Report back by the Governor of the SA Reserve Bank on the 1998 IMF/World Bank Annual Meeting (Joint Meeting)

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Finance Standing Committee

03 February 1999
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Meeting report

PORTFOLIO COMMITTEE ON FINANCE
4 February 1999
REPORT BACK BY THE GOVERNOR OF THE SA RESERVE BANK ON THE 1998 IMF/WORLD BANK ANNUAL MEETING (JOINT MEETING)

Documents handed out:
Report on Portfolio Committee on Finance Chairperson’s Attendance to the IMP & World Bank Annual Meetings – 1998
Notes for Report Back on the 1998 International Monetary Fund and World Bank Annual Meetings
Communique of the Interim Committee of the Board of Governors of the IMF
IMF & World Bank Communique – 5/10/98
Statement of G-7 Finance Ministers and Central Bank Governors – 3/10/98
Communique of the Ministers and Governors of the Group of Ten – 4/10/98
Opening Address by the Chairman, the Hon. Wolfgang Ruttenstorfer, Governor of the Fund and the Bank for Austria, at the Joint Annual Discussion – 6-8/10/98
Address of the Board of Governors, Fifty-Third Annual Meeting – Michael Camdessus, Managing Director, IMF – 6/10/98
Address by James D. Wolfensohn, President of the World Bank Group, to the Board of Governors of the World Bank Group, at the Joint Annual Discussion – 6-8/10/98.
Global Integration, Gordon Brown, MP, Chancellor of the Exchequer, 3/10/98.
Press release: Oxfam calls upon Finance Minister to reject IMF/World Bank debt review as a whitewash – 2/10/98
Eurodad Background Note: The HIPC Initiative Reviewed: Baker, Brady, HIPC… What is Next? – September 1998.
Three Freedoms Project, Freedom of Expression, Association and Assembly in Asia: Minimum Requirements for the Independence of NGOs.

SUMMARY
This meeting was a briefing by Dr. Chris Stals, the Governor of the South African Reserve Bank, who attended the 1998 International Monetary Fund and World Bank Annual Meeting in Washington, DC, in October 1999.

MINUTES
Mr. SJ Leeuw of the ANC brought the meeting to order and welcomed the NCOP members that joined the Finance Committee for this briefing by Dr. Chris Stals, Governor of the South African Reserve Bank on the 1998 International Monetary Fund and World Bank Annual Meeting in Washington, DC.

Dr. Stals began his briefing by explaining the complexity of attending these annual meetings. After the opening plenary session, the meeting divides into various topics. It is not possible to summarise all the discussions that took place throughout the week-long proceedings but Dr Stals provided a general overview.

SA is one of the 182 member countries of the IMF and the World Bank Group. SA holds about 0,87 per cent of the total voting rights in the IMF. Under certain conditions, SA can borrow its total quota of R12,7 billion from the Fund in terms of normal fund policies, but, of course, subject to the implementation of certain prescribed macroeconomic policies. For example, a country can not use any borrowed funds for loan repayment. The last time SA borrowed from the Fund was in 1993-1994 during a period of drought. That loan has been repaid in full and at this time, SA has no borrowings outstanding from the Fund.

As a member of the IMF, SA has the right to be represented on the Executive Board of the Fund. SA joined the English Speaking Group of African countries for this purpose and is given an opportunity on a rotation basis amongst the members of this Group to be the Executive Director to the Fund. In September 2000, SA will provide the Executive Director for the Group for a two-year period.

The Interim Committee of the Board of Governors is an advisory board and has 24 members. This Committee meets twice a year and advises the Board of Governors on major policy issues. SA’s Minister of Finance was elected in October 1998 to represent the English Speaking Group of African countries on the Interim Committee for the next two years. This position represents SA’s growing importance within the IMF.

At the Annual Meetings, the SA delegation participates actively in:
The plenary sessions (three days);
The Interim Committee Meeting;
The Africa Constituency Meeting;
Many bilaterally arranged private meetings; and
A series of social functions and receptions.

