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G8 Finance Ministers' Meetings

Finance Ministers’ Statement
Deauville, May 17, 2003

We met today ahead of the Evian Summit. While major downside risks have receded, our economies continue to face many challenges. We are nonetheless confident in the potential for stronger growth. Our task is to realise this potential. We will therefore continue to cooperate to achieve higher growth in all of our economies, while ensuring domestic and external sustainability, and thereby to contribute to global economic growth. We are strengthening our commitments to structural reforms and sound macroeconomic policies.

As we face a common challenge of ageing, our contribution to higher worldwide growth should rely more strongly on a good system of education and life-long learning, research and development, innovation and entrepreneurship, on the foundation of a sustainable fiscal and monetary framework. Europe will continue to foster innovation and to accelerate labour, product and capital market reforms so as to achieve a more flexible economy. The US will act to create jobs and to encourage savings and investment by the private sector. Japan will continue its structural reforms, including in its financial and corporate sectors, and intensify its efforts to combat deflation. Canada will maintain monetary prudence and fiscal balance, while investing in productivity. Russia, which has greatly improved its performance, will pursue structural reforms, in particular in the financial sector.

To bolster investor confidence, we will continue to reinforce corporate governance practices, market discipline, transparency and regulation in line with the principles agreed in February. We welcome the work program agreed by the Financial Stability Forum in Berlin on potential financial vulnerabilities and corporate governance and related matters, including rating agencies and financial analysts, and will review the results of this work in September. We have agreed to appoint Roger Ferguson as FSF Chair. We favour the emergence, through open and public processes involving the private sector, of high-quality internationally recognized accounting standards that are applied, interpreted and enforced, with due regard to financial stability concerns. We will closely monitor the on-going work on Basel II and will review the issue at our next meeting in September. We also encourage voluntary private sector initiatives that foster and complement such international efforts to promote corporate social and environmental responsibility as the OECD guidelines for Multinational Enterprises and the UN Global Compact principles.

We reaffirm our strong commitment to combat terrorist financing. We call on the Financial Action Task Force to deepen its engagement with the UN and the International Financial Institutions, to foster worldwide compliance with international standards against terrorist financing and delivery of related technical assistance. We look forward to further work on the misuse of alternative remittance systems and non-profit organisations and to developing more effective freezing regimes. We welcome the progress achieved by the IMF, the World Bank and the FATF on the pilot program of assessments and look forward to its evaluation. We look forward to revised FATF recommendations by June, establishing an enhanced standard in the fight against money laundering and financial crime. We urge all OECD countries to implement the standards set out in the OECD’s 2000 report on access to bank information and to ensure effective exchange of information for tax purposes.

We reaffirm our commitment to strengthen our crisis prevention and resolution measures through improved IMF surveillance, greater transparency and more orderly, timely and predictable workouts of unsustainable debt. We welcome Brazil, South Africa and Uruguay’s decisions to adopt collective action clauses following on Mexico’s lead, and we encourage countries to adopt CACs with terms that facilitate debt restructuring. While keeping debt restructuring a last resort, we have agreed on a new Paris Club approach, as set out in the annex, for non-HIPC low- and middle-income countries ready to follow an exit strategy and to seek comparable treatment. We welcome initiatives being taken, including issuers, private sector and ourselves, on the development of a code of conduct. We look forward to reviewing progress in September.

We are at a turning point on development as on trade issues. We owe it to developing countries to take up our responsibilities. First, we need to raise economic growth in our own economies. Second, within a predictable medium-term framework, we need to provide the developing countries the resources necessary to support their commitment to implement structural and governance reforms, so as to accelerate their growth and social progress. Third, we are determined to achieve the objectives and overall timetable set out in the Doha Development Agenda and to ensure that the Cancun ministerial takes the decisions necessary to reach these goals. Commitments taken must be fulfilled. It is our duty as much as it is to the benefit of all. We ask Francis Mer to report to the Heads of States and Government in advance of the Evian summit on these issues, with a view to delivering on these commitments in order to meet the Millenium Development Goals.

