1. The Finance Ministers and Central Bank Governors of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States met on 25 January in New York and agreed to intensify their cooperative efforts to strengthen world economic growth. Ministers and Governors reviewed world economic developments with the Managing Director of the IMF as part of their ongoing economic policy coordination process and the situation in the former Soviet Union.

2. The Ministers and Governors expressed their concern that economic activity had weakened since their last meeting. In some countries, early signs of recovery had not been sustained, while other countries were experiencing a deceleration from high rates of growth, jeopardising gains in employment achieved during the last decade and raising the danger of renewed protectionism. Consumer and business confidence has remained weak, thus delaying a resumption of economic activity.

3. The Ministers and Governors are convinced, however, that the forces that have been inhibiting economic activity in many countries are dissipating and that the conditions for improved global growth exist. Inflation expectations have eased considerably and, with the exception of some countries, wage and price pressures have been declining markedly. Long term interest rates have fallen in all countries and, in some cases, substantially. Oil prices have remained stable.

4. In order to reinforce the recovery process, the Ministers and Governors agreed that in present circumstances there was a need to intensify their cooperative efforts to improve the conditions for non-inflationary growth in their economies, thereby strengthening the world economy. Ministers and Governors accordingly agreed that a stable policy framework should be provided which creates an environment for renewed economic confidence. They believe strongly that the appropriate framework is one of fiscal and monetary policies geared to sustainable growth with price stability over the medium term. These are the essential conditions for lower interest rates and productive investment that will support the recovery and lead to a reduction in unemployment.

5. Ministers and Governors reconfirmed their commitment to the policy coordination process which has contributed to the good performance of the world economy in the 1980s. They reaffirmed the need to raise world savings. They insisted strongly on the necessity of maintaining open and efficient global markets to assist the economies of both industrial and developing countries. They stressed that a satisfactory conclusion of the Uruguay Round would enhance private sector confidence and make an essential contribution to global economic growth. It was acknowledged that the completion of the internal market of the EC at the end of this year and the recent decisions in Maastricht would further strengthen fundamentals for economic growth in Europe.

6. As to economic policies in their respective countries, Ministers and Governors agreed that each country would implement fiscal, monetary and structural policies to promote the conditions for sustainable growth with price stability. The specific mix of policies would vary depending on the circumstances in each country. On fiscal policy, Ministers and Governors noted that in some countries public expenditure could be reallocated through targeted measures designed to improve confidence and to enhance productivity. They emphasised the need, however, for countries with large fiscal deficits and high public debt to continue medium term efforts at fiscal consolidation as a means of improving national savings and reducing real interest rates.

7. On monetary policy, Ministers and Governors acknowledged the improvement in inflation performance in many countries over the past year. Monetary policies should be directed to preserving the gains that have been achieved in reducing inflation while providing adequate scope to finance sustainable growth. Those countries which in the future experience better than expected inflation performance may have a basis for an easing of monetary conditions and interest rates without jeopardising the commitment to price stability and exchange rate objectives.

8. Ministers and Governors welcomed ongoing German efforts to lower public sector borrowing requirements and expressed the hope for wage moderation, thereby helping to mitigate price pressures in that country.

9. On structural policies, Ministers and Governors emphasized the need to continue reforms in order to reduce rigidities, to strengthen market forces, and to improve the efficiency of their economies and the world economy generally.

10. The Ministers and Governors reviewed their economic policies in light of these developments and objectives:

• The United States will announce in the President's State of the Union address a comprehensive program to strengthen growth and competitiveness. The program will include measures to improve consumer confidence, incentives for savings and investment and increased research and development expenditures. These measures will be financed in a manner consistent with the pay as you go requirements of the 1990 budget act.

• The Government of Japan submitted to the Diet the fiscal 1992 budget and the Fiscal Investment and Loan Program aimed at strengthening domestic demand by increased public investment through the central government and local governments, and contributing to the world through its official development assistance (ODA) and other measures, despite tight fiscal conditions. The government of Japan expects an early approval by the Diet. The recent decision by the Bank of Japan to reduce interest rates is also intended to maintain sustainable growth with price stability.

