APPENDIX 1

Address by An Taoiseach, Mr. Bertie Ahern TD, to the Plenary Session of the World Summit on Sustainable Development in Johannesburg, South Africa on 3 September 2002.

May I first thank the President and Government of South Africa for their outstanding work in hosting and chairing this major event. What we seek to achieve in Johannesburg is profoundly important to the world community.  What we conclude here does matter and can make a vital difference.  There is an enormous responsibility on all of us to play our part to the fullest both at national and international level.

At the time of Rio ten years ago, there was a serious food crisis in Southern Africa.  A potentially devastating famine in the region was only narrowly averted. Ten years later, southern Africa is, once again, threatened with famine. We are acutely conscious of the depth of human suffering, and the threat of famine, in the immediate neighborhood.  The food security crisis in Southern Africa is a very visible failure of sustainable development. My Government has allocated emergency funding amounting to almost €8m in response to the humanitarian needs of the region.

The present crisis is even more serious, as the countries exposed to severe food shortages are also bearing the brunt of the HIV/AIDS epidemic.  Our commitments must be grounded in the reality that for millions of poor people, particularly in Africa, the fundamental basis for sustainable development - a healthy life, has disappeared. Recurring, serious food crises and the unchecked spread of deadly infectious diseases call into question the progress on sustainable development since Rio.

The threat to the environment continues to grow and economic growth has not been decoupled from environmental degradation. Unsustainable patterns of production and consumption persist in the developed world. An environment that is compromised affects us all - but the poor are most vulnerable and least equipped to adapt to environmental change.

Our Summit should focus on a number of over-riding priorities.  I want to stress the following: 

The Millennium Development Goals must be at the core of our efforts here.  Poverty reduction through sustainable development is what Johannesburg is about. I welcome the Summits focus on poverty eradication. 

We must move forward on the basis of partnership.  Partnership across society in support of sustainable development has been fundamental to Irelands economic and social progress in the 1990s.  Looking outwards, our programme of development assistance is based on genuine partnerships with the developing countries. 

The benefits of globalisation can best be shared through common commitment to sustainable production and consumption.  I therefore strongly support the intended ten-year framework of programmes to accelerate progress in this area. 

• Significantly increased Overseas Development Assistance is essential to meet our goals.  The decline in global ODA in the 1990s is shameful, indefensible and inconsistent with the commitments given at Rio.  I re-iterate Irelands absolute commitment to achieving, by 2007, the UN target of spending 0.7% of GNP on Overseas Development Assistance.  Our aid budget has increased this year by €100 million, more than the value of our entire aid programme a few years ago.   Further significant increases will be provided for over the next few years to enable the UN target to be met, as promised, by 2007. 

We must work hard for a timely and successful outcome to the Doha Development Round of trade negotiations and the creation of a fair world trade order.   We need to deliver on our promises made at Doha.

 We must do more, much more, to alleviate the debt burden on poor, heavily indebted countries.  Ireland supports, in principle, the cancellation of their debts.  We see debt cancellation as an important contribution by donors in support of the New Partnership for Africa’s Development and its commitments to democracy, the rule of law, the fight against corruption and the protection of human rights. 

• We must spend all development resources as effectively as possible.  All official development assistance should be completely untied from national commercial interests.  None of Irelands ODA is tied and this will remain the case as our programme of development assistance expands. 
• I also strongly support increased spending on support for health systems, on research into the diseases of the poor, particularly HIV/AIDS, and on agricultural research aimed at food security, livestock, agro-forestry and water management. 
• We must bring new technologies into development. Ireland will make its expertise in e-government and e-learning available to our developing country partners.   We will also work with the private sector and international agencies to develop standards of best practice in the use of IT in development.

On a national level, Ireland has experienced rapid economic growth from the mid-1990s.  We are working towards a fairer and more inclusive society sharing the gains we have made; and levels of consistent poverty have declined.  We attach high priority to environmental management and protection.  Despite rapid economic development, our economy is now more environmentally efficient than it was ten years ago. We are gearing up to meet our Kyoto commitment and prepare for the tougher action that is necessary to tackle climate change. We remain adamantly opposed to nuclear energy and any expansion of the nuclear industry, which in our view have no role in the pursuit of sustainable development.

10 years ago, Rio provided us with a vision of sustainable development: our task is to realise that vision.

What we need now, and need urgently, is action.   

Johannesburg must initiate the decade of action on sustainable development. We must pick up the pace and act with political vision.   

As I said at the outset, Johannesburg does matter.   

It matters for the many, many millions who are poor and starving. 

It matters for our children and for future generations. 

Let us not fail in this historic task.

  APPENDIX 2

Statement by the Mr. Charlie Mc Creevy TD, Governor of the IMF and the World Bank for Ireland, at the Joint Annual Discussion of the Boards of Governors of the IMF and World Bank, 29 September  2002

1. There is a very great deal to be done to create a more prosperous, secure, and equitable world. Eliminating poverty is, most certainly, the greatest challenge facing Ministers for Finance today. The IMF and the World Bank have a critical role to play in this process. 

2. The focus of the IMF and World Bank is both on macroeconomic stability and poverty reduction. The IMF's core responsibility for macroeconomic stability is not just end in itself, but is essential to creating the basis for sustained growth - growth that has to be shared more widely, raising global prosperity and promoting social development. 

3. The Bretton Woods Institutions can also make a huge contribution to managing globalisation in more positive ways. The anti-globalisation movement is articulate, well organised and motivated. Working in the supposed interests of global democracy, unaccountable and un-elected groups claim unto themselves the right to set the development agenda, on the grounds that globalisation has robbed nations of the power to determine their own destiny.  

