[Title] COMMUNIQUÉ--G-20 Finance Ministers and Central Bank Governors
We, the Finance Ministers and Central Bank Governors of the G-20, held our second meeting today inMontreal, Québec, Canada. We discussed the state of the world economy, particularly the associatedpolicy challenges and ways of addressing potential vulnerabilities. We welcome the continuedstrengthening of global economic growth, but remain mindful of the importance of sound nationaleconomic and financial policies in building an international financial system that is less prone tocrises.
Our meeting provided us with an opportunity to engage in awide-ranging discussion of the opportunities and challenges posed to all of our economies byglobalization - the increasing integration of national economies resulting from the greaterinternational mobility of goods, services, capital, people, and ideas. The process of globalizationhas deep historical roots, but has been accelerated in recent years by unprecedented technologicalchange, the increasing universality and acceptance of market-based economic systems, and theliberalization of international trade and capital movements.
We discussed the benefits of globalization. These include providingpeople and societies around the world with an unparalleled opportunity to achieve sustained andbroad-based improvements in living standards through participation in world trade, further tradeliberalization by all countries, including improved access for developing countries' exports toadvanced economies' markets, access to cheaper consumption and capital goods, integration intointernational capital markets, and openness to technological change and innovation. We reaffirm ourbelief that the economic integration that is at the heart of globalization can continue to be anenormously powerful force contributing to improving the lives of hundreds of millions of people inindustrial, transition, and developing countries alike, giving them greater access to goods, capitaland ideas - and thus a much greater capacity to achieve rapid and enduring growth in the livingstandards of their citizens, and to attack income inequalities and reduce poverty.
At the same time, we are in agreement that the process ofglobalization, like any economic transformation, can also give rise to economic difficulties andsocial dislocations. Governments have an important role to play in formulating and implementingpolicies to promote financial and economic stability and harness the benefits of globalization. Weagree that putting in place the right frameworks and policies for promoting a globalization processthat works well for all of its participants will be the key challenge for the internationalcommunity in the 21st century.
As G-20 Finance Ministers and Central Bank Governors, we arecommitted to working together to promote policies that successfully meet this challenge. Inparticular, we agree to:
Commit ourselves to further improve the effectiveness of international institutions, which are fundamental to a strong and stable global financial system. These efforts include increasing the transparency of their activities and decision-making processes, and enhancing co-operation among them.
Implement the emerging international consensus on policies to reduce countries' vulnerability to financial crises, including through appropriate exchange rate arrangements, prudent liability management, private sector involvement in crisis prevention and resolution, and adoption of codes and standards in key areas including transparency, data dissemination, market integrity, and financial sector policy. A summary of our conclusions in these areas can be found in the Annex to this statement.
Improve integration into the globalized financial world. Emerging market economies should be supported with technical assistance and policy advice by the international financial community in opening their capital accounts in a well-sequenced manner to benefit from international capital flows while minimizing potential risks.
Create more favourable conditions for the integration of heavily indebted poor countries into the global economy by urging both bilateral and multilateral creditors to participate fully in the enhanced HIPC Initiative, and, where appropriate, call for those bilateral creditors that have not already done so to consider taking the additional step of committing to 100-per-cent reduction of ODA claims and eligible commercial claims. We further encourage all bilateral donors to improve the effectiveness of international assistance and direct aid to those poor countries that are serious about tackling economic reforms and poverty reduction.
Strengthen our efforts to combat financial abuse, including money laundering, tax evasion and corruption, given its potential to undermine the credibility and integrity of the international financial system, cause serious macroeconomic distortions, and jeopardize national financial sectors. Market integrity is an important pre-condition for financial stability, and we look forward to the joint paper by the IMF and World Bank asked for by the IMFC on their respective roles in combating financial abuse and in protecting the international financial system.
Contribute to international efforts to increase the provision of other global public goods to address serious issues such as infectious disease, agricultural research, and the environment, which cut across national borders and require concerted global co-operation.
Support continued efforts by the WTO to build consensus toward further multilateral trade liberalisation and strengthening of trade rules that would bring broad-based benefits to the global economy, by reflecting the needs and interests of both developed and developing countries, in particular those of the lowest income economies, so that all can realize the rewards of full participation in the global trading system. We also agree to promote domestic policies that help spread the benefits of integration to all members of society.
