Statement by Mr. Christodoulakis
Minister of Economy and Finance of Greece, in his capacity as Chairman of the EU Council of Economic and Finance Ministers,
to the International Monetary and Financial Committee
April 12, 2003

Introduction

1. I submit, in my capacity as Chairman of the EU Council of Economic and Finance Ministers, this statement which focuses on: recent economic developments and policies in the context of a specific geopolitical situation; crisis prevention and resolution, including the two-track approach to sovereign debt restructuring; issues related to developing countries, including their voice in the IMF, and HIPC; and the fight against the abuses of the international financial system.

2. This meeting is being held at a time of heightened macro-economic, financial and geopolitical uncertainty. The war in Iraq and the related further geopolitical tensions make it all the more necessary to promote sound macroeconomic policies, to implement the necessary structural reforms in our economies, and to strengthen the multilateral framework for international trade, finance and development.

Economic situation and outlook

3. On the whole, the recovery of the global economy is weaker than expected one year ago. In addition, the global economic outlook is being clouded by geopolitical tensions that may affect further the level and volatility of oil and equity prices, and could more generally have a strong impact on confidence, of both consumers and businesses. Other issues of concern include issues related to financial stability, and the imbalances between and within the major economic areas. Addressing these issues calls for continued vigilance and co-operation at both the regional and the multilateral level.

4. The recovery is underpinned by a number of forces, notably the supportive macroeconomic policies in the advanced economies. The pattern of growth, in the face of the global slowdown and associated shocks, has been uneven in both developed and developing countries and the resilience to these shocks has also differed significantly across countries. Against this background, it is especially important to address the consequences of the global slowdown for developing countries, including the poorest ones.

The EU and the euro area

5. Economic growth in the euro area has turned out to be weaker than anticipated. However, EU economies remain resilient. The response of economic policy-notably through the work of automatic stabilizers and the support of monetary policy-and sound and stable fundamentals, together with good inflation prospects over the medium term, should provide the platform for the recovery to gather strength during the second half of the year, with growth expected to return to potential next year. However, as in any other economic area, the outlook is clouded by economic uncertainties and global political risks.

6. In the current environment, economic policies in the EU will be oriented towards the restoration of confidence and economic growth by a determined implementation of the agreed economic policy strategy. Macroeconomic policies in the EU and the euro area are designed to restore non-inflationary economic growth in a context of less supportive global economic conditions. Budgetary policies continue to be geared to maintaining or achieving public finances close to balance or in surplus in the medium run, while supporting growth by letting the automatic stabilizers work symmetrically over the cycle within the framework of the SGP. Greater attention will be paid also to the longer-term sustainability and quality of public finances to meet the challenges of an aging population. In the structural field, past structural reforms are starting to pay off. For instance, there has been real progress on employment since Lisbon, with the creation of over 5 million new jobs. There is still much to be done, however. Additional progress is needed with the Lisbon agenda to achieve a more flexible economy that is resilient in the face of uncertainty and shocks. Our top priorities include the implementation of reforms for more and better jobs, fostering entrepreneurship and innovation, and enhancing the efficiency, stability and integration of financial markets.

7. EU acceding countries are continuing to perform well. Most borrowers in these countries are benefiting from near-record-low credit spreads, confirming the credibility accorded by the markets to the acceding countries in the accession process.

The international environment

8. Since the recession in 2001 the US economy has staged a recovery, although at a somewhat uneven pace. Expansionary macroeconomic policies, low inflation, and strong underlying productivity growth should help to support the recovery, but there are also a number of factors, such as external and internal imbalances, that may weigh adversely. The fiscal position of general government has moved from a surplus of 1.4 percent of GDP in 2000 to a deficit of 3.3 percent of GDP in 2002 and will probably continue to deteriorate in 2003. The fiscal situation cannot be viewed in isolation from the high current account deficit. Against this background, household spending seems unlikely to provide the same support to activity as in recent years and could fade before investment picks up as firms restore balance sheets. The priority of macroeconomic policy should be to strike a balance between supporting the recovery on the one hand and steering towards a reduction of the internal and external imbalances in the medium term on the other hand. On the fiscal side, tax cuts and new spending measures have been sustaining domestic demand in recent years. It is, however, essential that public finances be brought on a prudent medium-term course.

9. In Japan, the growth outlook remains uncertain and continues to hinge on external demand, making the economy highly vulnerable to developments in the global economy. More generally, the current situation is a cause for serious concern as the financial sector remains fragile, the corporate sector continues to be burdened with significant excess capacity, and deflation persists, thereby impairing the transmission mechanisms of monetary policy. In addition, government finances deteriorated rapidly over the 1990s. Concerted policy actions are called for to address these problems, including, in particular, deflation and the large amount of Non-Performing Loans. However, the need to rein in public debt and put government finances on a sustainable path is also becoming increasingly urgent, particularly in view of the rapidly aging population. The intention of the government to return to primary balance in the general government finances in the first half of the 2010s is a useful first step but the authorities should spell out a more ambitious medium-term consolidation strategy.