4. A lack of historical context is in evidence here. Long before the creation of the Bretton Woods Institutions, all except the largest nations lacked the exclusive power to shape their own future. Market instability, and lack of confidence in the economic and financial system worldwide, was more in evidence between the World Wars than now.

5. Crisis prevention has been at the core of the IMF activity and it has carried out substantial work to strengthen the global economic and financial systems, and to reduce the incidence and the extent of crises. The Bank and the Fund are successes, not failures, despite some popular scepticism.

6. However, we need to do more to get across to the public what we are doing, and what we are going to do in the next few years. In recent years, both the Bank and the Fund have made great progress in increasing the transparency of their own operations. This is most beneficial and I would strongly encourage all Fund members to make their own contribution to transparency by agreeing to the publication of Article IV reports on their economies.

7. In this context, I fully endorse the efforts of the Fund to enhance the effectiveness of its surveillance and would commend its on-going work in streamlining conditionality. I also welcome the progress being made in deepening and widening the collaboration between the Fund and the Bank and would urge both institutions to intensify their endeavours in this area, so that their combined actions result in the maximum benefit to their clients.

8. Our stated aim is to halve the number of people living in extreme poverty by the year 2015. The millennium development goals were agreed by 189 countries at the Millennium Summit in New York, and Johannesburg underlined the need for rapid progress. Over 1 billion people now survive on less than $1 a day. 130 million children—mostly girls—have never seen the inside of a school. Nearly 900 million adults are illiterate. Poverty and desperation create conditions supportive of conflict and division. With the MDGs now set, we have clear, time defined and daunting targets for achieving rapid, measurable improvements.

9.We already know what is effective in reducing poverty, and we know how to identify progress or the lack of it. Above all, we know what not to do, and what does not work. We know too that there are basic conditions that foster successful development. Shared responsibility and political cohesion are pre-conditions for economic prosperity, as are good governance, an impartial and effective legal system, and a well-organized and supervised financial system. Along with democratic values, education and free trade, they are also critical factors in the fight against poverty.

10.As Irish experience shows, foreign direct investment can play vital role in the development process. However, the right domestic conditions are needed to attract FDI. The confidence and trust of international investors has to be built up and earned over a long period of time and should never be taken for granted.

11. It is within the framework I have described that donor assistance can work to maximum effect. The donor community is coming increasingly to realise the importance of supporting countries' own strategies for reducing poverty, by providing what a country needs, rather than what donors prefer to hand out. Here, I would like to note that the EU area is the world’s biggest donor of development aid, providing more than 50 per cent of total international aid flows.

12. The Monterrey Consensus recognized our mutual dependence and addressed the issue of debt. Twenty-six countries have now qualified for debt relief under the HIPC Initiative, and an average of 50% of their debts will be written off.

Our immediate efforts should be devoted to helping those countries still in this HIPC process to help them surmount their debt problems.

13. We are already seeing evidence that the funds freed up through debt relief are being channeled into increased expenditure on social programmes. In this, educating girls may well be the highest return on investment available in the developing world. It leads to reduce infant mortality, improved family health and nutrition and improved economic conditions.

14. I am a strong supporter of the EU efforts to combat the spread of communicable diseases, which are endemic in many of the world’s poorest regions, and more generally, to increase investment in health. AIDS, malaria and tuberculosis are the major diseases to be targeted, as well as more common problems caused by unclean water. In these tasks, we Ireland will endeavour to play our part.

15. My I conclude by a special word of thanks to the meeting organizers. This year, their task has be unusually difficult, with date and venue changes making their life impossible. I hope that, in the success of our deliberations today, we can repay them for their efforts.

Key Outcomes of the World Summit on Sustainable Development  

• The Summit reaffirmed sustainable development as a central element of the international agenda and gave new impetus to global action to fight poverty and protect the environment.
• The understanding of sustainable development was broadened and strengthened as a result of the Summit, particularly the important linkages between poverty, the world environment and the use of natural resources.
• Governments agreed to and reaffirmed a wide range of concrete commitments and targets for action to achieve more effective implementation of sustainable development objectives.
• Energy and sanitation issues were critical elements of the negotiations and outcomes to a greater degree than in previous international meetings on sustainable development.
• Support for the establishment of a world solidarity fund for the eradication of poverty was a positive step forward.
• Africa and NEPAD were identified for special attention and support by the international community to better focus efforts to address the development needs of Africa.
• The views of civil society were given prominence at the Summit in recognition of the key role of civil society in implementing the outcomes and in promoting partnership initiatives. Over 8,000 civil society participants attended the Summit, reinforced by parallel events which included major groups, such as, NGOs, women, indigenous people, youth, farmers, trade unions, business leaders, the scientific and technological community and local authorities as well as Chief Justices from various countries.

The concept of partnerships between governments, business and civil society was given a large boost by the Summit and the Plan of Implementation.  Over 220 partnerships (with US$235 million in resources) were identified in advance of the Summit and around 60 partnerships were announced during the Summit by a variety of countries

Statement by the Honourable Paul Martin
Minister of Finance and Governor of the IMF for Canada
International Monetary and Financial Committee, Washington, D.C., April 20, 2002
The International Monetary and Financial Committee member for the constituency consisting of Antigua and Barbuda, The Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines. 

When we last met in Ottawa in November 2001, in the shadow of September 11th, our discussions were clouded by uncertainty. The global economy was in the midst of a synchronized slowdown and consumer confidence was at an ebb point. Financial markets, which had been hard hit by the terrorist attack, remained fragile. Against this backdrop, there was a pressing need to sustain economic activity and to build an international consensus to choke off the financing of terrorism.

