FROM THE OFFICE OF PUBLIC AFFAIRS

When we met last October, the global economy and financial markets were in the midst of an acutely unsettled period. Since then, there have been a number of positive developments. However, serious challenges remain, and I believe that the balance of risks for the global economy remain on the downside. Promoting growth, strengthening the international financial architecture, enhancing our programs for the poorest countries and addressing the needs of countries ravaged by crisis all these subjects deserve our careful consideration today. We must strive undeterred to achieve our goals of stable and sustained growth, safeguards against disruptive crises, effective management of crises when they do occur, and provisions that address the needs of all people so that they are better positioned both to enjoy the benefits of, and make their own contributions to, the free market system.

Developments in the World Economy and Policy Response to Recent Crises

We meet today against the backdrop of initial signs of strengthening market confidence. The growth outcome for 1998 was better than many expected last October, and the prospects for many economies in Asia are improving. At the same time, expectations for growth in some other parts of the world have softened. It is clear that problems persist, including in the industrial world. Indeed, the modest growth expected this year the lowest since 1991 serves as an important reminder of the need for decisive action to promote growth.

Industrial countries must meet this challenge. It is our responsibility to help create an environment in which sound policies bring rewards most importantly the potential for renewed expansion.

The United States has borne the bulk of the burden of global current account adjustment in response to the Asia crisis and subsequent emerging market turmoil in 1996-1998. Japan's current account surplus has increased over this period, while Europe's has remained relatively

stable. This situation cannot continue indefinitely. Japan and Europe must boost domestic demand-led growth.

In Europe, we have witnessed in recent months the advent of the new common currency, the euro. The United States continues to believe that a successful euro that brings a new dynamism to the European economy is very much in the world's interest. Yet the prospect for such a result in the long-term is not enough. Expectations for medium-term growth in Europe have deteriorated in recent months. It is important that Europe redouble its efforts to increase domestic demand and make a significant contribution to recovery worldwide. Structural reforms will be particularly important in providing the right set of incentives for investment and job creation.

In Japan, we welcome the evolution in policy to address critical problems. Nevertheless, the outlook for growth in Japan and the signs of deflationary pressure remain a source of concern. It will be important that Japan use all macroeconomic policy tools to restore sustainable, demand-led growth and that stimulus be maintained until the economy is solidly on track. In addition, momentum must be maintained on bank restructuring. And structural reforms will also be critical if growth is to be sustained in the medium term. This is important for Japan itself and it is critical to lasting recovery in other Asian economies and throughout the world.

The pursuit of policies to promote more balanced growth in key economies is the most important and appropriate step to take to help avoid excess volatility and significant misalignments in exchange markets. These issues will be an important focus of ongoing G-7 discussions. Meanwhile, the G-7 will continue its practice of monitoring developments in exchange markets and cooperating as appropriate.

Maintaining open markets is another key component of efforts to sustain growth and stability in the global economy. The United States attaches a high priority to further trade liberalization and market transparency and strongly supports the launch of a new round of trade negotiations in November with a balanced agenda of interest to all WTO member countries and their citizens.

The stakes of sustaining open, growing, market-oriented economies are higher than ever before. The risks of abdicating responsibility for sound policies are more severe, since globalization and interdependence mean that mistakes can easily spill over and affect neighbors and the rest of the world. The rewards of pursuing sound policies are also significant. Indeed, it is remarkable, following the recent crises, to see how the countries that reacted most quickly and made the most credible commitments to reform have achieved the earliest signs of tangible recovery.

Rededication to economic reform and sound policies has brought results for a number of emerging markets, particularly Korea and Thailand, with an upturn now expected in many Asian emerging market economies. While a contraction is expected in Latin America as a whole, Brazil's commitment to reform has helped restore confidence in financial markets more broadly. We urge the Brazilian government to continue with firm implementation of its economic reform program in order to consolidate those gains.