We reaffirm our commitment to achieve these Goals, including health, education and water, to support the Global Health Fund and to complete the Heavily-Indebted Poor Countries initiative. The fight against global poverty calls for increased resources. Building on our recent announcements of increased resources and on our discussions to date on financing instruments, including facilities, we call for a report by September. Equally, as set out in the document made public today, we stress the importance of improving the effectiveness of our bilateral and multilateral aid, including by focusing on poor countries committed to reforms, setting and achieving measurable objectives, adopting growth-oriented policies and reducing transaction costs of assistance. We are also committed to promoting good governance, improved transparency and public financial management and the fight against corruption. We will review progress next year. We recognize the importance of rules-based trade in driving economic growth and poverty reduction. Building on Nepad, we agree that Africa must become more integrated into the global economy and we will leverage the benefits for Africa of our trade commitments. We look forward to the results of IFIs’ study of market-based mechanisms to reduce the impact of short-term commodity price volatility.

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Annex to the Deauville communiqué
A new Paris Club approach to debt restructuring

The Paris Club of official creditors is a central element of the existing framework for crisis resolution. In the context of the current efforts to make the resolution of crises more orderly, timely and predictable, the Paris Club can make a contribution.

The debt of heavily indebted poor countries is already addressed under an existing international initiative. For other countries experiencing serious debt problems, Finance Ministers encourage the Paris Club to improve its methods. They endorse appropriate action to achieve lasting debt sustainability, while ensuring that debt restructuring remains the last resort. Given the need to preserve access to private capital, the Paris Club should tailor its response to the specific financial situation of each country rather than defining standard terms under this new approach.

When a country approaches the Paris Club, the sustainability of its debt would be reviewed and analysed in coordination with the IMF. For a country, which has unsustainable debt and is committed to policies that will avoid a return to the Paris Club, as well as to seeking comparable treatment from its other external creditors, including the private sector, the Paris Club would define a process to provide debt relief in stages. These stages would be designed to have a strong link with economic performance and public debt management. A satisfactory track record in implementing an IMF program and in paying Paris Club creditors would be needed, after which the debt restructuring would be carried out in several steps linked to IMF conditionality.

Under this approach, the Paris Club could draw on a wide range of options to facilitate the return to debt sustainability, including:

In this context, coordination between official and other creditors, notably private creditors, is particularly important. The Paris Club has taken a number of steps to increase transparency of its procedures over the past years notably through meetings with private sector representatives and the information provided on its web site. This dialogue should continue and could take the form of early discussions with the private sector on the issue of the comparability of treatment of their respective claims.

Finance Ministers urge the Paris Club to adopt such an approach in future restructuring cases and will review its implementation in Spring 2004.

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AG-7 Finance Working Paper: Aid Effectiveness


The Monterrey Conference on Financing for Development endorsed the concept of partnership between developing and developed countries, with all stakeholders committed to increasing both the volume of aid and the effectiveness of aid with a view to achieving the Millennium Development Goals (MDGs).  Our challenge is to work together with developing countries to implement the most valuable lessons we have learned from our many years of experience in supporting development: sound economic policies, good governance and access to world markets form the basis of long-term prosperity.  To achieve this objective and to increase aid effectiveness, this paper outlines some key principles and actions in four important areas:


Beyond providing aid, however, developed countries have a responsibility to afford poor countries the opportunity through trade to earn the resources that will sustain growth and poverty reduction.  We are all committed to achieving the objectives set out in the Doha Development Agenda and to meeting its overall timetable.  Further trade liberalizing actions by developing countries themselves are also critical to promote lasting growth and poverty reduction.