But, thanks in large part to the prompt policy actions of a number of countries, the global economy has rebounded more quickly than many had expected and the international fight against terrorist financing has yielded significant results.

We must remain vigilant on both of these fronts. There are still risks to the global outlook and too many people are trapped in a cycle of poverty and despair. Our task is to work together to identify measures that will further reduce uncertainty and promote sustainable and equitable global economic growth.

In Canada, real GDP growth in the fourth quarter of 2001 was much higher than expected, reflecting the effects of stimulative monetary and fiscal policies and strength in consumer confidence. This, coupled with evidence of an easing in the ongoing inventory correction and the boost to Canadian exports provided by the recovery underway in the U. S. economy, has led private-sector forecasters to revise up their growth projections for Canada. The average private-sector forecast is now about 2½ per cent for 2002 and 3¾ per cent for 2003.

Ireland's pace of expansion slowed significantly last year as global growth faltered. However, the Irish economy remains competitive and resilient and is expected to expand by 3 per cent this year, with continued employment growth, and unemployment remaining in the 4–5 per cent range. The public finances are also expected to remain in small surplus in 2002. Ireland is continuing to focus on building up the country's infrastructure and on ensuring that inflation eases further as key steps to sustaining competitiveness and building the capacity for continued economic progress going forward.

The Caribbean was also affected by the synchronized global economic slowdown and the September 11th tragedy, and indeed some parts of the Caribbean were hit harder than other countries due to the heavy reliance on tourism. Given these difficulties, some countries have engaged in additional commercial borrowing and eased monetary policy, while others began to implement successful home-grown structural adjustment measures.

The rebound in global economic activity since last fall has been reassuring. But we cannot afford the luxury of complacency. The synchronized nature of the slowdown in the world economy in 2001 demonstrated the degree to which our economies are interconnected; a shock in one area of the world can quickly become a global problem. This underscores the need for policy-makers to look beyond their borders to ensure that the impacts of global economic shocks are mitigated.

And, while the risks to the outlook appear to be significantly more balanced than just a few months ago, the downside risks should not be ignored. A larger-than-expected rise in oil prices could impede the global recovery. Continuing large current account deficits and rising net foreign indebtedness in the U.S. remain a concern for the medium-term global outlook. And, the high level of nonperforming loans in Japan's financial sector continues to pose a challenge to its economic outlook.

At this juncture, the challenge for most industrial country central banks is to gauge how quickly to move monetary policy towards a stance that will contain future inflationary pressures without choking off the recovery. Obviously, this is not the problem in Japan, where deflation continues to stymie the prospects for recovery.

The risks for emerging markets and developing countries are more pronounced. Two factors figure prominently. The first is the spectre of trade protectionism, which again looms large only months after the launch of the Doha Development Initiative. We should not lose sight of the fact that the Bretton Woods institutions were created to help all countries share in the benefits of global trade and commerce. And, just as negative shocks radiate out, spilling over national borders, stronger growth in one country provides opportunities for growth and development in others. We simply cannot allow some countries to benefit from the global economy while others remain mired in hopelessness and despair. It is for this reason that our strategy to promote long-term sustainable growth must include a commitment to open markets and the elimination of trade-distorting subsidies.

The second risk facing emerging markets is the threat of financial instability. The immediate impact of the crisis in Argentina on other emerging market economies has been limited. However, more pronounced effects should not be ruled out, particularly if the situation in Argentina deteriorates further. The move to more flexible exchange rate arrangements has already helped make emerging markets more resilient to economic shocks. But, further efforts are required.

Indeed, in times like these, we must take steps to help ensure that the perceived uncertainties associated with global economic integration, such as the risk of financial crises, do not lead countries to shut their doors and turn inward. This would deny both advanced and developing countries the gains in living standards that come from the worldwide flow of goods, services, capital and ideas. That is why we must redouble our efforts to address the weaknesses and distortions in international capital markets that can contribute to financial crises.

Strengthening Crisis Prevention and Resolution

This issue has attracted considerable attention since the last IMFC meeting, stimulated, in large part, by the IMF's welcome proposal for a sovereign debt restructuring mechanism (SDRM). A SDRM would replicate, at the international level, many of the attributes of domestic bankruptcy regimes that help to facilitate timely and orderly debt workouts in our own countries.

We encourage the Fund to continue to work on this important element of the crisis-management framework. A key issue that should be addressed going forward is the priority attached to new private sector money once a debt restructuring has been reached. Here, there may be lessons to learn from debtor-in-possession financing in the context of domestic bankruptcy regimes.

Realistically, however, establishing a formal international bankruptcy mechanism will take time. And, in the meantime, there will not be a moratorium on financial crises. As a result, we need to take complementary steps to strengthen crisis prevention and resolution in the shorter term.

In this regard, we encourage the Fund and its members to make urgent progress on a number of practical issues where there is already a fair degree of international agreement, such as demonstrating greater discipline in adhering to limits on official financing in crisis situations and encouraging the use of innovative clauses, such as collective action and standstill clauses, in sovereign debt instruments.

Ideally, we want to see payments problems resolved through the voluntary restructuring of claims before they become crises. However, it is difficult to get debtors and creditors to the table as long as there is the possibility of more official lending. Credible limits on official financing would provide some much needed clarity to both debtors and creditors on how financial crises will be handled and, hopefully, prompt timely and cooperative solutions to payments problems.