• Canada's pickup from its recession has been hesitant, but inflation has dropped a great deal. With the decline in inflation and inflation expectations, monetary conditions have eased. Good performance on inflation lays the essential monetary basis for low interest rates promoting sustainable economic recovery. The Canadian authorities will continue to implement their medium-term policy of deficit reduction and spending control, focusing on policies, including training, to improve competitiveness, to boost growth and job prospects and to improve confidence.

• The French authorities will continue to pursue an economic policy geared to monetary stability and to non-inflationary growth, more productive in terms of jobs. The rate of growth has improved since last spring and the inflation rate has declined (3.1S in 1991), control over public expenditure has been maintained without excessive rigor so as to support growth and the fiscal deficit is higher than the initial forecasts for 1992. Reductions in corporation tax, encouragement of advanced technology industries, the strengthening of small and medium-sized enterprises, measures designed to boost firms' equity capital and the development of vocational training and apprenticeships should contribute to growth.

• In the United Kingdom, with underlying inflation continuing to fall, and interest rates down substantially over the past year, the conditions for a resumption of growth have been established. The U.K. Government remains committed to maintaining sterling's parity within the ERM and to moving in due course to the narrow bands; while fiscal policy continues to be set so as to achieve budget balance over the economic cycle. These policies, and the continuing effects of structural reforms, offer the prospect of sustained growth combined with low inflation.

• In Germany, growth is expected to remain solid. Investment promotion measures for Eastern Germany are becoming increasingly visible. The discontinuation of the 7-1/2 percent income tax surcharge in mid-1992 and planned tax relief for families will strengthen private consumption. The introduction of special incentives will stimulate residential construction. To further enhance investment activities, business taxation will be reformed with a first step intended for 1992 and further steps to be decided before the end of the year, To reduce possible effects on the fiscal position and to avoid additional borrowing requirements, other expenditures will be reduced, including spending on defense and subsidies. Continued policies of medium-term fiscal consolidation, together with a deceleration of the strong growth in money supply and credit demand as well as an easing of wage pressures and regaining price stability could create room for lower interest rates.

• In Italy, further reduction of inflation and resumption of sustainable growth are twin objectives of economic policy. To this end the present stance of monetary and exchange rate policy must be kept unchanged. Reduction of the budget deficit remains the cornerstone of fiscal policy. The Government will closely monitor the implementation of 1992 budget and will take corrective actions as soon as needed. Ministers and Governors welcome the determination of the Italian Government to contain wages in the public sector within the limits of the budget law, and to reduce the size of the government in the economy.

11. The Ministers and Governors also reviewed developments in foreign exchange markets. In the context of economic policy coordination, they noted that their efforts in recent years had contributed to more stable currency markets. They agreed to continue to monitor market developments and reaffirmed their commitment to cooperate closely in exchange markets, thus contributing to favorable conditions for stable exchange markets and economic recovery.

12. The Ministers and Governors discussed the situation in the former Soviet Union and the reform measures recently implemented in some of the independent states. They welcomed that the reform process had evolved peacefully while recognising that the transformation of the former Soviet economy would be a difficult and prolonged process. It can only succeed if the independent states of the former Soviet Union cooperate with each other, maintain free trade and create efficient administrative structures. Economic reforms should be formulated and implemented in close cooperation with the IMF. In addition, adherence to the MOU signed in November 1991 between the G7 and 8 Republics, including continued payment of debt service obligations that had not been deferred, would be a precondition for maintaining creditworthiness and for further financial assistance.

13. The Ministers and Governors noted the application for IMF membership by the Baltic States, Russia, Azerbaidzhan, Ukraine, Kazakhstan and Armenia. They requested the IMF to act expeditiously to finalize by the spring meetings the arrangements needed to complete membership procedures for those states with applications under consideration which are able to meet the conditions for membership.

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Source: Canada Department of Finance.