New Millennium: A New Chance

It gives me great pleasure to extend a warm welcome to all of you at this meeting of Commonwealth Finance Ministers. I am sure I echo the sentiments of everyone when I say how deeply we appreciate the generosity of our hosts, the Government of the Cayman Islands, and the efficiency of the arrangements they have made for our meeting.

This year's Finance Ministers Meeting is rather special for me, because it will be the last one I attend before handing over to my successor early next year. For almost a decade I have participated in these annual meetings as Commonwealth Secretary-General. I am convinced that they are a vital and growing instrument of Commonwealth economic diplomacy and co-operation.

These meetings provide a valuable forum for candid dialogue on major financial, trade and development issues that helps to clarify national positions. They also give our association a strong collective voice to influence wider international debate on economic issues, and promote consensus on key issues where international agreement remains otherwise elusive.

I recall, for instance, the crisis in 1993, when the final phase of the Uruguay Round of multilateral trade negotiations was floundering and failure to conclude the Round raised the spectre of increased protectionism and the use of unilateral measures to achieve trade objectives. The discussions of Finance Ministers paved the way for the decision, by Heads of Government in Cyprus, to dispatch a special Ministerial Mission which visited key capitals and centres and encouraged the major players to take account of the Commonwealth's concerns and, most of all, to negotiate positively and flexibly to reach a final agreement.

Similarly, the constructive proposals on multilateral debt made by Finance Ministers in Malta in 1994 contributed to the consensus which enabled the launch of the joint IMF/World Bank Initiative to tackle the problems of Heavily Indebted Poor Countries in 1996. A year later, the Mauritius Mandate agreed by Finance Ministers at their Mauritius meeting helped to accelerate the implementation of this Initiative, proposing specific measures to ensure that all eligible poor countries would at least have embarked on the process of securing a sustainable exit from their debt problems by the year 2000.

And, more recently, the Commonwealth responded to the financial crisis in East Asia through the work of a high-level Expert Group which has made a series of concrete recommendations to improve crisis prevention and management. These provided the basis for the Statement on the Global Economic Crisis adopted by Finance Ministers in Ottawa last year, which in turn provided the Commonwealth contribution to the debate in the IMF and World Bank.

Finance Ministers' meetings also help to promote the sharing of experience that is of value in national policy-making; the meetings also help to identify practical solutions to problems calling for collective Commonwealth action. Here, I would highlight the value, for instance, of the Commonwealth Private Investment Initiative, launched by Finance Ministers in 1995 in order to promote the flow of long-term capital to a greater number of Commonwealth developing countries. The regional funds that have been successfully set up respectively in Africa, the South Pacific, South Asia and the Caribbean, are channeling investment into a wide range of enterprises, some of which are also promoting regional integration. This Initiative has so far raised a total of 200 million dollars of investment and demonstrates how the private sector and governments can work together in ways that have a tangible impact on growth and development.

The agenda for our meeting this year, a week before the annual meetings of the Fund and the Bank, once again provides the Commonwealth with an excellent opportunity to contribute to international economic discourse, as well as identifying practical ways of accelerating progress on some key issues.

First, how can a new global financial architecture be created that is appropriate for the world economy of the 21st Century? The Ottawa Commonwealth Statement on the Global Economic Crisis outlined the essential building blocks of a strategy to prevent future financial and economic crises, and to manage them better when they occur. Discussions in various fora during the past year have helped to clarify and refine our understanding of the problems that should be addressed.

Effective crisis prevention calls for action on several fronts. At the domestic level, it requires the pursuit of sound macroeconomic management and a sensible choice of exchange rate regimes, as well as greater sharing of information, transparency and surveillance in order to give markets a more accurate picture of developing economies, thus preventing sudden fluctuations in market sentiments. It is also important to strengthen national financial systems and close regulatory gaps in major financial markets.

