We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate.
Elevated oil prices largely reflect rising world demand, but other elements such as geopolitical concerns also play the role. We encourage OPEC and other oil-producing countries to raise production, and reiterate the need to enhance refinery capacity and improve energy efficiency. It should be avoided to artificially lower domestic energy prices through fiscal measures, as it works against market-based adjustment of energy demand, and raises gas emissions. We asked the IMF to conduct further research on the real and financial factors behind the recent surge in oil prices, and its effects on the global economy.
Upholding open trade and investment regimes is critical to realising global prosperity and fighting protectionism. We highlight the urgent need for a successful conclusion of the Doha Development Round that will substantially lower tariffs and other barriers to trade, including in the financial and other services sectors. We look forward to the outcome of the work under way at the IMF to identify best practices for sovereign wealth funds (SWFs) in such areas as institutional structure, risk management, transparency and accountability. We also encourage the OECD to build on its important work by identifying investment policy best practices for countries that receive cross-border investment from SWFs. We welcome the work by private sector representatives to develop strengthened voluntary best practices for Highly Leveraged Institutions in line with the FSF recommendations. We will continue to explore the issue of mutual recognition of comparable securities regimes, and how this can enhance international investment flows.
We discussed IMF reforms. We reaffirm our support for the recent IMF surveillance decision on exchange rate, financial sector, fiscal and monetary policy, and urge its rigorous and even-handed implementation. We support the recent proposal by the Managing Director to re-focus the IMFfs operations on core priorities and to cut spending by US100 million over three years. To fill the remaining gap, we are prepared to take measures to augment income, considering proposals in the Crockett report. We emphasised the importance of better aligning quota share of member countries with their relative position in the world economy based on a simpler and more transparent formula. We reaffirmed our commitment to concluding the quota and voice reform by the Spring IMFC meeting. A successful conclusion is a critical step in enhancing legitimacy and effectiveness of the IMF.
We discussed the importance of the unified action to address global climate change while supporting growth and economic development, based on the Bali Action Plan of December 2007. We will seek to enhance the critical roles played by international financial institutions and the private sector in reducing greenhouse gas emissions. Market based policies, which could include taxes and emission trading, will become increasingly important in combating climate change. They should be designed to meet specific conditions in each country. We also acknowledged the need to scale up investment in developing countries to support them in joining international efforts to address climate change. The deployment of clean technologies would be further enhanced through the reduction or elimination of trade barriers for key environmental goods and services. We also discussed the initiative by Japan, the United Kingdom and the United States to create, in collaboration with the World Bank and others, a strategic multilateral investment framework to address climate change. This would include, among other things, a fund that complements existing bilateral and multilateral efforts in providing financial support for the deployment of clean technologies in developing countries.
We welcome the recent robust growth experienced by many African economies and are committed to working together with African countries to maintain and strengthen this favorable momentum. We reiterated the need to foster private-sector led growth in developing countries in order to achieve the MDGs. To that end, we agreed that it is important to continue supporting African countries in improving investment climate, fostering private enterprises, strengthening financial systems, and building reliable infrastructure.
We reaffirmed that enhanced actions to ensure debt sustainability should be carried forward. We reviewed actions to tackle aggressive litigation against Heavily Indebted Poor Countries (HIPCs). We support improvements to the World Bankfs Debt Reduction Facility, including through the earlier provisions of technical assistance. We took note of proposals for establishing a legal support facility for HIPCs. We welcome the agreement reached by the OECD Export Credit Group on the Principles and Guidelines on sustainable lending to low-income countries and the interest shown by non-OECD members in this agreement. Building on our existing commitment on development and debt relief, we welcome agreement on the financing of debt relief for Liberia.
We encourage the IMF and World Bank to continue their important work in the fight against money laundering and terrorist financing. We look forward to meeting with other FATF Ministers in April to renew the mandate of the Financial Action Task Force (FATF) to address threats posed by weapons of mass destruction proliferation finance, enhance its surveillance of global threats, and deepen its dialogue with the private sector. We call upon FATF to continue to take measures to protect the international financial system from the risk of illicit finance including ensuring enhanced scrutiny of transactions involving Iran.
