Annex G
UK STATEMENT TO THE IMFC (INTERNATIONAL MONETARY
AND FINANCIAL COMMITTEE) MADE BY THE RT HON GORDON BROWN MP, CHANCELLOR
OF THE EXCHEQUER, SEPTEMBER 2003
INTRODUCTION
We meet here in Dubai at a time when there are
clear signs that economic activity is strengthening in some major
economies and more broadly indicators point to the prospect of
a steady and strengthening recovery going forward.
When we met last April, it was a time of particular
political and economic uncertainty and tension. Since then, the
major uncertainties have clearly lessened. Nevertheless risks
remain—in industrial, emerging market and developing countries—and
it is important that policymakers stand ready to take the necessary
policy actions. This underscores the importance of continued international
cooperation and multilateral progress.
While prospects have improved in some major
economies, all countries have an interest in seeing more balanced
growth going forward. So we must address the lack of sustainable,
robust productivity growth in every continent of the developed
world. Structural reform is vital in this respect. And we must
secure a speedy resumption of the Doha Round.
ECONOMIC STABILITY
For rich and poor countries alike, stability
is the precondition for global prosperity and growth, and all
major countries—Japan, America and Europe—will be
asked this weekend what contribution their continent can make,
not just to restore growth now, but to create the conditions for
sustained long-term prosperity.
With proactive monetary and fiscal policies,
growth in some major economies is now strengthening. The UK is
on track for stronger growth with low inflation.
But because we must sustain growth, it is important
that we focus also on structural reform. The G7 have agreed an
Agenda for Growth, and it is now vital that we implement reforms
to overcome the barriers to higher productivity, employment and
growth.
In the United States, actions to strengthen
corporate governance and demonstrate that fiscal policy is sustainable
over the medium term are important. Japan must step up its financial
sector reform. And, accompanied by stability oriented fiscal and
monetary policy, Europe must push ahead with the necessary structural
reforms that have held back the continent for too long—embracing
flexibility for labour markets, liberalisation in capital and
product markets, and tax competition in place of tax harmonisation—in
short a new growth agenda. With financial market conditions looking
more favourable, now is the time also to focus on structural reform
and improved debt management in emerging markets.
More broadly, it is important that we use this
period to identify problems early, address vulnerabilities, and
provide candid advice on policy reforms going forward. Effective
international surveillance and multilateral cooperation are essential
tools for achieving this, strengthening crisis prevention, and
so promoting stability and sustainable global growth.
This meeting in Dubai offers a window of opportunity.
It is essential that we address the long term challenges facing
the international financial community.
— promoting the conditions for stability
and growth, and strengthening the mechanisms for crisis prevention
and crisis resolution;
— calling for urgent resumption of
the trade talks as soon as possible to secure concrete progress
with multilateral trade liberalisation and deliver on the commitments
made at Doha;
— creating the right domestic conditions
for investment and stability;
— confronting the global war against
poverty and addressing the urgent challenge of achieving the Millennium
Development Goals, including the need to double aid through the
International Finance Facility.
CRISIS PREVENTION
AND RESOLUTION
I believe that, just as we set down a new rules-based
system in the UK, for a new monetary and fiscal regime, we should,
in pursuit of the objectives of stability, development and prosperity,
establish a new rules based system of governance for the international
financial community.
This new system should be founded on clear procedures,
with all countries, rich and poor, pursuing agreed codes and standards
for monetary and fiscal transparency, and for corporate governance.
That is why we have put in place the system of internationally
agreed codes and standards. Almost half of the Fund membership
has now completed a ROSC and over 70% of those have been published.
We strongly welcome this. But we must continue to do more to enable
all countries to participate, providing the necessary technical
assistance. On transparency, we strongly support the steps agreed
by the Board to enhance further the publication of Article IV
reports and programme documents.
Effective and persuasive surveillance is essential
for all member countries. We welcome the Fund's considerable progress
on reforms to strengthen surveillance. Yet significant challenges
remain, and we will need to monitor carefully their implementation
and impact.
More broadly, I believe there is a strong case
for further institutional reforms to ensure that the IMF is as
credible and independent from political influence in its surveillance
of economies as an independent central bank is in the operation
of monetary policy. We must implement reforms to ensure:
— greater independence—ensuring
that the Fund applies objective, rigorous and consistent standards
of surveillance to all member countries; and that surveillance
is, and is seen to be, independent of decisions about programme
lending and the use of IMF resources;
— greater accountability—with
the IMFC or the Board having a formal responsibility to set an
annual surveillance remit, with the IMF management and staff reporting
back each year on their performance and effectiveness against
the remit.
It is important to ensure that surveillance
impacts effectively on decisions made by programme and non-programme
countries alike. In this respect, we continue to believe in the
importance of the objectives underlying the Contingent Credit
Line—to provide incentives for countries to put in place
strong policies and to support those members with strong policy
frameworks from the impact of external shocks. It is important
to find an effective way to achieve these objectives in the context
of the Fund's review of the CCL.