A.  Enhancing the role of poverty reduction strategies 

1. We recognize that poverty reduction strategy papers (PRSPs) have provided a valuable framework for increasing country ownership of reform efforts, measuring progress towards the MDGs, and for increasing poverty reduction expenditures, including through debt relief provided under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.  However, this is a work in progress and improvements to the process are still needed.  Developing countries, with the support of the international community, must now make efforts to improve and adapt PRSPs, with a particular emphasis on the following areas:


We also call on the IMF and World Bank to further increase their efforts in this area, to streamline and better coordinate their tools, to strengthen their assessment mechanisms, and to report on progress at the Annual Meetings.


2. Aligning capacity building efforts to PRSP goals.  We recognize the need to help countries identify and address the barriers to effective implementation of their poverty reduction strategies.  In particular, we need to align our capacity building efforts to address these gaps.  Efforts to tackle corruption and to improve expenditure management, as noted above, are two important areas in this regard.  Another key area identified by developing countries is trade-related technical assistance.  The World Trade Organization (WTO) has created the Global Trust Fund and has improved its training programs.  The World Bank has noted that trade needs to be better integrated into development strategies, including PRSPs and World Bank Country Assistance Strategies (CAS).  We urge the World Bank to follow up on its own conclusions and take action to address trade policy capacity building - both with respect to its own work on the ground and in cooperation with the WTO and other relevant bodies.  This includes working to improve follow-up on work undertaken in the context of the Integrated Framework for Least Developed Countries.


3. Expanding the use of country-driven development strategies.  We strongly encourage all developing countries that are not currently developing PRSPs, or undertaking a similar exercise, to develop a nationally owned plan to address poverty.  We encourage IFIs to assist those countries, particularly middle-income countries, which have begun this process and to consider what incentives may be needed to engage additional countries.  The IFIs could be instrumental in promoting the adoption of development indicators in middle-income countries as well.  This would allow for a more coherent establishment of indicators and measurements systems across countries.


B.  Harmonizing Our Efforts

4. Alignment of aid with poverty reduction strategies.  Efforts have already been made to align donors' strategies and interventions with recipients' poverty reduction strategies.  There is strong evidence that the IFIs in particular are using the PRSP or country-owned national strategies as a basis for their own country strategies.  This has contributed to strengthened aid effectiveness while also enhancing country ownership over the programs financed by aid.  In countries with PRSP or equivalent processes, we agree to make further efforts to link our assistance with their priorities.


5. Harmonizing procedures.  Harmonizing donors' administrative procedures and building on country systems and approaches will relieve recipient governments from unproductive duplication of administrative tasks required by donors, both bilateral and multilateral.  We agree to build on the outcomes of the recent Rome High level Forum and the work to date of the OECD's Development Assistance Committee (DAC), the World Bank and other multilateral development banks (MDBs).  In particular, we agree to call on the DAC to monitor progress on harmonization efforts and, if necessary, to consider to work - together with the MDBs- on specific recommendations and timeline for further harmonization efforts, bearing in mind the need to set standards at the highest rather than the lowest denominator.  We urge the DAC to consult recipient countries on this matter and incorporate their opinions when they make such recommendations.  Progress towards achieving commitments must also be monitored and regularly reported on.


6. Untying aid.  In order to increase the effectiveness of development assistance, we call on the DAC to ensure the effectiveness of the untying recommendation and to review the extent to which all members have taken steps to fully implement it, in spirit and in action.  We urge all DAC members to accelerate the implementation of this recommendation.  Building on this outcome, we expect the DAC to continue to explore options for further progress in this area and to report on progress in implementing current agreements.