In recent months, the atmosphere in financial markets has improved. We are pleased to see differentiation between countries with varying commitments to reform, although access to financing is still relatively small scale.

Nonetheless, we remain cautious about prospects in emerging market and developing economies. Pockets of real economic distress and uncertainty remain in key countries. The challenges in these cases are formidable. There are also parts of the world where growth is expected to slow further. And even where we have seen initial signs of recovery, achieving sustained and stable growth will be a protracted and difficult process. Uncertainty in the external environment does not help ease the recovery path.

In this regard, I want to take particular note of the conflict in Kosovo, which has sent an economic shock wave throughout the region, as well as the tragic human costs of the brutal expulsion of the Albanian Kosovars.

Reflecting on developments over the last year, the IMF has played an important central role in helping to restore stability. The institution has responded to the challenges posed by the international community, deploying new instruments creatively and with effect to support carefully designed programs aimed at achieving stabilization quickly and putting countries back on a path toward sustainable growth. Management and staff have performed well in adapting and responding in difficult and unprecedented circumstances.

Strengthening the Architecture of the International Financial System

With the most acute part of recent crises likely behind us, we must focus intently on the critical issue of strengthening the international financial architecture. Work in this area has been underway for some time; the issues are complex and will be with us for some time.

Last fall, the G-7 laid out a broad agenda for action on architecture in six key areas: strengthening prudential regulation in industrial countries; strengthening national financial systems in emerging market economies; maintaining sustainable exchange rate regimes; developing new ways to respond to crises; assessing proposals to strengthen the IMF, as well as the Interim and Development Committees; and minimizing the human costs of financial crises.

The IMF is an integral player in many of these areas and has already taken a number of steps in response to the Interim Committee's guidance last October. This includes: enhancing reserve reporting requirements in the Special Data Dissemination Standard (SDDS); advancing work on the codes of good practice on fiscal transparency and transparency in monetary and financial policy; experimenting with transparency reports on countries' performance with respect to such standards; and taking significant steps to make the IMF itself a more open and transparent institution.

I want to highlight in particular the agreement reached in the IMF to establish a Contingent Credit Line (CCL). This mechanism is intended for countries already pursuing sound policies that nonetheless want to protect against the risks of a sudden loss of confidence in financial markets. Indeed, the intention of the CCL is to provide an incentive for countries to make sound policy choices. As such, in implementing the CCL both in establishing access and making judgments about activation it will be important to take into consideration a range of factors reflecting the soundness of the policy framework, including: the macro framework; debt management; adherence to international standards and best practices; sustainability of the exchange rate regime; and appropriate involvement of the private sector.

These are important steps forward that will have a significant impact on the functioning of the system. Nonetheless, a good deal of work remains. The international community must sustain the pace and seriousness with which it has sought to strengthen the system. A number of institutions are involved in this effort; success requires not only determination by each of them but also cooperation and coordination among them. To contribute to this work, we continue to support efforts to strengthen the effectiveness of the Interim and Development Committees.

The IMF in particular faces the challenge of maximizing its potential to encourage sound policy choices for the full range of its member countries. This could involve, inter alia:

• redoubling its efforts on surveillance, including by focusing on the sustainability of exchange rates and assessing country implementation of a range of international standards and best practices;

• disclosing more of the results of surveillance in order to enable other institutions and investors to make decisions on the basis of fuller information;

• providing incentives for sound policy decisions before countries need balance of payments support, including through the new Contingent Credit Line;

• focusing intently on program design to ensure that conditions for access to IMF resources reflect the appropriate macroeconomic framework and guidance, taking into account individual country characteristics;

• requiring the release of program documents, so that policy commitments are reinforced publicly; and

• following through on country performance after program conditionality has ended.

