COMMUNIQUÉ

1.         Commonwealth Finance Ministers met in St Julians, Maltafrom 19 to 21 September 2000.  The Meeting was chaired by the Hon John Dalli, Minister of Finance, Malta. Ministers reviewed developments in the world economy, progress on further proposals for debt relief and other assistance for low-income countries, and new challenges for the international financial institutions (IFIs). They also considered the conclusions of the joint Commonwealth/World Bank Task Force on Small States, and a range of special issues relating to the OECD's proposal on harmful tax competition.  Throughout their discussions Ministers were conscious of the opportunities that the process of globalisation could bring to many, but also of the need to ensure that it is managed in ways that reduce the threat of marginalisation and lead to greater stability, growth and poverty reduction across countries. Ministers agreed to take forward their conclusions to the forthcoming Annual Meetings of the IMF and World Bank in Pragueand to meetings of groupings such as the G7, G20 and G24 in which they are represented. 

World Economic Situation 

2.         Ministers noted the generally favourable short-term prospects for growth in both the industrial and developing countries, but were concerned that these could be undermined by potentially significant risks. These include the risk of slowdown in the USand Eurozone economies, adverse movement in commodity terms of trade and the uncertainties associated with oil prices. They believed these developments could have significant negative impact on developing countries, and stressed the importance of all countries around the world pursuing policies to support a continuation of steady inflation-free growth.  In this context, Ministers welcomed the recent commitment by OPEC to increase oil production to reduce the price. 

3.                   Ministers also noted that even if recent rates of growth in the world economy continue, insufficient progress may be made to meet the global targets of halving poverty levels by 2015, particularly in sub-Saharan Africawhere development prospects have been greatly weakened by the impact of HIV/AIDS and malaria.  In this context Ministers stressed the importance of further action to increase levels and effectiveness of official development assistance; and to mobilise international commitments already made to urgently confront the development implications of the HIV/AIDS epidemic. 

4.         Recognising that trade is an important component for combating poverty effectively, Ministers called for a significant improvement in developing countries' access to industrial country markets to boost exports and growth and for early action to implement confidence-building measures under discussion in WTO.  They also emphasised the need for incorporating developing country interests and concerns more centrally into future WTO discussions. 

Debt Relief and Assistance to Low-income Countries 

5.         Ministers welcomed the enhancements to the Heavily Indebted Poor Countries (HIPC) Initiative agreed last year, and the progress being made to deliver debt relief and poverty reduction, but expressed concern at the slow pace made so far in bringing countries to decision point. They stressed the importance of meeting, or preferably improving on, the timetable and commitments agreed last year at Cologne and reaffirmed by the G8 at their Summit in Okinawa. They noted that only 10 countries had reached decision points under the Enhanced Initiative and that only one - Uganda - had reached its completion point.

6.         Ministers stressed the importance of moving countries that have reached decision points to completion points as rapidly as possible on the basis of a commitment to poverty reduction. They welcomed the new approach to link access to concessional windows to country-led poverty reduction strategies.  However, they cautioned against conditionality overload and delay.  

7.         Recalling that an important purpose of the HIPC Initiative is to enable countries to achieve as quickly as possible a real exit from unsustainable debt burden, they called for: 

• renewed emphasis in the HIPC programme on countries reaching early decision points as well as early completion points;  
• a further simplification of conditionalities; 
• special assistance for conflict resolution and post-conflict reconstruction to ensure qualification for HIPC debt relief as quickly as possible; 
• recognition that a comprehensive poverty reduction strategy must be conceived in a medium-term framework in which HIPC relief is one element which needs to be provided upfront, and which countries will continue to develop and implement even after debt relief is achieved, as a basis for continuing donor and IFI support;
• recognition that for HIPCs to achieve sustained growth and poverty reduction will require, in addition to debt relief, continued flows of concessional aid, better and more effective donor co-ordination in support of poverty reduction strategies and improved access to industrial country markets for their exports; and 
• all bilateral and multilateral creditors to fulfil their pledges of contributions as quickly as possible and in a manner that achieves true additionality, without diverting funds from existing aid allocations, especially to other low-income countries.  

