CHANCELLOR OF THE EXCHEQUER:

This year we have both a new summit format and a new set of proposals to bring you. Finance Ministers and Foreign Ministers are meeting in advance of the Heads of State and Government both to discuss the agenda we have as Finance Ministers and to prepare the ground for the Heads of State and Government and this is a new focused approach to the summit that has been initiated in our UK Presidency and in particular a Paper that has been agreed yesterday by the Finance Ministers on the new international financial architecture will be sent to the Heads of Government and will be published next weekend.

G7 Finance Ministers yesterday discussed a wide range of issues and today our discussions will continue as the G8. We will be joining our Foreign Minister colleagues for lunch and before lunch and I look forward to reporting to you on these joint discussions this afternoon.

We are at a significant moment in the development of the world economy. Recent events in Asia continue to dominate the economic debate, they underline the interdependence of the global financial system and the need for all countries and of course the G7 countries to act together to restore economic stability and develop economic prosperity so we began our discussions yesterday afternoon with a review of world economic and financial development.

Since we last met with Central Bank Governors in April, the key news of course was the recently-announced package by the Japanese Government. We welcomed this package, we had a full discussion on the details of it, we noted the commitment to the rapid and full implementation of the measures and that this is crucial to boost domestic demand and restore confidence in the Japanese economy and we noted that there would be further progress in strengthening the financial system necessary to establish the soundest possible basis for sustainable growth.

We noted also the key event of last weekend, the decisions that were made on economic and monetary union, and every country looked forward to a successful monetary union which would contribute to the stability of the international monetary system.

But events over the last few months in Asia have made us question whether the international rules and institutions we have and which have served us after being created in quite different circumstances over the past 50 years can now be said to be the most appropriate rules and procedures for the new world of global financial markets.

At the G7 Finance Ministers Meeting in February, I launched what we called 'The Birmingham Process', a wide and considered debate on what lessons we as Finance Ministers can learn from the Asian crisis and we have discussed recommendations and proposals not only amongst the G7 Finance Ministers but with the emerging market economy at the IMF World Bank spring meetings in Washington. We have had meetings with the private sector, a conference that we held in London with them and of course in the last few days I have had the chance to visit Asia and to meet Asian leaders, not only political leaders but leaders in business, leaders in trade unions and leaders in the voluntary sectors trying to deal with some of the problems of poverty and unemployment.

It is clear - and this is what was being discussed yesterday afternoon - that we will need new international rules of the game. Monetary, fiscal and economic stability will require in future a clarity of objectives set by national government, orderly consistent procedures that are pursued and can be scrutinised and openness and transparency in both objectives and procedures to ensure consistency and credibility and thus confidence in economic policies and I believe that openness is now the watchword for change in economic policy so the G7 yesterday supported the principle of new codes.

We have already, through the IMF, established a code of fiscal transparency under which both information and procedures for making decisions on fiscal policy would be openly published and national governments of course would be judged to the extent to which they observed them.

Yesterday, we have supported also the proposal that will now be discussed in detail by the International Monetary Fund, a code of monetary and financial policy under which, for example, usable Central Bank reserves would become known and under which far fuller information than previously was given about financial transactions would be available. There is a new development as well: we were discussing yesterday also corporate behaviour, principles for auditing, for accounting, for disclosure in the corporate sector and standards of corporate government leading to what you might consider to be a third code, a code of corporate behaviour.

With these codes and internationally agreed standards under which national governments can be scrutinised for their performance, countries can be openly tested against their capacity to meet these codes and this openness which provide benchmarks for assessing policy and will therefore lead to proper scrutiny. Openness, by revealing economic and financial problems earlier than would otherwise be known, could avoid the worst of crises that we have seen over recent months. Openness will of course expose and limit corruption and I believe these radical and path-breaking changes would give us not only new operational rules of the game for the new international order but also greater stability in the world economy.

What we have decided in our recommendations to the Heads of Government and State for next weekend is that we not only support the code for fiscal transparency but we support a code of monetary and financial policy and we will now discuss with the relevant organisations principles for auditing, accounting, disclosure in the corporate sector and standards of corporate government, in other words effectively a third code for corporate behaviour.

The second Conclusion - the new financial architecture for a new era that will complement these rules.