C.  Focus on Results

7. Our ability to demonstrate that aid works directly affects the level of public support for ODA.  We welcome the MDBs initiative towards better measuring, monitoring and managing of results, and we urge full and time-bound implementation for country assistance strategies, sector policies and specific financing operations.  We support a role for the Development Committee in discussing annual progress towards achieving the MDGs.  Since achievement of the MDGs depends on developing countries creating an environment for growth, improved productivity, and strong governance, it will also be important to monitor progress on these as well.  To move this agenda forward we believe additional efforts are needed in the following areas:


D.  Promoting and Rewarding Good Governance

8. Recent work by the OECD/DAC, World Bank and others have highlighted the limited progress on structural and governance reforms that threaten the attainment of MDGs in many countries.  Of particular concern, the Bank's 2002 CPIA process found that two-thirds of low-income countries have a business environment that could seriously inhibit domestic and foreign investment, including serious shortcomings in respect for property rights and rules-based governance.  Public sector governance, including control of corruption, remains a concern in more than three-quarters of low-income countries.  We consider improvements in the environment for private sector activity and public sector management as prerequisites for aid effectiveness.  


9. Improving the selectivity of aid.  We commit to increase selectivity in our assistance, focussing our aid on the poorest but best performing countries.  A fundamental principle of the Monterrey Consensus and the New Partnership for Africa (NePAD) is that developing countries will commit to improve governance.  We renew our promise to scale-up the volume of our aid to governance performance.  This will lead to increased, and more predictable, aid for those countries committed to reform.  By coordinating our efforts in this regard, we also increase the overall incentive to improve policies and pursue good governance.  We will also work to reinforce the capacity of weak performers, while recognising the needs of poor people in these countries.  To support our efforts, we agree to call on the IFIs to work towards more transparent and objective means to identify good performers so as to strengthen the incentive of all aid recipients to improve governance.  We support current efforts underway in the DAC and MDBs to improve indicators for governance, given the known problems related to adequacy, reliability and comparability.  To help move this agenda forward, we will ask the World Bank to publish individual CPIAs. 


10. Strengthening transparency and accountability.  Too many countries refuse to allow publication of their IMF Article IV consultations (44 countries in FY2002, including 15 of 33 sub-Saharan African countries and 7 of 10 North African and Middle Eastern countries) and World Bank CASs.  We will press to establish presumption of publication of all country surveillance, program reviews, reports and strategies, including Article IV, PRGF/SMP staff papers, and all MDB country strategies, while taking into account the impact on deletion and correction policy.  This will help promote local debate and ownership over the reform process.  We will also ask that they require all IMF exceptional access cases to include publication of staff reports, and a separate report for each IMF exceptional access case that lays out clearly the justification of such access, which also would be published.  We will urge that they seek full disclosure of MDB performance allocation systems, and ensure that all fiduciary and governance diagnostics are made public.  With respect to Africa, we renew our support to the NePAD process and look forward to progress in the implementation of the African Peer Review Mechanism, including its governance aspects.  We will ask the IFIs to look for opportunities to coordinate their monitoring and surveillance mechanisms with NePAD's own work. 


11. Enhancing participation.  Recent work by the IMF and World Bank suggests the quality of in-country debate and consultation on key issues, such as IMF programs and PRSPs, while improving in some cases, nevertheless remains uneven.  Broadening this dialogue to include Parliamentarians, private sector and civil society organizations, local administrations and other important groups is key to building accountability and ownership over reform agenda.  We urge developing countries, assisted by the MDBs and other organizations, to address this issue.  We are committed to help facilitate this process, including providing support to country-led efforts to analyse the poverty and social impact of key policy reforms.


E.  Increasing Trade Opportunities

12. The World Bank estimates that global income would rise by over $800 billion from free trade in all goods, of which close to two-thirds of these benefits would flow to developing countries.  Increasing trade opportunities for developing countries through the Doha Development Agenda is therefore essential if developing countries are to achieve their Millennium Development Goals. We are committed to seize the opportunity provided by the Doha Round.


13. Enhancing "South-South" trade.  We note that developing countries now pay over 70 percent of their trade duties to each other; tariff rates on South-to-South trade are nearly four times higher than South-to-North trade.  Clearly, more needs to be done to promote trade amongst developing countries, including support to regional cooperation and infrastructure projects.

Source: Official G8 Evian Summit website

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