In the area of crisis resolution, much attention has been given to improving the capacities of the Fund and the Bank to prevent and manage crises. However, further work is needed to strengthen the role of the Fund as a lender-of- last-resort, while ensuring that public resources are used judiciously to reduce the problem of moral hazard. There is also a need for stronger incentives to involve the private sector, as well as mechanisms to ensure that imprudent creditors bear part of the burden.

Other areas that deserve more attention are the design of adjustment programmes that respond to the problems caused by loss of confidence, and a greater use of social safety nets to reduce the impact of crises on the poorest people, who are often the ones who suffer most.

Finance Ministers will have an opportunity to address these and other issues under the Special Theme of their meeting. In doing so, I hope they will also look at a fundamental problem that afflicts the present debate on a new global financial architecture. Unfortunately, that debate is not being conducted in a truly transparent and participatory manner. The institutions and processes that are being used at present to discuss issues that ultimately affect all humanity suffer from a 'democratic deficit' with a major part of the developing world excluded from having a say in shaping the new architecture.

How can a sense of shared stewardship for the global economy be fostered? I believe that the Commonwealth, which represents the full range of countries - rich and poor, large and small - is well placed to promote the establishment of a new overarching ministerial group that would better represent the interests of all these stakeholders. Dr Ahluwalia, in his background paper for the Special Theme has suggested that it should comprise the top eight industrialised country IMF quota holders, the top twelve non-industrial countries by IMF quota and the members of the Interim Committee not included under the above categories.

Such a broad-based body could examine global economic issues, including the functioning of private markets, and agree on the new infrastructure needed for the global monetary and financial system. Important elements of this architecture must be the strengthening of the IMF's capacity to act as an international lender of last resort with the greater involvement of the private sector in crisis management. I propose that this meeting may wish to consider deputing a small Ministerial group to pursue, with other major parties at the annual Fund and Bank meetings in Washington DC next week, these and other consensual views emerging from our discussion here.

A second area where further impetus is needed concerns the problems of Heavily Indebted Poor Countries - the HIPCs. The Cologne Initiative of the G-7 is a welcome development. If it is implemented swiftly, it should lead to a significant enhancement of debt relief for qualifying poor countries. However, the international community needs to do more if we are to ensure that eligible countries are able to secure a real exit from unsustainable debt burdens as soon as possible, and that other poor countries who are not eligible at present are also able to benefit from debt relief. It is my belief that the 'desperate cases' required a complete debt write-off. In all cases, sufficient debt relief should be provided to give the countries concerned a realistic chance of achieving a trajectory of growth and development that would enable them to achieve the internationally agreed poverty reduction targets.

I would also like to point out that the enhanced HIPC Initiative can only have a strong impact on poverty if its higher costs are financed through additional resources. The impact will be weak if resources are diverted from other pressing needs of poor countries. Additional support must, of course, be attached to conditions that ensure sound economic management. However, such conditionality should not be so onerous as to undermine the reform process itself.

The most heavily indebted poor countries face a 'silent humanitarian crisis'. This does not make the news headlines like some of the major crises the world has recently witnessed. But the burden of debt is devastating the economies and societies of many poor countries, threatening to leave them in a trap from which they can never escape. I believe that it would be in the enlightened self-interest of major bilateral donors to do their best to contribute the additional financing that is needed urgently. The problem of financing the Fund and the Bank's contributions to the costs of the HIPC Programme also needs to be resolved swiftly, and I hope that all concerned parties will work hard to find a solution before the conclusion of the Fund and Bank Annual Meetings next week. The amounts that are involved are a minute fraction of resources mobilised to respond to the humanitarian crisis in Kosovo.

The Commonwealth should continue to support a closer link between debt relief and the reduction of poverty in poor countries. This link could be strengthened by encouraging the development of comprehensive poverty reduction strategies that are country-owned and country-driven. The Comprehensive Development Framework proposed by President Wolfensohn of the World Bank offers a useful overarching policy mechanism for integrating debt relief with poverty reduction. It can also help to catalyse and co-ordinate greater flows of Official Development Assistance to developing countries, and concentrate this assistance on the many public goods like health care, education and the reduction of environmental pollution that private markets do not deliver on their own.

