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Declaration of G7 Finance Ministers and Central Bank Governors

October 30, 1998

See also:
G7 Leaders Statement on the World Economy, October 30, 1998
Memorandum on the Work Program on Strengthening the Architecture of the International Monetary System, issued by the IMF Executive Directors of the G7 countries, to the IMF Director and Executive Board, October 30, 1998.

The financial problems which began in Asia last year have exposed weaknesses in emerging market countries and in the international financial system.

At our meeting in Washington on 3 October, we, the Finance Ministers and Central Bank Governors of the G7 countries, agreed on the importance of intensified co-operation among us in meeting the challenges of the current situation and on the need to work together quickly on a wide range of reforms to strengthen the international financial system. Today our Leaders announced agreement on a number of follow up steps to this end which we will be implementing as rapidly as possible.

Meeting the Challenges of the Current Situation

We welcome the positive developments since our meeting on 3 October. As we said following that meeting, we reaffirm our commitment to create or sustain the conditions for strong, domestic demand-led growth and financial stability in each of our economies. The authorities will continue to be vigilant in the light of the shift in the balance of risks on a global basis. There has also been important progress in a number of other areas:

Reforms to the International Financial System

Following detailed discussions, including with colleagues from other industrial and emerging market economies, we, the Finance Ministers and Central Bank Governors of the G7 countries, are now agreed on the following specific reforms to strengthen the international financial system. We have agreed to carry these forward through our own actions and in the appropriate international financial institutions and forums. These reforms are designed to: increase the transparency and openness of the international financial system; identify and disseminate international principles, standards and codes of best practice; strengthen incentives to meet these international standards; and strengthen official assistance to help developing countries reinforce their economic and financial infrastructures. They also include policies and processes to ensure the stability and improve the surveillance of the international financial system. Finally, they aim at reforming the International Financial Institutions, such as the IMF, while deepening cooperation among industrialised and developing countries.

Crisis Prevention

Transparency and policy-making procedures

We agree on the need for greater transparency and openness in the financial operations of individual countries, of financial and corporate institutions, and of the International Financial Institutions. The cornerstone for this is stronger and more comprehensive internationally agreed principles, standards and Codes of best practice, as well as the extension of international surveillance of their implementation.

We agree in the public sector to deliver greater transparency in economic policy-making and in disclosure of economic statistics and key indicators. We therefore commit ourselves to:

Similar standards of transparency are required in the private sector. We call upon:

We commit ourselves to endeavour to ensure that private sector institutions in our countries comply with these principles, standards and codes of best practice.

We call upon:

Stability of the International Financial System

We agree that better processes are needed for monitoring and promoting stability in the international financial system and for the International Financial Institutions, working closely with the international supervisory and regulatory bodies, to conduct surveillance of national financial sectors and their regulatory and supervisory regimes with all relevant information accessible to them.

We agree therefore that we will:

At our meeting on 3 October we asked Dr Tietmeyer to consult the relevant international bodies on these reforms and we look forward to his conclusions.

We call upon other countries which participate in the global capital market to give their support to the establishment and operation of the process.

We commit ourselves to strengthen, in our own countries, the regulatory focus on risk management systems and prudential standards in financial sector institutions; in particular, examining the implications arising from the operation of leveraged international financial organizations including hedge funds and offshore institutions. Appropriate means should be sought to encourage off-shore centres to comply with internationally agreed standard. We call upon other countries which participate in the global capital markets to take similar action.

In addition, as part of the process of developing better ways to respond to crises, we call upon :

  1. the private sector to facilitate "collective action clauses" for more orderly workout arrangements, and we will consider the use of such clauses in our own sovereign and quasi-sovereign bond issues;
  2. the World Bank in cooperation with the IMF and other multilateral development banks to work with their members to put in place effective insolvency and debtor-creditor regimes;
  3. the IMF to move ahead, under carefully designed conditions and on a case by case basis, with its recently reaffirmed policy of lending into arrears. We will instruct our Executive Directors to monitor application of this policy carefully in the current environment;
  4. the private sector to build upon its experience with some emerging market countries in developing market-based contingent financing mechanisms, the conditions of which might provide either greater payments flexibility or the assurance of new financing in the event of adverse market developments. The private sector also needs to be involved appropriately in crisis management and resolution.

We recognise that the opening of capital markets in emerging economies must be carried out in a careful and well sequenced manner if countries are to benefit from closer integration into the global economy. In particular, financial sectors and regulatory and supervisory regimes must be robust and adequate to deal with risk. The international financial institutions should play a constructive role in the process of orderly opening of the capital account.

We agree that more attention must be given in times of crisis to the effect of economic adjustment on the most vulnerable groups in society. We therefore call upon the World Bank to develop as a matter of urgency general principles of good practice in social policy, in consultation with other relevant institutions. These should be drawn upon in developing adjustment programmes in response to crises.

IMF Reforms

As our Executive Directors at the IMF have outlined, we have agreed to support a broader range of reforms to improve the effectiveness of the IMF including transparency and accountability of the IMF, changes in lending policies, terms of lending and improved conditionality.

In particular, we call upon:

Next Steps

We agree to take immediately the actions to which we have committed ourselves. These measures will strengthen the fundamentals of the international financial system and assist crisis-affected countries to find a route out of their current difficulties.

Moreover, we need to widen our efforts to strengthen the international financial system. Our aim is to create an international financial system for the twenty first century that captures the full benefits of global markets and capital flows, minimizes the risk of disruption, and better protects the most vulnerable while promoting the international monetary stability which is an element of a stable international financial system. We will initiate further work on a number of other important areas to identify additional concrete steps to strengthen the international financial architecture. These include:

The reform of the international financial system is in the interest of all countries and all need to be involved in the process. We therefore commit ourselves to consult widely throughout the international community, particularly with emerging market and other industrial countries, to build a broad consensus in support of this declaration, and to encourage others to take similar action. We will therefore:

We will meet as necessary to monitor progress as envisaged at our meeting in Washington. We will report to G7 Heads before their meeting in Cologne on:

Source: HM Treasury web site, United Kingdom

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