Promote the design and effective implementation of `social safety nets' that protect the most vulnerable groups of society in the process of liberalization.
Ensure that efforts in the areas identified above, and in other areas, take account of a diversity of perspectives.
Annex
Reducing Vulnerability to Financial Crises
At our meeting today, we considered ways to reduce the frequency and severity of financial crises,such as those which in recent years have taken their toll on growth and social conditions in manyemerging markets and had significant repercussions for the global economy. We agreed that countriescan substantially reduce their vulnerability to crises through sound policies in key areas,including through appropriate exchange rate arrangements, prudent liability management, thedevelopment and implementation of international standards and codes, and appropriate involvement ofthe private sector.
Experience has shown all too clearly that crises originating in onecountry can have serious repercussions for neighbouring countries and indeed the entire globaleconomy. For this reason, the international community has a strong and legitimate interest inestablishing "best practices" in these key policy areas. We agreed that these bestpractices have the following main elements, which if implemented will help to reduce vulnerabilityto financial crises in a complementary and mutually reinforcing manner.
1. Exchange Rate Arrangements
We agree that the choice of exchange rate regime must be supportedboth by appropriate macroeconomic policies and by sound financial institutions if it is tocontribute to achieving a country's policy objectives. Foreign exchange crises are felt not only bythe countries in which they originate, but can also have spill-over effects on other members in theglobal community.
There is a spectrum of possible exchange rate arrangements and nosingle arrangement is necessarily right for all countries all the time. The experience of recentyears suggests that countries face a much higher risk of financial crisis if they choose an exchangerate regime that is not backed by consistent macroeconomic and structural policies and appropriateinstitutional arrangements.
We welcome the movement by many countries toward exchange ratearrangements that are more supportive of financial stability. There is evidence that there may beadvantages in choosing either free floating or firm fixing such as a currency board. However,intermediate regimes could be a viable, albeit demanding, option for some economies.
We agreed that it is crucial for all countries, whatever regime theychoose, to avoid defending an exchange rate not backed by strong, credible and consistent supportingarrangements and domestic policies.
The IMF plays a key role in advising and supporting countries in thisarea. It should reinforce its assessment of the compatibility of members' exchange rate regimes withtheir macroeconomic and financial policies. The IMF should also encourage countries to adapt theirpolicies by giving them advice, and support when appropriate, in order to help avoid unsustainablepositions.
2. Prudent Liability Management
We agreed that a comprehensive strategy to reduce vulnerability tofinancial crises requires attention to liability management including effective management ofpublic-sector liabilities, appropriate consideration of the external financial situation of theprivate sector, and effective and transparent financial sector regulation and supervision.
In particular, we agreed that effective management of public sectorliabilities requires finding an appropriate balance between minimizing financing costs andincreasing liquidity risk. Care must be taken to avoid excessive reliance on short-term debt,currency mismatch or the "bunching" of external debt payments. Prudent public sectorliability management is also assisted by the development of an efficient and liquid market forlong-term domestic currency-denominated government securities.
Prudent liability management is also essential for the privatesector, in particular for banks and other financial institutions. Appropriate standards of financialsector regulation and supervision, disclosure, accounting and auditing should be in place tofacilitate the monitoring of the external activities of the financial sector. The overall externalposition of the private sector requires appropriate consideration, subject to the constraintsassociated with the availability of data.
Our discussions also indicated a clear consensus on the crucial roleof the international community in assisting countries to develop and implement liability managementstrategies. We welcome the work underway at the IMF and World Bank to develop guidelines for publicdebt management and for the development of domestic public debt markets, developing and asappropriate publishing meaningful indicators of external vulnerability, and promoting theimplementation of strong liability management policies and practices through technical assistanceand other means.
3. Private Sector Involvement in Crisis Prevention and Resolution
We noted the enormous increase in private capital flows to emergingmarkets over the past decade, as well as the increasing diversity and sophistication of the meansand instruments through which these flows are effected and welcomed the overall impact of thisdevelopment in fostering more rapid growth and raising the standard of living of hundreds ofmillions of people around the world. At the same time, the last decade has witnessed a number ofsevere crises.
