Stronger mandate on capital movements needed

HONG KONG (JP): The Interim Committee, the International Monetary Fund's top policy making body, suggested Sunday that the IMF's Articles of Agreement be amended to grant it jurisdiction over global capital movements and capital account liberalization.

The committee made the recommendation in a communique issued here yesterday after concluding its meeting to prepare recommendations to the IMF-World Bank annual meetings here beginning today.

"Private capital flows have become more important to the international monetary system and an increasingly open and liberal system has proved to be highly beneficial to the world economy," the committee said in supporting its recommendation.

The committee, which reflects the composition of the IMF Executive Board, is assigned to advise the Board of Governors on the IMF supervising the management and adaptation of the international monetary system.

However, the Group of 24 ministers (G-24) which represents the interests of the developing countries, cautioned in a communique Saturday that a progressive and flexible approach is needed for an orderly liberalization of capital movements.

The G-24 ministers instead called on IMF to avoid institutional overstretch as well as duplication and potential conflicts with other relevant agencies and agreements.

The Interim Committee called for attention to the large imbalances and fragile banking systems in some Southeast Asian emerging markets which have adversely affected investor confidence and exacerbated the risks emanating from volatile capital movements.

"This highlights the need to maintain macroeconomic discipline and accelerate structural reforms, including second-generation reforms," added the communique.

The committee, however, remains confident that the economic fundamentals of Southeast Asian countries are still solid and their long-term outlook is favorable, provided the required adjustment policies are sustained.

The communique was presented at a news conference by the committee's chairman, Philippe Maystadt, who was accompanied by IMF Managing Director Michel Camdessus.

The committee also reemphasized the importance of good governance and reaffirmed support of the IMF effort to promote the soundness of financial systems through the establishment of the core principles of effective banking supervision developed by the Basle Committee.

The committee stressed the importance of openness and accountability of economic policy making and, of transparency, to achieve policy credibility and confidence building in a globalized environment.

It also welcomed the agreement reached by the IMF Executive Board on the 45 percent increase in IMF quotas to strengthen its financial resources. (vin)