In addition, there is also a Group of Twenty-four, representing mainly developing countries from Africa, South America and Asia. This group is officially known as the Intergovernmental Group of Twenty-four on International Monetary Affairs. SA is not a member of this Group, but has been given observer status with an open invitation to participate in the activities of the Group. Behind-the-scene discussions are encouraging SA to become an official member of this group.

The Annual Meeting took place against the background of:
The East Asian crisis and its contagion effect;
The serious eco-political situation in Russia;
The collapse of a major hedge fund in New York;
The growing threat of a collapse of the Brazilian economy; and
Growing concern about a slow-down in world economic growth.

Further studies on the strengthening of the international financial system will be undertaken within the Executive Board of the Fund. None of the proposals are very revolutionary and are intended to work mostly through the existing framework of institutions and systems. More radical proposals are being thrown around in the global debate mainly by academics. However, the proposed further studies would cover:
A possibility of strengthening or transforming the Interim Committee;
A code of conduct for fiscal policy, as well as the ongoing work on the code of monetary and financial policies (standards);
The need for greater transparency at all levels, beginning with the IMF itself;
Plans for an increase in private sector involvement in preventing and resolving financial crises;
The review of experiences of the introduction and tightening of capital controls and the circumstances under which they may be appropriate;
The critical importance of augmenting IMF resources; and
Expanding the Enhanced Structural Adjustment Facility and the Highly Indebted Poor Countries Initiative. (SA does not qualify for either of these facilities, although it has a vested interest in the proposal because of its alliances with other countries in the Southern Africa constituency that do qualify for these facilities.)

Dr. Stals concluded his briefing by summarising SA’s role in the global market debate. Over the past year, the SA economy was severely affected by the adverse world financial conditions. SA’s approach has been to manage the economy as best as possible in this adverse environment, and to work with the international community to seek for a global solution. As one of the leading emerging market economies, SA has many opportunities to make a constructive contribution to the ongoing debate on the reform of the international financial system. Unfortunately, SA does not have the resources at this time to participate more actively in all the discussions that are now taking place.

Mr. AJ Feinstein of the ANC asked Dr. Stals what sort of timeframe did he anticipate before an international financial architecture would come about and was SA making progress towards such a goal. Dr. Stals responded that SA is not making a major contribution towards this international financial market because it is not time yet for SA to contribute to the debate on "architecture" issues. However, Dr. Stals responded that, yes, SA is making progress towards such a goal. Globalization and the term "globality" used by Dr. Stals are no longer proposals but are now process. The prospects of world recovery look better today and SA has a positive outlook.

Another question posed to Dr. Stals asked if he agreed in broad terms that such macroeconomic policies practiced in today’s markets are acceptable to the World Bank. Another question asked what is the extent of the World Bank intervention in light of Japanese and North Korean quotas in the IMF and World Bank. Dr. Stals explained that he believes that the IMF is prepared to admit at this stage that some of its economic prescriptions were too restrictive. However, high interest rates are essential and the IMF would not change this policy. Furthermore, IMF intervention was substantial in Japan and North Korea because it thought that it could try to prevent the spread of economic problems to the world economy but, in essence, the problem was too large. The IMF was brought in when a serious shortage of foreign currency occurred in these suffering markets. It became very involved in trying to save the situation.

Another question asked about the reliability of information regarding the global economic situation. For example, did South Africa have reliable information on the U.S. economic situation? Dr. Stals responded that more information from big financial institutions needed to be published. The Reserve Banks are obligated to publish their information, and perhaps the private sector should follow this lead.

Another question asked if social and economic issues are inseparable. Dr. Stals explained that social and economic issues support each other. Social policy should be aimed at creating a stable financial environment.

Mr. Leeuw concluded the meeting by thanking Dr. Stals for his comments and additionally thanked the committee and the NCOP members who were in attendance as well.

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