COMMUNIQUÉ

Commonwealth Finance Ministers met in Mauritius on 15-17 September 1997.  The meeting was chaired by the Hon Dr Vasant Bunwaree, Finance Minister of Mauritius.  Ministers discussed a wide range of issues, including the world economic situation; IMF and World Bank issues; multilateral debt; the political process and management of economic change; the Report of the Commonwealth Working Group on Private Capital Flows; issues related to the Special Theme of the Commonwealth Heads of Government Meeting (CHOGM): trade, investment and development; and Commonwealth co-operation.

2.  Ministers agreed that growth in the world economy needed to be sustained to ensure that the benefits of globalisation are widely distributed within and between countries and accessible to all.  To achieve these goals, national and international efforts should aim at: strengthening the reform process, managing risks and maximising opportunities associated with globalisation, reversing the decline in official development assistance, accelerating implementation of the Heavily-Indebted Poor Countries (HIPCs) Initiative and promoting private capital flows.  Ministers also agreed to work towards strengthening greater economic co-operation among Commonwealth countries in trade, investment and development.

Promoting Growth and Managing Risks Associated with Globalisation

3. Ministers welcomed the continued growth with low inflation in all regions of the world, including Africa which had the highest growth in sixteen years.  A number of risks and uncertainties, some of a systemic nature, however remain which could affect near-term growth prospects.  The recent events in currency markets re-emphasised the need for effective monitoring of international financial developments, to contain currency  crises and manage their  contagion effects.  The recent slackening in the growth of world trade was a further source of concern. A number of developing countries, including many small states, will need time to integrate themselves into the global economy and to tap into private capital markets in order to avoid marginalisation.  Their prospects could also be affected by negative net resource transfers, continued decline in official development assistance (ODA) flows and the lack of meaningful and timely debt relief.  Ministers also took note of the recent WTO ruling which will have serious adverse consequences for the banana producing economies and expressed the hope that the European Union will use its best efforts to ensure that these countries are not negatively affected.

Reversing the Decline in International Resource Flows for Development

4.  Ministers were encouraged by the rapid expansion in private capital flows but stressed that the continued decline in ODA could severely undermine economic and social development and poverty reduction efforts in many developing countries.  In particular, they were seriously concerned that the fall by 33 per cent in IDA commitments in 1996 which represented the sharpest decline recorded in recent history would lead to a proportionate fall in disbursements in the future.  They also noted that much of IDA is now being funded by reflows and transfers of net income derived largely from interest rate differentials and charges paid by IBRD borrowers, which represents a substantial alteration in burden-sharing.  They emphasised the importance of ensuring IDA's long-term sustainability.

5.  Ministers noted that IBRD lending had not only declined in real terms but there were shifts in lending patterns resulting in reduced flows to developing countries, partly because of greater attention to portfolio performance.  The Bank, however,  should stand ready to use its headroom more aggressively to increase lending and use its guarantee programme to supplement direct lending with a view to enhancing additionality.  They hoped that the new direction sketched out in the World Bank's Strategic Compact would lead to greater client orientation and improve the Bank's development effectiveness.

Debt Relief for HIPCs and the Mauritius Mandate

6.  Ministers warmly welcomed the new proposals by the British Chancellor of the Exchequer on the HIPC Initiative, called the Mauritius Mandate.  It seeks to enable all HIPC countries to have embarked by the year 2000 on the process of securing a sustainable exit from their debt problems.  It also aims by the millennium to have firm decisions on the amounts and terms of debt relief for at least three-quarters of the eligible poor countries.  This will help up to 300 million people living in the world's poorest countries and contribute to the international target of halving by 2015 the proportion of the world's population living in absolute poverty.
 
7.  Ministers called on the Paris Club to show flexibility where necessary to meet its commitment to give sufficient relief for HIPC countries to achieve debt sustainability.  They welcomed Britain's proposal that where necessary the Paris Club should apply relief to all categories of HIPC debt, including "post cut-off date debt".  They also called on non-Paris Club creditors to participate fully in the Initiative.
8.  Ministers expressed concern about continuing uncertainty regarding adequate funding arrangements and called for early agreement on the financing of the HIPC Initiative.  They urged creditors to drop conditions on bilateral pledges to the IMF Trust Fund while re-emphasising the need for a favourable decision on the sale of a  portion of the Fund's gold holdings as a necessary supplement to bilateral contributions.
 
9.  Ministers called on the World Bank to look at the position of severely indebted countries whose debts are owed primarily to multilateral institutions so that they have as much chance as others of early and full debt relief.
 
10.  They called for a greater openness by the IMF and World Bank in their debt sustainability analyses and encouraged efforts to build country capacity for this analyses.  The Commonwealth should continue to pay attention to debt issues and provide assistance in preparing debt sustainability analyses.
 
11.  Ministers welcomed the granting of relief under the HIPC Initiative to Uganda and expressed the hope that other Commonwealth candidates like Mozambique and Guyana should be offered early relief, with minimum time possible between decision and completion points.

The Political Process, Governance and Managing Economic Change

12.  Ministers welcomed the discussion on the role of politics in economic management as a special theme.  They recognised that successful implementation of economic reforms was largely determined by the political and social environment in which reforms are introduced, ownership of the reform programme, national capacity, the balancing of interests among various groups and the participation of civil society.
 
13.  They underscored the importance of good governance including increased openness in economic decision-making and the elimination of corruption through greater transparency, accountability and the application of the rule of law in economic, financial and other spheres of activity.  They noted that the implementation of the operational guidelines on governance and corruption adopted by IFIs should be fully consistent with their respective Articles of Agreement.
 
