14 April 2003
Snow Says IMF, World Bank Need to Engage in Iraq
(Urges voluntary approach to sovereign debt restructuring) (1450) U.S. Treasury Secretary John Snow says that the International Monetary Fund (IMF) and World Bank have "crucial" roles to play in providing humanitarian relief to Iraq and "laying the groundwork" for that country's reconstruction. In an April 12 statement before the International Monetary and Financial Committee -- the policy-setting body of the Fund -- Snow said it is critical that the IMF conduct an assessment of the macroeconomic situation in the country and help it establish the basis for growth. On another issue, Snow called on the IMF to move forward with a voluntary approach to sovereign debt restructuring to achieve a more orderly and predictable mechanism for countries in financial distress. He said the IMF should accept a policy of including collective action clauses in bond contracts, which would limit the ability of dissident creditors to block a widely supported restructuring on an individual bond issue. Snow said that "it is neither necessary nor feasible" to continue working on a statutory approach, which would allow a qualified majority of a country's creditors to approve a restructuring agreement binding on all. A plan advanced by IMF Deputy Managing Director Anne Kruger would require IMF members to change the organization's statute. To enhance crisis prevention, Snow said, the IMF needs to provide better information to the public by making results of its analyses widely available. And in order to be a "credible and useful" guide for decision-makers, its advice must be "comprehensive, transparent, and accountable -- and as objective and clear as possible." Snow also called on the most developed countries to take "appropriate" action to strengthen the economic recovery. He reaffirmed the U.S. position that the most effective way to help low income countries is to focus on results and promote good governance as well as sound economic and social policies. Following is the text of the statement as prepared for delivery: (begin text) The U.S. Department of the Treasury Statement by Treasury Secretary John Snow before the International Monetary and Financial Committee of the IMF April 12, 2003 Today we meet at a time of many challenges for the global economy. I welcome this opportunity to review recent developments and to discuss our work together to promote global growth and stability. Our continued multilateral cooperation is, as always, vital to success. Promoting Global Growth The world recovery is continuing, but the recovery is not strong enough. For this reason each country must do its part to take action now to strengthen this recovery. The United States has contributed by aggressive and well-timed monetary and fiscal easing. President Bush's Jobs and Growth plan will underpin the U.S. economic recovery and provide enhanced growth in future years. Other countries need to pursue policies appropriate to their own economic situations to contribute to a stronger global economy. Reducing trade barriers is fundamental to achieving growth and reducing poverty. It is important for all of us, along with the IMF, to support the objectives of the WTO [World Trade Organization] negotiations begun at Doha, with particular focus on financial services and agriculture and the need for results-oriented, trade-related capacity building. Enhancing Crisis Prevention and Resolution The United States continues to attach high priority to enhancing the IMF's effectiveness in preventing crises and strengthening the framework for resolving crises that do occur. A critical part of crisis prevention is early identification of problems and early action to address them. Strong and independent IMF surveillance is important both for countries receiving IMF support and for those that do not have IMF programs. In order to be a credible and useful guide for decision-making, it is crucial that IMF advice be comprehensive, transparent and accountable -- and as objective and clear as possible. It is particularly important to develop better and more objective assessments of the vulnerabilities that lead to crises, such as currency mismatches. Providing better information to the public is key to crisis prevention. The IMF cannot contribute in this respect if the results of its analyses are not widely available. We call on the IMF and its members to move to a presumption of publication for surveillance and program documents, as well as summaries of Board discussions of these documents. For countries making a case for exceptional access, IMF program documents should always be published. To help create incentives for strong policies and prudent risk-taking, the United States has emphasized that official sector finance is limited. We welcome the decisions taken to help ensure that exceptional access remains exceptional. We look forward to seeing the new criteria and procedures made operational, especially the separate report evaluating each case for exceptional access. Creating a more orderly and predictable process for debt restructuring has been a particular priority in recent months. The United States welcomes the excellent progress made in developing and incorporating collective action clauses in external sovereign bond contracts. Mexico has shown strong leadership in issuing several bonds that include such clauses and committing to include such clauses in all new bond issues. Mexico's successful issuances demonstrate that emerging market countries can follow a contractual approach that would help promote a more orderly restructuring process. We urge other emerging market borrowers to follow Mexico's lead. The IMF's exploration of a sovereign debt restructuring mechanism has raised important issues. But clearly, given the reactions of markets and emerging market countries, we should move forward with collective action clauses. These clauses, and not a centralized mechanism, are the vehicle to resolve the issues connected with sovereign debt restructuring. There can at times be "collective action" problems that prevent a prompt, orderly resolution of a sovereign debt crisis. The source of these problems lies in the relationships and agreements of debtors and their creditors. It is these parties, not an international organization, that must assume responsibility for the solution. Therefore, it is neither necessary nor feasible to continue working on SDRM [sovereign debt restructuring mechanism]. In coming months, we believe it is essential that work continue to strengthen the crisis resolution framework through broad voluntary approaches, and we look forward to consideration of such issues as how best to promote more widespread inclusion of collective action clauses and enhanced transparency and disclosure. Emerging market countries which regularly access international financial markets need to assume rightful ownership of these issues and help assure a more stable and orderly international financial system. Helping Low Income Countries The best way to help low income countries is to focus on results and to support countries with good economic policies. Increasing economic growth is the only way to reduce poverty and raise living standards. Assistance can only be effective when countries have policies and institutions that encourage innovation and investment, and create the foundation for a vibrant private sector. President Bush's Millennium Challenge Account is designed to channel assistance to countries that are ruling justly, investing in people, and encouraging economic freedom. The IMF should support countries that develop and implement strongly-owned reform plans that will deliver results. Maintaining strong standards on HIPC [heavily indebted poor countries] is vital. The current approach to topping up debt reduction is appropriate to assist countries to cope with external shocks. The United States supports the steps being taken to ensure that the African chairs can be effectively represented, while preserving the existing governance of the Fund. Combating Terrorism Financing We have made significant strides in the fight against the financing of terrorism since we last met. But the war against terrorism financing is far from won. We must avoid complacency, maintain focus, and keep our financial institutions and systems safe from abuse by terrorists. The IMF/World Bank and FATF [Financial Action Task Force] pilot project to assess country performance in combating money laundering and terrorist finance is an important part of this work. We are encouraged by progress at the mid-point of the pilot project and look forward to successful implementation and review of this important initiative. This assessment effort should become a permanent part of surveillance and oversight against money laundering and terrorist financing. Rebuilding Iraq It is important for the international community to cooperate in providing humanitarian relief to the Iraqi people and laying the groundwork for reconstruction and economic recovery. The IMF and World Bank have crucial roles to play, drawing on their respective areas of expertise. Engagement by the international financial institutions is vital, with the IMF performing the critical function of assessing the macroeconomic situation and helping Iraq to establish the basis for growth. The United States looks forward to working with the IMF and other shareholders in this very important undertaking. (end text) (Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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