Achieving this goal also requires further evolution of IMF policies and operations. Particular priority should be assigned to: continuing the effort to increase transparency, both by countries and in the IMF itself; developing international standards and assessing country performance in relation to these standards; helping ensure that countries continue to benefit from global capital flows, while recognizing the risks; exploring approaches to achieve appropriate participation by the private sector when crises do arise; carefully watching the sustainability of exchange rate regimes; and giving due attention in the IMF's work to the full range of policy issues that will affect the success of stabilization and reform.

Transparency:

Now that the transition period is over and the SDDS has entered into full effect, we need to focus on country compliance. The United States is in full compliance with the current SDDS requirements, and we will soon release comprehensive information on reserves according to the new template on a weekly basis with a lag of no more than a week. We are also committed to establishing a hyperlink between the DSBB and our own data sites, as will be required under the enhanced SDDS beginning January 1, 2000.

We urge other countries with access to international capital markets to move quickly to comply with the SDDS, so that the SDDS can perform its function of helping markets make informed and rational decisions. We look forward to reconsideration of the periodicity and timeliness requirements for the reserves standard at the time of the next SDDS review later this year.

Further work is also needed to enhance the SDDS with respect to external debt and indicators of financial sector soundness. These are both challenging areas, but ones in which the need for action is clear.

The IMF's central role in the system also requires that it become a more open and accountable institution in order to build support for its mission and enhance its own effectiveness as well as to lead by example. Some important steps have been taken but greater efforts are still needed. The strong presumption on release of program documents such as Letters of Intent (LOIs) will need to become a regular practice for all borrowers, including the poorer countries where greater transparency is also essential to gain fuller ownership of the reform effort. Voluntary release of staff reports on Article IV consultations should quickly become the norm as is the now generally the case with the release of summaries of Board discussions on these consultations. The Chairman's concluding remarks on Board reviews of IMF-financed programs should lead the way to the release of full PINs as soon as possible.

Further progress should also be made in freeing up access to the IMF's archives including by increasing the categories of documents that are available to the public after five years. This is all part of implementing a presumption in favor of transparency; in general, a positive decision should be required to withhold release of documents, and market and other sensitivities should be addressed through an appropriate redaction policy. Finally, evaluations of the Fund's policies and programs by independent experts should also become a regular part of the oversight of the institution.

Standards:

Important progress has been made in the international community in establishing sets of standards and best practices that can help guide countries' policies and serve as a benchmark for country performance. While considerable work remains in defining and establishing standards in a wide range of areas, it is time to begin looking at how we can and should assess performance. For the IMF, this can begin in areas within its core expertise and should become part of ongoing surveillance activities. It will be important to draw in experts from other institutions to assist in this work as appropriate. Greater disclosure of the results of surveillance through publication of PINs following Article IV reviews and, increasingly, the staff reports behind those reviews, will also play an important role.

As this process unfolds, it will be important that the IMF work closely with other organizations, particularly the World Bank and also including international regulatory bodies, to provide for a systematic assessment of country performance with respect to a wide range of standards. In this light, we welcome recent indications that the Financial Sector Liaison Committee is working to improve coordination between the IMF and World Bank. In particular, we look forward to details of plans for the joint Financial Sector Monitoring and Assessment Program (FMAP) with the World Bank, as agreed in principle by the Financial Sector Liaison Committee.

Improving evaluations of the soundness and vulnerabilities of member countries' financial systems is a worthy endeavor, and at this juncture we encourage jointly conducted financial sector assessments that can feed into the work program of both institutions. Again, it will be important to involve experts in relevant fields. We hope that a prototype program can commence quickly and that an assessment of its effectiveness will be ready when we next meet. The United States intends to provide experts to assist in financial sector assessments, and hopes that other members are willing to lend their expertise as well.

The preparation of "transparency reports" offers one approach to increasing the information released publicly about surveillance and the degree to which countries are implementing disclosure standards. We welcome the initial steps by the IMF and several member governments to experiment with these reports and fully support continued work to explore further the potential in this area.

Capital Flows:

International capital flows have the potential to provide immense benefits to emerging markets and other developing countries. They also pose some risks.

