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Archived - Canada at the IMF and World Bank 2008 : 2
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Canadian Statements at the International Monetary and Financial Committee of the Board of Governors for the IMF
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
April 12, 2008
This meeting is taking place at a time of heightened uncertainty about the global economy and our collective near-term prospects. This backdrop for our discussions today underscores the importance of an effective International Monetary Fund (IMF), capable of identifying potential economic vulnerabilities through its surveillance, helping members to implement sound policies through its capacity building and, when necessary, supporting members amid crises through its lending activities. The Fund was created, after all, to promote the international monetary cooperation needed to promote and safeguard the public good of international economic and financial stability, and with it, global prosperity.
It is thus encouraging that our meeting is also taking place at a time of great progress for the IMF as an institution. I am pleased to represent my constituency at this important meeting and, on behalf of Canada and the constituency, I want to extend a warm thanks to Managing Director Dominique Strauss-Kahn for his strong leadership, including the steps that have been taken toward making the IMF more legitimate, credible and effective since his arrival last fall.
The recent agreement to modernize the IMF's quota system is an historic event in that it recognizes the growing importance of a new group of countries in the global economy. It is an understanding that can reanimate the spirit of international cooperation on which the Fund was created. The significant progress we have made in updating the Fund's voting structure is a key foundation for moving forward on other reforms. And I believe we can move forward knowing that the quota deal can re-energize members' belief in the importance and ultimate legitimacy of the institution.
Since our fall meeting, the global economic outlook has deteriorated. What started as a collapse of the US subprime mortgage market has spread to a wide range of markets and financial instruments. To this point at least, there has been a disconnect between the turbulence in financial markets and the real economy. However, there are now signs that economic growth in a number of major economies is slowing, reflecting greater stringency in the availability of financing for households and firms.
Similarly, emerging markets have been much less affected to this point, reflecting in part improvements in recent years in their policy frameworks. But in the integrated global economy in which we live, no country can be completely insulated from instability in international markets. The current turmoil is a global problem, and Canada, as an open economy with strong links to the rest of the world, is also not isolated from the adverse spillovers from slower growth elsewhere.
At the same time, policy-makers around the world have reacted to these developments with agility and determination. Monetary conditions have been eased in many countries to support growth. Liquidity has been provided to facilitate the smooth functioning of financial markets, including in some cases through innovative mechanisms. And, in some countries, fiscal stimulus has also been added, in a manner that will bolster demand in the face of near-term challenges without compromising longer-term fiscal sustainability. Together, these responses will support confidence, strengthen aggregate demand and facilitate needed adjustments. Yet, as policy-makers try to navigate through this financial turmoil, they are also faced with the challenge of inflationary pressures that have increased due to oil and food prices rising sharply over the past year.
Growth in the Canadian economy was strong through most of 2007, averaging over 3½ per cent (annualized) in the first three quarters. Growth has slowed more recently, with real gross domestic product (GDP) increasing just 0.8 per cent in the final quarter of 2007, reflecting lower exports associated with the weakening US economy and the appreciation of the Canadian dollar. For 2007 as a whole, the Canadian economy expanded 2.7 per cent, down slightly from the 2.8 per cent pace observed in 2006.
Despite the slowing in overall growth, final domestic demand remains strong and continues to be the main driver of growth. Led by robust growth in consumer spending and business investment, final domestic demand increased 4.3 per cent in 2007, down moderately from a robust 4.7 per cent increase in 2006. Solid personal income gains, very healthy job growth and low interest rates, together with tax relief and strong monetary and fiscal fundamentals, continue to support the Canadian economy. The IMF expects Canadian growth to be 1.3 per cent in 2008, increasing to 1.9 per cent in 2009.
Inflation pressures remain well contained. Total consumer price inflation dropped below the Bank of Canada's 2 per cent inflation target in February after spending most of the past year somewhat above the target, while core inflation has averaged about 1.6 per cent over the past six months. The Bank of Canada has lowered its policy rate by a cumulative 100 basis points since December 2007 and has noted that "further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term."
Canada's fiscal situation remains strong. On a total government basis, Canada's budget surplus was 1.3 per cent of GDP in 2007 and is projected to remain in surplus for 2008 and 2009. By contrast, the Group of Seven (G7) as a whole is expected to record an average deficit of approximately 2.6 per cent of GDP during that time. Canada also has a very strong track record on debt reduction. Our total government net debt, as a percentage of GDP, has declined steadily from a peak of nearly 71 per cent in 1995 to about 23 per cent in 2007. We will continue this course. The Government aims to bring total government net debt, already the lowest in the G7 since 2004, to zero by 2021. This responsible fiscal stewardship is the cornerstone of the Government's economic plan. It has allowed the Government to respond to recent economic uncertainty from a position of strength. The actions taken by the Government in the October 2007 Economic Statement provide more than $12 billion in incremental tax relief this year. Combined with actions taken by the Government since 2006, $21 billion in incremental tax relief—1.4 per cent of Canada's economy—is being provided to Canadian individuals and businesses this year.
Irish and Caribbean Developments
The Irish economy put in another strong performance in 2007. Real GDP grew by more than 5 per cent; the fiscal position remained in small surplus, while inflation averaged 2.7 per cent. As the year progressed, however, turbulence in global financial markets, the long-expected downturn in the domestic construction sector and the strengthening of the euro against the US dollar and sterling began to weaken growth, and downside risks came into prominence. For 2008, the prospect is for growth of about 2.5 per cent but as a small highly globalized economy, Ireland is particularly vulnerable to a further deterioration in the global economic environment. After many years of an extremely buoyant housing/property market, this sector is experiencing a sharp slowdown and house prices are falling to a modest degree. This period of adjustment will bring about a better balance between longer-term supply and demand and a recovery expected in 2009. The well-established pattern of fiscal balance or small surplus will be interrupted in 2008, when a deficit in excess of 1 per cent of GDP is in prospect. Unemployment seems likely to rise to about 5.5 per cent and inwards migration to slow considerably. As in many other countries, rising fuel and food prices are having an effect on inflation: on a harmonized European basis, consumer prices are rising at about 3.5 per cent year on year and should average slightly above 2.5 per cent over the course of the year.
While, along with the rest of the world, 2008 will be quite a difficult year for the Irish economy, economic fundamentals remain strong, and many years of sound micro and macroeconomic policies should mitigate the effects of the current global downturn and place the economy in a favourable position to respond as the world economy begins to recover in 2009.
For the Caribbean countries I represent in the Committee, 2007 was another challenging year, due mainly to adverse exogenous shocks. Growth remained robust, although the rate of economic expansion moderated, reflecting a winding down of Cricket World Cup-related activities and natural disaster-related damages to the agriculture sector in a number of countries. The region faced high levels of inflation due to high and rising oil and commodity prices, and weather-related food supply shocks. Minimizing the impact of the high and rising inflation and protecting the poor and vulnerable also remain a major policy challenge. During the year, a number of countries incurred additional fiscal and social costs as a result of the impact of hurricanes, floods and earthquakes. Debt overhang remains a major challenge for many countries but Caribbean governments remain fully committed to reducing the debt and, accordingly, efforts at fiscal consolidation continue. Against the backdrop of the turbulence in financial markets, the outlook for further slowing in the global economy and the contraction in the US economy, the Caribbean's major trading partner, there are downside risks for the Caribbean. These reinforce the need to advance the reform process and the regional integration movement.
Given the Caribbean's vulnerability to natural disasters, we are pleased to see that based on the lessons learned from the recent experience with the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the facility now offers lower deductible options, a reduction in policy premiums and a minimum claim payment that is equal to the annual premium paid. In addition, to better serve the needs of the region, the CCRIF is exploring new areas of potential coverage related to flooding and agricultural losses. In the meantime, efforts by the Caribbean governments at disaster preparedness and mitigation continue. Given the region's dependence on its costal zones for tourism, fishing, residential accommodation and transportation, a current challenge for the Caribbean relates to the issues of global warming and rising sea levels and temperatures as a result of climate change.
Today's global economic uncertainties, which clearly transcend national borders, are reminders of why we need strong and effective international economic and financial institutions. The role of the IMF in providing a forum for international monetary cooperation is why Canada and all the countries in the constituency I represent place a high priority on further strengthening the institution. The Fund must be able to fulfill its core mandate of supporting international financial and monetary stability. It can only do this if it is seen as a legitimate, effective and credible institution. The reforms we have been pursuing get to the heart of what is needed.
Legitimacy: Quota and Voice Reforms
Legitimacy largely falls to one issue: quota and voice. For the Fund to be recognized as legitimate, it must have a modern and representative governance structure. I am therefore pleased that after 18 months of hard work, we now have consensus on a new quota formula and a path forward on quota and voice reforms. It is a deal that has required political compromise on all our parts. It is a deal that deserves the International Monetary and Financial Committee's strong support and one that can reanimate the spirit of international cooperation on which the Fund was created.
The new quota formula presents a far more accurate picture of the weights of different members in the global economy. Both the calculated and actual quota shares of dynamic emerging market economies will increase, reflecting their growing influence in our changing world. At the same time, by tripling basic votes, the proposal not only preserves the vote share of low-income countries, it increases it. Because basic votes will now be set as a fixed percentage of total votes, these countries will receive automatic increases in basic votes as part of future realignments of voting power, helping them maintain adequate representation at the Fund. To raise the vote share of developing countries even further, several advanced countries have voluntarily forgone much of the increases, including a member of my constituency. I applaud these countries for their willingness to compromise.
Though over 120 countries see vote share increases, by its very nature, reform necessitates losses for some countries. In fact, Canada experiences one of the largest vote share declines of any member country. Nevertheless, we still firmly support the deal on quota and voice reform: though Canada has shown solid economic performance, many emerging market economies are growing even faster. It is thus appropriate that their vote shares should rise relative to our own.
Most fundamentally, this quota agreement is in Canada's interests. As a country whose prosperity is inextricably linked to developments beyond our borders, we benefit from a more legitimate and effective IMF, better able to fulfill its mandate of supporting a prosperous global economy. In this respect, the new formula represents the start of an ongoing dynamic process: future economic growth will be recognized through higher quotas and voting power, ensuring that lower quota share for some countries now could be regained in the future as their weight in the global economy increases.
Effectiveness: Surveillance Reforms
It is clear that an institution that is recognized as legitimate will be more effective in its operations and its relations with member countries. For the IMF, this has real implications for its surveillance work; the effectiveness of surveillance is linked inextricably to the willingness of members to take on board its policy advice.
The current financial turmoil underscores the extent to which global markets are integrated. There is a clear need for effective surveillance of global risks and the policy imbalances that can amplify these risks. The IMF's strong analytic capacity and virtually universal membership mean that it is also well placed to play an important role in convening fora for discussions on how to address the challenges that may require concerted action by national governments. Getting agreement on a Statement of Surveillance Priorities that enjoys widespread political support would provide accountability for targeted, balanced and effective Fund surveillance. The fundamental goal should be to reanimate the spirit of cooperation by forging a consensus among all the Fund's members on the role of surveillance in assisting governments deal with the challenges of the integrated global economy of the 21st century.
In this respect, we support the Managing Director's vision for a refocused IMF, which places top priority on more incisive surveillance and embraces the view that the IMF has a unique role to play, and comparative advantage, in linking financial sector developments with the real economy. Indeed, the IMF has also taken very welcome steps over the last year to improve the effectiveness of its surveillance activities.
The 2007 Decision on Bilateral Surveillance over Members' Policies established modern policies to govern how the IMF conducts surveillance of its members and clarified the interpretation of members' existing obligations in the area of exchange rate policy. This decision will foster improvements in the focus, even-handedness and candour of Article IV reviews. The challenge is to build on this progress, particularly through more thorough analysis of cross-border spillover effects of national economic policies. This is especially relevant in the current environment.
Credibility: IMF Finances
Finally, the IMF as a financial institution must have the stable financial footings to allow it to play a credible role in the international financial architecture. A strong budget position ensures stability and independence in its operations, and ensures the Fund is able to respond quickly and effectively in times of uncertainty.