We are now in a world dominated by private banking and financial flows. The scale of private flows in the new global economy emphasises the importance of ensuring that the private sector takes lending decisions on the basis of careful risk assessment and we wanted to emphasise that yesterday but we also wanted to improve co-operation between the international financial institutions to maximise global expertise and you will see from the Conclusions that we are considering ways and have asked the international institutions to develop proposals on ways in which greater co-operation can be achieved, including options for institutional reform.

I said last month in Washington that I am keen to develop the idea of a new joint department at the IMF and World Bank to deal with these major financial-sector issues in member countries and to maximise international expertise. We agreed yesterday that we would consider further and we would ask the relevant international organisations to consider further ways in which greater co-operation between them can be achieved, including these options for the institutional reform I have talked about.

In this new world, it is quite obvious there will be a need for this closer co-operation between the IMF that is responsible for surveillance, the World Bank that is responsible for structural reform in the financial system and the Bank of International Settlements which has been responsible for the provision of supervision and of course for the regulatory authorities.

We also discussed yesterday the social consequences arising from the Asian financial problems. First, over these last few months we saw the financial turmoil, then we saw the reaction of the financial institutions. In recent weeks, we have seen the agreements on the IMF programmes. We are now, however, seeing the fourth stage, the social problems that have arisen from the financial difficulties becoming every day more manifest in the Asian countries that have been most affected and poverty and unemployment are moving to the top of the agenda and we are concerned that help is available to deal with high levels of unemployment, particularly in the countries that I mentioned earlier.

We heard that there will be new World Bank projects and therefore investments in Asia from this month, that the IMF programmes will contain social elements that will help to alleviate the worst of the difficulties that the countries face. The new Asian Trust Fund which has been set up at the World Bank will now look at anti-poverty measures and at how financial and other expertise can be available for building social security systems. We are all agreed that more must be done and in particular at this time of unrest I believe that the world will be watching Indonesia and I believe, as a result of my visit, that more must be done on the social consequences of the financial turmoil.

We discussed also - and will continue today to discuss - the issues of debt relief. Asia's problems can be solved in a few years. Without new and concerted action, Africa's crisis will continue so today we will be considering measures that might speed-up the debt relief process, including measures in post-conflict countries and my aim is that every country, every highly-indebted poor country, is in the debt process by 2000.

You will have before you a copy of the G7 Report on Financial Stability, that is the supervision of global financial institutions. Given the UK's past experience with BCCI and Barings, we have been a longstanding advocate of improving the co-operation between the supervisors of internationally-active financial institutions and recent events in Asia have once again highlighted this need and emphasised the urgency.

We have made a great deal of progress over the last year since Denver: a group of financial experts from the G7 countries - a group which the UK has been chairing - has been looking at ways of improving information exchange between supervisors and I strongly endorse the ten key principles they have developed and are being announced today. We will now be promoting them throughout the world as standards to which every country should aspire and I welcome the work of the international regulatory bodies in these area.

Financial crime: Next week in Birmingham, Heads of Government will also be discussing wide aspects of international crime and yesterday we discussed and agreed recommendations on one aspect of that - financial crime. We discussed how we can secure better international co-operation between financial regulators and law-enforcement authorities.

Financial crime is one of the major challenges of our time, we can only successfully combat it if we work together, there are gaps in the system at the moment. We agreed we would review our national laws and systems by October of this year to see whether concrete improvements can be made.

It is essential that there is also effective action against the laundering of the proceeds of crime so we welcome the decision of the Financial Action Task Force on Money Laundering to continue its work; it has achieved much since its creation by the G7 in developing action against money laundering but as the organisation itself acknowledges, there is a great deal more to be done and we must mobilise countries outside its membership to join the fight against money laundering and we therefore fully support its intention to build a worldwide anti-money-laundering network and I am pleased that is one of the Conclusions we can announce today.

There is one other statement on tax competition and we have agreed a new initiative in this area. We want to tackle the preferential tax regimes and obtain more information from tax havens and this will complement the European Union Code of Conduct on Business Taxation. The agreement, the details of which are published today, represents a major breakthrough in terms of tackling the growing problems caused by harmful tax competition and by avoidance and evasion and this reinforces the work of other international organisations in the area. We are determined, therefore, to put in place strong and practical measures to tackle the growing threat of international tax crime and tax evasion through the use of tax havens and preferential tax regimes and, as everybody here knows, the globalisation of business makes this an increasingly pressing issue. The initiative we are taking paves the way for co-ordinated international action to allow information to be passed to tax authorities so that honest citizens and businesses do not have to pay the price of the activities of tax fraudsters. We are committed, therefore, to building the practical co-operation at every level to counter tax evasion in the modern world.

