The Finance Ministers and Central Bank Governors of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States met on September 24 in Berlin (west) for an exchange of views on the problems of the world economy. The Managing Director of the IMF participated in their surveillance discussion.

The Toronto summit confirmed that a commitment to intensify policy coordination is required to sustain non-inflationary growth. Building on that commitment the Ministers and Governors reviewed the recent performance and current prospects for their economies based on performance indicators and the medium-term objectives and projections developed in the economic policy coordination process.

Th Ministers and Governors noted with satisfaction that the policies and commitments undertaken in the course of their cooperative efforts are producing the desired results. Growth is continuing at a faster pace than expected earlier in the year. Employment has increased. There has also been a strong increase in investment. Inflation pressures are being contained. Current trends and prospects in those countries with the largest imbalances are consistent with and supportive of balance of payments adjustment requirements. All this has contributed to exchange rate stability which in turn has supported these positive trends. Ministers and Governors emphasized their continued interest in stable exchange rates among their currencies. Therefore, they reaffirmed their commitments to pursue policies that will maintain exchange rate stability and to continue to cooperate closely on exchange markets. They are continuing their study of ways of further improving the functioning of the international monetary system and the coordination process.

The experience gained to date has reinforced the view of Ministers and Governors that the process of policy coordination among the major industrial countries is achieving the common objectives of reducing imbalances and sustaining widely-shared non-inflationary growth. In line with the commitments undertaken at previous meetings, fiscal, monetary and structural policies will continue to aim at promoting more balanced growth in the deficit countries and the expansion of domestic demand in the surplus countries. Where external and budget deficits are still large the strengthening of the fiscal position will be essential. Where external surpluses remain large, strong domestic demand growth is required.

The recent measures taken by monetary authorities demonstrate the will to contain price pressures. As a result there is little evidence of a general inflationary threat. Nonetheless continued vigilance is required.

Structural reforms are an essential complement to the macroeconomic policies necessary for sustained growth with low inflation and effective balance of payments adjustment and they are being given high priority in all their countries.

The implications of the globalization of financial markets for the conduct of economic policy are of special concern to Finance Ministers and Central Bank Governors. While much has been achieved in the liberalization of financial markets, Ministers and Governors believe that cooperative mutually supporting efforts to remove remaining barriers to international financial flows are necessary to improve the efficient allocation of capital. They welcomed the efforts under way among their countries to liberalize and improve the functioning of their capital markets. They will give continuing attention to ensuring an appropriate prudential framework and harmonizing prudential regimes.

The Ministers and Governors reemphasized the critical importance of free trade for world economic progress. They recognized the important contribution free trade can make to sustain growth, reduce imbalances and resolve the debt problems of developing countries. Their countries will resist protectionist pressures. They attach primary importance to securing with all participants substantial progress in the mid-term review of the Uruguay Round.

The Ministers and Governors stressed the importance of other economies, particularly the newly industrialized ones, contributing to the international balance of payments adjustment process. While noting their continuing outstanding economic progress, they urged them to open their markets further to foreign goods and investment and to allow their currencies to reflect the underlying strength of their economies.

The Ministers and Governors reiterated their strong support for the growth-oriented case-by-case debt strategy under which substantial progress has been made. Robust growth in the industrial countries and the strong expansion of world trade are supporting the efforts of the many developing countries who are undertaking reforms to exploit their economic potential more effectively.

Significant initiatives have been taken by official donors and creditors, including the IMF and the World Bank, to increase resource flows into the developing countries willing to adjust. It is critical that these resources be used efficiently in support of growth-oriented macreconomic and structural reforms. They stressed the importance of the contribution which governments of creditor countries are making to alleviation of the debt service burden of debtor countries through Paris Club reschedulings. In this context they welcome with great satisfaction the fact that the necessary arrangements have now been worked out by the Paris Club to implement the new Toronto approach as regards the debt of the poorest countries. The resolution of the debt problem requires the active participation case-by-case of all parties involved, including the commercial banks. The Ministers and Governors encourage the further development of market-based and voluntarily agreed financing options under the menu approach in order to facilitate new financial flows. In this connection they reiterated their opposition to transferring risks from the private to the public sector.

The Ministers and Governors confirmed their support for the work of the IMF and the World Bank. They will cooperate closely within the framework of both institutions with all member countries, especially the developing countries, to cope with the problems of the world economy.

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Source: Canada, Department of Finance.