With this in mind, our operational goal has been sustainable budget reforms that result in a more cost-effective IMF that focuses its outputs on core institutional strengths and practices good financial governance. The recent Executive Board approval of the 2009—2011 medium-term budget, which implements a significant cut in administrative spending, is a key milestone. The budget correctly orients the IMF's outputs, expenditures and activities toward such goals as achieving a vision of the institution as a key player in surveillance of linkages between the financial sector and the broader economy.
I welcome the leadership shown by Executive Directors in reducing their own budgets in line with the overall cuts to IMF administrative spending. This demonstration of the Board's commitment to cost-effectiveness is critical for the legitimacy of the exercise; it sends a signal to the valued Fund staff that the Board is prepared to share the burdens of putting the IMF on a strong financial footing.
I am also encouraged that the membership is forging a clear path forward on measures to ensure that the Fund has a sustainable income model for the future. On the income side, my constituency supports a limited sale of IMF gold, provided that this is done in a manner that avoids any potential disruption of world gold markets. We also support the other Crockett Report recommendations currently under consideration by the Executive Board for incorporation into the new income model.
Together we have made important progress in addressing IMF finances. Critical work remains to be done, however, including domestic legislative ratification by many members of the required amendments to the IMF Articles of Agreement to support income-generating reforms. I am confident we can accomplish this soon. It is important that every Fund member does their part to ensure the success of IMF budgetary and financing reforms.
The IMF's Work in Low-Income Countries
My constituency supports the work of the IMF in low-income countries that is focused on promoting macroeconomic stability, sustainable growth and effective debt management.
The international community has made tremendous progress on debt reduction in the past decade. Going forward, I believe that it is critical that recipients of debt relief remain on a path of sustainable long-term financial management. Our ultimate goal regarding debt sustainability is to prevent a return to the "lend-and-forgive" cycles of the past and ensure that the potential benefits of debt relief are realized and long-lasting. To do so, a high priority for the IMF should be to help low-income countries avoid unsustainable borrowing, while simultaneously encouraging creditor countries to provide financing that is in line with the borrowing country's development plans as well as any IMF concessionality requirements or the results of the most recent IMF/World Bank Debt Sustainability Analysis.
The IMF and World Bank have cooperated effectively thus far, including through the development of the Debt Sustainability Framework to better monitor and prevent the reaccumulation of unsustainable debt. However, given that many countries are still at a high risk of debt distress and are reaccumulating unsustainable levels of debt, I see scope for the Fund to further strengthen its cooperation with the Bank. For example, the Bretton Woods Institutions should play a bigger role in ensuring that debtor countries have access to the capacity-building tools required for effective fiscal management.
Countries' prospects for reducing their vulnerability to excessive external debt accumulation will be enhanced if they are capable of borrowing at attractive terms on local markets. I therefore call upon the IMF (in cooperation with the World Bank) to support efforts underway to assist countries in developing their local bond markets, through achieving and maintaining macroeconomic stability, implementing appropriate debt management policies, and establishing sound regulatory systems and market infrastructure.
Coping with climate change is of great importance to our collective well-being in the future. I am pleased that the IMF recently announced that it will undertake research to assess the fiscal aspects of climate change mitigation measures, including developing the appropriate public finance responses, evaluating some of the economic issues involved in choosing mitigation policies, and determining the impact of climate change policies on the IMF's core functions. Indeed, these issues appear very relevant for the Fund. The IMF must increase its analytic capacity concerning the effects of climate change on national economies, in coordination with the World Bank, with a view to assessing appropriate policy responses.
October 11, 2008
On behalf of Canada, Ireland, and the Caribbean countries I represent, I would like to take the opportunity to welcome the new Chairman of the International Monetary and Financial Committee (IMFC). Dr. Boutros-Ghali brings with him extensive experience that will greatly enhance the work of our Committee.
Today's meeting of the IMFC is taking place at a time of global economic and financial uncertainty that is unprecedented in the last half century. Virtually no country is immune to the risks stemming from the turmoil in global financial markets and many are facing serious dislocations from the sharp hikes and volatility in commodity prices we have witnessed. The United States has taken multiple steps, including a comprehensive plan to buy troubled assets, to address its financial crisis. Authorities in Europe have also taken decisive measures to support the financial sector. Nevertheless, financial markets remain under considerable stress and the impact is being felt globally. In these difficult times, a strong International Monetary Fund (IMF), working in partnership with its members, is essential to help promote global economic growth and stability through its surveillance and policy advice and, if necessary, extending financial assistance to assist its members facing financial and balance of payments difficulties.
I would like to take this opportunity to congratulate Managing Director Strauss-Kahn and his Staff for the hard work they have undertaken to modernize the Fund. Under the new sustainable budget environment that the Managing Director is bringing about, a range of important issues have been addressed, such as the development of a more strategic approach to Fund involvement in low-income countries; modifications to the Exogenous Shocks Facility; completion of the Triennial Surveillance Review; and the introduction of the first Statement of Surveillance Priorities. While much remains to be accomplished, I am confident that Mr. Strauss-Kahn's leadership will continue to bring us together and create an atmosphere conducive to success.
The global economy continues to be buffeted by shocks emanating from the turmoil in many parts of the global financial system and by increases in the prices of commodities central to people's standards of living. Although many economies have thus far demonstrated remarkable resilience to these shocks, the only reasonable conclusion is that today is a time of great uncertainty. Growth in the major advanced economies has slowed sharply, and although emerging markets will remain the major driver of global economic growth, their pace of growth is expected to slow. This has made it increasingly important for countries to work together to promote a return to strong sustained global growth and stability.
Decisive actions have been taken by policymakers to contain the financial crisis. Faced with the extraordinary stress in the global financial system, authorities in the United States, Europe and elsewhere have responded with commendable forcefulness and imagination, with the aim of supporting financial stability and restoring well-functioning credit markets. In Canada, we are in the fortunate position that our financial system is not burdened with large amounts of troubled assets. Our banking and insurance industries remain well capitalized and our financial system sound. However, we are not immune to the financial turmoil that has gripped global markets. I have remained in very close touch with my Finance Minister colleagues in other major economies, and together stand ready to take whatever steps are necessary to stabilize the situation.
Major central banks have taken large-scale coordinated action to address global liquidity pressures. We need to ensure that our actions continue to be coordinated to address ongoing turbulence in the financial markets. I believe that Finance Ministers should meet again in the coming weeks to ensure continual progress. The Government of Canada also supports the idea put forward by President Sarkozy of a leaders' summit to review measures to strengthen the international financial system.
A good deal of useful work has already also been done by the regulatory and supervisory authorities, notably the members of the Financial Stability Forum, to enhance the resilience of the global financial system for the longer term. This work will continue as a top priority. We should support the continued, and accelerated, implementation of the recommendations of the Financial Stability Forum such as a central clearing mechanism for over-the-counter credit derivatives, accounting and disclosure standards for off-balance-sheet activities and related risks, and a set of international principles for deposit insurance. Clearly, this work is only in its early stages. The IMF must play a central role in the initiatives aimed at developing sound international regulatory responses to the weaknesses in the financial system revealed by the current turmoil, drawing on the unique perspectives provided by its virtually universal membership.
Many economies are better placed today to weather these shocks due to past improvements in policy frameworks. Canada, along with others, took the necessary measures in recent years to put public finances on a sound footing. This has provided us with the flexibility to respond to signs of a softening of growth with timely fiscal stimulus while continuing to maintain a balanced budget. While headline inflation has picked up globally as a result of oil and commodity price increases, the increased credibility of central banks which have adopted strong policy frameworks has generally kept inflation expectations well anchored. However, signs of higher inflation are more worrying in several emerging market economies, many of which are sacrificing some of their monetary policy independence by limiting the flexibility in their currencies.
Policymakers must continue to respond as needed. Today's meeting provides the Committee with an important opportunity to take stock of developments and exchange perspectives and experiences, both on policy challenges in our own economies and on the role of the IMF in supporting growth and stability.
Economic growth in Canada has weakened since the end of 2007 as a result of the United States slowdown, which, coupled with a higher Canadian dollar, has significantly reduced Canadian exports. However, as a result of the strong dollar and higher commodity prices, Canadian consumers and businesses have benefited from rising real incomes and profits. As a result, domestic demand growth in Canada remains solid despite slower growth overall. Moreover, Canada's economic fundamentals remain strong: employment has continued to increase this year; the unemployment rate remains near a 33-year low; the financial sector remains strong and well capitalized; the financial positions of consumers, businesses and governments are sound; and core inflation remains low and stable. The IMF expects Canadian growth to be 0.7 per cent in 2008, increasing to 1.2 per cent in 2009.
Core inflation pressures remain contained at 1.7 per cent in August 2008, despite a recent uptick in headline inflation. Total consumer price inflation was 3.5 per cent in August, compared to a recent low of 1.4 per cent in March 2008, reflecting increases in the prices of energy and food products following sharp increases in world prices earlier this year. On October 8th, the Bank of Canada joined other major central banks in a simultaneous reduction of policy interest rates by 50 basis points to 2.5 per cent. This action will provide timely support for the Canadian economy.
Canada's fiscal situation remains strong. In fact, it remains the best of the Group of Seven (G7) countries. According to the IMF's fall outlook, on a total government basis, Canada's budget surplus was 1.4 per cent of gross domestic product (GDP) in 2007 and is projected to remain in surplus for 2008 and 2009. Canada also has a very strong track record on debt reduction. Our total government net debt, as a percentage of GDP, has declined steadily from a peak of nearly 71 per cent in 1995 to about 23 per cent in 2007. We will continue this course.
Irish and Caribbean Developments
Let me now turn to economic developments and policy priorities in Ireland and in the Caribbean countries I represent in this Committee.
Reflecting the extended stress in international financial markets, higher commodity prices, and the impact of those shocks on trading partners, this has proven to be a challenging year for the Irish economy. GDP is likely to contract this year, unemployment is rising, and inflation has remained relatively high but is expected to ease going into 2009. The adjustment in the output of the house-building sector is also having a significant dampening effect on the economy. As housing output moves back towards sustainable levels, a return to trend GDP growth can be expected over the medium term. The Government has recently enacted legislation to guarantee all deposits and borrowings in six Irish-owned banks and building societies. This is intended to provide security and stability to the financial sector.
Due to lower-than-projected tax receipts, mainly as a result of weaker property market activity, pressures have emerged on the public finances. To deal with these challenges, the Government has brought forward the Budget from December to Tuesday, 14 October. The Budget will set out steps to restore balance by prioritizing expenditure to reflect the changed realities and ensure that Ireland's economy is in the best possible position to resume trend growth as international conditions improve. Ireland is better placed than most economies to meet the current challenges—it has a low level of public debt, an educated and young workforce, and a low tax environment for workers and business. The Government is committed to maintaining the priority of public investment in core economic infrastructure. At present, public investment is about 6 per cent of gross national product, which is around twice the European Union average.
To safeguard Irish economic growth prospects, competitiveness needs to be enhanced, export levels raised and productivity improved. The maintenance of a low taxation burden will help raise potential output by stimulating private sector investment and encouraging higher labour force participation.
For the Caribbean, these are very challenging times with policymakers facing difficult options to sustain stability and the growth prospects of the region's economies. Accelerating rates of inflation and rising inflationary pressures as a result of the spikes in fuel and commodity prices have emerged as the main challenge facing the region's policymakers. The price increases have worsened already large current account deficits and exerted pressure on the limited fiscal resources. Governments have taken steps to help alleviate the impact on the poor and vulnerable groups. Such actions, while unavoidable, have exacerbated the problems of weak fiscal positions and high debt levels facing these countries.