In this environment, we agreed that the framework for private sectorinvolvement will benefit both debtors and creditors by promoting more efficient and stableinternational capital markets, in which financial crises are less frequent and less severe.Efficient international capital markets require that private investors bear the consequences of therisks they take.
We welcomed the agreement reached at the IMFC Spring meeting on aframework of principles and tools, and the progress made at the IMFC annual meeting on theoperational framework by which private sector involvement in the prevention and resolution offinancial crises can be promoted.
Our discussions indicated a clear consensus on the need to apply theframework flexibly, and in a manner that avoids an overly prescriptive involvement by theinternational community in the details of any debt negotiation process or that undermines thepresumption that borrowers should meet their obligations in full and on time. We reaffirm theimportance of the principle of comparability of treatment at the Paris Club, which provides forbalance between the contributions of public and private creditors. We also believe that no class ofprivate creditors should in general be treated as privileged relative to others in a similarposition.
We believe that encouraging the wider use of mechanisms to improvecommunications between debtors and creditors will help to ensure that debtor countries and privatecreditors participate cooperatively in restructurings.
We welcomed the results of the Roundtable held by our Deputies withsenior members of the private financial sector in Toronto on August 25. This Roundtable allowed fora structured and constructive dialogue on these issues, including the value of contractualarrangements such as collective action clauses, and an exchange of perspectives on the framework andits application. We have instructed our Deputies to continue this dialogue and report to us at ournext meeting as appropriate.
We agreed that the development of a framework for efforts by theofficial and private sectors in this area must be a continuing process, evolving in a manner thattakes account of developments in the global economy and financial markets. We further agreed tomonitor experience with the framework to ensure that it will continue to be effective in supportinga stable and efficient international financial system.
4. International Standards and Codes
Finally, we considered the role that weaknesses in financial sectorregulation and supervision, in corporate governance, in the disclosure of economic and financialdata, and in the transparency of macroeconomic policies have played in contributing to recentfinancial crises. We agreed on the importance of international codes and standards to address theseweaknesses, endorsed the Financial Stability Forum's recommendations, and encouraged continued workon incentives to foster implementation. The G-20, as part of its mandate to promote co-operation toachieve stable and sustainable world economic growth, should play an important leadership role insupporting the continuing implementation of international standards and codes in a manner and at apace that reflects each country's unique development and reform priorities, and institutionalcharacteristics. Consistent with this objective, we agreed that:
1. Governments should be encouraged to publicly articulate their commitment to adopt key standards and, as appropriate, announce action plans for their implementation. They should also be encouraged to participate in external IMF-led assessment programs, and in the interim conduct on-going self-assessments of progress in observance of standards. In both cases, they should consider ways of disclosing information on progress in implementing standards, to enable more appropriate risk assessments.
2. The official sector should also continue its dialogue with market participants as a way of obtaining their perspective on priorities for countries and the international community in this area, on market incentives for implementation, and on ways of improving the transparency and accessibility of information released.
3. IMF surveillance should be the principal mechanism for monitoring countries' progress in implementing standards and codes, working closely with other international institutions, such as the World Bank, as well as standard-setting bodies and international groups such as the Financial Stability Forum.
4. Governments and the international community should work to ensure that the human and financial resources required for implementation and for assessments of implementation are available to assist countries achieve compliance with international standards and codes.
We reaffirmed our commitment, made at the inaugural meeting of G-20Ministers and Governors in Berlin in December 1999, to undertake the completion of Reports onObservance of Standards and Codes (ROSCs; formerly "Transparency Reports") and FinancialSector Assessment Programs (FSAPs), within the context of continuing efforts by the IMF and WorldBank to improve these mechanisms. In this respect, we are encouraged that FSAPs or ROSCs, or both,have been completed or are underway in a growing number of G-20 countries, in particular Argentina,Australia, Canada, France, India, Korea, Russia, South Africa, Turkey, and the U.K., and lookforward to the continued publication of ROSCs on the IMF web site.