Strengthening national financial systems is the most critical step that can be taken to minimize the excesses that can occur with inflows and outflows of capital. This must include enhancing prudential regulation and supervision. It must also be accompanied by sound debt management most vitally a reduction in reliance on short-term capital. International guidelines for sound debt management should be developed to help discourage countries from taking too many risks. Improved corporate governance and robust legal infrastructure also have a central role to play.

Some countries may decide to adopt taxes on short-term capital inflows, like those that Chile has used in the past. Experience demonstrates that such taxes can be difficult to administer and that they decline in effectiveness over time. If used, they should be seen as transitional measures and, above all, must not be employed as a substitute for sound macroeconomic policies and fundamental reform to strengthen and liberalize financial systems.

When crisis strikes, countries may be tempted to introduce controls on capital outflows as an ad hoc defense. The bulk of experience suggests that such controls quickly become ineffective. Moreover, they can do long-term damage to a country's capacity to attract foreign investment. And, most important, they are often used to avoid or delay fundamental reforms.

These are lessons that need to be reflected throughout the IMF's work in both surveillance and in the conditionality behind IMF programs. However, further experience is needed to assess whether there should be any alteration of the IMF's legal authority in this regard.

Role of the private sector:

In managing recent crises, maintaining private sector exposure and achieving appropriate burden sharing have posed a complex set of challenges for the international community. By applying practical approaches to several recent cases, the international community has begun to establish a set of examples demonstrating an appropriate balance between the need for ongoing private sector participation and the risk of impeding new capital flows. Striking the right balance will remain a challenge that must be tackled on a case-by-case basis. Meanwhile, the international community should continue to refine the overall framework.

We are pleased to see the growing consensus in support of ex ante actions to avoid crises through better debt management and to put in place in advance measures to facilitate the orderly resolution of payment problems. Contingent lines of credit arranged with the private sector may be able to make a contribution in this regard; at the same time, there may over time be more demand for such credit than supply. Such mechanisms must therefore not become the only focus of attention, nor should they become a rigid requirement for access to official resources.

To provide the foundation for resolution of any payment difficulties, the international community should continue to encourage the broader use of clauses in bond contracts that can facilitate creditor coordination. These clauses are desirable for both borrowers and lenders. To prevent private debt problems from building into broader sovereign crises, we also encourage steps to strengthen national insolvency codes and more robust operation of insolvency regimes.

Nonetheless, crises will still occur. When this happens, the international community will need always to consider carefully whether there is a role for the private sector in sharing the burden of adjustment when a government's capacity to pay its debts on time and in full may depend on the provision of official resources. In some cases, it may be appropriate to require maintenance of exposure levels or to seek a restructuring or refinancing of a country's private debt obligations. In other truly exceptional cases, if negotiations have broken down and a temporary interruption in some debt payments is unavoidable, we need to be able to keep the door open to IMF finance if countries are implementing a strong program of policy reform. In so doing, the official community should not provide or sanction privileged treatment of some unsecured private creditors over others in a similar position.

The IMF has already signaled its willingness to lend into arrears in such cases on the full range of private sector obligations. With this policy in place, we do not see the need for a more heavy-handed vehicle to impose temporary stays on litigation.

Before leaving this subject, I want to reiterate that this policy must be implemented in a way that avoids creating further contagion by prompting a general withdrawal of private finance from emerging markets. Certainly the last thing we want to do is to generate incentives for private creditors to pull out of a country preemptively at the first sign of vulnerability or to discourage countries from approaching the IMF for policy advice and program assistance that could hold a crisis at bay, for fear of frightening creditors away. What we need to work toward is a system in which countries can address debt problems in a market-based, cooperative and orderly way, that may or may not be accompanied by official finance, and that does not threaten the health of the system as a whole.