The recent spate of tropical storms and hurricanes that caused widespread devastation and loss of lives in the Caribbean is a reminder of the vulnerability of the region to natural disasters. In addition to ongoing adaptation and mitigation efforts, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) is a demonstration of the region's commitment to proactively managing catastrophic risks and reducing fiscal exposures to natural disasters. We fully support the work of the World Bank, the CCRIF and Caribbean governments to develop complementary products to extend coverage to include floods.
Despite the deteriorating external environment and domestic shocks, the Caribbean has been fairly resilient, continuing to perform relatively well economically. Growth has been moderately strong driven mainly by developments in tourism, construction and services, and the region continues to attract significant foreign direct investment flows. This reflects the benefits of strong domestic policies and structural reforms implemented over the years, and strengthened financial supervisory and regulatory frameworks. Policymakers are committed to continue implementing reforms and building the resilience of the region. Within this context, there remains a critical role for the international financial institutions and the donor community. We highlight the work of the Caribbean Regional Technical Assistance Centre, which remains invaluable in supporting the efforts of the region.
The IMF's Role in Low-Income Countries
On behalf of my constituency, I commend the recent work done by Staff and Management to address the particular needs of low-income countries through the presentation of a comprehensive approach to IMF engagement in these countries. In order to achieve economic growth and poverty reduction, and to reach the Millennium Development Goals, macroeconomic and financial stability are essential. This is why the Fund's work is so important and must remain focused and effective, especially in the context of a more stringent budget environment. Key to this will be avoiding the re-emergence of unsustainable debt in post-debt-relief members and preventing its emergence in other low-income members. Coherence with other institutions and development partners remains fundamental to the effectiveness of the Fund's activities in low-income countries, and should be strengthened further wherever possible.
Recent developments in the global economic and financial markets have demonstrated that growth and stability cannot be taken for granted, but require steadfast commitment to good policies and strong frameworks for international cooperation. The international community needs to work together to minimize potential risks and mitigate the negative effects of those risks that have been realized. For its part, the IMF is at the centre of the international architecture that Canada has supported for some 60 years. Its fundamental goal is to promote international economic and financial stability, and at this time the Fund's legitimacy, credibility and effectiveness will be largely determined by how well it promotes cooperation between its members to successfully face our common challenges.
The steps the IMF has taken over the last year toward improving the quality of its surveillance, the responsiveness of its lending facilities and the legitimacy of its governance arrangements make it better equipped to fulfill this mandate. Yet in today's challenging world, neither individual countries nor the IMF can stand still. Rather, we must work toward steady improvements in our capacity to deliver growth, stability and prosperity for the world's people.
At our last meeting, we welcomed the successful conclusion of discussions on a new quota formula which undoubtedly enhances the legitimacy of the institution. The quota and voice issue is, however, just one part of a broader reform agenda for the Fund's governance.
The April 2008 report of the Independent Evaluation Office highlights broad areas that need to be addressed, such as strengthening the strategic role of the IMFC, increasing the strategic focus of the Board of Executive Directors as well as clarifying its oversight role, and clarifying the accountability of the Managing Director and Staff. I would also add that we need to make further progress to open the selection process for the heads of international financial institutions. I believe that these are all relevant issues which, once resolved, will lead to a more legitimate and effective institution.
More generally, I welcome the commitment shown by the Executive Board and the Managing Director to improve the IMF's governance, through the establishment of a working group of Executive Directors and the committee of eminent persons appointed by the Managing Director in September. Academics and civil society groups will also have a voice in shaping the consensus position. We in this Committee and the broader membership must also address outstanding governance issues, such as ways to strengthen member engagement and how to better hold the Fund accountable for the quality of its work.
IMF surveillance is at the heart of the Fund's mandate of promoting global stability, and important innovations have been made in this area. Recent developments in global financial markets underscore the appropriateness of the Managing Director's vision for the IMF as being an international centre of excellence on linkages between the financial system and the real economy. It will be critical to continue to strengthen the IMF's analytic capacity in this area and to continue to improve the manner in which it communicates its analysis of macro-financial developments to policymakers and the public.
In June of last year, the Fund adopted the 2007 Decision on Bilateral Surveillance over Members' Policies to further improve the effectiveness of its surveillance activities. Since then, we have noticed improvements in the focus of Article IV reviews, although the all-important goal of increasing the candour of surveillance reports remains a work in progress. The time has now come to support the full implementation of the 2007 Surveillance Decision, including the use of the ad-hoc consultations process to ensure that concrete results are achieved.
In this respect, I am very pleased that the Executive Board has just approved the first Statement of Surveillance Priorities (SSP)—something this Committee called for in the spring of 2006. I view the new SSP as an important complement to the 2007 Surveillance Decision in that the SSP provides the opportunity to enhance the focus of IMF surveillance on the most pressing issues, promote greater consensus within the membership on the key economic vulnerabilities and risk and the need to address them, and improve the accountability of the IMF for its surveillance outputs. It is important that we use the SSP to its full potential. The IMFC should review progress on its implementation on an annual basis, as well as debate evolving surveillance priorities leading up to the next SSP in three years.
The SSP is one part of a broader debate that is needed to restore the international community's buy-in for collective responsibility and action to mitigate stability threats. I am encouraged by the IMF's enhanced cooperation with the Financial Stability Forum over the course of this year, and, in my view, the Fund should explore further how it can promote more collaboration with other international groupings and institutions. The interconnected global economy of the 21st century demands that IMF members work together through the Fund and other bodies to preserve the benefits of globalization and promote growth and stability.
Review of Financing Role and Instruments
The recently launched strategic review of the Fund's lending tool kit is timely. The global economy has changed so much since the Fund's tool kit was originally designed that mere incremental changes are unlikely to ensure a modern and appropriate mix of lending facilities. While some aspects of lending have already been addressed, such as changes to the Exogenous Shocks Facility, critical work is also needed to ensure coherence and effectiveness across the range of instruments. More fundamentally, the Fund should look back at the context in which each lending instrument was first created to evaluate its relevance to address today's challenges.
For me, two salient observations capture the context for this 18th meeting of the IMFC. First, the extraordinary financial challenges and continued economic risks we now face mean that a strong and effective IMF is more important than ever. Second, while the membership took advantage of recent calmer times to make historical advancements in the Fund's governance arrangements, the time has now come for us to use that momentum and increased legitimacy to fully introduce a stronger surveillance framework and a modernized lending role for the IMF. I look forward to pursuing and accomplishing these shared goals with my IMFC colleagues.
Canadian Statements at the Development Committee of the Boards of Governors of the World Bank and IMF
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.
April 13, 2008
The global economic environment has featured prominently in a number of discussions this weekend and is extremely relevant to our discussion on the development agenda as well. The risks in the global economy underscore the importance of using our development resources as effectively as possible to support the most vulnerable and to make strong progress towards our development goals.
A strong and effective World Bank Group is an integral part of this, and, on behalf of my constituency, I would like to thank President Zoellick and his management team for their ongoing efforts on a number of important fronts. This includes their work on the International Development Association (IDA) replenishment, the Bank's long-term strategic directions, options to increase the voice of developing countries and strategies to ensure a sound financial position for the Bank into the future.
I would also like to thank the World Bank and the International Monetary Fund (IMF) for their work to raise awareness and action on development issues of growing concern, including the effect of higher food and oil prices and the recent financial market turbulence on the poorest, the particular challenges facing fragile states and the interconnection between climate change and development. Our discussions this weekend help raise our understanding of these important challenges and how we can move forward in addressing them.
IDA's 15th Replenishment
The conclusion of the 15th replenishment of IDA (IDA15) in December was a major milestone. The remarkable success of the replenishment clearly reflects the donor community's confidence in the institution.
For its part, Ireland hosted one of the IDA15 replenishment meetings in Dublin in November 2007 and subsequently committed to provide €90 million to IDA over the next three years. This represents a 29 per cent increase over Ireland's contribution of €70 million to the 14th replenishment of IDA. Ireland is a strong supporter of IDA as a vehicle for channelling assistance to the poorest countries and as a key actor in the attainment of the Millennium Development Goals.
Canada provided strong support for the replenishment as well, with a commitment to provide C$1.3 billion over the next three years, a 25 per cent increase over Canada's contribution of C$1.05 billion to the 14th replenishment of IDA. This reflects Canada's belief that IDA contributions are money well spent and is an acknowledgment of the important enhancements that IDA will be making to further strengthen its support for fragile states, debt sustainability, and results and effectiveness.
We welcome President Zoellick's efforts to renew the Bank's strategic directions through the adoption of the six strategic themes. The definition of the Bank's plans under each theme will necessarily be ongoing and iterative, given that the development context will continue to evolve and lessons will be learned as the Bank goes along. However, there should be a clear idea from the outset on what the Bank is trying to achieve with these incremental changes. We believe one important objective is a deep review of the Bank's business model, including identification of areas where it should be letting other institutions take the lead, according to their comparative advantages, or areas where it is not seeing strong results. The Independent Evaluation Group can play an important role in this respect.
We note the particular importance of the knowledge agenda theme, as it is essential that we keep building our understanding of how to do development better. In this regard, the Government of Canada has been actively supporting the search for innovative development solutions. Canada has worked very closely with other donors, the World Bank, the GAVI Alliance and the World Health Organization to help pioneer the Advance Market Commitment (AMC) mechanism. We feel that the backing of the Bank's financial and knowledge assets will be important for the success of the initiative, and we look forward to exploring a next AMC for vaccines, following the successful completion of the design work for the AMC for pneumococcal vaccines.
Earlier this year, the Government of Canada also announced a Development Innovation Fund focused on spurring scientific discoveries in global health and other areas of concern to the developing world. Knowledge breakthroughs allowing for new medicines, cleaner drinking water or more efficient farming could dramatically improve the lives of millions in developing countries.
Voice and Representation Reforms
For the World Bank to maintain its relevance and legitimacy, it is crucial that its operations continue to evolve to reflect the changing global context. In this respect, it is important that the Bank have a governance structure that facilitates input from developing countries, as their perspectives are especially important to inform the most effective use of aid resources and to draw attention to emerging issues.
We are therefore very supportive of the Bank's efforts to enhance the voice and representation of developing country members within its operations. I note that Canada has played a leading role on quota reform at the IMF, and will be equally supportive of efforts to enhance the voice of developing countries at the World Bank.
Given the broader range of reform options at the World Bank, shareholders will need to decide on an appropriate reform package that would best achieve our goal of making the Bank a more effective and responsive development institution. We believe options that improve decision-making processes at the operational level will be particularly important as these can have a more direct impact on the voice of developing country members compared to changes in shareholding and voting power.
Finally, we emphasize the need to have a clear process for shareholder consultation and decision making to ensure that input from all developing country groups are taken into account in the formulation of a reform package.
Another critical challenge for the Bank and its members is to ensure that it remains financially healthy into the long term. A particular consideration is the International Bank for Reconstruction and Development's (IBRD's) financial outlook in the global low interest rate environment. We encourage the Bank and the Executive Board to continue exploring options to make the best use of the IBRD's capital to ensure that it maintains a financially sustainable position and its ability to contribute out of net income to other important development initiatives.
Increases in Oil and Food Prices
As part of our discussions today, we looked at the rise in global oil and food prices, which has become an important development concern. As highlighted in the Global Monitoring Report, average food prices have gone up 15 per cent over the past year and oil prices have tripled in US dollars over the past five years. If we continue to see high prices for these vital goods, the impact on the most vulnerable segments of the population is likely to be severe.
In this respect, support from the Bretton Woods Institutions will be very important. The IMF's Exogenous Shocks Facility can provide balance of payments support for countries facing significant price increases for their major imports. Likewise, the World Bank and the regional development banks can work together to finance programming to mitigate the impact on the poorest and help countries pursue policies that reduce their vulnerability to these price shocks through agricultural growth and energy efficiency and diversification. We note that the IBRD has recently enhanced its Deferred Drawdown Option on Development Policy Loans to better help countries during adverse events, such as price shocks.
