G8 Research Group: Draft Statement By G7 Heads of State and Government

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The following document is an unofficial version of the Draft Statement By G7 Heads of State and Government. The G8 Research Group has judged it to be authentic and of value to those exploring the way G7 consensus emerges from the preparatory through the leaders' summit stages. It is has thus been published here at the same time as the official release of the final document for this educational purpose. The publication of this document is the sole responsibility of the G8 Research Group.

Draft Statement By G7 Heads of State and Government

26/04/98 10.24
Lancaster House: Final

The Heads of State and Government of the G7 countries and the President of the European Commission met today, 15 May, to discuss the world economic and financial situation, and the challenges we face in strengthening the global financial system.

The World Economy

2. We discussed recent developments in our own economies and economic developments in the rest of the world. In our own economies we will work together to achieve sustained non-inflationary growth. Such growth and stability is more important than ever, not only for our own economies, but also for other economies in the world, particularly the recovering economies in Asia.

3. We also agreed that the challenges facing each of our own economies remain different:

The US, Canada an the UK have enjoyed continued strong growth. In these countries the task is to sustain growth while standing ready to prevent any possible resurgence in inflationary pressures and while increasing national savings in the US;
In Germany, France and Italy, economic growth gained momentum last year and is now strengthening further; it is important that it be increasingly led by domestic demand. Continuing structural reform is also essential to improve the longer term prospects for growth and employment.
[In Japan ... references to (i) stimulus package (ii) financial system (iii) accelerated structural reform Comment: to consider best ordering - Exact wording to be decided after time to reflect on new fiscal package].

4. We welcome the decisions taken on the [2 May] on the establishment of Europeand Economic and Monetary Union. We look forward to a successful EMU which contributes to the stability of the international monetary system. The commitment in European Union countries to sound fiscal policies and continuing structural reform is key to the long term success of EMU, and to improving the prospects for growth and employment.

5. We recognise that all countries in the world have an interest in growth and stability in our countries. Equally we have an interest in sustained growth and stability in their economies. We are encouraged by the recent progress in restoring confidence in emerging markets that have been affected by the crisis. We welcome the contribution made to global stability by the pursuit of sound economic and financial policies. In particular prompt action by some emerging and transition countries to strengthen their economic policies has helped avoid spillover effects. Sound macroeconomic policies, open markers and continued structural reform in all countries are essential for long term stability in the world. Recent experience emphasises the importance also of good public governance.

Strengthening the Global Financial System

6. Globalisation has the power to bring immense economic benefits to all countries and people. But the Asian financial crisis has revealed that there are potential weaknesses and vulnerabilities in the global financial system. In particular we are conscious of the serious human and social consequences of such crises when they occur. We therefore see an urgent need to take steps to strengthen the global financial architecture, to reduce the risks of such crises recurring in future and to produce a system that is more robust to shocks when they occur.

7. Previous summits have also dealt with ways of strengthening the global financial system, and this should be seen as a continuing process of reform. It is essential for individual countries to pursue sound economic policies, open markets and good governance, if stability is to be achieved. At the same time we confirm the central role we see for the IFI's in promoting these good policies, in helping to prevent failures in future and in responding when crises occur. Their response has been crucial in overcoming recent problems and we must find ways to strengthen their role in future and in responding when crises occur. Their response has been crucial in overcoming recent problems and we must find ways to strength their role in the future.

8. We welcome and endorse the report by our Finance Ministers on ways to strengthen the global financial architecture. Of their ideas, we attach particular importance to the following:

Increasing transparency by:
- encouraging IMF members to provide more accurate and accessible financial data (subscribing to its Special Data Dissemination Standards) and publicise those who fail to meet the Standards;
- supporting consideration by the IMF of a code of good practice for financial and monetary policy, to supplement that just adopted on transparency in fiscal policy
- encouraging the IMF to publish more information both about its members and policies, including its concerns; and about its own decision making.
Helping countries throughout the world prepare for global capital flows by:
- assisting them achieve orderly capital account liberalisation with the required strengthening of domestic policies and institutions and enshrining this objective in the IMF Articles of agreement
- urging the IMF to examine how to monitor effectively capital flows, particularly short term flows
strengthening national financial systems by:
- encouraging all countries to adopt and implement the Basle Core Principles.
- establishing a new system of multilateral surveillance of national supervisory systems, with urgent consideration of the correct institutional arrangements for handling this and related areas of work.

ensuring that the private sector takes full responsibility for its own decisions to reduce moral hazard by:

asking the IMF to be ready to lend to countries to cover short term difficulties, even when in arrears to private lenders, thereby creating conditions for parallel negotiations to ensure burden sharing by the private sector.
encouraging that bond issues allow for re-negotiation in the event of default.

9. We ask our Finance Ministers to take forward these ideas in co-operation and discussion with emerging market and other countries, with the international financial institutions and the private sector. We also ask our Finance Ministers to consider further how the existing global discussion fora particularly the IMF's Interim Committee, could be strengthened and made more effective. We hope firm proposals on all these issues can be put forward for decision later this year.

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