Unfortunately, there will be cases when a voluntary solution is not forthcoming. And, it is for this reason that fostering the widespread adoption of collective action clauses and other covenants that can help promote the orderly resolution of financial crises has been a long-standing Canadian objective. These clauses make it easier to restructure claims -- in effect, better aligning a country's commitments to pay with its ability to pay. Canada has backed up its words with action, introducing collective action clauses in our foreign currency debt. As a result, we welcome recent proposals to facilitate their greater use and encourage the IMF to develop an action plan to catalyze the use of collective action clauses by this year's Annual Meetings.

No country ever seeks to default on its foreign debts. The potential costs are simply too great. But this reluctance to seek a restructuring of debts can lead a country to delay negotiating with its creditors. Too often in the past the result has been disastrous to the country concerned and to its creditors. What is needed is a temporary "breathing space" from debt servicing obligations that allows the debtor to implement needed policy changes to correct the payments problem. Of course, the debtor would also be expected to sit down with its creditors to negotiate in good faith on a sustainable debt-servicing plan. The standstill clause that Canada proposed several years ago would provide this "breathing space".

Recent events have underscored the need for a better framework for the timely, orderly resolution of financial crises. Canada has long advocated the need for such a framework in order to promote efficient international capital markets and limit the economic and social costs of crises. The balance of international opinion has now shifted in favour of the measures that we have proposed—standstills, collective action clauses, and limits on official financing. The time to act has come. Progress on these elements of our crisis prevention and resolution framework would represent an important step towards our goal of reducing the financial, economic and social costs of financial crises.

Of course, the easiest crisis to resolve is the one that does not occur. That is why efforts to prevent crises, through the provision of timely, reliable and understandable economic information and policy advice, are a critical component of our crisis management strategy. We, therefore, welcome recent progress in making IMF surveillance more effective and transparent, including through the Fund's work in developing and assessing internationally accepted codes and standards for sound financial sectors.

Indeed, one of the early lessons from the collapse of Enron is that, in an era of internationally integrated capital markets, we all have an interest in ensuring that financial standards are harmonized to the greatest extent possible against international benchmarks.

In this respect, the Fund should continue to help countries with limited resources and administrative capacities implement key codes and standards through the provision of advice and technical assistance. To help facilitate this important work, Canada is a founding contributor to the joint IMF/World Bank Financial Sector Reform and Strengthening Initiative (FIRST), which will provide technical assistance to help countries address financial sector weaknesses identified in Financial Sector Assessment Programs (FSAPs) and Reports on the Observance of Standards and Codes (ROSCs).

Enhanced Heavily Indebted Poor Countries Initiative

Recent updates from the Bank and the Fund on progress under the HIPC Initiative are frankly worrying. Only five HIPCs have gone through the process and three of these had unsustainable debt burdens shortly after completion or required additional funds to be sustainable. Eight to ten countries that have reached the decision point will need "topping up" to reach sustainable debt levels. We need to better understand why their debt levels are not sustainable.

On the financing side, many non-Paris Club bilateral creditors and commercial creditors are not taking part in the Initiative, meaning that poor countries will not receive all the debt relief they need to make a lasting exit from debt. This is compounded by the large existing gaps in HIPC financing.

Quick action is needed to address these problems.

First, an immediate review of debt sustainability under HIPC should be undertaken to improve our understanding of why debt levels in some HIPCs are not sustainable, including: how much is due to temporary factors that will be reversed; how much is the result of unrealistic export or growth assumptions; how much is the result of bad domestic policies; and how much is due to exogenous factors beyond the control of the HIPCs. In addition to improving our understanding of why results have not been better, it should also include a realistic assessment of all costs. We would call for this review to be completed by the end of the calendar year. It should be repeated every three years.

Second, many HIPCs suffer from a lack of debt management capacity. A comprehensive framework is needed to assist HIPC graduates with ongoing debt management, including an annual review of the status of HIPC debt. Greater technical assistance for debt management should also be provided to help HIPCs better manage their own debt.

Third, greater efforts should be made to bring non-Paris Club bilateral creditors and commercial creditors into the Initiative. We need to examine whether the current strategy of using moral suasion on commercial creditors is working, and if not, what the alternatives are.

Fourth, creditors should make information public on all new lending to HIPCs in order to ensure transparency—they should also respect proposed limits on additional commercial borrowing for HIPCs.

Fifth, we cannot wash our hands of these countries after they get through the HIPC process. If more needs to be done to help these countries be sustainable, then we must follow through to make sure it is done. If this means additional resources, then we must face up to this need.

Let me be clear here. These proposals are made to strengthen the Enhanced HIPC Initiative not to create a HIPC III. What we need now is to ensure that the commitments we made under the current Initiative are met.

Combating Money-Laundering and the Financing of Terrorism

Under Canadian leadership, the G-7 and G-20 have implemented action plans against terrorist financing that call on the international financial institutions to make important contributions to this fight. The Fund has a role to play in ensuring that the financial abuses of money laundering and terrorist financing do not pose a threat to members' domestic financial sectors and the integrity of the international financial system as a whole. To this end, we underline the importance of the IMF's enhanced collaboration with the Financial Action Task Force (FATF) to develop a practical framework for assessing countries compliance with international anti-money laundering and terrorist financing standards.

In November 2001, the IMFC endorsed an action plan formulated by the IMF to intensify its contribution to global efforts to combat money laundering and the financing of terrorism. The IMFC also urged all countries to take the specific measures set out in its communiqué as soon as possible. G-7 Finance Ministers have encouraged the IMF to report on its contribution and on the measures implemented by member countries.