Later this morning, we will be discussing employment issues with our Russian colleagues in G8, we will be discussing developments on debt issues and I hope to be able to report more this afternoon. At lunch, we will be discussing the economic, social and political implications of the Asia crisis and we will be joined by the heads of the three organisations - the World Trade Organisation, IMF and the World Bank - and I will report back on that when we have our press conference this afternoon but I hope you will agree that the changes that we are recommending, particularly with new codes of practice for greater openness in the world economy, represent a substantial body of work that will now be passed to the Birmingham summit for Heads of Government.

QUESTION:

Can you say whether you think the new codes you are proposing would have actually prevented the Asian crisis from developing or whether it would have happened in any event?

CHANCELLOR OF THE EXCHEQUER:

The new codes will first of all be the best anti-corruption measure that has been introduced in relation to public funds. Secondly, the new codes would allow a situation where, in advance of what appeared to be excessive market corrections as a result of a crisis that developed, got worse and was not dealt with until it was too late, the information on which market decisions are based would have been available and therefore we would have educated markets.

By providing international yardsticks against which the performance of economies and the promises that are made by politicians can be judged, you provide therefore the scope for earlier intervention to tackle problems, you remove an incentive that is still there in many countries for people to hide the extent of their problems and, of course by extending this as we are discussing now, from governments to the corporate sector with what is effectively a code on corporate behaviour, this is a very radical and far-reaching set of proposals indeed.

In the modern world, it seems to me that global financial flows will move to those countries that can demonstrate not only that they have taken measures that will ensure stability in their economies but that they can show that they have procedures against which their promises and their rhetoric can be judged and that is why the openness in the dissemination of information about economic performance but also the openness in the establishment of procedures that allow for regular publication of information and for people to judge whether policy outcomes can be achieved on the basis of promises, is a very important development indeed.

When I was in Asia in the last few days, the watchword there was 'transparency and openness' and these countries recognise that information that had hitherto been disguised from the markets could no longer be so and I think as the pressure for openness extends from governments to the corporate sector as well, where of course we have had numerous examples of crises that have been caused because information has been disguised and never properly exposed, then we will see big progress indeed and therefore I am confident that the three codes which will in the end arise from the discussions that the IMF and others have been having that were initially at the instigation of the United Kingdom, will make a big difference in establishing greater procedures for stability in the modern world.

QUESTION:

The new codes, is it going to be left to the IMF and the World Bank or are we going to see the setting up of new institutions to supervise and implement these three codes providing they cover wide areas and functions of government, public sector and private sector?

CHANCELLOR OF THE EXCHEQUER:

The International Monetary Fund will publish the details obviously of the fiscal and also the monetary and financial codes; they are looking at the second group at the moment. This will be the yardstick that they will use and of course my recommendation would be - and this is something that we will have to look at at a later date - that in the country assessments that are done by the IMF, they draw attention to the extent to which these codes are being observed so they will increasingly become an international yardstick to judge the behaviour of governments in the attainment of stability and in meeting the objectives that they have set down.

As far as the code of corporate behaviour is concerned, work is being done in all the areas I mentioned - auditing, accounting, standards of corporate governance - work is actually being done now through the OECD. We noted that this work is being done, welcomed the fact that it is happening and of course we will be able to look at its results but initially the two codes on monetary information and policy and the codes on fiscal transparency will be issued through the International Monetary Fund and these will be yardsticks which they will use - in my view should use - to assess the performance of governments. But of course, the codes have got to be agreed by the member states and it is fortunate that there is support in principle for the code of fiscal transparency. There is now, in my view, support also for a code on monetary and financial policy and these are very important breakthroughs which give us the chance to make openness, transparency and accountability in economic policy essential elements of the new international order.

I believe that what we are doing is establishing new international and operational rules of the game which in my view will serve us better than past procedures have done and they represent, in my view, the right response to what is essentially a shift from relatively closed national economies, which were the basis on which the IMF and the World Bank were set up in the 1940s, to a new world of global financial markets where the premium for stability is on openness and therefore the ability to scrutinise both objectives and procedures against performance.

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