Summits > 1998 Birmingham Summit

G7 Chairman's Statement

Birmingham, 15 May 1998

1. The Heads of State or Government of the G7 countries and the President of the European Commission met today, 15 May, to discuss the world economic and financial situation, and the challenges we face in strengthening the global financial system.

The World Economy

2. We discussed recent developments in our own economies and economic developments in the rest of the world. In our own economies we will work together to achieve sustained non-inflationary growth. Such growth and stability are more important than ever, not only for our own economies, but also for other economies in the world, particularly the recovering economies in Asia.

3. We also agreed that the challenges facing each of our own economies remain different:

the US, Canada and the UK have enjoyed continued strong growth. In these countries the task is to sustain growth while standing ready to prevent any possible resurgence in inflationary pressures and while increasing national savings in the US;

In Germany, France and Italy, economic growth gained momentum last year and is now strengthening further; it is important that it be increasingly supported by domestic demand, which will have a positive effect on employment. Continuing structural reform is also essential to improve the longer term prospects for growth and employment.

We strongly welcome the Japanese Government's substantial economic policy package announced last month and the progress toward implementation to revive confidence and to achieve long-lasting domestic demand-led growth. Japan explained its intention to strengthen the financial system, including by resolving decisively non-performing asset problems, and stressed the importance of promoting structural reforms.

4. We welcome the decisions taken on 2 May on the establishment of European Economic and Monetary Union. We look forward to a successful EMU which contributes to the stability of the international monetary system. The commitment in European Union countries to sound fiscal policies and continuing structural reform is key to the long term success of EMU, and to improving the prospects for growth and employment.

5. We recognise that all countries in the world have an interest in growth and stability in our countries. Equally we have an interest in sustained growth and stability in their economies. While we are encouraged by the progress in implementing sound policies in emerging markets that have been affected by the Asian crisis, events in recent days demonstrate that the situation remains fragile. In particular, we welcome the contribution made to global stability by the pursuit of sound economic and financial policies. Moreover, prompt action by some emerging and transition countries to strengthen their economic policies has helped limit spillover effects. Sound macroeconomic policies, open markets and continued structural reform in all countries are essential for long term stability in the world. Recent experience emphasises the importance also of good public governance.

Strengthening the Global Financial System

6. Globalisation has the power to bring immense economic benefits to all countries and people. But the Asian financial crisis has revealed that there are potential weaknesses and vulnerabilities in the global financial system. In particular we are conscious of the serious human and social consequences of such crises when they occur. We therefore see an urgent need to take steps to strengthen the global financial architecture, to reduce the risks of such crises recurring in future and to produce a system that is more robust to shocks when they occur.

7. Previous summits have also dealt with ways of strengthening the global financial system, and this should be seen as a continuing process of reform. It is essential for individual countries to pursue sound economic policies, open markets and good governance, if stability is to be achieved. At the same time we confirm the central role we see for the International Financial Institutions (IFIs) in promoting these sound policies, in helping to prevent failures in future and in responding when crises occur. Their response has been crucial in addressing recent problems and we must find ways to strengthen their role in the future.

8. We welcome and endorse the report by our Finance Ministers on ways to strengthen the global financial architecture. Of their ideas, we attach particular importance to the following:

increasing transparency:
- encouraging IMF members to provide more accurate and accessible financial data for example by subscribing to its Special Data Dissemination Standards and identifying publicly those who fail to meet the Standards;
- welcoming the adoption of a code of good practice on transparency in fiscal policy and encouraging its promotion and supporting consideration by the IMF of a similar code of good practice for financial and monetary policy.
- encouraging the IMF to publish more information about its members and their policies, including its concerns about members' policy making and vulnerabilities; and also to publish more information about its own decision making.
helping countries throughout the world prepare for global capital flows:
- providing advice on how best to manage orderly capital account liberalisation and assisting them with the required strengthening of domestic policies and institutions.
- urging the IMF to examine how to monitor effectively capital flows, particularly short term flows, to provide information and promote market stability.
strengthening national financial systems:
- encouraging all countries to adopt and implement the Basle Core Principles on Effective Banking Supervision.
- developing international codes and guidelines for corporate governance and accounting principles.
- establishing a system of multilateral surveillance of national financial, supervisory and regulatory systems. Our Finance Ministers will consider ways, and have asked the relevant international institutions to develop proposals on ways to achieve greater co- operation in this area, including options for institutional reform.
ensuring that the private sector takes full responsibility for its own decisions in order to reduce moral hazard:
- developing a framework to ensure that the private sector plays a timely and appropriate role in the resolution of financial crises.
- asking the IMF to signal that in the event of a crisis it will be prepared to consider lending to countries that are in arrears, including in situations where debt standstills have arisen, if the debtor country adopts appropriate adjustment policies.
- encouraging clauses in international bond issues that allow for re-negotiation in the event of default.

9. We ask our Finance Ministers to take forward these ideas in co-operation and discussion with emerging market and other countries, with the International Financial Institutions and the private sector. We also ask our Finance Ministers to consider further how the existing global discussion fora, particularly the IMF's Interim Committee, could be developed to permit a deeper and more effective dialogue. We hope firm proposals on all these issues can be put forward for decision later this year, and we ask our Finance Ministers to report to us on progress without delay.

Ukraine

10. We renewed our resolve to work with Ukraine to implement strong financial and economic reform. We look forward to the Ukrainian government and parliament taking the steps necessary to agree on an Extended Financing Facility with the IMF.

11. We reaffirmed our commitment to the full implementation of the Memorandum of Understanding (MoU) between the G7 and Ukraine. In addition we have made a major effort with the funding of the Shelter Implementation Plan. We note that the funding from the G7 and other international donors envisaged under the MoU is dependent on the closure of Chernobyl taking place on schedule by the year 2000. The safety of Chernobyl Unit 3 is already giving rise to concern.

12. We commend the Ukrainian Government's decision to adopt a Financial Recovery Plan for the energy sector. We look to the Government of Ukraine to implement the fundamental reforms which are needed to make investments in the energy sector and elsewhere financially viable. With the Financial Recovery Plan in place, we look to the EBRD to complete its review of the Khmelnitsky 2 and Rovno 4 (K2/R4) project swiftly and to contribute substantially to a successful loan package, while respecting the Bank's due diligence requirements. This, like the other funding, will of course depend on the Ukrainian Government fulfilling its undertakings under the MoU.

Source: Released at the Birmingham G8 Summit

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