For its part, Canada had already established a financial intelligence unit in July 2000, but has recently: implemented UN Security Council Resolutions related to counter terrorism, including the asset freezing provisions of UNSCR 1373; signed and ratified all UN counter-terrorism agreements except one, which it is taking steps to ratify; and committed to provide technical assistance through the IMF and other channels to help countries fight terrorist financing.

Ireland has an array of laws and the necessary institutions to deal with the financial activities of terrorists and criminals. Ireland is fully committed to the implementation of UNSCR 1373 through action at both national and EU levels and participation in the FATF. Legislation to give effect to the UN International Convention for the Suppression of the Financing of Terrorism is in the course of preparation.

The Caribbean constituency countries fully endorse UNSCR 1373 and are taking steps to comply. Important steps have also been taken to strengthen financial sector regulation and supervision. This includes efforts to operationalise financial intelligence units and the introduction of money laundering legislation. However, the limited capacity of the region underscores the importance of technical assistance in combating money laundering and the financing of terrorism. The IMF's Caribbean Technical Assistance Center (CARTAC) is already engaged in a number of capacity building projects but ongoing technical assistance will be required.

Conclusion

The world economy has just come through a very uncertain period. And, while some of the risks have abated, other risks remain. With our economies increasingly intertwined, we need to realize that self-interest and collective interest are often aligned, requiring close consultation and cooperation to address global economic shocks and structural shifts. I hope that our deliberations today will help us advance the yardsticks in terms of agreeing on the policies needed to promote global stability and prosperity.

APPENDIX 5  

Statement by the Honourable Mr. John Manley,
Minister of Finance of Canada,to the International Monetary and Financial Committee, Washington, D.C., September 28, 2002  

Speaking on behalf of Antigua and Barbuda, The Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines

Since we last met, the prospects for the global economy have clouded somewhat. In April, we were confident that our prompt policy responses to the tragic events of a year ago would contribute to a strong, sustained rebound in global growth. While this remains the most probable outcome, a number of uncertainties have emerged in the intervening months. Economic activity has slowed in a number of major industrial countries. Asset prices have been volatile, reflecting, in part, high-profile corporate financial scandals, heightened geopolitical tensions and rising oil prices. And a number of Latin American countries have experienced financial difficulties, which in the cases of Brazil and Uruguay, led to extraordinary financial support from the Fund.

These developments reinforce the need to sustain efforts to bring about broad-based sustainable growth and continue the work to help safeguard international financial stability. This is, after all, the primary role of the IMF. By promoting financial stability, the Fund has supported the open, dynamic global economy that has been the wellspring of prosperity for millions around the world and the source of hope for millions more. The goal, quite simply, is to bring prosperity to all the world's citizens. The challenge for us here, today, is to ensure that the Fund is equipped to make this promise a reality.

Economic Prospects in the Constituency

The global economy weathered the uncertainty associated with last year's terrorist attacks much better than expected. The Fund staff expects global growth, which slowed to about 2¼ per cent last year, to rebound to about 2¾ per cent this year and strengthen further next year. Against this background, economic performance within the Canadian constituency has varied.

Canada's economy has performed exceptionally well. In the first half of 2002, Canada's economy grew at an average annual rate of more than 5 per cent, coupled with the strongest employment growth in almost a decade. Strong consumer and business confidence is apparent in solid household spending and machinery and equipment investment growth. Canada's strong performance is the result of a commitment to sound public finances and low and stable inflation, which made possible timely tax cuts and interest rate reductions. Since April 2002, robust Canadian growth has led the Bank of Canada to engage in measured reductions in monetary stimulus. Looking forward, Canada's outlook is bright - in fact, the IMF forecasts that Canada will lead the G-7 countries in economic growth in both 2002 and 2003. 

After the very rapid expansion of the period 1995–2000, the Irish economy has managed a soft landing, with growth slowing to the 3-per-cent range this year. However, wage and price behaviour, which has not yet adjusted to the changed conjuncture, remains a concern. There has also been a sharp erosion of the former substantial budget surplus. Following the recent election, the government is taking decisive steps to address these issues. On this basis, when recovery in the global economy takes hold, Ireland looks forward to reaching an annual growth rate of 4 to 5 per cent in the medium term.

Growth in the Caribbean, meanwhile, remains subdued, as these open economies continue to grapple with a decline in travel and the slowdown in the global economy. Public finances have generally worsened as weak economic activity reduced revenue and strained social programs. In response, Caribbean governments are intensifying economic reforms and consolidating budgets to improve their international competitiveness and build the basis for renewed expansion. However, since these economies are inextricably linked to the global economy, they will likely face modest growth prospects if current global trends continue.

Risks to the Outlook and the Policy Challenges

Although the global recovery is expected to continue, concerns have emerged about the strength and durability of the expansion, and projections for growth next year in the industrial countries, especially in the U.S. and in the euro area, have been revised down. This reflects a number of factors. In particular, the collapse of major U.S. companies, notably WorldCom and Enron, amid accounting irregularities has adversely affected investor and consumer confidence and contributed to a sharp weakening in stock prices that will ultimately affect private spending decisions. There have also been some sharp shifts in currency markets, with the U.S. dollar falling against a range of currencies. While a weakening in the U.S. dollar is not unexpected, abrupt movements in currencies do pose challenges for economies through their impact on trade flows.

Corporate scandals may have also reduced investor appetite for risk across a wide range of assets, including emerging market debt. In this respect, the outlook for the global economy has been further clouded by financial crises in Latin America. The situation in Argentina, which has been in crisis for some time, continues to be critical. Other economies in the region have also had to seek IMF assistance, in particular, Brazil, Paraguay and Uruguay. While Argentina's crisis has had some impact on economies in the region, for the most part the root of the economic problems are domestic.

