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Boards of Governors-1999 Annual Meetings-Washington, d.c.





Press Release No. 23

September 28-30, 1999

Statement by the Hon. GIULIANO AMATO,
Governor of the Fund for ITALY, at the Joint Annual Discussion

Mr. Chairman, fellow Governors, ladies, and gentlemen,
International economic conditions have considerably improved since our last meeting. The US economy continues to perform strongly. Economic activity in the euro-area is accelerating. Signs of an upturn are coming from Japan. The financial and real instability that has recently characterized the emerging markets has been subdued.
While the risks for the world economy seem to have diminished, steadier economic growth continues to be burdened both by the imbalances in the current account positions of the main industrial countries and by delays in structural reform and fiscal consolidation in several developing and transition countries.

Action is certainly needed in the US, to increase private savings while ensuring a soft landing of the economy; structural policies are needed in Europe, to improve the functioning of markets and increase the overall productivity of European economies, as well as in Japan, where the efforts to sustain aggregate demand and press ahead with structural reforms are key for the turnaround of the economy.

At the close of this decade, inflation has been driven to very low levels in almost all industrial countries. This is the result of appropriate monetary policies and of structural factors, including increased competition and technological advances. Somewhat paradoxically, though, price stability has been accompanied by more, not less, exchange rate volatility between the major currencies.

We must be aware that such volatility produces repercussions on other countries' economies. This does not mean, however, that we should introduce forms of exchange rate rigidity between the three major currencies, which would only come at the expense of domestic stability.
Emerging market economies must be careful in choosing their exchange rate regimes. With increased capital mobility, countries should peg their exchange rate only if they can implement economic policies that are consistent with both domestic and external requirements. The Fund has the responsibility to assist countries in devising the most appropriate exchange rate regime and supporting policies.
Mr. Chairman, major challenges remain for achieving a stable international financial system.
First, efforts should be renewed to preventing financial crises. Standards and codes of good practice have been designed by the Fund and the Bank, in collaboration with other standard-setting bodies in a number of areas. They should now be implemented by all countries on a voluntary basis, but according to an agreed-upon and transparent timetable. The Fund has a major responsibility in monitoring the implementation of these standards. In this endeavor, the Fund and the Bank must strengthen cooperation among themselves and with other relevant international organizations as well.

Second, progress has to be made in involving the private sector in crisis resolution. Building on existing experience, and on the broad principles that have been agreed upon, the Fund must now design the "rules of the game" for a consistent approach to crisis management.
Third, and most important, poverty reduction must come at the core of the activities of the international financial institutions. The enhanced HIPC initiative provides deeper, faster and broader debt relief and establishes a close link between debt relief and poverty reduction. The funding of the initiative needs to preserve the principles of additionality and the financial integrity of the international institutions. Multilateral institutions thus need additional support on a bilateral basis to cover the costs associated with the enhanced framework. Let me say that Italy has already made a substantial contribution to a stronger link between debt relief and poverty reduction by canceling all commercial and ODA debt to HIPC countries with a per capita income lower than 300 dollars. In addition, Italy has contributed its full share, around $ 60 million, to the ESAF-HIPC Trust of the IMF. Italy will contribute $ 70 million to the HIPC Trust managed by the World Bank.

Let me stress again, going toward my conclusion, that no economic progress and no social progress is attainable without a parallel process of poverty reduction. Priority must be given to assist countries affected by conflicts. Marginalization, social unrest and external conflicts always have their roots in inadequate economic development and inequality. The World Bank, which is engaged in efforts to help countries that are in post-conflict transition, must use its resources to provide assistance for reconstruction thereby reestablishing stability and growth in these countries.
These are ambitious tasks. And our task will have to be even more ambitious in the not-so-distant future, when many more people will live in this world, and an increasing number of them may fall below the poverty line. The significant progress achieved in these days is the result of effective and meaningful cooperation among the member countries. It is a good promise for the future. In this respect, Italy fully supports the institutional changes proposed to the Board of Governors. They will strengthen the role of our institutions and make them better equipped to meet the challenges ahead.

Thank you, Mr. Chairman.