International Monetary Fund (Hansard, 15 October 1996)

§ Mr. Kenneth Clarke

I attended meetings of the IMF's interim committee and the IMF/World bank development committee in Washington on 29 and 30 September, and the IMF/World bank annual meeting on 1–2 October, where progress was made on several issues of importance for the world economy and for developing countries. As usual, the IMF and World bank meetings were preceded by meetings of the G7 and G10 finance Ministers arid central bank governors. I also attended the Commonwealth Finance Ministers' meeting in Bermuda on 24 to 26 September.

One of my top priorities for these meetings was the reduction in debt of the poorest, most indebted countries. I first launched an initiative on this subject at the Commonwealth Finance Ministers' meeting in Valletta two years ago. This year the IMF/World bank launched their own proposals in response to my initiative. These proposals were discussed in Bermuda and in Washington. I am delighted to be able to tell the House that they were endorsed. All other Ministers in the development committee joined me in calling for implementation to begin for the first potentially eligible countries before the end of 1996.

All major creditors—the IMF, World bank, and Paris Club—confirmed in Washington that they would play their part in delivering debt sustainability. The World bank will do so through the creation of trust funds. It has already allocated $500 million, and expects to contribute 837W up to $2 billion in all. The IMF has undertaken to provide a combination of grants and loans which have longer maturities and grace periods, thereby effecting a substantial reduction in the value of its share of debt. The Paris Club of official bilateral creditors has agreed to go beyond Naples terms, on a case-by-case basis, up to 80 per cent. reduction of present value of claims. This is something the British Government have been advocating for many years, since it was first proposed by my right hon. Friend the Prime Minister, then Chancellor of the Exchequer, in 1990.

I regard agreement on this initiative, which the Prime Minister and I have advocated at successive international meetings over the last two years, as a major achievement. In the timescale of international economic diplomacy, two years from my first outline proposal to worldwide agreement on implementing a detailed scheme is good going. I am grateful to those who have worked to help us get there, including the voluntary organisations which have kept up the international pressure for action, as well as the officials of the international organisations who have helped put the pieces in place. We now have a scheme that offers real hope to some of the world's poorest countries. I will continue to work to ensure it is implemented in a flexible and commonsense way by the institutions concerned, to give countries that qualify an early and lasting exit from unsustainable debt.

I will also work to try to ensure that poor countries do not slip back into unsustainable debt, and that all developing countries have the best possible access to work markets and flows of private sector capital. I was therefore glad that, at the Commonwealth Finance Minister's meeting in Bermuda, Ministers agreed on the need for donors and creditors to discourage the financing of unproductive spending in developing countries. At Bermuda also, Ministers stressed the importance of an open, rules-based and non-discriminatory multilateral trading system. Ministers also discussed the rapid expansion in private capital flows, acknowledging their importance in promoting economic growth and investment. I pointed out the need for financial sector reform and liberalisation of the capital account. At my request, a small working group of Finance Ministry officials from Commonwealth countries will now study the role of national and international policies in encouraging private capital flows for investment.

Following another UK initiative, Ministers in Bermuda endorsed the new and updated 40 recommendations agreed by the financial action task force at the end of June 1996, which set out the measures countries should take to combat money laundering. In addition, we approved the publication of a comprehensive set of guidelines, prepared by the Commonwealth Secretariat, to help Commonwealth countries with the practical implementation of their anti-money-laundering strategies. Ministers also supported the establishment of regional groups—modelled on the Caribbean financial action task force—to enable Commonwealth countries to review their progress in implementing anti money laundering measures. We also urged the IMF and the World bank to take full account of the need for countries to maintain effective anti-money laundering systems in their surveillance activities and in their provision of technical assistance.

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At the G7 meeting in Washington, we reviewed economic and financial market developments in the world economy and assessed the outlook for the G7 economies. In G7 countries, inflation remains at low levels, efforts are being made to reduce fiscal deficits, and external imbalances have receded. We agreed that policies should continue to be directed at sustaining non-inflationary growth and reduction of imbalances. We reaffirmed our standing commitment to co-operate closely in the exchange markets. At the request of my US and Canadian colleagues, we had a useful discussion about progress towards EMU.

We met representatives of the European Commission and the senior Russian economic team on developments in the Russian economy and progress on economic reform. We agreed that Russia has made significant progress in the area of macroeconomic stabilisation. We also agreed on the importance of strengthening Russia's fiscal balances in consolidating the gains it has made to date, and on the importance of adhering to the structural reform programme agreed with the IMF.

We reviewed the progress achieved and the considerable work underway to implement the initiatives arising from the last year's Halifax summit, and this discussion was continued in the G10 and interim committee.

The G10 discussed issues relating to international monetary and financial stability. We welcomed the progress that has been made towards the establishment of the new arrangements to borrow. I emphasised the benefits these arrangements would bring, not only through increasing the resources available to the IMF in the case of a threat to the stability of the international monetary system, but also in involving in the facility a wider range of countries including some of the emerging market economies, recognising their interest in the stability of the international financial system.

At the IMF interim committee, I stressed the importance of freedom of capital movement, and the benefits for countries that have not already done so of making careful progress in dismantling their remaining capital controls. I called on the IMF to help its members in this process, and I launched a proposal to bring the IMF's articles up to date to recognise its role in this area. Other Ministers supported my call to the IMF to revisit its role in relation to capital liberalisation, and to consider whether its present articles should be revised to reflect and promote the fund's proper role in encouraging capital liberalisation and helping member countries reap the full benefits of international capital flows. The Interim Committee agreed to discuss this at its next meeting in the spring.

We also agreed a new declaration—an update to the one first agreed in Madrid two years ago—on the partnership for sustainable global growth. This included calls to achieve budget balance, improve fiscal transparency, tackle corruption, prevent money laundering, encourage freedom of capital movements, and ensure the soundness of banking systems.

In the development committee, I stressed the importance of trade and development, and in particular giving poor countries the opportunity for growth through access to world markets. Many Ministers joined me in 839W support for the President of the World Trade Organisation's proposals that developed countries should provide access duty-free to all the exports of least developed countries.

Copies of my speeches to the Commonwealth Finance Minsters' meeting, the interim and development committees, the annual meeting, and the communiques of those meeting and the G10 Finance Ministers' meeting, have been placed in the Library of the House. The G7 did not on this occasion issue a communiqué.