Statement of G-7 Finance Ministers and Central Bank Governors
October 19, 2007
The global economy is in its fifth year of robust growth. Recent financial market turbulence, high oil prices, and weakness in the US housing sector will likely moderate this growth. Nevertheless, our overall economic fundamentals continue to be strong and emerging markets are providing critical impetus to the strength of the world economy.
We remain committed to doing our part in sustaining strong global growth. We have acted resolutely to protect the systemic stability of global financial markets, and monetary policy must remain vigilant in maintaining price stability. We will continue to pursue medium term structural reforms and fiscal discipline. Technological change and openness to trade and investment are essential for our prosperity in a globalized world. We are committed to resisting protectionist pressures and to a successful conclusion of the Doha Development round that results in significant new trade flows in the key areas of agriculture, non-agriculture market access and services, especially financial services. Trade liberalization and Aid for Trade are critical for global poverty reduction.
We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we stress its need to allow an accelerated appreciation of its effective exchange rate.
Following recent global market turbulence, the functioning of financial markets is improving. Strong global fundamentals and well-capitalized financial institutions provide a sound and resilient basis but uneven conditions are likely to persist for some time and will require close monitoring.
Our response to recent financial turbulence must be based on full analysis of its causes. Securitization and financial innovation have contributed significantly to the growth of our economies. We expect market participants to address many of the shortcomings that were exposed by recent events. To ensure a sound, transparent, and comprehensive framework, we have asked the Financial Stability Forum (FSF) to analyze the underlying causes of the turbulence and offer proposals in the areas of liquidity and risk management; accounting and valuation of financial derivatives; role, methodologies and use of credit rating agencies in structured finance; and basic supervisory principles of prudential oversight, including the treatment of off-balance sheet vehicles. We received an outline of the work plan from FSF Chair, Mario Draghi, and look forward to his further reports at our upcoming meetings in Japan and Washington.
We discussed progress made in implementing the FSF recommendations on Highly Leveraged Institutions. In this context, we welcome the work undertaken by private sector representatives in the United Kingdom and the United States to develop strengthened best practices.
We discussed World Bank and IMF reform. We received a report from World Bank President Zoellick on his ideas for the institution's work going forward and we look forward to further discussing with him and other shareholders his plan for ensuring the Bank successfully meets its evolving challenges in promoting economic growth and poverty reduction. We thanked Rodrigo De Rato for his contribution to the work of the IMF and look forward to working with the incoming Managing Director, Dominique Strauss-Kahn. We remain committed to achieving an ambitious package of fundamental reforms. Quota shares and voice should better reflect the realities of the world economy including the growing weight and role of dynamic members, many of which are emerging markets. We also agreed that the voice of low income countries should be enhanced. We welcome the decision to modernize the Fund's framework for surveillance, including for exchange rates, and we look forward to its firm and even-handed implementation. IMF finances need to be put on a sustainable footing, but concurrently, the IMF must undertake a serious review of its activities and consolidation of its spending.
We discussed the importance of unified action to address energy security and global climate change while supporting growth and economic development. We are committed to working with major economies and through the UN climate process to that end. We agree that market based policy measures should be effectively designed to meet specific conditions in each country. We noted the need for scaling up investments in cleaner and lower carbon technologies through existing mechanisms such as the Clean Energy and Investment Framework and agreed to explore the creation of a clean technology fund to support the deployment of clean energy technologies to developing countries.
Cross-border, market-based investment is a major contributor to robust global growth. In this context, we agreed that sovereign wealth funds (SWFs) are increasingly important participants in the international financial system and that our economies can benefit from openness to SWF investment flows. We see merit in identifying best practices for SWFs in such areas as institutional structure, risk management, transparency and accountability. For recipients of government-controlled investments, we think it is important to build on principles such as nondiscrimination, transparency, and predictability. We are committed to strengthening our dialogue with countries involved and look forward to discussing these issues at our Outreach Dinner later this evening. We ask the IMF, World Bank, and OECD to examine these issues. We will explore opportunities to enhance investment flows between our economies and continue our discussions on mutual recognition of comparable securities regimes. |