Fragile states also present a major development challenge. With 35 per cent of the world's poor concentrated in fragile states—a share that is expected to grow in the future—concerted efforts by the international community to reduce poverty and foster sustained growth in these countries will be critical. Successful interventions will not only improve the lives of the people living in these countries, but will also help preserve stability in the surrounding regions.
The Government of Canada has made fragile states a focus for its own bilateral aid, with large programs in countries such as Afghanistan, Sudan and Haiti. As part of these efforts, Canada has been providing support through a number of World Bank trust funds, including the Afghanistan Reconstruction Trust Fund, where Canadian contributions have totalled C$466 million to date. Through this fund and other channels, the World Bank continues to make a strong contribution to donor coordination in Afghanistan, as well as to anti-corruption and counter-narcotic efforts.
The World Bank has made considerable improvements in its support for fragile states over the last few years, including the introduction of IDA grants and exceptional financing for countries emerging from conflict, more field presence and a rapid response system. We are very pleased with the additional enhancements agreed during the IDA15 replenishment, including more exceptional financing and a framework to clear the arrears of post-conflict countries. The IMF can play an important complementary role, focused on helping these states re-establish and maintain macroeconomic stability that is supported by strong fiscal management.
Fragile states present a particularly difficult context for development work. Close coordination between the World Bank, the IMF, the United Nations (UN), regional institutions and other organizations will be essential. To this end, we are supportive of the Bank's commitment to align its efforts with the organizing principles established by the Organisation for Economic Co-operation and Development, and we encourage donors to adopt coherent government-wide approaches to addressing fragile states issues.
Climate change is also a critical development issue, and the World Bank has an important part to play in tackling this challenge. We note that climate change is expected to be a particular challenge for least-developed countries and small island developing states. The Bank's convening power is a key asset in bringing together developed, developing and emerging market countries, and the private sector, for collective action. In this regard, there are major challenges that will require ongoing discussion by all parties, including the appropriate roles and responsibilities for each, and how to provide new financing and programming without adding to the complexity of the aid system and duplicating efforts.
Regarding the Bank's specific role, it is well placed to help its clients move toward a low-carbon growth path and to adopt appropriate adaptation measures. As a first step, the Bank can assist countries in mainstreaming climate change considerations into their Poverty Reduction Strategy Papers. With many donors aligning themselves to these poverty reduction strategies, there is great potential to scale up financing for climate change adaptation and mitigation efforts.
The Bank also has a role in establishing broader risk-sharing measures to help developing countries deal with the effect of increased climate variability. A good example is the Caribbean Catastrophe Risk Insurance Facility, to which Canada has contributed C$20 million and Ireland has contributed US$2.4 million. Another example is the Global Facility for Disaster Reduction and Recovery, which aims to enhance local capacity for disaster prevention and emergency preparedness in developing countries. Lessons learned from these initiatives can inform the design of other adaptation measures.
Finally, the Bank can also facilitate the adoption of clean energy technologies, by leveraging Bank resources as well as funds from regional development banks, carbon finance and other sources.
The Bank has a critical role in advancing gender equality and women's empowerment globally. The World Bank Group Gender Action Plan, Gender Equality as Smart Economics, is a critical step in acknowledging the link between gender equality and economic growth. We are particularly pleased that under this action plan, the Bank is now working to identify gender indicators that may be included in the Doing Business reports. We consider it essential that the Bank do what is necessary to integrate gender concerns across its operations, and urge the Bank to devote the appropriate human and financial resources to achieve this goal.
Crime and Violence
Exacerbation of male underachievement and young male economic and social marginalization is an important gender issue that must be addressed in order to realize development progress. These are major factors underlying the increase in crime and violence in the Caribbean and worldwide, which in turn undermines efforts to improve governance, investment climates and regional integration.
The report on crime and violence in the Caribbean, released by the World Bank and the UN Office on Drugs and Crime last May, presents some startling figures that underscore just how inextricably tied this issue is to development. For example, estimates suggest that reducing the homicide rate in the Caribbean by one-third could more than double the region's rate of per capita economic growth.
We commend the Bank for its role in highlighting and helping to address this challenge and encourage countries to take advantage of the Bank's expertise in this area. Moreover, we encourage the Bank and bilateral donors, including through joint trust funds, to examine means to support programs designed to address the significant challenges facing male youth.
October 12, 2008
As the global economic environment becomes more uncertain, with decelerating global growth prospects, financial market turbulence and heightened inflationary pressures, the need for strong international cooperation becomes more critical. In this respect, a credible, effective and legitimate global institution like the World Bank that can help support and sustain this cooperation is a tremendous asset.
The World Bank has two strengths that are especially relevant in this context.
The first is the high level of advice and financing that it can provide to developing countries to help them in these uncertain times. Keeping in mind that the relatively high growth rates achieved by developing countries over the last few years were realized in a period of low inflation, international access to capital and strong demand, maintaining growth and making progress towards development goals in the current environment will be more challenging.
The effects of the current economic turbulence may be starting to be felt in emerging markets, and over the coming months may begin to reach the lower-income countries, many of which have already been hit by the food and fuel price crisis over the last few months. In this period of uncertainty, the World Bank can play a role in helping developing countries through some of the effects, including protection for the most vulnerable segments of the population, as well as with ongoing efforts to put in place strong institutional and regulatory frameworks so that countries can be more resilient in the future.
The World Bank's second important strength is its ability to bring the international community together to tackle global issues. A clear example is the World Bank's response to the higher food and fuel prices over the last few months—it was a central force in raising international awareness of the issue and catalyzing collective action. We would like to congratulate President Zoellick and his staff for the quality of their work and their strong leadership on this complex, but urgent, issue.
Climate change is another global issue on which the Bank is playing an important role in terms of helping to broaden our understanding of the effects on development, encouraging international dialogue on appropriate actions, and developing a strategic framework to guide its operational responses and how it works with international, regional, national and local actors.
These strengths have made the World Bank an important asset for the international community as both a development partner and a global convenor. However, its ability to play these roles into the future depends to a great extent on how much credibility and legitimacy it maintains. The Bank needs to maintain full credibility as a development partner that respects its client countries' development priorities, and full legitimacy as a global institution in which developing countries, countries with economies in transition and developed countries are all properly represented, in order to maintain its capacity to lead. For these reasons, the Bank's voice and participation reform exercise is very important for the institution's continued success.
Food and Fuel Prices
High global food and fuel prices continue to be a critical development concern, and we commend the Bank and the International Monetary Fund (IMF) for drawing early attention to the crisis and helping to place it high on the international agenda.
This crisis requires a rapid and effective response. In this regard, we welcome the prompt action taken by the Bank to facilitate a coordinated and multi-faceted response. With offices in more than 100 countries, the Bank is well positioned to integrate a response to the food crisis directly into existing country programs, aligning with the country's priorities in harmonization with other donors.
Likewise, we are pleased with the prompt action by the Fund to provide advice, technical support and in some cases funding through Poverty Reduction and Growth Facility programs. We also welcome recent reforms to the Exogenous Shocks Facility to make it a more effective crisis response tool.
We note that with regard to our small island states members, many of which are designated as middle-income countries and are heavily indebted, increasing food and fuel prices will undoubtedly aggravate their debt positions and further exacerbate social issues. We urge the Bank to examine options available to these vulnerable states, specifically in regard to: analysis of their debt situations and potential remedies; supporting their response to rising food and energy prices; and help in accessing donor resources.
Action is not only needed to relieve the immediate effects of the current food crisis. As the recent High Level Event on the Millennium Development Goals (MDGs) noted, the first MDG, to reduce hunger by half, is unlikely to be met by 2015. Thus, food security is an ongoing and serious problem that must not be forgotten once the current crisis is no longer at the top of the international agenda. As an illustration of the size of the challenge, it is expected that food production in Sub-Saharan Africa will need to double or even triple over the next few years to meet local demand.
In this context, we encourage the World Bank to focus on investments to promote sustainable forms of agricultural production, especially those that would benefit smallholder farmers who are most in need of support. It is especially crucial to ensure that programs are designed to be equitable and to meet the needs of the most vulnerable, often women and girls. Another key part of the solution will be to foster innovations for increased agricultural productivity, including through public-private partnerships.
Accra and Doha
This is an important year for major development initiatives on Aid Effectiveness and Financing for Development. These represent two further examples of international dialogues in which the World Bank has a considerable role as a development partner and global institution.
The third High Level Forum on Aid Effectiveness was held in September in Accra, Ghana, as a follow-up to the 2005 Paris Declaration on Aid Effectiveness. The World Bank has been an important participant in this effort, helping to set the agenda, identify good practices, monitor implementation and lead by example. We commend the Bank for its progress to date, especially on decentralization of staff and decision making, and for developing a new action plan for the areas in which it needs to step up efforts. In particular, we look forward to an agreement between the World Bank and the United Nations on easier and quicker collaboration in the context of fragile and post-conflict situations. We also look forward to the World Bank's support in implementing the new Agenda for Action agreed in Accra.
An international conference on Financing for Development will be held in Doha in November to review the implementation of the 2002 Monterrey Consensus. In this context, one key challenge for developing countries is to align their different sources of finance, including domestic resources, aid and debt relief, towards a common set of development goals and, to this end, strong country-owned development strategies are essential. We urge the World Bank and IMF to continue working with their client countries, and other partners and stakeholders, to promote and strengthen country-owned strategies and their use as the platform for coordinating efforts. The World Bank will also have an important supporting role in ensuring that the outcome of the Doha Conference reflects a balance between the respective responsibilities and commitments of both donors and developing countries.
World Bank Reform
Another significant element of the Monterrey Consensus was the IMF and World Bank's commitment to enhance the participation of developing and transition countries in their decision-making processes. This is an important objective, and we are pleased with the agreement achieved on quota and voice at the IMF last spring. Similarly, we are pleased with the discussion and work to date on the World Bank's voice and participation reform exercise, and we will continue to support and participate in these efforts.
Adjustments to increase the voting power and shareholding of developing and transition countries and an additional seat for Africa at the Executive Board are important components of voice reform, and we look forward to agreements on these options. We believe that further measures to improve focus and communication within the Executive Board are equally important, and in this regard we look forward to the World Bank's management and the Executive Board elaborating a set of specific reforms. We are also pleased with the steps the Bank has taken to improve the voice of developing and transition countries in their operational work, such as the appointment of more developing country nationals to senior management positions and the decentralization of their operations. We encourage the Bank to continue to explore what more can be done in this regard.
Stronger engagement of developing and transition countries in the World Bank's decision making will yield many benefits. Strong participation of all members at the Board of Governors and the Executive Board will be a key backdrop for the Bank becoming an even better platform to support dialogue and collective action on global issues. It can help improve the design of new sector strategies and instruments as developing and transition countries bring lessons learned from their own country programs to the table. Finally, more voice for the Bank's client countries at the operational level will help with the success of lending programs by ensuring that projects are properly tailored to country contexts and that governments have a true sense of ownership and accountability over them.
A strong multilateral system is a tremendous asset for the international community, especially in times of economic uncertainty when international dialogue and cooperation become even more important. As a global convenor and major development partner, the World Bank plays a big role in this regard and we continue to support its work.
Communiqués of the International Monetary and Financial Committee of the Board of Governors of the IMF, 2008
April 12, 2008
1. The International Monetary and Financial Committee held its seventeenth meeting in Washington, D.C. on April 12, 2008 under the Chairmanship of Mr. Tommaso Padoa-Schioppa, Minister of Economy and Finance of Italy.
2. The Committee met at a time of unusual uncertainties surrounding global economic and financial market prospects. It stresses that the challenges facing the world economy are of a global nature, requiring strong action and close cooperation among the membership. The Committee is confident that the key reforms recently agreed by the Fund's Executive Board, including the strategic refocusing of the Fund on its core mandate based on its comparative advantage, will strengthen the Fund's role in promoting global financial stability and international monetary cooperation and in serving its universal membership effectively at this critical juncture.