Exchange rate regimes

Another especially difficult question is a country's choice of exchange rate regimes. Choosing the right exchange rate regime is a matter for each individual country. Yet at the center of each recent crisis has been a rigid exchange rate regime that proved ultimately unsustainable. Flexible rates generally allow more monetary policy independence and greater flexibility in response to shocks. But both fixed and flexible rate regimes have been successful and unsuccessful in different countries at different times, and the right choice depends on the priorities of individual countries. Countries with a history of extreme volatility understandably may show a preference for greater exchange rate stability.

At the same time, no exchange rate, fixed or floating, can remain stable unless it is backed by sound policies. Countries that choose fixed rates must recognize the costs and tradeoffs. They must be willing, as necessary, to subordinate other policy goals to fixing the rate. Recent history suggests that institutionalizing that subordination may be essential or close to essential for sustaining a credible commitment; and in some cases, where the conditions are right, currency boards appear to have been effective toward that end. But these institutional mechanisms will only work when backed with a real political commitment to reform and sound policy.

The costs of failed regimes can be significant not only for the countries involved but also for other countries and the system as a whole. While we believe that, in the circumstances, the international community's judgements about how to respond to recent crises were correct, there is an opportunity now to shape expectations about the official response going forward, as this will have an important impact on policy choices.

In this context, we believe that there is a need to strengthen incentives for the adoption and maintenance of sustainable exchange rate regimes. It is our view that the international community, as a matter of policy, should not provide large scale official finance to countries intervening heavily to defend an exchange rate peg, except where the peg is judged sustainable and certain exceptional conditions have been met, such as when the fixed exchange rate has been institutionalized through arrangements like a currency board or when an immediate shift away from a fixed rate is judged to pose systemic risks. In keeping with this policy, the IMF should intensify its focus, as part of ongoing surveillance activities, on a country's choice of exchange rate regime and especially on its sustainability in the context of a country's overall policy approach.

Program design and implementation

Our efforts to strengthen the overall system could not be complete without effective IMF advice and support for stabilization and reform in countries facing balance of payments or other external financing difficulties.

Such advice and support must be built foremost on an appropriate macroeconomic framework, while also taking into account characteristics unique to individual countries or crises. Recent experiences in Asia and elsewhere underline that the first step in overcoming a crisis must be to reestablish macroeconomic and financial stability. This is a necessary precondition for arresting high or hyper-inflation; for stabilizing exchange rates; and for bringing down interest rates to levels that will support sustained growth. Macroeconomic stability is also a prerequisite for the success of structural reforms and other measures to address the underlying causes of the crisis, as well as efforts to mitigate associated human suffering.

Of course, there is no single, easy and static answer to the economic and financial policy choices that must be made in crisis or outside it. Policy must be dynamic and must adjust to changing circumstances. The same is true of the advice of the IMF. This is why we strongly supported the recent review of Fund-supported programs for Asian crisis countries. This review provided an important mechanism for examining the lessons of programs and improving IMF approaches to stabilization and policy reform. Such self-evaluation should now continue as an ongoing process to ensure that IMF advice reflects recent experience as well as individual country circumstances.

For its programs to be effective, the IMF must also ensure that appropriate attention is directed to structural reform and development of solid institutional frameworks needed to make market economies work. In addition to strengthening the national financial sector, which has been so critical in Asia, this means measures to make markets more flexible and open to competition, to eliminate systemic government subsidies and regulations that distort the allocation of resources and to provide for robust and well-functioning financial infrastructure. In particular, IMF programs should include conditions requiring: trade liberalization; elimination of the systematic practice of government-directed lending on non-commercial terms or provision of market-distorting subsidies to favored industries, enterprises, parties or institutions; and provision of a legal basis for non-discriminatory treatment in insolvency proceedings between domestic and foreign creditors and for debtors and other concerned parties.

Fiscal spending priorities are another important area. We believe that it is important to establish public accountability of military spending through reporting audits of military expenditures to civilian authorities. The IMF should explore steps that would improve Fund reporting and monitoring of military spending for countries in conflict or with Fund programs, especially as such spending relates to a country's macroeconomic context and the composition of government expenditure.