14.  Ministers believed that they could gain from each other's experience in this area and called on the Secretary-General to convene an expert group to examine further the role of good governance in economic development and ways of effectively addressing corruption issues.

Promoting and Coping with Private Capital Flows: Policy Challenges

15.  Ministers agreed that private capital flows can bring substantial benefits but recognised that these flows can be volatile and can complicate economic management.  They endorsed the Report of the Commonwealth Working Group on Private Capital Flows.
16.  They stressed the importance of sound macro-economics policies and financial systems, strong regulatory and supervisory framework and political stability as essential for encouraging inward investment.
 
17.  Ministers noted that circumstances of individual countries differed and national responses for coping with surges would require the use of a range of policy instruments: namely, the right mix of fiscal-monetary policies; encouragement of domestic savings; and permitting some flexibility in the exchange rate.  For the great majority of countries that are integrated into the international financial system, sterilised intervention and temporary capital controls are useful only as short term measures and may be ineffective in the event of large and persistent surges.
 
18.  The international financial institutions also have a key role to play in putting in place multilateral arrangements and mechanisms for promoting and coping with private capital flows.  In particular:

• the World Bank should consider increasing the flexibility of and resources for its guarantee programme to catalyse private flows and provide additionality in access to resources by leveraging capital to a greater extent than is possible under its present Articles;
• the IMF should be provided with sufficient resources through a quota increase to enable it to respond adequately, quickly and flexibly to countries facing financial crises and to contain both systemic and contagion effects; and
• an appropriate amendment of the IMF's Articles would enable the Fund to help its members liberalise their capital accounts, with satisfactory transitional and other arrangements.  Capital account liberalisation also needs to be appropriately sequenced and preceded by financial sector reforms and sound macro-economics fundamentals.

19.  Ministers also agreed that where it was prudent to do so, consideration should be given to relaxing any restrictions on institutional investors in capital exporting countries to enable them to take advantage of portfolio diversification opportunities in new markets.
 
20.  On the specific role of the Commonwealth, Ministers agreed on the key elements of a Code of Good Practice for national policies that attract and sustain private capital flows and asked the Secretariat to develop these elements into a full code as soon as possible.  This work should also focus on regional strategies for investment promotion; improvement of the regulatory and supervisory framework for banking and securities markets; monitoring capital flows; and extending the Commonwealth Private Investment Initiative to the establishment of sector and privatisation trust funds.  Ministers welcomed the pledge by the Mauritius Prime Minister to support the establishment of a privatisation trust fund.
 
21.  Following recent developments, Ministers called on the Secretariat to undertake follow-up work including a study of the lessons to be learned from recent developments in currency markets and in particular how countries can be protected against the destabilising effects of capital market volatility, including those resulting from speculative activities, and how the effectiveness of existing early warning systems can be improved.

Trade, Investment and Development and Commonwealth Prosperity

22. Ministers welcomed the choice of trade, investment and development as the central theme for CHOGM and considered that the Commonwealth was well placed to play a role in two main areas - consensus building on international economic issues and developing and implementing practical measures in promoting intra-Commonwealth trade and investment to promote development.  Ministers commended their conclusions on the Capital Flows Report and expressed the hope that these would inform CHOGM's Conclusions on that aspect of the theme.

Commonwealth Private Investment Initiative (CPII)

23.  Ministers welcomed the progress in implementing CPII as a commercial venture and noted with appreciation the achievements of the Commonwealth African Investment Fund (COMAFIN) and launch of a similar fund for the Pacific Islands. They looked forward to launch of the South Asian Regional Fund at the Edinburgh CHOGM and a Caribbean Fund by the middle of 1998.  They emphasised the critical need for investment agencies in Commonwealth countries to support these initiatives.

Combating Money Laundering

24.  Ministers supported the continuing efforts of Secretariat to assist countries in combating money laundering in the financial sector.  They noted the G7 call at the Denver Summit for selective expansion of FATF membership and emphasised the need for wider participation of non-OECD countries and bodies in FATF's work.  They called for a further consideration of money laundering by senior Finance Ministry officials and recommended to Heads of Government to consider further action to strengthen co-operation among Commonwealth countries in combating money laundering.

Montserrat

25.  In recognising the tragic circumstances being faced by Montserrat, Ministers took note of the special appeal sent to all members by the Secretary-General, inviting them to contribute to the Fund established to assist Montserrat at this critical time.  They urged Governments to respond to the appeal as positively as possible.

CFTC Resources

26.  Ministers welcomed the practical help provided by CFTC in meeting technical assistance needs of member countries, particularly in those areas of development co-operation addressed by Commonwealth Finance Ministers.  They also welcomed the increased contributions made by a number of countries in the past two years, helping the CFTC to undertake a higher level of activity.
 
27.  They noted the commitment by Commonwealth Heads of Government in the Millbrook Commonwealth programme of Action to strengthen the Secretariat's capacity for undertaking developmental work, and in particular called on all member countries to continue to make the best possible efforts to restore CFTC's resources to 1991-92 levels in real terms within each country's capacity to do so.

Commonwealth Association of Tax Administrators (CATA)

28.  Ministers appreciated the contribution of CATA in capacity-building in tax administration; and encouraged it to extend the scope of its activities to new areas especially in providing technical assistance to member countries.

Appreciation

29.  Ministers expressed their appreciation to the Government and people of Mauritius for their warm hospitality and for the excellent arrangements for the Meeting.  They also expressed their appreciation to the Commonwealth Secretariat for its excellent preparatory work for the Meeting

Next Meeting

30.  Ministers accepted with pleasure an invitation to meet in Canada in 1998.

Berjaya Le Morne
Mauritius
17 September 1997