10. Emerging market and transition economies remain heavily exposed to the economic and financial external environment in the context of uneven specific country performances, and remaining downside risks. Negative geopolitical events could trigger a renewed surge of risk aversion, thus aggravating financial conditions in several countries, primarily in Latin America and the Middle East. Conversely, most Asian Emerging Market Economies, Russia, and Central and Eastern European Countries continue to perform rather well.

The reform of the international financial architecture

Surveillance and crisis prevention

11. IMF surveillance has a central role in crisis prevention. It should contribute to timely detection of macroeconomic and financial vulnerabilities, including those generated by extensive foreign borrowing and inconsistent exchange rate policies in emerging markets-notably through ROSCs and the FSAP. In that context, we welcome the incentives toward better debt management and the improvement of the framework for assessing debt sustainability. We also welcome the IMF Board's recent review of standards and codes and the FSAP, as well as the increasing integration of the latter into Fund surveillance.

12. To be fully effective, IMF surveillance needs to be transparent, objective, accountable, and comprehensive. It should also provide a fresh perspective in program countries. As exemplified by recent cases, the IMF must be able to undertake a critical assessment of programs, including existing ones, in order to strengthen their efficiency. We look forward to concrete proposals in that respect. We also look forward to the forthcoming review next June of the Fund's policy on transparency. In particular, the publication policy of Art. IV Reports should be reviewed with a view to making publication presumptive if no significant progress with the voluntary approach to publication has been achieved. We encourage the IMF staff and the Independent Evaluation Office (IEO) to make new proposals for further strengthening surveillance, including in program countries.

Crisis resolution, private sector involvement and Sovereign Debt Restructuring

13. We appreciate the extensive work undertaken to develop a comprehensive framework for crisis resolution. In particular, we welcome the clarification of the criteria and procedures for judging whether the provision of access beyond normal limits is justified. These criteria and procedures should be made fully operational and applied rigorously. We also welcome the strengthened procedures for the early consultation and effective involvement of the IMF Board in all decisions on exceptional access to Fund resources. As agreed at the Board, there should be also a strong presumption that the SRF is the facility to be used for exceptional access to Fund resources in capital account crises. The decision to extend the maturity of repurchases under the SRF should be helpful in that respect. Any decision to grant access above normal limits needs to satisfy the criterion of medium-term debt sustainability, which should be based on a realistic and forward-looking assessment of the country's capacity to service its debt.

14. We reaffirm our support for the two components of the two-track approach to improve the process of sovereign debt restructuring, i.e.: (i) the contractual one, based on Collective Action Clauses (CACs); and (ii) the statutory one, based on a Sovereign Debt Restructuring Mechanism (SDRM). These two elements are complementary and mutually-reinforcing pillars of a coherent and wide-ranging strategy for dealing with financial crises. A code of good conduct on sovereign debt re-negotiation (CGC), agreed on by the international community, the private sector and the sovereign issuers, would support the two-track approach, thus contributing to make crisis resolution more orderly, timely, and predictable.

15. The EU welcomes the work done with respect to the drafting of model collective action clauses (CACs) by the G10, and the contribution of the private sector to this work. It also welcomes Mexico's inclusion of CACs in a recent bond issue, and its intention to continue to do so in the future. It encourages other Emerging Market Economies to follow suit. EU countries note the benefits of a harmonized approach to the inclusion of CACs in bond contracts, and remain committed to leading by example. Therefore, the EU will use contractual provisions based on the framework developed by the G10, and where necessary in accordance with applicable law and adjusted to local legal practice, in their central government bonds issued under a foreign jurisdiction and/or governed by foreign law by the end of this year. Thereafter, EU Member States will no longer issue such bonds without any CACs.

16. EU countries remain convinced that the SDRM could make an essential contribution to improving the crisis resolution framework. The SDRM will strengthen the contractual element by providing incentives for the inclusion of CACs in international sovereign bonds. As a statutory component, the SDRM will also include features to improve crisis resolution that cannot be replicated in a contractual approach (especially to address issues raised by the aggregation of claims and the stock of existing bonds). We welcome the efforts made so far by the Fund to develop the key features of an SDRM and its ongoing dialogue with market participants and sovereign issuers. This dialogue has shown that further work is needed on a number of issues, such as the aggregation of claims, inter-creditor equity, the dispute resolution mechanism, the scope of the debt concerned, etc. We invite the Fund to: continue its work on those key issues and further assess different options; consult broadly with all interested parties; and report back to the IMFC as soon as possible.

The IMF and developing countries

The voice of developing and transition countries in the Fund

17. The IMF and World Bank should continue to enhance the participation of all developing countries and countries with economies in transition in their decision-making, and should strengthen their work as they address the development needs and concerns of these countries, as agreed at the Financing for Development Conference in Monterrey and echoed in the Johannesburg Plan of Action following the World Summit on Sustainable Development. We urge the IMF and World Bank to agree on a concrete set of proposals for the Spring Meetings.