Achieving stability in an economy should not be accomplished at the cost of excessive pain and suffering to the most vulnerable in society. The design of social safety nets and other programs to address the needs of the vulnerable clearly falls to the World Bank and regional institutions. Nonetheless, the IMF can and should take into consideration the impact of its prescribed fiscal stance on social spending, and make sure that budgets for core social programs like health and education are maintained, or at least not disproportionately cut, even during periods of needed fiscal consolidation.

Recent programs, including in Asia and Brazil, reflect some progress in factoring the needs of the most vulnerable, as well as environmental protection and core labor standards, into program design. We urge the IMF to continue its efforts in this area.

To provide effective incentives for implementation of the full range of policy conditions of programs, we also believe the IMF should examine its policies on country performance during the entire period that funds are outstanding with a view to strengthening its ability to secure good policy performance in borrowing countries after program conditionality has ended. This is an integral part of the overall move toward enhancing the IMF's ability to encourage countries to adopt and sustain policies that are in their own self-interest as well as in the interest of growth and stability for the global economy as a whole.

Strengthening the Interim Committee

The IMF undertakes this important work as part of an increasingly inter-connected international system of institutions. We all agreed last year that our own role, as the Interim Committee, in this system needed to be made more effective. A number of proposals have been made, including transformation of the Committee into a formal decision-making Council. The United States does not believe that doing so would be useful, and the Executive Board's report makes clear that this proposal does not have broad support. Instead, I think we should take steps to make our discussions more open and frank aimed at building consensus rather than making speeches so that we can provide effective guidance to the Executive Board.

Our goals in this undertaking should be to: promote more effective functioning of the IMF and World Bank themselves; provide for more cooperation and collaboration between and among the IMF and World Bank, regional development banks, and various international regulatory bodies; enhance the effectiveness of the Interim and Development Committees in providing guidance to the Boards of these institutions; and ensure that the governance of the institutions provides for appropriate representation of members.

We welcome the decision taken by the Executive Board to enhance the role of observers in the Committee and in particular to give the World Bank the right to speak. We believe that this will add to the quality of dialogue on issues in which a number of international institutions are inevitably playing interconnected and complementary roles.

In this context, we believe it is time to consider a new alignment of IMF constituencies that takes into account the changing dynamics of the world economy and provides an appropriate voice, in particular, for emerging market economies.

ESAF/HIPC

As we continue to look for ways to enhance our ability to respond to the challenges brought by the increasing globalization of capital markets and the evolving circumstances of emerging markets, we must not ease in our pursuit of better approaches to the problems of the poorest countries. These countries must of course be ready to take the necessary steps to put their economies on sound footing; no amount of economic assistance or debt relief can have lasting benefits without meaningful reform. At the same time, we in the international community must be ready to support genuine efforts to address the underlying causes of poverty and under development.

There is broad agreement about the need to enhance the HIPC framework. In pursuing this task, we face the challenge of finding an approach that both frees countries committed to reform from unsustainable debt burdens and ensures that debt relief provides lasting development benefits, including promoting an environment in which private capital and private risk taking can flourish.

President Clinton's proposal to enhance HIPC aims to accomplish these goals by strengthening the partnership between creditors and the poorest most heavily indebted countries. Building on the proposals of other G-7 countries, we have drawn together four key elements, consistent with HIPC program's virtue of addressing the debt problems of eligible countries in a comprehensive way with the participation of all creditors.

• All creditors should join the Paris Club in providing cash flow relief in the interim period before the debt stock is permanently reduced at the completion point. This includes a new focus on early relief by the international financial institutions, which now reduce debt only at the end of the HIPC program.

• Bilateral creditors should forgive all outstanding concessional loans and increase non-concessional debt forgiveness from 80 percent up to 90 percent and, in exceptional cases, on a broader base of debt.