8.         Ministers further called upon all bilateral creditors, according to their circumstances, to consider offering 100 percent debt relief under the HIPC Initiative and that such relief would cover both pre-cutoff and post-cutoff date transfer debt and be delivered from the decision points. They also hoped that IFIs would show greater flexibility in relation to their debt relief to HIPCs. 

9.                  Ministers also agreed that the international community should adopt a flexible and positive approach to the debt problems of developing countries that were not HIPCs. 

10.       Ministers agreed to consider establishing a forum comprised mainly of HIPCs themselves to provide regular input into the process of shaping the HIPC Initiative. This forum could submit reports, on a regular basis, to the Joint Implementation Committee of the IMF and World Bank, on the progress in implementing the Initiative and, when necessary, suggest changes to the Initiative based on the experience of forum members. They also asked the Secretariat to continue regular consultations with HIPCs and creditors and continue its programme of support for maintaining effective debt management systems in individual countries.  This programme should also include further work on finance for development for low-income countries, including both private and official flows. 

New Challenges for the International Financial Institutions 

11.       In the context of the increasing globalisation of financial markets, Ministers reaffirmed the central role of the international financial institutions in promoting and supporting growth, financial stability and poverty reduction world-wide. They considered the reforms required to meet the challenges of globalisation, and to ensure that all countries find a route to integration into the global economy. Ministers recognised that, without the support of the IFIs, private capital flows can be volatile, concentrated and inadequate for the needs of developing countries. They also stressed the need for a more inclusive process of shaping the international financial architecture.  In this context, they welcomed the suggestion of enhanced participation of developing countries in the Financial Stability Forum. 

12.       Ministers further agreed that reform of the institutions must be conducted through an orderly and transparent process in which developing countries, which constitute a key component of the client base of the Fund and the Bank, must be allowed a stronger voice and representation in decision making at all levels.

13.       For the Fund the key task should be to oversee the functioning of the international financial system and ensuring its stability, making sure that it serves the interest of all its member countries. In this regard Ministers believed that as a key element of the international financial architecture, the Fund should conduct effective and transparent surveillance, promote good policy-making and encourage countries to integrate into the global economy on the basis of core internationally agreed codes and standards.  More specifically, Ministers concluded that: 

• it was important to increase the effectiveness of both bilateral and multilateral surveillance and especially to involve the developing countries more effectively in multilateral surveillance; 
• the Extended Fund Facilitiy (EFF) had been an important instrument of Fund support for developing countries and responded well to the diverse needs of its membership. In this context they welcomed the decision of the Executive Board to continue the EFF. They emphasised that the Poverty Reduction and Growth Facility needed to be fully embraced as it enabled the Fund to remain engaged in supporting strong macroeconomic policies in low-income countries, by providing concessional assistance, alongside the Bank's assistance in support of structural and social reforms; 
• the recent modifications in the Fund's Contingent Credit Line (CCL) would make it more attractive by simplifying procedures for review, increasing the amount of resources which could be released without additional conditionality and a preferential interest rate compared with the  Supplemental Reserve Facility (SRF); 
• the expectation that private sector involvement should be an important element in crisis prevention and resolution had important implications for the role of the Fund in future.  Ministers therefore called for further elaboration of an effective, comprehensive and transparent framework in which the respective roles of the private and official sectors were clarified.  Ministers welcomed the establishment of the IMF's Capital Markets Consultative Group and encouraged further dialogue between private sector creditors and debtor countries; and
• one consequence of globalisation was that the international system's vulnerability to financial crises had increased.  This underscored the need for crisis prevention but in parallel it was necessary to strengthen the capacity of the system to deal with crisis resolution. In this context, the Fund's credibility as the principal crisis manager in the system required that it should have access to sufficient resources.  

