The Finance Ministers and Central Bank Governors of Canada, France,
the Federal Republic of Germany, Italy, Japan, the United Kingdom and the
United States met on April 2 in Washington for an exchange of views on
current global economic and financial issues. The Managing Director of
the IMF participated in the multilateral surveillance discussions.
The Ministers and Governors reviewed their economic policies and prospects based on the agreed arrangements for economic policy coordination. Growth over the past year exceeded expectations and the pattern has been supportive of global adjustment. Inflation remained generally moderate in 1988 but inflationary pressures have recently appeared in a number of countries. External imbalances have been reduced in these countries with the largest imbalances, although recently the pace of adjustment has slowed. Exchange rates have generally been stable.
The Ministers and Governors agreed that sustained non-inflationary
growth is essential to dealing with global economic problems and remains
the central objective of the coordination process. The success of these
efforts depends on continued progress in controlling inflation and gradually
reducing external imbalances. While the Ministers and Governors welcome
the reduction in external imbalances achieved last year, they stressed
that further progress in this area is required.
Based on this assessment of the current situation, the Ministers and Governors concluded that continued efforts are required. In countries with fiscal and trade deficits,especially the United States and also Canada and Italy, further reductions in budget deficits are needed to complement monetary policies in achieving better domestic and external balance and sustained non-inflationary growth. The major surplus countries should pursue economic and structural policies that will sustain adequate growth of domestic demand without inflation and facilitate external adjustment. All countries must pursue structural reforms which will help to sustain non-inflationary growth. The exchange rate stability over the past year has made a welcomed contribution to, and has been supported by, the progress achieved in sustaining the global expansion and reducing external imbalances. The Ministers and Governors agreed that a rise of the dollar which undermined adjustment efforts, or an excessive decline, would be counterproductive and reiterated their commitment to cooperate closely on exchange markets.
Ministers and Governors reiterated the importance they attach to steady progress in the Uruguay Round towards greater trade liberalization. They stressed the danger to the global adjustment process of protectionism and committed themselves to resisting these pressures wherever they arise. A more open international trading system is essential to the sustained health of the global economy.
In reviewing the international debt situation, the Ministers and Governors recognized the progress which had been made in several countries, but noted with concern that serious problems remain. Noting the encouragement in their Berlin communique for further development of the debt strategy, they discussed recent proposals by several countries.
The Ministers and Governors agreed that the key principles of the case-by-case, growth-oriented debt strategy remained valid. However, they believed that for countries undertaking fundamental and convincing economic reforms in cooperation with the IMF and World Bank, the debt strategy should be strengthened by placing greater emphasis on voluntary debt and debt service reduction in agreement with the commercial banks as a complement to new lending. They believe this could make an important contribution to efforts to resolve international debt problems by significantly reducing new financing needs to more manageable levels and reducing the stock of debt over time.
They encouraged the IMF and World Bank to continue in their respective roles to work with debtor countries on economic reform programs essential for lasting progress and to place greater emphasis on measures to attract new investment -- noting the role of MIGA in this connection -- and to foster repatriation of flight capital.
They also encouraged the IMF and World Bank to take, in accordance with their established principles, appropriate steps to support efforts to reduce the debt burdens of countries which are committed to substantial economic reforms. This support should be accomplished by setting aside a portion of policy-based loans to facilitate debt reduction transactions. In addition, the two institutions should examine the establishment of limited interest support for transactions involving significant debt or debt service reduction. The concrete negotiations on debt and debt service reduction are a matter for the debtor countries and the commercial banks.
The Ministers and Governors affirmed the key role of commercial banks in resolving debt problems. They further concurred that diversified financial support from the banks is needed to support sound economic reform programs through a broad array of new lending and debt/debt service reduction
mechanisms. In order to encourage a broader range of voluntary debt and debt service reduction transactions, the Ministers and Governors
encouraged the commercial banking community to consider negotiating waivers of restrictive clauses in existing commercial bank lending agreements for a given period. They also agreed to review, consistent with maintaining the safety and soundness of the financial system, regulatory, tax, and accounting practices with a view to eliminating unnecessary obstacles to debt and/or debt service reduction transactions.
The Ministers and Governors also encouraged the IMF to continue to collaborate actively with the Paris Club.
The Ministers and Governors emphasized the importance of a growing global economy. They concluded by calling on all parties to work cooperatively and promptly to put into place the elements discussed to strengthen the international debt strategy.
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