• All creditors should provide deeper debt relief under the HIPC Initiative for exceptional performers.

• To ensure that the debt overhang problem is not exacerbated further, all bilateral donors should commit to provide at least 90 percent of new assistance on a grant basis to HIPC countries receiving debt reduction.

The fundamental principle, in our view, should be that the more debtor countries take responsibility for sound economic policies that promote development, the more creditors should be willing to respond with greater relief. We call on the international community to work expeditiously to reach consensus on a framework to enhance the HIPC program in line with this principle.

As the vehicle for IMF support for market-oriented reform in low-income countries, ESAF is an essential adjunct to HIPC. However, there is a broad consensus that the ESAF needs to be strengthened, in particular taking into account the recommendations made by the external evaluators last fall. We attach a high priority to moving forward with reforms. In particular, this effort should be aimed at achieving greater national ownership and appropriate social content, including provisions for adequate social safety nets for the most vulnerable groups and core labor standards. Of course, to be effective, ESAF reform programs for the poorest countries must be undertaken in close collaboration and cooperation with the World Bank.

Securing adequate funding for the HIPC and ESAF programs is essential, and mobilizing the IMF's resources is an important part of this. The Clinton Administration supports the proposal to use the proceeds of gold sales and channeling of SCA-2 resources for this purpose. We are requesting authorization from our Congress to support the sale of up to 10 million ounces of gold. We are also seeking Congressional consent to permit us to direct some or all of our share (approximately $300 million equivalent) of the funds in the SCA-2 account to finance HIPC. In addition, bilateral contributions will be necessary, especially from countries with relatively low shares in SCA-2. As we move forward, it will be important to ensure that official and bilateral creditors share appropriately the burden of the overall financing strategy, including as we consider further enhancing the HIPC initiative.

Countries Damaged by Conflict

The crisis in Kosovo and its effects on neighboring states is on all our minds. In addition to the costs of refugee assistance, the Kosovo conflict is imposing other significant economic costs on front-line countries in the form of serious interruptions in trade in goods and services, sharp declines in customs revenues, and other revenue shortfalls related to lower growth or output contraction. It will be important for the international donor community, led by the international financial institutions, to provide economic assistance to address these consequences in a way which promotes further economic and political reform, allocates scarce resources efficiently, does not contribute to duplication of effort, and is governed by as solid an assessment of needs as feasible.

We welcome the recent joint IMF-World Bank paper on the economic consequences of the crisis and preliminary assessment of the resulting external financing needs. We commend the IFIs on moving rapidly to develop plans to augment and accelerate existing programs to respond to major crisis-related additions to budgetary and balance of payment gaps. We call on the institutions to move expeditiously to respond appropriately to the changing economic circumstances in the countries in this region.

The IMF can and should find a way to enhance its support for post-conflict countries, as well as countries affected by conflict, while recognizing that it is not in a position to address all the needs of such countries or to take the lead in providing the full range of assistance necessary. As I said last fall, we attach a high priority to agreement on a strategy that will provide significant positive net flows of overall official resources to those post-conflict countries that are committed to establishing appropriate policies and have in place political and economic environments that support private sector-led growth. The IMF and other institutions also need to develop ways to adapt mechanisms for post-conflict assistance to support countries that are battered by ongoing conflict but nonetheless have the capacity to implement appropriate programs and policies.

We believe that an appropriate strategy can be crafted without undermining the IMF's arrears strategy and creating moral hazard. The recent Board agreement that providing assistance on a concessional basis would be more appropriate for low-income post-conflict countries than standard IMF terms is an important step. But ways should be found to achieve a reliable and lasting means for funding concessional lending of this type.

Conclusion

Despite positive developments in the world economy in recent months, this is not the moment to be complacent. There are many challenges ahead. We must move forward together in earnest to promote growth, implement an enhanced international architecture and work toward a dynamic, stable international system that benefits all people.