Ministers endorse forward-looking approach toward open trade, strengthening reform

• Pages: 136-140

Page 136

Following is the edited text of the communiqué of the International Monetary and Financial Committee (IMFC) of the Board of Governors of the IMF in Washington.

The International Monetary and Financial Committee (IMFC) held its third meeting in Washington on April 29, under the Chairmanship of Gordon Brown, Chancellor of the Exchequer of the United Kingdom.

World economy

In the increasingly interconnected global economy, we will continue to promote international economic cooperation and work together, adopting a forwardlooking approach to meeting our common objective of open trade for greater global prosperity, maintaining the momentum for reform in the international financial system, strengthening our economies through structural reform,maintaining sound macroeconomic conditions for strong noninflationary growth, and encouraging poverty reduction and growth in the poorest countries.

The Committee agrees that short-term prospects for global growth have weakened significantly since its September 2000 meeting in Prague. The Committee considers it likely that the slowdown in global growth will be short-lived, though it notes that the downside risks have increased. Underlying inflationary pressures generally remain subdued.

Against this background, the Committee stresses the need for policymakers in the advanced economies to remain vigilant and forward looking:

* In the United States-which has provided important support for the growth of the world economy in recent years-there has been a marked deceleration of activity. The significant easing of monetary policy in recent months is timely and welcome, and monetary policy should remain directed at restoring growth potential while maintaining price stability. The Committee considers that timely fiscal policy measures would also provide support to economic growth.

* In view of the persistence of slow growth in Japan, the Committee welcomes the recent introduction of a new monetary policy framework and underscores the importance of the authorities' commitment to an expansionary policy stance until the risk of deflation is eliminated. Given the high level of public debt, the gradual fiscal consolidation currently under way remains appropriate. Prospects for a return to sustained growth depend most critically on determined action to address structural weaknesses, especially in the financial and corporate sectors.

* In this context, growth in the euro area remains relatively well sustained, although a slowing in activity is under way. The Committee agrees that policies should continue to support confidence and strengthen growth potential. Fiscal policy needs to continue to be geared toward fiscal consolidation in the medium term. Tax reforms should contribute to enhanced economic efficiency. The Committee underscores the importance of a further deepening and acceleration of structural reforms, especially in labor and product markets and in strengthening pension systems, for boosting longer-term growth potential.

The Committee notes that other countries are being adversely affected by both the slowdown in growth in the advanced economies and the deterioration of conditions in international financial markets.

The Committee, however, notes that growth is expected to be relatively well maintained in India and China. The Committee welcomes the steps taken by many emerging market economies in recent years to reduce external and financial sector vulnerabilities, including by adopting sustainable exchange rate regimes and prudent debt and reserve management policies. In view of the present fragility of external financing conditions, the prospects for emerging market economies depend critically on maintaining investor confidence, which, the Committee agrees, will require pursuing prudent macroeconomic policies and pressing ahead with corporate, financial, and institutional reforms. The Committee welcomes the recent comprehensive set of measures being implemented by the Argentine government to improve the underlying fiscal position and provide a strong basis for the sustained recovery of the economy, in line with the objectives of the IMFsupported program that is in place. It considers that these measures are an important and decisive step to boost confidence. The Committee also welcomes thePage 137 comprehensive strategy of bank restructuring, fiscal consolidation, and structural reform initiated by the Turkish authorities. The Committee considers that these policies, together with the provision of the needed external financing by the IMF and the Bank, provide the basis for the reestablishment of...