On crisis resolution, we very much welcome the
widespread introduction of Collective Action Clauses, and encourage
their further use. We support the ongoing work by issuing countries
and their creditors towards developing a code of good conduct.
We encourage the Fund to continue to strengthen its analysis of
debt sustainability and balance sheet vulnerabilities. And we
welcome the ongoing work by the IMF on issues relating to debt
restructuring raised during the work on the Sovereign Debt Restructuring
Mechanism, including aggregation and inter creditor equity.
Under this new framework we can move from letting
crises happen and then intervening, to a new paradigm: systems
that in themselves diminish the likelihood of crises; earlier
awareness as difficulties arise; and more measured and orderly
responses when crises have to be resolved.
TRADE
The international community must make urgent
progress on trade and development. We must reaffirm this weekend
our full political commitment to a multilateral approach to trade
liberalisation, and to making substantial and concrete progress.
A speedy resumption of the Doha Round is vital for global growth
and our development objectives. It should focus on the core issues
of importance to developing countries for open and fair markets,
especially in agriculture.
This will be critical for demonstrating the
international community's continued commitment to multilateral
co-operation, supporting higher growth and financial stability,
and enabling developing countries to participate on fair terms
in the world economy and make progress towards the Millennium
Development Goals.
There is clear evidence supporting the link
between developing countries' own trade policies and their economic
growth. In the last forty years those developing countries that
have managed to be more open and trade more in the world economy
have seen faster growth rates than those that remained closed.
But any liberalisation has to be appropriately sequenced and integrated
into countries' poverty reduction strategies. We welcome the IMF's
initiative to provide assistance to countries to help them address
the transitional impact of trade reforms.
And, as developing countries have continued
to argue so strongly, an agreement on agriculture is central to
any progress on trade. Three quarters of the world's poor live
in rural areas and an end to agriculture protectionism in the
developed world could be worth as much as $100 billion a year
to developing countries. And if we were to halve protectionism
more widely in agriculture and in industrial goods and services
we would increase the world's yearly income by nearly $400 billion
dollars: a boost to growth of 1.4%. Developing countries would
gain the most in terms of GDP growth—an estimated $150 billion
a year—but all countries and regions stand to benefit.
CREATING THE
CONDITIONS FOR
PRODUCTIVE INVESTMENT
To ensure growth and development we must take
steps to promote domestic and foreign investment—and find
better ways for public and private sectors to work together in
raising the level and quality of investment.
Because investment will flow to those countries
that are the most stable, and ever more rapidly away from those
that where the environment for business is volatile and uncertain,
there is an even greater premium than before on governments running
a successful monetary and fiscal regime to achieve high and stable
levels of growth and employment over the long term. This is true
for all countries, industrialised and developing.
In seeking more favourable environments in which
private sector investment can be more productive in developing
countries, country-owned poverty reduction strategies have correctly
focussed on creating the right domestic conditions for investment,
including good governance and sound legal processes that deter
corruption; improved infrastructure; and an educated and healthy
workforce. We support the creation of investment forums bringing
public and private sectors together to examine the barriers to
investment and how to secure higher levels. Most importantly,
investment forums are helping to break down the assumption that
private sector development should be led solely by business or
directed by the state—instead recognising that public and
private sectors must work together in partnership to secure economic
growth and poverty reduction.
ACHIEVING THE
MILLENNIUM DEVELOPMENT
GOALS
Stability, trade and investment are all vital
but there cannot be a solution to the problems that developing
countries face without a fourth reform: a substantial transfer
of additional resources from the richest to the poorest countries,
in the form of investment for development, that builds new capacity
to compete and addresses the long term causes of poverty.
In 2000 for the first time the world community
signed up to the historic shared task of meeting the Millennium
Development Goals by 2015—including to eradicate extreme
poverty, achieve universal primary education and radically reduce
child poverty.
Then at Monterrey in 2002 the international
community agreed a new compact for development that, in return
for developing countries pursuing corruption free policies for
stability and growth and creating favourable environments for
trade and investment; developed countries should be prepared to
increase vitally needed funds to achieve the Millennium Development
Goals. And the additional $16 billion dollars a year of extra
funding agreed represented the first increase in official development
assistance for 20 years. For its part, the UK will increase its
aid budget to near 4.9 billion by 2006—a near doubling in
real terms.
Our aid is increasingly provided in support
of poverty reduction strategies, which are leading to improvements
in the policies of developing countries and in the focus of donor
support. We welcome the Fund's ongoing efforts to align the PRGF
behind the PRSP and in support of the MDGs, early work on a long-term
role for the Fund in low-income countries, and we look forward
to their continuing work on ensuring that there is adequate financing
for PRGF arrangements.