Sound Policy Frameworks and Effective Corporate Governance

These developments make it all the more important for increased vigilance by policy makers in all Fund members. In the industrial economies, the stance of central banks is broadly appropriate, but they must continue to carefully monitor the strength of their domestic economies. On the fiscal front, automatic fiscal stabilizers should be allowed to operate, although some economies may find that room for fiscal easing is limited.

Sound monetary and fiscal policy frameworks will help reduce uncertainty and bolster confidence. But they are not enough. Effective governance arrangements that allow markets to assess, weigh and evaluate risks are also required. Indeed, they are an essential part of a well-functioning market economy.

For all economies, recent corporate scandals point to the necessity of conducting comprehensive reviews of systems of corporate governance and financial disclosure. In Canada, federal and provincial regulators, accounting standard bodies and industry are taking steps to bolster investor confidence. For instance, federal and provincial regulators and Canada's chartered accountants announced in July the creation of a new auditor oversight body to improve the quality and integrity of public company audits. Canada's accounting standards body is working to address the accounting issues raised by recent corporate scandals. A number of initiatives to review corporate governance practices are underway in Canada. As in other countries, strengthening investor trust and market integrity will require actions from a wide range of capital market participants.

Strengthening Crisis Prevention and Crisis Management

For emerging and developing economies, recent events are another stern reminder of the need for strong policy frameworks based on sound monetary policy, strengthened financial sector supervision and regulation, and the adoption of prudent public debt and fiscal management. The Fund has an important role to play in assisting its members through technical assistance and its surveillance function; important progress has already been achieved as a result of the joint Fund/World Bank work on Reports on the Observance of Standards and Codes (ROSCs) and the Financial Sector Assessment Program (FSAP). But, as recent crises demonstrate, more work needs to be done. Of especial importance is the need to identify and avoid currency mismatches. Another key challenge is promoting good governance--here, again, creating the institutions that allow markets to accurately assess risks. In this respect, we believe the Fund and the Bank should explore how best to help countries systematically identify weak governance and design standards so that progress can be effectively measured.

The Fund's surveillance role is critical, as it can identify emerging problems and policy imbalances before they become crises. After all, the easiest crisis to resolve is the one that doesn't happen. We will work with all Fund members to further enhance the Fund's ability to play an important role in crisis prevention, and we invite the Fund staff to prepare options for strengthened surveillance procedures that we can review at the spring meetings. But we have to recognize that financial crises will occur despite our best efforts at prevention. And, for the Fund to play an effective role in promoting financial stability in an evolving international financial environment, it has to be equipped with the appropriate set of tools to resolve international financial crises. International financial stability benefits all Fund members--and all should work to promote it. This, too, is an important part of the governance challenge. And, while important steps have already been taken since the last IMFC meeting, more work needs to be done.

Our efforts are based on a comprehensive approach comprising three elements. The first is the contractual approach to crisis management, involving the development and adoption of new contingency clauses in sovereign debt contracts. These would spell out, as precisely as possible, the process and procedures by which outstanding sovereign debt would be restructured were borrowers to find themselves unable to service their obligations. Private sector legal experts, working with the official sector, have helped to identify model clauses that could be widely adopted by emerging market borrowers. And, following the lead of Canada and the U.K., all of the members of the European Union have agreed to incorporate collective action clauses in their foreign bond issues. These are encouraging developments. But we shouldn't be under any illusions that simply agreeing on these clauses will by itself improve crisis management. Borrowers must incorporate them in their debt instruments if they are to have any effect. The evidence is mounting that it is in their interest to do so.

The second element of our strategy for improving crisis resolution is the ongoing work by the IMF staff to design a sovereign debt restructuring mechanism (SDRM). The goal here isn't to impose a Fund-sanctioned "solution" on private lenders—far from it. Rather, the purpose of the SDRM is to complement the contractual approach with an investor-driven framework to deal with the myriad of private sector claims that do not have contingency clauses. In the absence of such a framework, private creditors will be reluctant to participate in timely restructurings, which can actually preserve the value of their claims, fearing that their "contribution" to a sustainable solution will not be matched by other creditors, who refuse to participate in a concerted restructuring in the hope of extracting higher payments. In this respect, the development of an effective SDRM will protect private creditors and promote emerging market debt as an asset class by ensuring comparability of treatment and inter-creditor equity in debt restructurings. The statutory approach, however, is an ambitious and challenging undertaking that will take time to develop. For this reason, we welcome the Fund staff's work to date and the discussion by the Board of it, and we encourage the staff to continue this important effort.

The third element in our efforts to strengthen crisis management is greater discipline in adhering to presumptive limits on official financing. This simply reflects the fact that private creditors will be unwilling to--indeed, need not--participate in a comprehensive restructuring if there is an expectation of exceptional access in IMF programs. There is broad agreement on this point. There is, frankly, less agreement on how best to ensure adherence to presumptive limits. This is an issue on which more work is required. It is clear, however, that exceptional access should only be forthcoming where it can be demonstrated that it would be consistent with a rigorous debt sustainability analysis.

