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The Ottawa Commonwealth Statement on the Global Economic Crisis

2 October 1998

1. We, the Finance Ministers of Commonwealth countries, meeting in Ottawa, have considered the Report of the Commonwealth Expert Group on Protecting Countries Against the Destabilising Effects of Volatile Capital Flows and have agreed to issue the following statement on the current global economic situation.

2. Recent events in international financial markets raise profound concerns and emphasise the need for global co-operation to preserve the stability of the international economic and financial system. The financial crisis which began in East Asia in July 1997 has spread rapidly to other regions of the world. The depth of the crisis and the speed of contagion were not foreseen. A sizeable proportion of the world economy is now in recession. This is eroding impressive previous gains in eliminating poverty and is imposing high social costs and undermining political stability in the affected countries. The global turbulence in financial markets has resulted in sharply lower growth prospects in the world, with strong deflationary pressures in some parts. We believe that the crisis raises fundamental questions about national and international arrangements for crisis prevention, containment and management.

3. We believe that the balance of risks has changed substantially and that the international community must respond swiftly to protect the hard-won gains of economic liberalisation in many parts of the developing world. We, therefore, believe that the following measures should be taken to contain and reverse the crisis:

• action to ensure sustained global growth, including appropriate use of monetary policy by the industrial countries, which can have the most immediate impact on the world economy;
 
• reform of the financial sector and improved transparency and governance in countries affected by the present crisis;
 
• support for larger IMF resources, including an increase in quotas; early ratification of the New Arrangements to Borrow; and examination of the feasibility of allocations of SDRs to rebuild a credible multilateral liquidity system;
 
• continued provision of liquidity to reverse economic collapse and promote growth in crisis-affected countries; greater involvement of the private sector in crisis resolution through the introduction of standstills and orderly debt work-outs in conjunction with official support; and, where appropriate, review of the policy recommendations of international financial institutions (IFIs) to ensure effective responses to crises induced by capital account problems, as well as the restoration of stability and market confidence as quickly as possible, with minimum damage to growth;
 
• adherence to the Commonwealth Code of Good Practice for Promoting Private Capital Flows and Coping with Capital Market Volatility;
 
• resistance to trade protectionism, and avoidance of competitive devaluation by all countries;
 
• adequate bilateral and multilateral aid in support of social safety-net mechanisms to protect the most vulnerable people in the crisis-affected developing countries, including an appropriate IDA12 replenishment;
 
• support for crisis-affected economies within the context of increased resources for the normal developmental needs of countries for poverty reduction and development of physical and social infrastructure; and
 
• support for the countries whose economies have been adversely affected by the sharp decline in primary commodity prices.

4. We further believe that development of a new international financial architecture should be pursued vigorously. We endorse the following measures:

• establishment of international arrangements, including peer reviews, to achieve improved supervision and regulation of financial systems and to identify problems before they trigger international crises, and steps to identify and fill any regulatory or supervisory gaps, involving financial institutions and capital flows;
 
• an orderly and cautious approach to capital account liberalisation in tandem with financial sector reform;

• while recognising that some countries have felt it necessary to consider the re-introduction of capital controls of an administrative character or exchange controls on a temporary basis, such actions cannot be seen as an alternative to reform;
 
• the establishment and strengthening of regional arrangements and mechanisms for consultation and support in times of need should be covered by the new architecture; in particular, these could include regional lines of credit to serve as a form of constructive contingent arrangement; and
 
• reform of the international monetary and financial institutions to increase accountability and to bring global governance arrangements in line with the needs of the current globalised economy, including an examination of whether the industrial countries enjoy defence mechanisms which are not available to developing countries.

5. In view of the challenges posed by the dramatic changes in the international financial system, we believe the global community today must respond with the same vision and energy as did the framers of Bretton Woods. In this regard, we believe the following measures should be examined urgently:

• an internationally agreed emergency standstill mechanism that would allow a suspension of payments during times of crisis without triggering default, taking due account of the issue of equitable burden-sharing;
 
• Codes of Conduct covering financial and monetary policy and corporate governance, to stand alongside the recently agreed IMF Code for Good Practice on Fiscal Transparency;
 
• the transitional use of market-based instruments (such as reserve requirements or other means) by countries to discourage speculative flows and reduce the adverse effects of capital volatility, including a study by the International Financial Institutions of the feasibility of using such instruments;
 
• greater disclosure of the activities of currency traders and hedge funds, given the role they play in influencing currency and asset price movements, including the possibility of extending large trade and position reporting systems (now practised in future trades) to cover currency trading and hedge fund activities; and
 
• a broad-based standing committee or mechanism for global financial regulation and stability to provide a coherent and co-ordinated framework, incorporating the IMF, World Bank, Basle Committee, and other relevant regional or international bodies.

6. We believe the above measures are necessary if the nations of the world are to remain outward looking and to build further on the progress achieved through commitment to market principles and openness to international trade and investment in recent years. Recognising the need for a global meeting, we therefore call for the urgent examination of the appropriate forum for such a global meeting, involving representation from industrial, emerging and developing countries, including vulnerable small states, which will give the necessary high-level political impetus to agree reforms of the global monetary and financial system by the year 2000.

7. We undertake to pursue this general approach individually and collectively. In addition, we have agreed that a representative group of us should take forward our proposals at next week's Fund/Bank meetings, as well as at other international and regional consultations.

 

 

 

Canadian Government Conference Centre
Ottawa, Canada

1 October 1998

 

98/67   2 October, 1998

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