Commonwealth Ministers focus on reform of the international financial system and debt relief
6 September 1999
The annual meeting of Commonwealth Finance Ministers will be held in the Cayman Islands from Tuesday, 21-23 September 1999, prior to the annual meetings of the International Monetary Fund (IMF) and the World Bank, in Washington DC the following week. As a follow-up to their Ottawa Statement on the Global Economic Crisis last year, the Ministers will focus on issues relating to the reform of the international financial architecture and strengthening global economic governance as a special theme. They will also review the enhanced Heavily Indebted Poor Countries (HIPC) Initiative framework and consider ways for linking debt relief with aid and poverty reduction. A range of other important issues will be discussed, including action by the key international organisations to address the special concerns of small states and the elimination of corruption in economic management.Reshaping the International Financial Architecture
This year's special theme for Finance Ministers is the new international financial architecture and strengthening global economic governance. Ministers will review progress in the design of a new international financial architecture since their discussions in Ottawa last year. Of critical concern still is the need to establish a process and an arena for discussing reforms which would have representation from industrial, emerging and developing countries, and give the necessary high-level political impetus to agree reforms of the global monetary and financial system by the year 2000, as recognised by ministers at Ottawa. Among other things, this would ensure that the concerns of developing countries are reflected fully. Existing mechanisms for discussing reforms of the international financial architecture are not representative. For instance, the newly established Financial Stability Forum is largely confined to the G7. Ministers will also examine the specific role of the Commonwealth in promoting a balanced agenda and broad-based discussion of the issues involved.
Some of the key elements of the reform agenda that Ministers are expected to review include inter alia:
gaps in the regulatory framework for major financial markets in areas such as hedge funds;
the role of the IMF, including as 'lender of last resort', and the adequacy of its resources;
improving national financial regulation and flows of information to financial markets;
providing social and other safety nets to mitigate the impact of financial crises on employment and incomes;
temporary controls over capital movements;
choice of exchange rate regimes;
use of debt restructuring as an instrument of crisis resolution.
Reform of the HIPC Initiative Framework
Finance Ministers have been concerned by the slow pace of implementing the HIPC Initiative, launched in September 1996. At their Cologne Summit in June 1999, the heads of the G7 industrialised countries made significant progress by agreeing new proposals for an enhanced HIPC framework. In a positive development, the G7 has clearly recognised that the process had to be sped up and the framework improved in a significant number of ways.
A review of the Cologne Initiative, prepared by the Commonwealth Secretariat, will be considered in the Cayman Islands. This review welcomes the new proposals, but cautions that further action is needed to streamline and accelerate the process so that many more countries can benefit from debt relief. One of the key issues to address is funding; the original HIPC Initiative was never fully financed, so the challenge of paying for the enhanced proposals in a way that is fully additional will be all the more acute. The increase in the cost of the Initiative also increases the danger that the resources needed will be diverted from other development priorities.
Other critical issues include reviewing the eligibility criteria for debt relief, particularly the need to include fiscal sustainability and examining ways of ensuring strong linkages between debt relief and poverty reduction. Ministers will also seek to establish a forum where debtor and creditor countries can exchange ideas and experiences and make progress together.
Good Governance and Corruption
Ministers will have an opportunity to discuss the final report of a Commonwealth Expert Group on Good Governance and the Elimination of Corruption in Economic Management, as well as a framework for Commonwealth principles proposed by the Expert Group as a possible basis for launching a concerted Commonwealth strategy to promote good governance and combat corruption both at the national level and globally.
The Group recommends that all countries should adopt a policy of 'zero tolerance' for all types of corruption and implement their own national strategies to strengthen governance and fight corruption, based on effective preventive and enforcement measures. It also identifies key areas where international co-operation should be strengthened such as in preventing the laundering of the proceeds of corruption, especially through offshore financial centres. The discussions of Finance Ministers will pave the way for the consideration of these proposals by Commonwealth Heads of Government in South Africa in November.
Making Small States Less Vulnerable
Finance Ministers will review the progress made in developing proposals on small states issues by the joint Commonwealth Secretariat / World Bank Task Force. These proposals seek to address a number of important policy concerns ranging from the concept of vulnerability and a vulnerability index to changes in the policies of the major international organisations designed to address the special concerns of small states.
Ministers are expected to consider the following critical issues:
the need for flexibility on the part of IFIs (international financial institutions) in respect of their graduation policies by taking into account acute vulnerabilities of small states in eligibility for accessing funds from their various loan windows;
given the immense transitional costs for small states in integrating their economies into a more open global trading system, the need for provision of adequate resources to small states to overcome their significant problems;
assisting small states to participate effectively in international trade negotiations, particularly in areas such as dispute settlement and streamlining WTO (World Trade Organisation) accession procedures; and
appropriately designed mitigation measures that reduce the impact of natural disasters and ensure a rapid response in cases of catastrophe.
Other Issues
The 1999 Finance Ministers Meeting will also report on efforts to form a regional group of Commonwealth countries in Eastern and Southern Africa to co-ordinate their anti-money laundering strategies. In addition, they will discuss prospects for enhancing Commonwealth development co-operation activities.
99/52 6 September, 1999
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