Spreading Prosperity for All Through Sustained Growth, Debt Relief and Trade

The Fund's ability to promote international financial stability is key to our collective goal of ensuring that the global economy works for all. But the Fund also plays a central role in providing advice on how best developing countries can achieve the balanced growth that is the surest, most effective engine of sustained development. And, the Fund has helped to spread global prosperity through its participation in the Heavily Indebted Poor Countries (HIPC) Initiative for poorer countries to escape crippling debt burdens. Its long-term success requires actions to keep the initiative on track, including securing the involvement of all creditors and ensuring full funding of the HIPC Trust Fund. The framework also needs to be implemented flexibly as some countries may require additional assistance when they complete the process. Looking ahead, we need to think beyond debt relief. We need to acknowledge that the real driver of debt sustainability is a strong policy environment conducive to growth. The HIPC Initiative only provides an opportunity that countries themselves must seize to address underlying governance problems.

Along with the development of domestic capital markets that promote investment and savings, trade is—and must be—a major contributor to sustainable growth for least developed and emerging markets alike. Improved market access for developing countries must be our goal. As the Fund staff and others have pointed out time and again, the potential benefits to developing countries of improved access simply overwhelm current levels of direct development assistance.

Of course, the IMF is not a negotiating forum and, with the Doha Development Agenda now engaged, the Fund should not take on issues for which our respective trade negotiators are responsible. On the other hand, a review of that Development Agenda shows clearly that many of the concerns surrounding further trade liberalization raise issues well beyond the competence of trade negotiators to address. There is, for example, an obvious relationship between tariff revenue and other tax administration. The small states in my constituency are rightly concerned that lost tariff revenue could impact on budgetary planning, macroeconomic frameworks and even social safety nets. Over 80 different such issues of "implementation," as it is called in Geneva, have been raised.

The most valuable contribution that the Fund can make, along with the World Bank, is to provide honest, high-quality analysis of those implementation issues that raise questions where fiscal and monetary policy, or the macroeconomic framework, are called into question. This would provide information to better inform the negotiators, and likely would highlight those areas where sequencing of liberalization, capacity building or technical assistance may be required. Timely work by the Fund, hopefully well-coordinated with the Bank, could help to ensure success at a key World Trade Organization General Council meeting in December, and ultimately at the Ministerial Conference next year in Cancún. 

Combating Money Laundering and the Financing of Terrorism

The use of the international financial system for money laundering and the financing of terrorism are two new challenges facing the international community. Canada attaches a high priority to the Fund's role in ensuring that such financial abuses do not threaten members' domestic sectors and the international financial system.

In addition, we welcome the recent agreement to conditionally add recommendations developed by the Financial Action Task Force to combat money laundering and the financing of terrorism to the Fund's and World Bank's financial sector assessment framework. The 12-month pilot project of anti-money laundering and terrorist financing assessments and accompanying ROSCs that will be undertaken by the Fund and other bodies will contribute to the further development of an effective framework in this area.

Conclusion

The Fund has had to evolve over the past 50 years in response to the evolution of the global economy and its changing membership. Throughout this process, the goal has been to deliver on the vision that guided its creation--a stable, growing global economy that creates prosperity and provides opportunities for all the world's citizens. That remains the challenge. But, as we have seen, the Fund is vulnerable to the criticism that its recommendations and policy advice are inappropriate, with adverse consequences to those it is designed to assist. All of this underscores the importance of the Independent Evaluation Office, which Canada championed at the Fund. The creation of this group, together with the efforts to increase the transparency of the Fund, demonstrates our commitment to ensuring that the Fund remains an effective instrument in promoting the goal of prosperity of all.

  APPENDIX 6

IMF Concludes 2002 Article IV Consultation with Ireland Public Information Notice (PIN) No. 02/83 International Monetary Fund August 7 2002 - Washington DC 20431 USA

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The Staff Report for the 2002 Article IV Consultation with Ireland is also available.

On July 31, 2002, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ireland. [1] 

Background

Sound economic policies and favorable circumstances supported Ireland’s sustained economic expansion over the last decade. Real GDP growth averaged above 7 percent in 1991–2001 reflecting: robust external demand; strong labor supply growth based on a young, educated population and rising female labor force participation; membership in EU and, subsequently, EMU; substantial foreign direct investment, attracted by policies such as a favorable business tax regime and wage moderation; and substantial fiscal consolidation. Unemployment plummeted and per-capita income rose above the EU average. High growth and fiscal consolidation brought the public debt ratio down to 36½ percent of GDP by end-2001.  

GDP growth declined in 2001 to almost 6 percent from 11½ percent the year before, reflecting the global slowdown and the Information and Communications Technologies (ICT) shock as well as foot-and-mouth disease-related restrictions. However, the current account remained broadly stable and unemployment only edged up to 4.2 percent (on a claimant count basis) by May 2002. Moreover, after a sharp decline in the third quarter of 2001, output rose again in the fourth quarter. Other—as yet uneven—signs of a recovery have been evident in recent months, including rising manufacturing output, retail sales (excluding automobiles), and consumer and business confidence. The economic slowdown contributed to a reduction in inflation in 2001 and house prices fell for five consecutive months during September-January. However, inflation spiked up again in early 2002, mainly due to indirect tax increases, and house prices rebounded. 

The outturn for the general government balance in 2001 of a small surplus (corresponding to broad structural balance) was significantly weaker than budgeted, in marked contrast to previous years. Cyclical effects on revenue of the growth slowdown and temporary factors, such as animal diseases and September 11, contributed to the deterioration as did expenditure overruns and unexpectedly strong revenue effects from past income tax cuts. The resulting fiscal expansion in 2001 is estimated at some 2.2 percent of GDP. The path for medium-term structural balances was also shifted down sharply in the 2002 Stability Programme to a deficit of some 1 percent of GDP in 2003-04 from a surplus of about 4 percent of GDP in 2003 in the previous Programme. This deterioration reflected both higher expenditure growth and lower structural revenues. 