At the same time we must also do more to make
better use of existing resources, including the European Union
aid budget. Reordering priorities, untying aid and pooling funds
internationally could all release additional funds for the poorest
countries.
We must work to achieve the rapid and full implementation
of the HIPC Initiative to provide a robust exit from unsustainable
debt. Of the 38 countries which stand to benefit from HIPC debt
relief, there are now 27—23 from Africa and four from Latin
America—which already benefit from debt relief which will
rise to over $70 billion in total. For these 27 countries the
UK is providing 100% bilateral debt relief, and this offer is
open to all HIPC countries as they become eligible for relief
under the Enhanced HIPC initiative. And now we must move into
the next stage—a plan for post conflict and conflict countries
so that the full $100 billion committed in Cologne in 1999 can
be written off.
We urge the IMF and the World Bank to continue
to intensify their efforts to secure full participation of all
creditors in the initiative, and to reaffirm the objective of
ensuring debt sustainability for countries reaching completion
point. We must also work together to review the methodology for
calculating the amount of "topping up" debt relief available—which
could provide an additional $1 billion of extra debt relief, with
pledges to the HIPC Trust Fund to meet the extra costs of AFDB
and other non World Bank multilaterals. For our part the UK pledges
to contribute our share of these costs. But debt relief and the
aid already pledged will not be enough on their own if we are
to meet the Millennium Development Goals.
In particular urgent action is needed on health
and education. Every year more than 10 million children die of
preventable diseases—30,000 a day, and more than 500,000
women die in pregnancy and childbirth. The tragedy of HIV/AIDS,
is not only a human one, its impact on social and economic development
in sub-Saharan Africa in particular is already reversing progress
that has been made in the past. So, in Dubai we must follow up
the recent agreement on access to life saving medicines, with
the proper financing of health care delivery systems. The UK is
committed to predictable, multi-year funding for the Global Fund
to fight AIDS, Tuberculosis and Malaria.
And we know that education for all is central
in order to promote a virtuous circle of debt reduction, poverty
alleviation and economic development. The UK Government is committed
to making the World Bank Fast Track Initiative work. But an estimated
$10 billion more each year is needed if we are to reach our goal
of primary education for all. And health, including the battle
against HIV/AIDS requires at least $15 billion extra and probably
$30 billion.
We welcome the recent Bank paper on Supporting
Sound Policies with Adequate and Appropriate Financing. The Bank
estimates that a near doubling of the additional commitments made
at Monterrey could be used immediately, and effectively to make
progress on the MDGs, some $30 billion annually. But they have
also made clear that even this is an under-estimate of the resources
required, with substantially more likely to be needed in the short-medium
term, with a current estimate of at least $50 billion annually.
Our vision is clear. No country genuinely committed
to economic development, poverty reduction and to the genuine
good governance standards should be denied the chance to make
progress because of lack of investment. The scale of resources
required to meet this challenge cannot be met by either poor countries
or by traditional aid. We need new means to deliver higher levels
of support to finance health, but also education and anti poverty
programmes.
Hence, the proposal for an International Finance
Facility. On the basis of long-term, binding donor commitments
from the richest countries, some of which have already been made,
the Facility would leverage in additional money from the international
capital markets to raise the amount of development aid for the
years to 2015 from $50 billion a year to $100 billion per year.
The Facility would provide a temporary framework
seeking to raise additional funds for development in the years
leading up to 2015. In providing an immediate, critical mass of
predictable, untied and effective aid, predominantly in grant
form, the Facility would allow the poorest countries to invest
in their priorities, and would provide the catalyst for growth-driving
private investment. Further, this virtuous circle of investment
for future success, as opposed to compensation for past failures,
is fundamental to delivering sustainable debt relief; and to enable
developing countries to build the economic capacity necessary
to benefit from the trade reform critical to future world economic
development and stability.
Just as the richest countries must fulfil their
moral and political responsibility, developing countries must
demonstrate a commitment to poverty reduction strategies, addressing
political and economic stability and creating an enabling environment
for human, physical and social investment. Anti-corruption and
pro-stability policies must go hand in hand with country-owned
poverty reduction strategies.
Building on the valuable discussions we have
had so far in the international community, we call on the IMF
and the World Bank to carry out further work on the case for more
aid, aid effectiveness and absorption issues, as well as on the
details of the Facility. It is also important to widen and deepen
our discussions, and we will want to consult closely with developing
and emerging market countries over the coming months. The IMFC
should return to this issue in the light of this further work.
CONCLUSION
So here in Dubai, we call for the whole international
community to confront the global war against poverty. This is
a window of opportunity when the richest countries must redeem
their promises to the poorest countries and work together to build
a virtuous circle of debt relief, poverty reduction, trade and
economic development.
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