The Global Economy and Financial Markets—Outlook, Risks, and Policy Responses
3. The Committee notes that global financial instability has increased since its last meeting. World economic growth has slowed and growth prospects for 2008 and 2009 have deteriorated. Risks to the outlook come from the still unfolding events in financial markets and from the potential worsening of housing and credit cycles. Inflationary risks—notably from higher food, energy, and other commodity prices—have also risen. The Committee agrees that policymakers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control. While each country's situation is different, coherent action must be taken, taking due account of cross-border interactions.
4. In the advanced economies, monetary policy should continue to aim at medium-term price stability, while responding flexibly to signs of a more pronounced and prolonged economic downturn. Fiscal policy can also play a useful counter-cyclical role. In the United States, temporary fiscal easing will help to counter downside risks to growth. Other advanced economies have also experienced financial turbulence and their growth rates have declined; when consistent with medium-term fiscal objectives, automatic stabilizers should be allowed full play. Further progress should also be made on: safeguarding medium-term fiscal consolidation in the United States; product and labor-market reforms in Europe; further structural reforms, including fiscal consolidation, in Japan; addressing supply bottlenecks in oil-exporting countries; and reforms to boost domestic consumption in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries.
5. The Committee welcomes the actions taken by the central banks of the advanced economies to provide liquidity support to ease strains in interbank markets, and calls for continued vigilance to deal with the financial turmoil. Further prompt actions by large financial institutions to disclose losses and repair balance sheets by raising capital when needed and mobilizing medium-term funding will contribute to restoring confidence. The Committee sees the ongoing work in several fora aimed at managing and drawing lessons from the financial turmoil as a key step to strengthen the stability of the global financial system and to reinforce the supervisory and regulatory frameworks. In this context, it welcomes the Fund's work in these areas, notably the Global Financial Stability Report and the report prepared by the IMF on "The Recent Financial Turmoil—Initial Assessment, Policy Lessons, and Implications for Fund Surveillance." The Committee underscores that continued close Fund collaboration with the Financial Stability Forum (FSF), the Bank for International Settlements, standard-setting bodies, and national authorities will be essential to ensure that the lessons from the crisis are effectively shared and that agreed policy actions are rapidly implemented. In this context, the Committee welcomes the policy recommendations by the FSF and calls for their timely implementation; it also emphasizes the importance of strengthening the Fund's financial surveillance role, including through the Financial Sector Assessment Program, and its capability to identify risks in the future. The Committee will review further progress on these issues at its next meeting.
6. Emerging market and developing countries have so far continued to grow strongly and show resilience in the face of the ongoing financial crisis, though their growth prospects have moderated and inflation risks have increased. For many countries, containing inflation and addressing vulnerabilities remain key priorities. Other countries may have room to respond to a further worsening of the external environment by counter-cyclical monetary and fiscal policies without jeopardizing their stabilization gains. Commodity-exporting countries, exposed to the risk of significant swings in commodity prices, should maintain progress toward economic diversification. The Committee notes that a number of developing countries, especially low-income countries, face a sharp rise in food and energy prices, which have a particularly strong impact on the poorest segments of the population. The Committee urges the Fund to work closely with the World Bank and other partners in an integrated response through policy advice and financial support.
7. The Committee reiterates its strong support for a prompt and ambitious conclusion of the Doha Development Round of trade negotiations.
8. The Committee notes that Sovereign Wealth Funds (SWFs) are becoming increasingly important players in the international monetary and financial system, offering various economic and financial benefits, including a stabilizing influence on financial markets, but also posing several challenges for policymakers. The Committee welcomes the IMF's initiative to work, as facilitator and coordinator, with SWFs to develop a set of best practices by the 2008 Annual Meetings. It emphasizes that SWF best practices should be developed on a collaborative and voluntary basis, and go hand in hand with work in the OECD and elsewhere on best practices for countries receiving SWF investments. The Committee looks forward to reviewing the progress made on these fronts at its next meeting.
IMF Reforms and Policy Agenda
9. The Committee welcomes the agreement by the Executive Board on the package of quota and voice reforms as an important contribution to enhance the Fund's credibility and legitimacy, in line with the objectives set forth at the Annual Meetings in Singapore in 2006. The Committee looks forward to the approval of the quota and voice reforms by the Governors by April 28, 2008, as well as the early acceptance by the members of the proposed amendment of the Fund's Articles of Agreement to make the quota and voice reforms effective. The package of reforms is forward-looking in requesting that the Executive Board recommend further realignments of members' quota shares in the context of future general quota reviews, which take place every five years, to ensure that members' quota shares adequately reflect their relative positions in the world economy. These realignments are expected to result in increases in the quota shares of dynamic economies, and hence in the share of emerging market and developing countries as a whole. The Committee also looks forward to further work by the Executive Board on elements of the new quota formula that can be improved before the formula is used again.
10. The Committee endorses the agreement by the Executive Board on a new income model and a new medium-term budgetary envelope, which will contribute to placing the Fund on a sustainable financial footing. The new budgetary framework, which reduces net spending by 13½ percent in real terms over the next three years, and the new income model provide for a strengthened, integrated budget process to ensure lasting budget discipline and an allocation of resources reflecting the Fund's refocused strategic priorities. The Committee strongly recommends that the Governors give their full support to the new income model by approving the proposed amendment of the Fund's Articles by May 5, 2008. It calls on all members to work toward the early completion of the legislative steps required for making the new model effective, including the establishment of an endowment funded by the profits from a strictly limited sale of gold within the agreement of the central banks. By relying on broader and more sustainable income sources, the new model appropriately recognizes that many Fund activities provide a public good. The Committee endorses the safeguards adopted to ensure that the reimbursement of the Fund for the administrative expenses of the PRGF-ESF Trust does not result in insufficient concessional lending capacity of the Trust. The Committee looks forward to the introduction of comprehensive cost accounting of Fund activities. It encourages further work by the Executive Board on the design of investment policies under the Fund's expanded investment authority, with a passive investment approach that closely tracks widely used benchmark indices; the operationalization of the new framework for setting the basic rate of charge; the review of the role and adequacy of precautionary balances; the need for a dividend policy; and the completion of the review of charges and maturities on Fund facilities by the time of the 2008 Annual Meetings.
11. The Committee agrees that the principle of comparative advantage should underpin the refocusing and repositioning of the Fund's activities in all areas of its mandate.
12. Consistent with the 2007 Surveillance Decision, bilateral surveillance will remain at the core of the Fund's work, and an essential input into multilateral and regional surveillance. The Committee supports the efforts underway to sharpen the analysis of the financial sector, macro-financial linkages, exchange rates, and spillovers; deepen work on identifying and addressing risks to financial stability in close cooperation with other institutions; extend the Fund's vulnerability exercise to advanced economies; and better integrate global and cross-country perspectives into bilateral surveillance. It looks forward to steps to make surveillance outputs better focused and more timely, while ensuring that the quality of bilateral surveillance is preserved. Key operational aspects in implementing the 2007 Surveillance Decision will be clarified at the Executive Board, and the upcoming Triennial Surveillance Review will address strategic issues related to refocusing surveillance. The Committee encourages the Executive Board to consider a first statement of surveillance objectives and priorities prior to the next Annual Meetings.
13. The Fund's closer interaction with emerging market economies will focus on the specific challenges that they face from global financial integration, cross-border linkages, and volatile capital flows. Recognizing that the emerging market and developing countries are not immune to a broadening of the problems in financial markets, the Committee encourages the Executive Board to consider increasing the level of normal access to Fund resources and to continue its work on an appropriate crisis prevention financial line. It notes the Managing Director's decision to bring these matters promptly to the Executive Board's attention. The Committee looks forward to reviewing the progress achieved at its next meeting.
14. The Committee supports continued close engagement by the Fund with its low-income members. This will be achieved by focusing the Fund's work on macroeconomic and financial stability issues and helping low-income countries tackle the challenges of debt sustainability, capital inflows, and commodity price swings. Work will also continue on possible improvements in the Fund's engagement with countries suffering from shocks affecting their balance of payments, including through the Exogenous Shocks Facility and other existing facilities; in fragile situations; and emerging from conflict. Efficiency gains will come from closer and more efficient cooperation and a clear delineation of responsibilities between the Fund and the World Bank, as well as from a streamlining of operations and procedures. The Committee calls on the Fund to provide a structured way of approaching donors regarding funding requests and encourages members to provide additional financial contributions to ensure that the Fund can continue to subsidize emergency assistance and capacity building to its low-income members.
15. The Committee agrees that Fund technical assistance and training should continue to play a key role in supporting members' capacity building efforts in the areas of the Fund's core mandate. It looks forward to steps that will increase the effectiveness of technical assistance in a resource-constrained environment with greater prioritization and a stronger result-focus, including through consideration of a system of graduated charges. The Committee also supports initiatives to promote external financing for the provision of Fund technical assistance and training.
16. The Committee recommends members' acceptance of the amendment of the Articles of Agreement for a special one-time allocation of SDRs.
17. The next meeting of the IMFC will be held in Washington, D.C. on October 11, 2008.
October 11, 2008
1. The International Monetary and Financial Committee held its eighteenth meeting in Washington, D.C. on October 11, 2008 under the Chairmanship of Dr. Youssef Boutros-Ghali, the Minister of Finance of Egypt. The Committee welcomes Dr. Boutros-Ghali, the new IMFC Chairman. The Committee expresses its deep gratitude to Mr. Tommaso Padoa-Schioppa for his invaluable role as the Committee's Chairman in securing the membership's support for critical IMF reforms, and extends its best wishes.
2. Yesterday, October 10, the G-7 met and agreed the following plan of action:
- "Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.
- Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.
- Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.
- Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.
- Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.
The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries. We will use macroeconomic policy tools as necessary and appropriate. We strongly support the IMF's critical role in assisting countries affected by this turmoil. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system. We will strengthen further our cooperation and work with others to accomplish this plan."
3. Today the International Monetary and Financial Committee strongly endorsed the above commitments.
4. The Committee recognizes that the depth and systemic nature of the crisis call for exceptional vigilance, coordination, and readiness to take bold action. It underscores that the Fund has a critical mandate to foster the multilateral cooperation needed to restore and safeguard international monetary and financial stability. The Committee considers that, using its emergency procedures, the Fund stands ready to quickly make available substantial resources to help member countries cover financing needs. The Committee calls for further intensive Fund engagement across the membership to discuss and develop robust policy responses to the crisis.
5. Moreover, the Committee notes that many emerging market economies, which have implemented sound policies in recent years, may experience spillover effects from the financial crisis. The difficult global financial environment, including elevated food and fuel prices, adds to the challenges for emerging market and developing countries to preserve macroeconomic stability, sustain growth, and make progress on poverty reduction. For these reasons, it is critically important that collaborative action be coordinated between advanced and emerging economies.
6. The Committee calls on the Fund—given its universal membership, core macro-financial expertise, and its mandate to promote international financial stability—to take the lead, in line with its mandate, in drawing the necessary policy lessons from the current crisis and recommending effective actions to restore confidence and stability. It asks the Fund to focus discussion, and enhance cooperation, with a wide range of perspectives with the FSF, the G-20, and others on this issue in an inclusive setting. The Committee asks the IMF to start this initiative immediately and to report to the IMFC at the latest at its next meeting.
7. The next regular meeting of the IMFC will be held in Washington, D.C. on April 25, 2009. The attachment summarizes the Committee's discussion on other key points.
Supporting Growth and Tackling Global Challenges
1. The Committee emphasizes that macroeconomic policies in the advanced economies need to provide essential stimulus in the face of the risk of a pronounced economic downturn, as confidence in the financial system is restored. Given the decline in commodity prices from their recent peaks and the expected slowing activity in many countries, policymakers should consider the most appropriate policy actions depending on national conditions. The Committee welcomes the recent coordinated monetary policy actions undertaken by several central banks. In a number of economies, fiscal policy has provided timely support to boost activity. Further fiscal initiatives should take account of medium-term consolidation objectives and, if undertaken, should give priority to dealing with financial problems. While macroeconomic policy priorities vary considerably across emerging market and developing economies, the Committee notes that the risk of a marked slowdown owing to financial market strains and sluggish export markets is becoming the primary concern for many of them. The Committee calls on the IMF to stand ready to assist members to prepare timely, effective, and appropriate policy responses to alleviate the impact of negative spillovers from the financial crisis.