14.       For the World Bank Group the challenge was to support development and poverty reduction in the context of its original mandate. In this Ministers saw important continuing roles for three functions: advice and channelling long-term concessional assistance (IDA) to low-income countries; a combination of policy advice and non-concessional lending to middle-income countries, complementing private finance; and support for the provision of a range of global public goods.  More specifically, Ministers concluded that : 

·        the Bank's role as a conduit for IDA flows to the poorest countries remained essential. The evolving process of linking such support to the production of comprehensive country-led poverty reduction strategies as a basis for both IDA and Fund (PRGF) lending was welcomed - provided conditionality overload was avoided; 

·        the Bank's role as an intermediary for non-concessional flows to middle-income countries and countries with access to private financial markets was also important, despite the growth of private capital markets. This would provide: longer maturities and greater stability in capital flows, including through counter-cyclical lending; financing for important social and environmental programmes, which would not happen if the countries were pushed to rely on commercial markets; and the ability to use funding to leverage structural reforms.  The recently established Task Force on the World Bank Group Strategy for Middle-Income Countries provided a welcome opportunity to review, rationalise and strengthen the Bank's role in these countries; and to examine the trend towards increasing conditionality in Bank-supported programmes; 

·        the Bank's role in providing knowledge about development was potentially quite important, but in practice it was most effective when combined with finance. In this context the recent decline in volumes of Bank non-concessional lending (especially if crisis-related lending was excluded) as well as the decline in net IDA lending was a disturbing development and needed to be reversed.  

15.       Ministers welcomed the commitments of the IMF Managing Director and the President of the World Bank for the two organisations to intensify their co-operation in future.  In both low-income and middle-income countries, successful development depended on adopting a comprehensive approach to policy reform; it was important for the Bank and the Fund to support these efforts in a systematic and coherent way, with each organisation focusing on its areas of comparative advantage.  

16.              Ministers also welcomed the report of the Commonwealth Secretariat/World Bank/IMF joint conference on developing countries and the global financial system and called for their continued collaboration in monitoring developments and arranging a second conference in a year's time to take stock of progress achieved in reform of the global system.  

OECD and Harmful Tax Competition 

17.              Ministers recognised that, in a world of globalised capital markets, countries need to be aware that policies and measures that influence private capital flows often have effects beyond their borders.  Ministers reaffirmed the Fancourt Declaration adopted by Commonwealth Heads in Durbanin 1999 on the right of member countries to compete in international financial markets, through the provision of both domestic and international financial services. 

18.              They agreed to co-operate to combat all financial crimes, foster mutual assistance, and deal with money laundering and other related issues.  Ministers recognised that tax competition could in fact be helpful, and not harmful, because it can further spur governments to create fiscal environments conducive to generating growth and employment.

19.       Ministers discussed the OECD initiative on ''Harmful Tax Competition''. They acknowledged concerns that the OECD's July 2001 target date for the publication of a list of "unco-operative tax havens" would act as an impediment to constructive dialogue. Ministers also strongly reaffirmed the right of sovereign nations to determine their own tax policies. 

20.       Ministers recognised the need to take early confidence-building measures combined with a serious effort to develop a shared perspective on the way forward, as the basis for arriving at a common framework and an agreed timetable for future actions. 

21.       Ministers called, with some urgency, for greater regional and multilateral dialogue at both the political and technical levels on the implications of the OECD proposals, with a view to developing multilateral approaches to take forward the work on all aspects of global tax issues.  They expressed their commitment to such a dialogue at the earliest possible date. 

22.       They requested the Commonwealth Secretariat to facilitate this process in appropriate ways. 

Small States  

23.       Ministers discussed the report of the joint Commonwealth Secretariat/World Bank Task Force on Small States.  They noted that the work of the Task Force had helped create a new broad consensus on the special development challenges and vulnerability of small states, and how these challenges must be addressed. They welcomed and endorsed the conclusions of the report and called on the international organisations to carry through the action programmes they had set out, giving particular attention to the need for flexibility in graduation procedures for small states, for better donor co-ordination, and for providing support for regional approaches where relevant. They welcomed the  initiative by the World Bank to organise an annual small states forum in the wings of the Annual Meetings and the proposed seminar on small states being organised by WTO in October, and hoped that these initiatives would help to develop practical solutions to the specific problems of small states.   

