Commonwealth Finance Ministers Meeting, Bermuda, 24-26 September 1996

COMMUNIQUÉ

Commonwealth Finance Ministers met in Bermuda on 24-26 September 1996. The meeting was chaired by the Rt Hon Mr Kenneth Clarke, MP, QC, Chancellor of the Exchequer, Britain, and Dr the Hon Grant Gibbons, Minister of Finance, Bermuda. Ministers discussed a wide range of issues, including the world economic situation, debt, IMF and World Bank issues, private capital flows and development, the Commonwealth Private Investment Initiative, money laundering, and development co-operation and Commonwealth Fund for Technical Co-operation (CFTC) resources.

World Economic Situation

2. Ministers noted with satisfaction the sustained growth in the world economy over the past five years which had been underpinned by increased integration and globalisation of world markets. While globalisation provided opportunities for all countries, it also posed challenges in ensuring it benefited all parts of the developing world.

3. Ministers emphasised the importance of an open, rules-based and non-discriminatory multilateral trading system, with a central role for the World Trade Organisation (WTO). The Singapore WTO Ministerial Conference in December 1996 should increase the impetus towards global trade liberalisation in ways which raise living standards in both developing and developed countries. It should also address effectively: the risk of discriminatory actions on a regional or unilateral basis; expeditious implementation of the Uruguay Round agreements; and effects of the Round on developing countries, including any countries affected adversely by the erosion of preferences or the reduction of food export subsidies which could lead to higher food import bills. In considering new issues on the trade agenda, it was important that some issues, such as trade and environment and labour standards, do not provide cover for new forms of protectionism or divert attention from global trade liberalisation. Ministers welcomed the recent Ruggiero Initiative on tariffs on imports of developed and richer developing countries from the poorest countries.

4. Ministers welcomed the rapid expansion in private capital flows, but stressed that such flows are not a complete substitute for official flows. They expressed concern that the sharp and continuing decline in official development assistance could jeopardise poverty reduction efforts in developing countries. They recognised that aid makes a very substantial contribution to development and welcomed the goals set out in the Strategic Vision for Development Co-operation for the 21st Century adopted by the OECD's Development Assistance Committee (DAC) in May 1996, but noted that attainment of these goals would depend on a strong commitment on the part of both donors and recipients.

Debt

5. Ministers were encouraged by the progress made in advancing proposals for multilateral debt relief for the heavily-indebted poor countries (HIPCs). They recognised that further strengthening of these proposals would be needed in order to provide exit to as many eligible countries as possible by the year 2000. In particular, they underscored the need for more realistic and flexible eligibility criteria, shortening of the waiting periods, and equitable burden-sharing among multilateral institutions and bilateral creditors. They stressed the need to make realistic assumptions and to take into account the unique characteristics of each country's economic position, including the fiscal burden of debt, when determining debt sustainability. They noted that some countries had already demonstrated their commitment to economic reform and urged that action be taken quickly for these countries on a case-by-case basis, rather than setting arbitrary periods for further proof of adjustment.

6. Ministers welcomed the recent progress in financing the debt initiative. They were encouraged by the financial commitment of $500 million this year by the World Bank, and the understanding recorded by the Managing Director of the IMF on financing a continuing ESAF including greater concessionality for the debt initiative. They called on bilateral creditors and donors to make further contributions, including greater relief on Paris Club debt rising to 80 per cent debt relief in appropriate cases. They strongly urged the World Bank, the IMF and the Paris Club to act together in a co-ordinated and flexible fashion to put the debt initiative into effect quickly, so that decisions can be made on the first cases before the IMF/World Bank Spring meetings in 1997. They also urged the regional development banks and other multilateral institutions, as well as non-Paris Club bilateral and private creditors, to contribute to the debt initiative.

7. Ministers recognised the need for enhanced debtor ownership in the debt work-out process, particularly in preparing debt sustainability analyses. They agreed it was important for the Commonwealth to maintain an active involvement on debt issues and to provide technical support to countries seeking debt relief.

8. Ministers noted that domestic debt, which was discussed in detail by Senior Finance Officials, was becoming an increasing problem in a number of economies. They recognised that sustainable levels of debt depended on individual country circumstances and policy goals. There was a need for greater transparency in formulating monetary, fiscal and debt management policies. They called on the Commonwealth Secretariat to continue to provide assistance in this area and welcomed its plans to upgrade the Commonwealth Secretariat Debt Recording and Management System.

IDA and other Bank/Fund Issues

9. Ministers welcomed the agreement on IDA-11. They recognised the importance for donors to meet their commitments on IDA-10, without prejudice to the agreements on IDA-11 reached in Tokyo. They stressed the need to ensure the long-term sustainability of IDA as a key instrument of development co-operation and looked forward to progress on this issue at the Spring 1997 Development Committee Meeting.

