FROM THE OFFICE OF PUBLIC AFFAIRS

Let me begin by saying a few words about today's meetings, and then I will be happy to answer any questions.

Our discussions focused on four broad areas: developments in the global economy; reform of the International Financial Institutions (IFIs) and the international financial architecture, the important challenge of implementing the enhanced Highly Indebted Poor Countries (HIPC) initiative and the economic challenges facing Russia.

• There was a general sense around the room that prospects for expansion in industrial countries and the world economy more generally continue to brighten. The underlying fundamentals of the expansion of the major economic areas have strengthened since our last meeting. Nonetheless, it is important that we remain vigilant.
• If you compare the discussion today with the discussion of only six months ago, there was a much more general agreement on the importance of policies to allow the desired rebalancing of global growth through an increase in potential rates of growth that would allow balancing up, and not balancing down. As far as exchange rates are concerned, let me quote what we said in the Statement:

"We discussed developments in our exchange and financial markets. In this context, we emphasized our view that exchange rates among major currencies should reflect economic fundamentals. We will continue to monitor developments in exchange markets and cooperate as appropriate."

• Emerging market economies continue to strengthen, but it will be important for them to maintain the momentum of reform and work to address potential underlying vulnerabilities.

Much of our discussion focused on IFI reform. We have already achieved progress in many important areas, particularly in simplifying the array of IMF facilities and in promoting the flow of information from governments to markets. As important, we have an emerging consensus on priorities for reform going forward. Two such areas are: A new focus in IMF's surveillance on vulnerabilities to modern capital account crises. We proposed that the Fund develop and systematically use indicators of vulnerability to liquidity and balance sheet risk, and that the Fund sharpen its focus on exchange rates, with a view towards encouraging countries to avoid unsustainable regimes. Streamlining facilities. We agreed to put priority on the creation of a streamlined, incentive-based structure for IMF lending.

This could be achieved by adapting the maturity, pricing structure, and other terms of the existing system of facilities - in particular, to enhance the effectiveness of the CCL, avoid prolonged use of the SBA and EFF and strengthen post-program monitoring. We also agreed on the importance of reform of the World Bank and regional development banks, to enhance their contribution to growth and poverty reduction in the poorest countries and to focus their involvement in emerging market economies on the social sector, leveraging private capital and cushioning the effects of crises. We also took stock of the important work underway to strengthen the international financial architecture, and in this context, welcomed the work of the Financial Stability Forum. We drew attention in particular to the potential threats posed by those offshore centers that do not meet international standards, by money laundering and by financial crime. I believe there is an emerging consensus on the need to move forward in more forceful ways to combat these growing threats, and look forward to further concrete progress in this area in the lead-up to the Okinawa Summit. We had a useful discussion on effective ways to respond to financial crises and, in particular, appropriate treatment of private creditors. We agreed on further steps to make operational the framework Ministers laid out in their report to Heads in Cologne, which are described in the report's annex.

Let me say that we were united in our commitment to implementing the enhanced HIPC initiative, and ensuring that countries benefit from debt relief as soon as possible within a policy framework that can channel these benefits into poverty reduction and rapid and enduring growth. For our part the US acknowledged the importance of working to secure the Congressional support needed to let us play our full part in this crucial effort. We also welcomed the commitment on the part of the entire G7 to granting additional bilateral debt relief on top of that provided under HIPC.

Finally, let me also note that in our meetings with the Russians, we indicated that we look forward to the articulation of economic reform proposals and objectives by President Putin's government, and urged the Russian authorities to press ahead with urgent economic reforms needed to create an attractive environment for domestic and foreign investment.