18. The EU supports the increase in the staffing of the largest multi-country constituencies, through the addition of advisers and assistants. It also calls on the IMF staff to further explore other avenues for enhancing the voice of developing countries in the Bretton Woods Institutions. These include:

- adding a second alternate ED in these constituencies, also as a way to increase the staff of their delegations;
- increasing basic votes;
- devoting more time to issues related to low-income countries in the IMFC, the expansion of staff training, the improvement of technological support and administrative capacity at country and regional levels (ex : AFRITAC), and the strengthening of the PRSP process.

HIPC

19. We welcome the progress made in the context of the HIPC Initiative. EU member states account for about 54 percent of the total relief provided by the Paris Club to the 26 HIPC countries that have already reached the decision point. In addition, EU member states intend to go beyond the HIPC targets by providing officially 100 percent bilateral pre-COD debt relief for all claims.

20. In addition to Member States' bilateral contributions, the EC had paid by the end of 2002 the last tranche, amounting to € 180 million, of its € 734 million commitment to the Trust Fund.

21. We urge all creditors and donors concerned to provide their share of debt relief and multilateral financing. The IMF should work to secure the compliance of official bilateral creditors, and take the necessary actions to tackle non-compliance, including through reporting in Article IV surveillance and/or on its website. In addition, we look forward to reviewing the work completed by Bank and Fund staff on the options for HIPCs facing legal action by non-participating creditors.

22. On the debtors' side, we urge the group of HIPC countries that have not reached their decision point to take all the necessary measures to come forward for debt relief. In particular, we call on them, as well as on other low-income countries, to develop, with the IFIs' assistance, country-led action plans for improved public financial management and accountability as part of their poverty-reduction strategy. Where countries have suffered exceptional exogenous shocks we recognize the need for topping-up at completion point. There should be a coherent approach to topping up, however, which can be provided only to countries that have suffered from a fundamental change in their economic circumstances due to these shocks. Moreover, the IMF should keep under review the issue of calculating debt sustainability at completion point.

Combating abuses of the international financial system and other issues

23. The EU reiterates its commitment to fight against the abuses of the financial system, including money laundering, terrorist financing, and continues to support efforts to improve the integrity and resilience of the international financial system.

The fight against money-laundering and terrorist financing

24. We reaffirm our strong support of the Financial Action Task Force (FATF). We urge countries and territories listed by the FATF as non-cooperative to make all necessary efforts to enhance their anti-money laundering frameworks. We will continue to implement the coordinated countermeasures recommended by the FATF against the jurisdictions in which no progress has been made. We also welcome the ongoing process launched by the FATF to revise and upgrade its Recommendations against money laundering, and will actively participate in this exercise. We look forward to the revised FATF recommendations in June.

25. We strongly support the special recommendations laid down by the FATF at its extraordinary plenary session in October 2001 related to the fight against the financing of terrorism, and we welcome the additional work undertaken by the FATF to issue interpretative notes, in particular on Special Recommendations VI and VII. All countries should implement and enforce laws to combat terrorist financing. We welcome the fact that a great number of countries have chosen to endorse the FATF special recommendations and join the self-assessment process. We encourage the FATF to foster effective terrorist asset freezing and to combat the potential misuse of non-profit organizations for channeling funds to terrorist groups. We support the on-going efforts of the FATF to follow-up on the self-assessment exercise to identify those countries or territories that may not be in full compliance with these standards in order to provide them with the required technical assistance to help them come into compliance.

26. We call on the IMF and the World Bank to continue to play a key role so as to foster compliance with the FATF Recommendations against money laundering and terrorist financing. We welcome the ongoing joint effort by the Bretton-Woods institutions and the FATF on the preparation of ROSC modules and on the integration of AML/CFT issues into FSAPs. These should be integrated and comprehensive, incorporating on a permanent basis all aspects of the 40+8 FATF Recommendations. We look forward to the comprehensive review of the 12-month pilot program of AML/CFT assessments and accompanying ROSCs. We encourage the IFIs to continue their efforts to provide technical assistance, as appropriate, to countries willing to comply with the FATF 40+8 Recommendations, in coordination with the FATF and FATF-style regional bodies.

Other issues

27. Exchange of information in relation to taxation of savings, on as wide a basis as possible, is an ultimate objective of the European Union in line with international developments. All countries, including OECD ones which should take the lead, should implement the standards set out in the OECD's 2000 report on access to bank information and ensure effective exchange of information for all tax purposes.

28. We support the work of the FSF, to be pursued in a co-operative manner by all its members, in particular on enhancing market foundations, identifying and addressing vulnerabilities in the financial system, strengthening market discipline, promoting effective regulation, transparency and the quality of financial information, and further enhancing corporate governance. We also support its ongoing work on reinsurance, offshore centers, credit derivatives and highly-leveraged institutions. On offshore centers, we look forward to the FSF review next September of the progress made by the jurisdictions listed in Spring 2000 towards compliance with international standards of financial supervision and regulation, based on the OFC assessments undertaken by the IMF. We urge jurisdictions that have not yet done so to quickly volunteer for such IMF-led evaluations.