10. Ministers expressed concern at the continuing stagnation of IBRD lending and the sharp increase in net negative transfers. They welcomed the Bank's strategy of "Change Management" designed to revitalise its operations in the interest of all member countries.

11. Ministers encouraged the Bank to focus its poverty alleviation efforts on programmes and projects which are sustainable and which are expected to produce effective returns, particularly in the areas of infrastructure, human resource development and the environment. Ministers welcomed the efforts being made by the multilateral institutions to discourage unproductive expenditure in developing countries and called for these to be supported by donor countries in their own bilateral aid and credits.

12. Ministers recognised the need for good governance, noting that it was important to draw a clear distinction between the economic, social and political dimensions of governance. They therefore urged the Bretton Woods Institutions to approach this issue in a sensitive manner, taking full account of each country's specific circumstances.

13. Ministers urged the IMF to conclude the Eleventh Review of Quotas as soon as possible. They welcomed the understanding reached on an SDR allocation designed to ensure that all members receive an equitable share. They encouraged the Fund to further review issues related to the future role of SDRs.

Private Capital Flows and Development

14. Ministers recognised that private capital flows play a significant role in promoting growth and investment. They stressed that stable, transparent macroeconomic policies were important to attract such flows. They noted, however, that shocks could cause large and sudden surges of capital movements which exacerbated macroeconomic management difficulties. Financial sector reforms and gradual liberalisation of the capital account, supplemented as appropriate by other policy instruments, were needed.

15. Ministers noted that while preventive mechanisms, such as enhanced surveillance and early warning systems through improved data standards, were necessary, these were not sufficient. They emphasised the need to pay attention also to response mechanisms for dealing with crises when they occur. In this connection, they welcomed the establishment of an 'emergency financing mechanism' and noted progress towards the New Arrangements to Borrow (NAB). Ministers recognised that enhanced data standards in some countries could only be achieved over time and, where appropriate, called on the Secretariat to provide technical support to build up institutional capacity.

16. Ministers recognised the need to give serious consideration to the G-10 proposals for resolution of sovereign liquidity crises and orderly debt work-outs, including the recommendation that the IMF consider lending to countries in arrears under strictly defined conditions. Implications of these proposals for developing countries in raising funds from international capital markets should also be examined.

17. Ministers agreed that the role of national and international policies in encouraging private capital flows for investment should be studied in more depth by a small working group of senior Commonwealth Finance Ministry officials, who should report to their next meeting, building on the diverse experiences of Commonwealth countries.

Commonwealth Private Investment Initiative (CPII)

18. Ministers warmly welcomed the successful launch in July 1996 of the first regional fund under the CPII, the Commonwealth Africa Investment Fund (COMAFIN), and the strong support provided by the Commonwealth Development Corporation and several investment agencies in Commonwealth countries. They considered this to be a concrete and tangible example of Commonwealth co-operation in mobilising long-term commercial investments. They expressed the hope that similar funds could be established in other regions, including the South Pacific, the Caribbean and South Asia, and emphasised the need for the continued support of investment agencies in Commonwealth countries for this purpose.

Money Laundering

19. Ministers welcomed the work done by the Senior Finance Officials Meeting on money laundering in June 1996 in London and recognised the steps taken by a number of countries to combat money laundering. They endorsed the conclusions contained in the Senior Finance Officials' Report, and agreed to:

- endorse the new and updated 40 Recommendations agreed by the Financial Action Task Force (FATF) at the end of June 1996, and level up international standards across the Commonwealth for combating money laundering at least to the minimum set by the FATF;

- design and implement effective national strategies against money laundering through the establishment of multi-disciplinary national steering groups;

- endorse a comprehensive and practical set of 'guidance notes for the financial sector', prepared by the Secretariat, to help member countries introduce and implement effective anti-money laundering strategies;

- provide active support for the establishment of regional groups, modelled on the Caribbean FATF, to enable Commonwealth countries to review progress in implementing anti-money laundering measures; and

- the Commonwealth Secretariat's undertaking further work on the role of the parallel economy.

20. Ministers encouraged international financial institutions to collaborate in providing advice or technical assistance to enable countries to have efficient and effective anti-money laundering procedures in place. They agreed to convene a further meeting of Senior Finance Officials in 1997 to undertake a second self-evaluation exercise of progress in implementing anti-money laundering measures.

Development Co-operation and CFTC Resources

21. Ministers welcomed the Secretariat's work on development co-operation. They recalled Heads of Governments' commitment in the Millbrook Action Programme to restore the CFTC's resources to the 1991/92 level in real terms, and reaffirmed the commitment to achieve this target as soon as possible within each country's capacity to contribute.

Appreciation

22. Ministers expressed their appreciation to the Government and people of Bermuda 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

23. Ministers accepted with pleasure an invitation to meet in Mauritius in 1997.