24.       They called on the High Level Review Group to attach high priority to the work of the Commonwealth in helping small states integrate into the world economy and deal with the transitional problems associated with the process. They asked the Secretariat to co-operate with the World Bank in providing a progress report on implementation of the report's recommendations in time for their meeting in 2001, and the subsequent meetings of the Ministerial Group on SmallStatesand Commonwealth Heads of Government. 

25.       Ministers welcomed a private sector initiative by the newly established Commonwealth Disaster Management Agency (CDMA) to provide insurance to small states for mitigating financial obligations following a natural disaster. 

Private Sector Issues 

26.       Ministers emphasised the importance of the private sector for promoting trade, investment and development in the Commonwealth.

27.       They believed that the Commonwealth Private Investment Initiative (CPII) represents a unique example of constructive public/private partnership to enhance development. They noted with interest progress made in implementing CPII and looked forward to further broadening and deepening of the Initiative to channel long-term capital in support of private sector businesses in member countries.  Ministers called on the Secretariat and CDC to work towards an early establishment of a successor to the Commonwealth Africa Investment Fund and continue to explore other investment vehicles including sector-focused funds and other follow-on regional funds, that would cater for the size of financial investment requirements of small island states. 

28.       Ministers recognised the role of the Commonwealth Business Council (CBC) in fostering dialogue between governments and the private sector and urged it to place greater emphasis on actions for promoting private investment.  They welcomed the CBC's proposed Draft Principles of Best Practice on the Relationship between International Companies and Countries to encourage Foreign Direct Investment and took note of its recommendations on sequencing liberalisation of financial markets. 

29.       They also welcomed the contribution of the Commonwealth Partnership for Technology Management (CPTM) in promoting SMART partnerships. 

Commonwealth Development Co-operation 

30.       Ministers appreciated the valuable development assistance provided to member countries by the Commonwealth Fund for Technical Co-operation (CFTC) particularly in the areas of debt,  exploitation of natural resources,  private capital  flows and  market oriented development, in order to address the risks and opportunities presented byglobalisation. They expressed appreciation for the assistance provided to undertake debt sustainability analysis for accessing debt relief under the HIPC Initiative and welcomed the contribution of the CFTC to public sector reform in member countries.

31.       Ministers were encouraged by the increase in contributions in 1999/2000 and called on governments to follow the example of those countries that had increased their contributions to the CFTC in order to preserve its effectiveness and to permit the CFTC to fully realise its Plan of Expenditure for the current financial year. 

32.       Ministers strongly supported the continued efforts by the Secretariat to assist countries to implement the recommendations of the Financial Action Task Force. They welcomed the document entitled A Model of Best Practice for Combating Money Laundering in the Financial Sector prepared by the Secretariat.  They encouraged countries to use it widely as a tool to deal with the new and sophisticated methods of money laundering. 

33.       Ministers noted that eight countries had already signed the Memorandum of Understanding (MOU) establishing the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). They expressed support for the agreed programme of work and encouraged the countries that had not yet signed the MOU to do so. 

34.       Ministers welcomed and endorsed the Commonwealth Programme of Corporate Governance implemented by the CFTC and the Commonwealth Association for Corporate Governance which had benefited 26 countries todate and was recently extended with a special focus on the financial sector.  Ministers noted that corporate governance is one of the key elements of the global financial architecture. 

35.       Ministers reaffirmed the importance of the Commonwealth Secretariat's programme on gender equality, commending the work done in the areas of gender and economic policy.  They welcomed the Commonwealth Gender Budget Initiative and looked forward to the review of the pilot stage of this project. 

Appreciation 

36.      Ministers expressed their appreciation to the Government and people of Malta for their warm hospitality and for the excellent arrangements for the Meeting. 

Next Meeting 

37.       Ministers accepted with pleasure the generous offer of the government of St Lucia to host their next meeting in 2001.