The Finance Ministers and Central Bank Governors of Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States met on September 22, 1990, in Washington for an exchange of views on current international economic and financial issues. The Managing Director of the IMF participated in the multilateral surveillance discussions.

The Ministers and Governors reviewed developments and prospects in their economies. They noted that the rise in the price of oil associated with the Gulf crisis poses two risks: a risk of inflation and a risk of lower economic growth. The Ministers and Governors consider that stability-oriented monetary policies and sound fiscal policies constitute the correct policy response. Such a response should help guard against the underlying inflation rate being affected by higher oil process and thus reduce the risks of lower economic growth.

Despite the uncertainties associated with the Gulf crisis and its impact on oil markets, the Ministers and Governors believe that the improved energy efficiency in their economies will lead to better adjustment to increased oil prices and should help contribute over time to be a better balance between supply and demand for oil.

Notwithstanding oil price developments, solid growth is being experienced in their economies this year, particularly in continental Europe and Japan, and the G-7 expansion is expected to continue next year, the ninth consecutive year of sustained growth. External imbalances are being further reduced this year, and the current and prospective balance between domestic demand and output growth remains supportive of the adjustment process.

The Ministers and Governors reaffirmed their support for the economic policy coordination process. They urged deficit countries to continue their efforts to reduce fiscal deficits and raise private savings. They encouraged the United States to bring the Budget Summit to a prompt and successful conclusion in order to make meaningful and lasting reductions in the fiscal deficit. Surplus countries must continue sustained non-inflationary growth of domestic demand. All countries need to implement structural reforms to promote economic efficiency.

The Ministers and Governors reviewed recent developments in global financial markets. They noted that while there had been substantial declines in prices on stock markets, exchange markets had been orderly in the face of global uncertainties. They recalled that at their last meeting, they were of the view that the level of the yen then prevailing may have had undesirable consequences for the global adjustment process. They noted that since than, the yen had appreciated and concluded that exchange rates were now broadly in line with continued adjustment of external imbalances. They agreed to continue to cooperate closely on exchange markets in the context of the economic policy coordination process.

The Ministers and Governors underscored their determination to resist protectionism. They stressed the urgency of arriving at a successful conclusion of the Uruguay Round in 1990 to promote an open and growing world economy.

The Ministers and Governors noted that many countries throughout the world are vulnerable to the recent increase in oil prices and the economic consequences of the situation in the Gulf. They welcomed the international efforts underway to provide immediate and medium-term economic assistance to the "front line states." In order to address the problems of seriously affected countries, they called upon the International Monetary Fund and the World Bank to adopt appropriate measures, on an expedited basis, to respond flexibly in supporting members' reform efforts. In particular, they called upon the IMF to review the Compensatory and Contingency Financing Facility and access for the affected countries.

The Ministers and Governors reaffirmed their support for the strengthened debt strategy. They welcomed the recent progress toward finalizing the Venezuelan commercial bank package, and expect Brazil to resolve its arrears problems with its external creditors in the context of the adoption of a formal IMF arrangement. They also expect commercial banks to move forward expeditiously with other countries which have opened negotiations on new financial packages. They welcomed U.S. efforts to implement the "Enterprise for the Americas Initiative," designed to promote investment, growth, and debt reduction in Latin America.

The Ministers and Governors noted the efforts being made in restructuring the economies of Central and Eastern Europe. They welcomed the unification of Germany and the conversion of East Germany into a market economy which will contribute to positive economic developments in Central and Eastern Europe. They also welcomed the continuing priority being given to economic reform in the Soviet Union.

The Ministers and Governors welcomed the recent decision by the Paris Club to extend maturities to 15 years and to permit debt/equity and other debt conversions in reschedulings for heavily indebted lower middle income countries. They noted that four countries had already taken advantage of these new terms. The Ministers and Governors encouraged the Paris Club to continue reviewing additional options to address debt burdens, including proposals recently put forward to aid the poorest and most heavily indebted countries.

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Source: Canada, Department of Finance.