Third, the Commonwealth should consider how the Seattle Ministerial Meeting of the World Trade Organisation later this year can on the basis a balanced agenda which accommodates the interests of all countries strengthen a rule-based world trade system. The recent turbulence in international financial and trading conditions has spawned the growth of several kinds of protectionist pressures. The Commonwealth could help to encourage the launch of a new round of multilateral trade negotiations that leads to a properly balanced further reduction in trade barriers and a real improvement in opportunities for developing countries.

One of the best ways of helping poor countries to grow out of poverty is to expand their access to markets for their exports. The Commonwealth should extend its full support for a commitment to ensure that, no later than the end of a new round of multilateral trade negotiations, virtually all products exported by Least Developed Countries enjoy duty-free access. It can also facilitate a successful outcome to the negotiations between the African/Caribbean and Pacific Group and the European Union on arrangements to succeed the Lomé IV Convention.

I recall that last year, at Ottawa, concern was expressed about the need to have a more detailed analysis and discussion of the impact of global economic trends on small states. The constraints these countries face in the world economy is of great concern to the Commonwealth, more than half of whose members are small states. Many of them find it difficult to attract investment for their development because of their small domestic markets, undiversified economies, acute dependence on a narrow range of exports and their inability to achieve economies of scale in different economic and social sectors.

Added to this, is the greater degree of vulnerability to natural disasters as for example, was evident only last week with The Bahamas and hurricane Floyd. Instead of benefiting from the opportunities created by globalisation, a large number of small states face the danger of being marginalised to the periphery of the world economy. They face high transitional costs in bringing their economies into the mainstream of a more open global trading system.

The joint Commonwealth Secretariat/World Bank Task Force on Small States, which was established last year following the highly successful Ministerial Mission led by Prime Minister Owen Arthur of Barbados, is undertaking a comprehensive assessment of practical ways in which the constraints posed by vulnerability can be mitigated, helping small states to share fully in the benefits of globalisation. The Task Force is considering several concrete initiatives for assisting small states, such as improving macroeconomic management; using flexible criteria that take account of vulnerability in determining eligibility for accessing the resources of international financial institutions; increasing market access for small states' exports; and innovative insurance and financing arrangements to reduce the burden of natural disasters.

Finance Ministers will have an opportunity to hear a progress report on the work of the Task Force.

Finally, the Commonwealth needs to take a strong collective stand on the importance of promoting good governance and of fighting all types of corruption at both national and global levels. The Commonwealth Expert Group I appointed to study this subject has taken into account, in the final phase of its work, the views expressed by Finance Ministers last year and by Law Ministers who met in Trinidad and Tobago in May 1999. The Chairman of the Expert Group, Dr Kwesi Botchwey, will be presenting the Group's final Report on Thursday. With additional input from Finance Ministers, this report could serve as a basis for Commonwealth Heads of Government in Durban, South Africa in November to adopt a concerted Commonwealth strategy against corruption.

Mr Chairman, I would like to conclude by observing that two years ago at Edinburgh, Commonwealth Heads of Government agreed that globalisation posed both opportunities and challenges for the international community. They recognised that it would have to be managed carefully to meet the risks inherent in the process. When they meet in Durban in November, Heads of Government will discuss, as a special theme, how the forces of globalisation can be harnessed to foster people-centred development.

The choice of this theme is a reflection of the importance the Commonwealth attaches to the pursuit of sound strategies which, in putting the individual and his or her empowerment at the centre of development, seeks among other things, to raise the quality of life of our peoples. I hope that our discussions here on a new global financial architecture, trade, debt, good governance, corruption and other issues will also help the Commonwealth to find ways of channeling the positive energies of globalisation to galvanise growth that spreads prosperity among all nations.

If we can achieve that much in our deliberations over the next two days we will have ensured that the Cayman Islands in 1999 will have made a signal Commonwealth contribution to building a better world in the new millennium.

21 September1999
Cayman Islands