraq||December 23, 2005||March 22, 2007||475||475|
|Macedonia, former Yugoslav Republic of||August 31, 2005||August 30, 2008||52||41|
|Paraguay||May 31, 2006||August 31, 2008||65||65|
|Turkey||May 11, 2005||May 10, 2008||6,662||2,998|
|Extended Fund Facility Arrangements—Total||9||6|
|Albania||February 1, 2006||January 31, 2009||9||6|
|Poverty Reduction and Growth Facility—Total||1,809||819|
|Afghanistan, Islamic Republic of||June 26, 2006||June 25, 2009||81||81|
|Albania||February 1, 2006||January 31, 2009||9||6|
|Armenia, Republic of||May 25, 2005||May 24, 2008||23||10|
|Bangladesh||June 20, 2003||June 19, 2007||400||84|
|Benin||August 5, 2005||August 4, 2008||6||4|
|Burundi||January 23, 2004||September 30, 2007||69||14|
|Cameroon||October 24, 2005||October 23, 2008||19||13|
|Central African Republic||December 22, 2006||December 21, 2009||36||36|
|Chad||February 16, 2005||February 15, 2008||25||21|
|Congo, Republic of||December 6, 2004||June 5, 2008||55||31|
|Georgia||June 4, 2004||June 3, 2007||98||28|
|Grenada||April 17, 2006||April 16, 2009||11||9|
|Haiti||November 20, 2006||November 19, 2009||74||46|
|Honduras||February 27, 2004||February 26, 2007||71||31|
|Kenya||November 21, 2003||February 28, 2007||225||150|
|Kyrgyz Republic||March 15, 2005||March 14, 2008||9||4|
|Madagascar||July 21, 2006||July 20, 2009||55||47|
|Malawi||August 5, 2005||August 4, 2008||38||23|
|Mali||June 23, 2004||June 22, 2007||9||3|
|Mauritania||December 18, 2006||December 17, 2009||16||16|
|Moldova, Republic of||May 5, 2006||May 4, 2009||111||67|
|Mozambique||July 6, 2004||July 5, 2007||11||3|
|Nepal||November 19, 2003||November 18, 2007||50||21|
|Niger||January 31, 2005||January 30, 2008||26||9|
|Rwanda||June 12, 2006||June 11, 2009||8||7|
|São Tomé and Príncipe||August 1, 2005||July 31, 2008||3||2|
|Sierra Leone||May 10, 2006||May 9, 2009||31||22|
|Tanzania||August 16, 2003||August 15, 2007||20||3|
|Zambia||June 16, 2004||June 15, 2007||220||28|
Projects Approved for IBRD and IDA Assistance in Fiscal Year 2006, by Country (July 1, 2005–June 30, 2006)
|IBRD loans||IDA loans||Total loans|
|(millions of US dollars)|
|Africa - Regional||–||5||537.5||5||537.5|
|Bosnia and Herzegovina||–||2||51.0||2||51.0|
|Democratic Republic of Congo||–||3||365.0||3||365.0|
|Egypt, Arab Republic of||3||779.6||–||3||779.6|
|IBRD loans||IDA loans||Total loans|
|(millions of US dollars)|
|Lao, People’s Democratic Republic||–||4||37.0||4||37.0|
|Macedonia, former Yugoslav Republic of||4||86.8||–||4||86.8|
|Serbia and Montenegro||–||3||89.0||3||89.0|
|IBRD loans||IDA loans||Total loans|
|(millions of US dollars)|
|Yemen, Republic of||–||3||115.0||3||115.0|
IBRD Loans and IDA Credits—Summary Statistics
for Fiscal Year 2006 (July 1, 2005–June 30, 2006)
|IBRD Amount||IDA Amount||Total No.||Amount|
|(millions of US dollars)|
|East Asia and Pacific||2,344.3||1,057.2||36||3,401.5|
|Europe and Central Asia||3,531.7||512.8||64||4,044.5|
|Latin America and the Caribbean||5,602.8||307.7||64||5,910.5|
|Middle East and North Africa||1,333.6||367.0||16||1,700.6|
|By Theme||Total Amount|
|Environmental and Natural Resources Management||1,387.3|
|Financial and Private Sector Development||6,137.8|
|Public Sector Governance||3,820.8|
|Rule of Law||757.6|
|Social Development, Gender and Inclusion||1,094.1|
|Social Protection and Risk Management||1,891.7|
|Trade and Integration||1,610.9|
Disbursements by IBRD and IDA Borrowers:
Goods and Services From Canada—To June 30, 2006
|(millions of US dollars)|
|By Fiscal Year|
|* As of fiscal year 2005, data reflects goods and service contracts awarded and not payments.|
IBRD Loans and IDA Credits to Developing Countries
|IBRD loans||IDA loans||Total|
|(millions of US dollars)|
|By Fiscal Year|
|Note: Joint IBRD/IDA operations are counted once as IBRD operations. When more than one loan is made for a single project, the operation is counted only once.|