2. The Committee is concerned that the progress made by low-income countries in achieving macroeconomic stability, fostering growth, and reducing poverty is being undermined by the adverse global environment. Many low-income countries, particularly in sub-Saharan Africa, have been severely hit by higher food and fuel prices. The Committee calls on low-income countries to pursue strengthened adjustment efforts with increased donor assistance, in particular grants, to limit the effects on real income and poverty. The Committee welcomes the mission statement on low-income countries, and considers that the Fund should continue to play its part in the areas of its core expertise. The Committee welcomes the reforms to the Exogenous Shocks Facility, which allow it to be used more quickly and adequately.
3. The Committee notes the challenges posed by higher commodity prices in many countries, even though food and fuel prices have receded from their recent peaks. It recommends that shifts in international food and fuel prices be passed through to domestic markets, backed by targeted measures and adequate safety nets to protect the poor and taking into account country-specific circumstances.
4. Progress toward a more multilateral trading system has never been more important given risks to global growth. The Committee therefore calls on members to resist protectionist pressures, and reiterates its strong support for a prompt and ambitious conclusion of the Doha Development Round of trade negotiations.
5. The Committee emphasizes that it remains important to guard against global imbalances. The multilateral strategy for addressing global imbalances remains relevant, even though short-term measures will need to focus on stabilizing financial markets.
Advancing the IMF's Surveillance Agenda
6. The Committee underscores the central role of Fund surveillance in providing clear, advance warning of risks, helping members understand the interdependence of their economies, and promoting globally consistent policy responses. The Committee takes note of the conclusion of the Triennial Surveillance Review, and endorses the Fund's first Statement of Surveillance Priorities. The Committee calls on all members to work together cooperatively and with the Fund toward achieving the economic and operational objectives that it sets forth. The Committee calls on the Fund to press ahead with the enhanced early warning of risks and vulnerabilities, including through enhanced financial sector liaison, analysis of macro-financial linkages, and scenario analysis, and by completing the extension of its vulnerability exercise to advanced economies. The communication of these risks and vulnerabilities should be concise, authoritative, and timely, including through an enhanced World Economic Outlook and Global Financial Stability Report. Work should also be undertaken toward a reshaped Financial Sector Assessment Program that is better integrated with the Fund's surveillance mandate, and embraces regional perspectives. The Committee looks forward to regular reporting by the Managing Director on the progress made against surveillance priorities.
Reviewing the IMF's Lending Role
7. The Committee stresses that Fund financing has a critical role to play in giving confidence to members—subject to adequate safeguards—by helping them cope with the challenges of globalization in general and the current financial crisis in particular. It emphasizes that the Fund is ready to make full use of the flexibility already embodied in its lending instruments, particularly in the emergency procedures and provisions for exceptional access. But additional efforts are needed to review the Fund's lending instruments, which might need to be adapted to the evolving needs of the membership. The Committee welcomes the ongoing review of the Fund's lending role, and supports the plan to advance work in the following five areas:
(i) reviewing the analytical framework for Fund lending and its coherence, including the scope for innovation in and streamlining of lending instruments, and exploring new modalities for Fund financing;
(ii) creating a new liquidity instrument;
(iii) re-examining Fund conditionality;
(iv) reviewing the Fund's lending facilities for low-income members; and
(v) increasing access limits and financing terms for using Fund resources
The Committee urges the Executive Board to take this agenda forward expeditiously. The Committee strongly recommends that decisions be taken on an accelerated basis in those areas where there is strong consensus and particular urgency—such as the establishment of a new liquidity instrument—and on the full range of issues by the time of the 2009 Annual Meetings.
The Santiago Principles—Generally Accepted Principles and Practices for Sovereign Wealth Funds
8. The Committee welcomes the development of the Santiago Principles by the International Working Group of Sovereign Wealth Funds (SWFs). The Principles represent a collaborative effort by SWFs from across advanced, emerging, and developing country economies to set out a comprehensive framework, providing a clearer understanding of the operations of SWFs. Their adoption on a voluntary basis signals strong commitment to the Principles and their implementation should further enhance the stabilizing role played by SWFs in the financial markets, and help maintain the free flow of cross-border investment. The Committee welcomes the intention of the International Working Group to consider establishing a Standing Group to keep the Principles under review and explore the scope for collecting and disseminating aggregated information on SWF operations. It emphasizes that continued Fund support, if requested, should be consistent with budgetary constraints. The Committee also stresses the importance of clear and nondiscriminatory policies by recipient countries toward SWF investments. It looks forward to the completion of the work of the OECD in this area, and encourages continued dialogue and coordination between the OECD and SWFs.
9. The Committee welcomes the approval by the Board of Governors of the Resolution on quota and voice reforms, including the amendment of the Fund's Articles of Agreement to enhance voice and participation in the Fund. It notes that this is an important first step toward a realignment of members' quota and voting shares. These realignments are expected to result in increases in the quota shares of dynamic economies, and hence in the share of emerging market and developing economies as a whole. The Committee also looks forward to further work by the Executive Board on elements of the new quota formula that can be improved before the formula is used again. The Committee also welcomes the approval of the amendment broadening the Fund's investment authority as part of the Fund's new income model. The Committee urgently calls on all members to work toward the early completion of the domestic legislative steps required for making the quota and voice reforms and the Fund's new income model effective.
10. The Committee recommends members' acceptance of the amendment of the Articles of Agreement for a special one-time allocation of SDRs.
11. The Committee welcomes the ongoing re-assessment of the Fund's governance. This involves the follow-up by the Fund's Executive Board to the IEO Evaluation of Aspects of IMF Corporate Governance; the work of the committee of eminent persons on IMF governance reform, chaired by Mr. Trevor Manuel; and the engagement of civil society and other concerned audiences. The Committee underscores that governance reforms will require joint and collaborative efforts by all organs of the Fund. It looks forward to a progress report at its next meeting.
Surveillance Priorities for the International Monetary Fund, 2008–2011
In pursuit of its mandate to promote international monetary and financial stability, IMF surveillance will be guided through 2011 by the following priorities:
The global economy faces a period of severe financial distress and slower growth alongside the challenges of sharp commodity price changes and global imbalances. The following interrelated policy objectives will be key to return to an international environment more conducive to sustainable noninflationary growth:
- Resolve financial market distress. Restore stability and minimize the adverse impact of the current crisis in financial markets on the real economy;
- Strengthen the global financial system by upgrading domestic and cross-border regulation and supervision, especially in major financial centers, and by avoiding the exposure of capital-importing countries, including low-income countries, to excessive risks;
- Adjust to sharp changes in commodity prices. React to commodity price shifts in domestically appropriate and globally consistent ways, with emphasis on keeping inflationary pressures in check in boom phases and minimizing risks that could arise when prices fall;
- Promote the orderly reduction of global imbalances while minimizing adverse real and financial repercussions.
In coordination with other International Financial Institutions, the IMF should promote a common understanding of the forces and linkages underlying these challenges; draw key lessons from different experiences to share across the membership; provide clear advance warnings of risks to global economic and financial stability; and advise on how best to use policy—in particular monetary, fiscal, exchange rate, and financial sector policies—in support of these objectives.
- Risk assessment. Refine the tools necessary to provide clear early warnings to members. Thorough analysis of major risks to baseline projections (including, where appropriate, high-cost tail risks) and their policy implications should become more systematic;
- Financial sector surveillance and real-financial linkages. Improve analysis of financial stability, including diagnostic tools; deepen understanding of linkages, including between markets and institutions; and ensure adequate discussion in surveillance reports;
- Multilateral perspective. Bilateral surveillance to be informed systematically by analysis of inward spillovers; outward spillovers (where relevant); and cross-country knowledge (as useful); and,
- Analysis of exchange rates and external stability risks. In the context of strengthening external stability analysis, integrate clearer and more robust exchange rate analysis, underpinned by strengthened methodologies, into the assessment of the overall policy mix.
The Executive Board has set the above priorities to foster multilateral collaboration and guide IMF management and staff in the conduct of surveillance. These priorities look ahead three years, but may be revised if circumstances warrant. They will guide the Fund's work within the framework for surveillance provided by the Articles of Agreement and the relevant Board decisions, including the 2007 Decision on Bilateral Surveillance. Moreover, traditional areas of strength (such as fiscal policy and debt sustainability analysis) and relevant country-specific issues should not be overlooked.
The Executive Board is responsible for conducting, guiding and evaluating surveillance in order to ensure the achievement of these priorities. Management and staff are responsible for delivering on the operational priorities, subject to members' cooperation in line with commitments under the Articles of Agreement. To foster progress toward economic priorities, management and staff are responsible for providing candid high-quality analysis and effective communication. The Managing Director will report:
(i) regularly on actions toward priorities and readily visible results; and
(ii) at the time of the next Triennial Surveillance Review on progress in attaining these priorities; management's and staff's contributions; and factors that impeded progress.
Communiqués of the Development Committee of the Boards of Governors of the World Bank and IMF, 2008
April 13, 2008
1. We met in Washington, DC today, Sunday, April 13, 2008.
2. We endorsed the overall World Bank Group (WBG) objective of contributing to an inclusive and sustainable globalization—to overcome poverty, and enhance growth with care for the environment. We welcomed the process underway to develop further and refine a results-oriented strategic framework, and look forward to reviewing progress at our next meeting. In this regard, we look forward to the results of the strategic review of IBRD capital and progress on deploying capital more effectively for development impact. We also reiterated the importance of ongoing efforts to strengthen synergy among, and decentralization of, the WBG institutions. We gave special focus in our own discussions to the WBG's role in the poorest countries and in fragile situations and post-conflict states.
3. We reviewed progress toward the Millennium Development Goals (MDGs), as reflected in the fifth Global Monitoring Report. The world is on course for the goal of halving the percentage of people living in poverty, thanks to strong and sustained growth. Yet progress has been uneven across countries and sectors. Despite improved growth performance, most Sub-Saharan African countries are off track to meet the MDGs. Stronger, sustainable and more equitable growth remains central to more effective poverty reduction. We urged donors, including the WBG, to increase their support for the poorest countries' own development priorities. As the MDG midpoint, 2008 is a crucial year for generating the necessary momentum towards the MDGs.
4. Progress has been made on human development-related MDGs, but the risks of falling short are far greater than for the income poverty goal. We called for improving access to – and quality and effectiveness of – health and education services in low and middle income countries and for policy interventions to take into account the strong links between health and education outcomes, nutrition, water and sanitation, and environmental factors, e.g. pollution and climate change. The challenge of malnutrition is heightened by the rise in food prices. We welcomed the progress made so far under the WBG Gender Action Plan. We stressed the need to treat the advancement of girls and women's economic empowerment as central development issues.
5. While the balance of risks to the global outlook has become more negative, emerging and developing economies have so far been less affected by financial market developments. The impact of higher commodity prices is mixed across countries depending on whether they are net importers or exporters. Within countries, large groups of poor people are severely affected by high food and energy prices across the developing world. We asked the WBG and the Fund to respond to developing countries' requests for advice on management of natural resource revenues, and to be ready to provide timely policy and financial support to vulnerable countries dealing with negative shocks including from energy and food prices. We welcomed the call by the World Bank President to the world community to combat hunger and malnutrition through a "New Deal for Global Food Policy", combining immediate assistance with medium and long-term efforts to boost agricultural productivity in developing countries. We urged donors to provide the needed assistance to the World Food Program to enable immediate support for countries most affected by the high food prices, and encouraged the WBG to strengthen its engagement in the agricultural sector.