The Fund’s outlook is for GDP to rise by 3.2 percent in 2002, supported by steady growth in private consumption. Exports are projected to accelerate by mid-year, although the recovery in private investment would take somewhat longer. Given negative short-term real interest rates, monetary conditions are expected to remain easy, even if the ECB tightens monetary policy or the euro appreciates moderately. Nevertheless, price and wage inflation are expected to ease somewhat this year due to ebbing demand pressures. Following a rebound in the latter part of 2002 and 2003, output growth over the medium term is projected to trend down as labor force growth slows reflecting demographics and already low unemployment, and as  labor productivity declines with income convergence and the return of foreign direct investment to more normal levels after the bursting of the ICT bubble.

Directors commended the authorities for Ireland’s impressive economic performance, reflected in sustained gains in income and employment over the last decade, and rooted in sound economic policies, a skilled workforce and flexible labor market, and an investor-friendly environment. They observed that the economy appears to have weathered the global slowdown relatively well—partly due to the combination of a weak euro, supportive macroeconomic policies, and a high level of resource utilization prior to the shock.

Directors noted that, notwithstanding the weakness in the domestic technology sector, the economic outlook is broadly favorable, with growth expected to pick up in the second half of 2002, in line with a recovery in world demand. However, they cautioned that there are significant downside risks to the global recovery, and that the continued appreciation of the euro combined with relatively high inflation and labor costs could adversely affect Ireland’s competitiveness—particularly in the traditional employment-intensive industries—and the strength of the recovery. These factors could also pose a risk—albeit likely a manageable one—to the financial sector.

Directors expressed concern about the sharp deterioration in the structural fiscal balance in 2001, and the indicators that pointed to an expansionary fiscal stance in 2002, after adjusting for one-time measures and given the risk of revenue underperformance. Directors would have preferred a neutral fiscal stance, that is, an unchanged structural fiscal balance, in 2002, particularly against the background of the easy monetary conditions, but agreed that measures to unwind the stimulus are not advisable at this time in view of the uncertainty of the recovery and the still-sound fiscal position. However, they stressed that public expenditure, particularly wages, should be held to budgeted levels, and that fiscal policy should, at a minimum, be neutral in 2003.

Directors expressed concern over the marked deterioration in the medium-term fiscal outlook, which, unless checked, could risk Ireland’s growth prospects. They recommended that the general government position be in structural balance over the medium-term, compared with the projected deficits of about 1 percent of GDP. Such a policy would help sustain investor confidence and provide a margin against possible lower structural revenues or higher fiscal costs. Moreover, in the event of adverse shocks, it would permit the full operation of the automatic stabilizers without breaching the 3 percent deficit limit of the Stability and Growth Pact.

In the discussion on measures to achieve structural balance, Directors—while welcoming the authorities’ efforts to develop multi-year departmental spending envelopes—considered that a formal medium-term fiscal framework would serve to improve policy predictability. Such a framework could include an overall fiscal constraint, multi-year spending limits, and safeguards to protect capital spending from budget pressures. In this connection, Directors cautioned against rapidly increasing public spending, and recommended that rigorous value for money criteria, with clearly defined, monitorable outputs, be applied to all spending programs. They welcomed the use of Public Private Partnerships and encouraged further private sector involvement in the provision of public services. Directors emphasized that greater fiscal transparency will be key for the success of a medium-term framework, and some suggested that the authorities undertake a fiscal Report on Standards and Codes.

In considering policies on the revenue side, and, in particular, should a case emerge for additional spending, Directors noted that it would be necessary to find efficient sources of additional tax revenue. There was broad agreement that measures to widen the tax base are preferable to increasing tax rates, and that there is greater scope for user fees. Targeted transfers could offset any adverse effects of these measures on the poor. Directors cautioned against excessive increases in marginal taxes on labor, given possible adverse effects on labor supply and competitiveness.

Directors underscored the risks to the medium-term fiscal position as well as to competitiveness from public sector wage pressures. They urged a cautious approach in phasing in the pay increases agreed under the recent benchmarking agreement and many Directors suggested that any future national wage agreement be divorced from reliance on fiscal concessions—noting that negotiating expenditure commitments could run counter to needed improvements in public expenditure management. Directors noted that continued dialogue among the social partners could be helpful for maintaining social consensus and establishing wage norms, but underscored that wages should be permitted to reflect market forces, including on the downside and across skill categories.

Directors agreed that strengthening competition through regulatory reform and privatization is key to securing high growth over the medium term. They welcomed the strengthening of the Competition Authority and emphasized the importance of further efforts to liberalize regulatory restrictions, limit the influence of vested interests, and reduce anti-competitive practices, including in the professions and the public services.

Directors noted that the capitalization of the banking system appears to provide an adequate cushion against possible risks to asset quality. Nevertheless, they emphasized that supervisory authorities should ensure that capital and provisions remain adequate in the event of a deterioration in unemployment, company finances, or property prices. Close monitoring of systemic risks and the speedy unification of financial sector regulation will also be important. In addition, Directors encouraged the new, single regulatory authority—when it is established—to give priority to strengthening insurance supervision.

Directors commended the progress made in the provision of statistics. They suggested that the priority should now be to further improve the timeliness and coverage of certain data, particularly on earnings, national accounts, and sectoral balance sheets. Directors welcomed the steps being taken by Ireland to curb money laundering and combat the financing of terrorism.

Directors welcomed the increase in the allocation for official development assistance and the authorities’ commitment to achieve the UN target of 0.7% of GNP by 2007. Table on next page.