6. Fragile situations and post conflict states pose special challenges. We asked the Bank, within its mandate, to promote better global understanding of fragility and conflict dynamics and of effective strategic and operational approaches. We emphasized the importance of strong WBG collaboration with international and local partners for effective economic support to peace-building transitions, institution building and governance reforms, progress towards MDGs and private sector development. A flexible approach, a stronger field presence by the Bank and innovative and timely technical and financial support will be crucial for success. Developing countries can also play a role in this respect through trade, regional integration and South-South cooperation.
7. Increased and more effective aid remains critical. We welcomed the successful IDA 15 replenishment which yielded an unprecedented 36% increase in donors' contribution and an overall envelope that will exceed $40 billion. We called for IDA to continue its crucial platform role in the evolving aid architecture. Many recipient countries have benefited from debt relief and improved the effectiveness with which they utilize ODA. Yet there are concerns that the growth path of overall aid volumes may not be consistent with existing commitments. We therefore agreed on the urgency of achieving international aid commitments, and called on those who have not done so to deliver on their commitments, including the doubling of aid to Sub-Saharan Africa by 2010. More needs to be done to implement the principles of aid effectiveness, including greater focus on results, embodied in the Paris Declaration. This is all the more important as the international aid architecture becomes increasingly diversified and complex, with more donors, the potential for increased volume as well as fragmentation of aid, and increased earmarking through vertical approaches. We recognized the role of South-South cooperation in leveraging resources and development knowledge. We called on all suppliers of development assistance to provide aid in line with the country-based model for improving the effectiveness and transparency of aid, as well as with the debt sustainability framework, which should be subject to regular review. We look forward to the Accra High Level Forum to advance this agenda.
8. We strongly support intensified and decisive efforts to agree on an ambitious pro-development Doha Round that improves access to markets. We stressed the need to integrate trade and competitiveness within national development strategies, while stepping up support for Aid for Trade, including assistance for countries' efforts to strengthen trade logistics and ensure competitive access to services, as these are central to improving poor countries' competitiveness and ability to benefit from trade opportunities.
9. Noting progress in implementing the WBG Middle Income Countries strategy, we welcomed recent changes and ongoing innovations in the WBG's financial and lending products. We urged the Bank to enhance the use of country systems where appropriate, and to make further progress in simplifying and reducing the non-financial cost of doing business without diluting essential environmental and social safeguards.
10. We welcomed the steady implementation of the WBG's Governance and Anticorruption Strategy. We look forward to full implementation of the Volcker Report recommendations to strengthen transparency and internal governance, project integrity, effectiveness against corruption, cooperation with partners, and learning from experience.
11. We welcomed the Concept and Issues Note on the Strategic Framework on Climate Change and Development for the WBG (SFCCD). We stressed the importance of the WBG addressing climate change issues, in the overall context of its core mission of promoting economic growth and poverty reduction. We also underscored the cross-cutting nature of climate change, which requires an integrated approach across many sectors. We acknowledged the important and catalytic role of the WBG in the financial architecture on climate change and its experience in carbon finance.
We asked for the SFCCD to elaborate further on the additional financing needs for addressing climate change, the mobilization of private sector funding and the complementarities between existing and new financing mechanisms. We emphasized that financial resources for the climate change agenda must be additional to the present levels of ODA. Noting the primacy of the United Nations Framework Convention on Climate Change negotiation process, we also asked that the SFCCD further articulate the proposed role of the WBG under a division of labor vis-à-vis the UN, and other key international players, including the private sector. Recognizing that access to energy remains key to development, we supported WBG goals of promoting clean technology and renewable energy deployment, technology transfer, and research and development. We acknowledged the work underway on the design, governance, and financing of the new Climate Investment Funds, including the Clean Technology Fund, to address the challenge of climate change. We welcomed the ongoing consultative process for developing a client-oriented SFCCD and look forward to discussing it at our next meeting.
12. We welcomed the Managing Director's report on the reform of IMF quota and voice. We encouraged the Bank to advance work on all aspects of voice and participation, keeping in mind the distinct nature of the Bank's development mandate, and the importance of enhancing voice and participation for all developing and transition countries in the WBG. We look forward to a process that is inclusive and consultative among shareholders, and to receiving concrete options from the Bank's Board by our next meeting with a view to reaching consensus on a comprehensive package by the 2009 Spring meeting.
13. The Committee's next meeting is scheduled for October 12, 2008 in Washington, DC.
October 12, 2008
1. We met in Washington DC today, Sunday, October 12, 2008.
2. We are concerned by the impact of the turmoil in world financial markets and the continued high prices of fuel and food. We welcomed member countries' commitment to take comprehensive and cooperative measures to restore financial stability and the orderly functioning of credit markets. The World Bank Group (WBG) and the IMF must help address these critical challenges, in particular the impact on developing countries, and draw lessons from the current crises. It will be crucial to maintain a focus on support for sustainable growth, poverty reduction, and the achievement of the Millennium Development Goals (MDGs). We welcomed world leaders' renewed commitment to the MDGs at the recent United Nations (UN) high-level event, and we reiterated the urgent need to forge a deepened global partnership at next month's Financing for Development Conference in Doha.
3. Developing and transition countries (DTCs) could suffer serious consequences from any prolonged tightening of credit or sustained global slowdown. Prices for fuels and staple foods remain at high levels. This is pushing up inflation in many countries and worsening income distribution, setting back progress towards meeting the MDGs, in particular the poverty and human development MDGs. Higher food and energy prices are also causing balance of payments problems, which are especially severe for low-income energy importing countries, many in Africa. We recognized that countries face difficult policy challenges, including dealing with the distributional effects of the commodity price shocks and protecting the most vulnerable groups with carefully targeted assistance, controlling inflation, and managing the shocks, while maintaining sound public finances and sustaining growth.
4. We recognized the important role of the DTCs in the global economy, and called on the international community, including the WBG and the IMF, working in a coordinated way, to draw on the full range of their financial, analytical and technical assistance resources and policy advice to help DTCs strengthen their economies and maintain growth, and protect the most vulnerable groups within their populations against the short and medium term impact of the current crises. Poorer countries, with their limited sources of fiscal revenue, will be especially dependent on timely and predictable flows of Official Development Assistance (ODA). In this regard, we emphasized the enhanced importance, in the current context, of donors meeting their ODA commitments. We especially appreciate the strong increase in overall WBG commitments to members in fiscal year 2008. We welcomed the WBG's collaboration with the UN and other partners, particularly through the UN High Level Task Force on the Global Food Crisis. Supporting President Zoellick's call for a New Deal for Global Food Policy, we welcomed the expedited financing provided through the Global Food Crisis Response Program and parallel efforts to increase substantially the level of WBG financial and analytical support for food and agriculture. We welcomed the progress on the Energy for the Poor initiative and encouraged the WBG, with the help of donors, to finalize the proposal. This will provide rapid assistance to social safety nets, and support projects to reduce countries' longer-term vulnerability to high and volatile fuel prices. We also welcomed the IMF's mobilization of the Poverty Reduction and Growth Facility (PRGF) in response to its members' needs, and the recent reform of its Exogenous Shocks Facility, which provides for easier and more rapid access to concessional assistance in response to shocks.
5. The need to address these new global stresses adds to an already extensive agenda of critical issues confronting the international community. These include meeting the challenges embodied in the MDGs and providing the necessary funding for their achievement in a transparent and accountable way. ODA volumes need to be consistent with existing commitments and we called for full compliance with these commitments. We also highlighted the role of domestic resources for development. We called for: continued attention to the sustainability and full delivery of debt relief initiatives; addressing issues of global public goods including climate change; supporting health delivery systems in developing countries and countering international health scourges including HIV-AIDS; promoting gender equality and the empowerment of women; and maintaining and building upon the system of open international markets, including completing the Doha Development Round and delivering increased aid for trade. These challenges are particularly acute in conflict-affected countries and those in fragile situations, where we need to step up our efforts at collaboration, knowledge-sharing and ensuring adequate and timely resources. We called upon the Bank to intensify its efforts to operate flexibly and effectively in fragile and post conflict situations, and we welcomed the upcoming signing of the UN-World Bank Partnership Framework and Fiduciary Principles Accord for Crisis and Emergency Situations. The above agenda serves as a reminder of the crucial importance of intensified international co-operation and multilateralism in effectively addressing shared global challenges.
6. In this context, we welcomed the endorsement of a substantive Agenda for Action at the Accra High Level Forum on Aid Effectiveness by a broad partnership including stakeholders engaged in South-South cooperation. We noted in particular the reinforced commitment to: mutual accountability; support for country ownership through capacity development and institution building and increased use of strengthened country systems; enhancing value for money; transparency and predictability of aid and its underlying conditions; and the reduction of aid fragmentation. We urged development partners including the WBG to develop action plans to implement the Accra Agenda for Action and look forward to seeing the Bank's action plan before our next meeting.
7. In light of the new global challenges, we called on the Bank to urgently review the implications for its strategy and operations, and to articulate detailed objectives and actions. We asked management and the Board to work together to enhance Group synergy and make the Bank a more efficient, flexible, decentralized and client focused organization. We look forward to reviewing progress in this regard. We encouraged the Bank to complete its strategic review of IBRD's capital.
8. We discussed and welcomed the strategic framework for the World Bank Group on Development and Climate Change. The framework benefited from extensive consultations with member countries and other stakeholders. It provides a basis for the WBG to fulfill its core mission of promoting economic growth and poverty reduction, at the global, regional and country levels, in the context of the challenges posed by climate change. While re-emphasizing the primacy of the UNFCCC negotiation process, and taking account of the Bali Action Plan, we encouraged the WBG to support climate actions in country-led development processes in a holistic manner, and to customize support to climate change adaptation and mitigation efforts, as well as capacity building needs, in its member countries. Recognizing the enormous financial gap for addressing climate change, we encouraged the WBG to strengthen its resource mobilization efforts, including facilitating access to additional concessional financing, ensuring complementarity with other financing mechanisms (notably the Global Environment Facility and the Adaptation Fund), supporting the development of market-based financing mechanisms, leveraging private sector resources, and seizing opportunities for innovation. We encouraged the WBG to play an active role in supporting the development and deployment of clean and climate resilient technologies, and facilitating relevant R&D and technology transfer. In this context we welcomed the recent successful launch of the Climate Investment Funds (CIF), including the Clean Technology Fund and the Strategic Climate Fund, as a positive first step, and called on the WBG to give increased attention to mobilizing resources for adaptation.
9. The package of reforms enhancing voice and participation of all developing and transition countries (DTCs) in WBG governance and work, brought forward by the Bank's Board, addresses many aspects of voice and participation in light of the Monterrey Consensus. This is an important first step in the ongoing process of comprehensive reform. This package includes both concrete immediate steps and commitments to further work. An additional Board seat for Sub Saharan Africa on the Bank's Board will be created. DTC voting shares in IBRD and IDA will increase, giving special emphasis to smaller members. Further realignment of Bank shareholding will be taken up by the Bank's Board in an important shareholding review that will develop principles, criteria and proposals for Bank shareholding. The review will consider the evolving weight of all members in the world economy and other Bank specific criteria consistent with the WBG's development mandate, moving over time towards equitable voting power between developed and developing members. The Board would develop proposals by the 2010 Spring Meeting and no later than the 2010 Annual Meetings, with a view to reaching consensus on realignment at the following meeting. There is considerable agreement on the importance of a selection process for the President of the Bank that is merit-based and transparent, with nominations open to all Board members and transparent Board consideration of all candidates. In addition, Bank Management has committed to continue enhancing diversity of management and staff and decentralizing decision-making. We asked the WBG's Boards and Management to take prompt action to implement this agreed first step. We look forward to the periodic reports on progress and future proposals for a subsequent realignment of Bank shareholding as part of comprehensive reform.
10. We welcomed the continuing work by the Board to review and further strengthen internal governance at the World Bank.
11. The Committee's next meeting is scheduled for April 26, 2009 in Washington, DC.
Operational Highlights and Key Financial Indicators
of the IMF in Fiscal Year 2008
International Monetary Fund
The flow of IMF repayments and repurchases was larger than the flow of disbursements in FY2007 and FY2008. However, the gap between the two figures is much smaller for FY2008, reflecting both a slight decrease in disbursements, and large repurchases and repayments by several member countries in FY2007.
|(millions of SDRs)|
|Total repurchases and repayments||14,678||3,323|
|Note: Numbers may not add due to rounding.|
The IMF's outstanding credit decreased significantly from FY2007 to FY2008, primarily due to reductions in purchases (use by members) of Stand-By Arrangements and Extended Arrangements.
|(millions of SDRs)|
|Supplemental Reserve Facility||–||–|
|Compensatory and Contingency Financing Facility||78||38|
|Systemic Transformation Facility||–||–|
|Subtotal, General Resources Account||7,334||5,896|
|Note: Numbers may not add due to rounding.|
Please see the IMF 2008 Annual Report for detailed data regarding the policies and finances of the IMF. All data referenced in this annex can be found in the appendices of the IMF 2008 Annual Report.
Active IMF Lending Arrangements—As of December 31, 2008
|Member||Date of arrangement||Expiration date||Amount
|(millions of SDRs)|
|Gabon||May 7, 2007||May 6, 2010||77.15||77.15|
|Georgia||September 15, 2008||March 14, 2010||477.10||315.40|
|Honduras||April 7, 2008||March 30, 2009||38.85||39.00|
|Hungary||November 6, 2008||April 5, 2010||10,537.50||6,322.50|
|Iceland||November 19, 2008||November 18, 2010||1,400.00||840.00|
|Iraq||December 19, 2007||March 18, 2009||475.36||475.36|
|Latvia||December 23, 2008||March 22, 2011||1,522.00||986.00|
|Pakistan||November 24, 2008||October 23, 2010||5,168.50||3,101.10|
|Peru||January 26, 2007||February 28, 2009||172.37||172.37|
|Seychelles||November 14, 2008||November 13, 2010||17.60||11.44|
|Ukraine||November 5, 2008||November 4, 2010||11,000.00||8,000.00|
|Extended Fund Facility Arrangements|
|Albania||February 1, 2006||January 31, 2009||8.5||1.2|
|Exogenous Shocks Facility|
|Kyrgyz Republic||December 10, 2008||June 9, 2010||66.6||50.0|
|Malawi||December 3, 2008||December 2, 2009||52.1||34.7|
|Senegal||December 19, 2008||December 18, 2009||48.5||24.3|
|Poverty Reduction and Growth Facility|
|Afghanistan||June 26, 2006||June 25, 2009||81.0||22.6|
|Albania||February 1, 2006||January 31, 2009||8.5||1.2|
|Armenia, Republic of||November 17, 2008||November 16, 2011||9.2||7.9|
|Benin||August 5, 2005||August 4, 2009||15.5||1.8|
|Burkina Faso||April 23, 2007||April 22, 2010||15.1||3.0|
|Burundi||July 7, 2008||July 6, 2011||46.2||39.6|
|Cameroon||October 24, 2005||January 31, 2009||18.6||2.7|
|Central African Republic||December 22, 2006||December 21, 2009||44.6||9.3|
|Congo, Republic of||December 8, 2008||December 7, 2009||8.5||7.3|
|Djibouti||September 17, 2008||September 16, 2011||12.7||8.9|
|Gambia, The||February 21, 2007||February 20, 2010||14.0||6.0|
|Grenada||April 17, 2006||April 16, 2010||12.0||5.0|
|Guinea||December 21, 2007||December 20, 2010||69.6||45.1|
|Haiti||November 20, 2006||November 19, 2009||90.1||22.8|
|Liberia||March 14, 2008||March 13, 2011||239.0||24.8|
|Madagascar||July 21, 2006||July 20, 2009||73.3||20.3|
|Mali||May 28, 2008||May 27, 2011||28.0||10.0|
|Mauritania||December 18, 2006||December 17, 2009||16.1||5.8|
|Moldova, Republic of||May 5, 2006||May 4, 2009||110.9||22.9|
|Nicaragua||October 5, 2007||October 4, 2010||78.0||47.7|
|Niger||June 2, 2008||June 1, 2011||23.0||16.5|
|Rwanda||June 12, 2006||June 11, 2009||8.0||2.3|
|Sierra Leone||May 10, 2006||May 9, 2010||41.5||21.0|
|Togo||April 21, 2008||April 20, 2011||84.4||53.2|
|Zambia||June 4, 2008||June 3, 2011||48.9||41.9|
|Note: Numbers may not add due to rounding.
Operational Highlights and Key Financial Indicators of the World Bank Group in Fiscal Year 2008
Operational highlights and key financial indicators for World Bank Group associations are summarized in the following table. IBRD lending commitments to member countries were $13.5 billion in FY2008, up $0.7 billion from $12.8 billion in FY2007. Comparatively, IDA lending was $11.2 billion for 199 projects in FY2008, down $0.6 billion from FY2007. The IFC committed $11.4 billion in FY2008, an increase of 39 per cent from FY2007 commitments. MIGA issued guarantees worth $2.1 billion in FY2008, an increase of 50 per cent from FY2007.
(millions of US dollars)
|Number of projects||112||99|
|Principal repayments including prepayments||17,231||12,610|
|Net disbursements (losses)||(6,176)||(2,120)|
|Equity-to-loans ratio (per cent)||35||38|
|Sources: The World Bank Group Annual Report (2008) and IRBD financial statements (2008).|
(millions of US dollars)
|Operating income (loss)||(2,075)||1,818|
|Number of projects||189||199|
|Source: The World Bank Group Annual Report (2008).|
(millions of US dollars)
|Operating income (loss)||2,611||1,438|
|Number of projects||299||372|
|Loan and equity investments, net||15,812||23,319|
|Source: IFC Annual Report (2008) and IFC consolidated financial statements (2008).|
(millions of US dollars)
|Administrative and other expenses||30.1||29.2|
|Statutory underwriting capacity||10,570||11,593|
|Fiscal-year guarantees issued||1,368||2,098|
|Number of new projects||26||23|
|Return on operating capital, before provisions (per cent)||6.1||7.3|
|Source: MIGA Annual Report (2008).|
IBRD Loans and IDA Credits—Summary Statistics for Fiscal Year 2008
|(millions of US dollars)|
|East Asia and Pacific||2,677||1,791||4,468|
|Europe and Central Asia||3,714||457||4,171|
|Latin America and the Caribbean||4,353||307||4,660|
|Middle East and North Africa||1,203||267||1,470|
|Environmental and Natural Resources Management||2,661.8|
|Financial and Private Sector Development||6,156.2|
|Public Sector Governance||4,346.6|
|Rule of Law||304.2|
|Social Development, Gender and Inclusion||1,002.9|
|Social Protection and Risk Management||881.9|
|Trade and Integration||1,393.2|
|Agriculture, Fishing, and Forestry||1,360.6|
|Energy and Mining||4,180.3|
|Health and Other Social Services||1,607.9|
|Industry and Trade||1,543.5|
|Information and Communication||56.5|
|Law and Justice and Public Administration||5,296.4|
|Water, Sanitation, and Flood Protection||2,359.9|
|Of which IBRD||13,467.6|
|Of which IDA||11,234.7|
|Source: The World Bank Group Annual Report (2008).|
Projects Approved for IBRD and IDA Assistance in Fiscal Year
by Region and Country
|(millions of dollars)|
|Central African Republic||1||7.9||1||7.9|
|Congo, Democratic Republic of||3||222.0||3||222.0|
|Congo, Republic of||1||40.0||1||40.0|
|São Tomé and Principe||1||6.0||1||6.0|
|East Asia and Pacific|
|Lao People's Democratic Republic||3||25.0||3||25.0|
|Papua New Guinea||2||44.5||2||44.5|
|Europe and Central Asia|
|Bosnia and Herzegovina||1||25.0||1||25.0|
|Macedonia, former Yugoslav|
|Latin America and the Caribbean|
|Middle East and North Africa|
|Egypt, Arab Republic of||4||835.0||4||835.0|
|Yemen, Republic of||5||154.8||5||154.8|
Canadian Contributions to World Bank Group Trust Funds
|(millions of dollars)|
December 31, 2008
|(millions of dollars)|
|Private sector development—CARICOM||–||12.5|
|Note: Includes only contributions above $5 million.|
December 31, 2008
|(millions of dollars)|
|Source: Canadian International Development Agency.|
World Bank Group Procurement From Canada
|(millions of US dollars)|
|Source: World Bank, "Summary and Detailed Borrower Procurement Reports" (2008).|
World Bank Group Borrowing in Canada
In calendar year 2008, the IBRD did not issue any bonds denominated in Canadian dollars.
1 Reports to the IMF's Board of Governors.
2 Reports to the IMF and World Bank's Boards of Governors.
3 The constituency includes Guyana for the DC only.
4 As a shareholder of the International Bank for Reconstruction and Development, Canada has a voting share of 2.78 per cent. Canada's contribution to the International Development Association represents 2.96 per cent.
5 For the October 2008 WEO see www.imf.org/external/pubs/ft/weo/2008/02/index.htm and for the October 2008 GFSR see www.imf.org/External/Pubs/FT/GFSR/2008/02/index.htm.
9 All figures and activities in this section are for the World Bank's 2008 fiscal year (July 1, 2007 to June 30, 2008).
10 Canada provided a one-time cash payment of $34.3 million to cover its share of the costs of IDA's new arrears clearance framework agreed as part of the IDA15 replenishment. Canada's first demand note issuance under IDA15 was made in December 2008 instead of the anticipated timeline of January 2009, as the IDA15 replenishment became effective earlier than anticipated and IDA requested an early note issuance, as permitted under the terms of the replenishment resolution. The encashment of this demand note is scheduled for April 2009.
11 Details on the financing under PRGF arrangements in 2008 are provided in Annex 6.
12 The new quota formula includes four variables measured by the IMF. Ranked in order of importance in the formula, these are: a mixture of market-based and purchasing power parity gross domestic product (GDP), financial openness, variability of capital flows, and international reserves. The formula also includes a compression factor to reduce the dispersion between countries' calculated shares.
13 The reforms will be implemented once approved by the Board of Governors (expected in early 2009).
14 Member countries receive one vote per share, plus 250 basic votes. These basic votes, distributed equally across members, are meant to protect the voice of the least developed countries and small states.
15 The review proposed a framework to help assess where vulnerabilities might lie, including the establishment of a target range for the IBRD's equity-to-loans ratio (23 per cent to 27 per cent), in order to better anticipate when it might be facing difficulties with capital adequacy.
16 The IBRD's equity-to-loans ratio rose from 23 per cent five years ago, due to steps taken to rebuild the IBRD's reserves, a high level of prepayments on outstanding loans and slower loan growth due to the low interest environment.
17 The risk of the IBRD not contributing enough to reserves was a particular concern as these feed back into the IBRD's stock of equity capital, which is the basis for how much it can put out in loans.
18 The Bank's budget, paid out of its operational income, covers its administrative and operational expenses but does not include its resources for loans or grants.
19 The Bank's net budget for its 2009 fiscal year will remain flat in real terms at US$1.7 billion and will continue to be managed within a range of +/- 2 per cent.
20 As set out by President Robert Zoellick in 2007. See Robert Zoellick, "An Inclusive and Sustainable Globalization," speech to the National Press Club, Washington, D.C., October 10, 2007.
21 See Robert Lavigne and Garima Vasishtha (2009), "Assessing the Implementation of the IMF's 2007 Surveillance Decision," Bank of Canada Discussion Paper.
22 One person-year equals 260 working days.
23 Under the Paris Declaration on Aid Effectiveness of 2005 and the 2008 Accra Agenda for Action, development stakeholders including the World Bank Group have committed to work under host country leadership, harmonize donor programs and approaches at the country level in order to minimize the administrative burden on developing countries, and be accountable for delivering and reporting on development results.