HISTORIC PRESS RELEASE : EU and G7 meetings to discuss Asia [January 1998]

The press release issued by HM Treasury on 23 January 1998.

Financial developments in Asia will be discussed at forthcoming meetings of the EU and G7, to be chaired by the Chancellor of the Exchequer, Gordon Brown, it was confirmed today.

In a letter to Michel Camdessus, Managing Director of the International Monetary Fund, sent following the first ECOFIN meeting of the UK Presidency of the EU, the Chancellor said:

“European Union Finance Ministers discussed financial developments in Asia at ECOFIN today. As President of ECOFIN I would like to invite you to join us for a similar discussion at a future meeting – perhaps at the Informal ECOFIN on 20-21 March, when we will be joined also by EU Central Bank Governors. The subject will also be prominent on the agenda at the meeting of G7 Finance Ministers and Governors in London on 21 February, where I hope we might begin to draw some lessons for the future from what has happened.”

The text of the letter to Michel Camdessus, which is attached, also puts forward a number of ideas for consideration:

“to help prevent such crises recurring; and to reflect on whether we could improve our techniques for handling crises when they occur.”

M Camdessus
Managing Director
International Monetary Fund
700 19th Street N W
Washington DC 20431
WASHINGTON USA

Dear Michel

20 January

1998 FINANCIAL DEVELOPMENTS IN ASIA

European Union Finance Ministers discussed financial developments in Asia at ECOFIN today. As President of ECOFIN I would like to invite you to join us for a similar discussion at a future meeting – perhaps at the Informal ECOFIN on 20-21 March, when we will be joined also by EU Central Bank Governors.

The subject will also be prominent on the agenda at the meeting of G7 Finance Ministers and Governors in London on 21 February, where I hope we might begin to draw some lessons for the future from what has happened.

European countries have a very substantial interest in successful resolution of the current financial difficulties in Asia.   European economic interests in Asia, including British interests, are high. Exports from European Union countries to the region are greater than those from the US. The exposure of European banks is greater than the sum of United States and Japanese exposure.

European countries have therefore: been giving full support to the IMF’s action in seeking to restore confidence in the region, including exceptionally large calls on IMF finance.

As major shareholders, we are ultimately responsible for a significant proportion of the resources committed by the IMF and World Bank. played an active role in getting agreement to the new IMF Supplemental Reserve Facility; encouraged our commercial banks to play an important and positive role in the current global efforts to secure continued rollovers of Korean banking debts. provided 8 of the 13 bilateral contributions to Korea’s second line of defence.

Above all, like my European partners, I believe it is essential to keep the IMF at the centre of the global response to what is a global problem.

European Union countries fully support the action taken by the IMF so far in the region, and the strong programmes of macroeconomic and structural reform to which countries in the region, including Indonesia, Korea, the Philippines and Thailand, have committed themselves. Confidence will not be re-established overnight. But it will return in time, so long as these policies are implemented with wholehearted commitment and vigour.

In time we will then see renewed healthy economic growth in the region.

I can assure you that we will continue to give full and active support to the countries concerned as they tackle their difficulties, through the IMF and in other ways. I am also looking forward to a full exchange of views on developments in Asia at the meeting of G7 Finance Ministers and Governors in London on 21 February. Beyond that, it is already clear that the subject will be high on the agenda for the meeting of ASEM leaders in London in April, and for the G8 Summit in Birmingham in May.

I also recognise the importance of finding a forum to discuss these issues with a wider group of emerging market economies.   In addition to continuing the close cooperation that we have had in the G7 and elsewhere in tackling the crisis as it has developed, we should begin to reflect on the lessons for the future.

We need to consider whether there are further measures that could be taken to help prevent such crises recurring; and to reflect on whether we could improve our techniques for handling crises when they occur.

Among the ideas I would like to see considered are the following:

we should do more to promote transparency in all countries about the operation of economic policy, and economic developments, and the operations of financial institutions. The better the understanding that the market has, the less will be the risk of sudden market readjustments.

I hope the IMF will quickly bring forward proposals for a code of conduct on transparency in fiscal policy, as we agreed in Hong Kong last year, and look for ways to broaden that into other areas.

I hope the Fund will also pursue other ways of improving the quality and timeliness of economic data supplied to the market; the IMF itself should consider being more transparent, also.

There is a balance to be struck here with maintaining the sometimes necessary confidentiality of the Fund’s policy dialogue with its members.

But I believe there are ways in which the Fund could and should begin to make its concerns known in public, certainly when policy advice has been given over a period and not acted on.

We may also need to consider whether there are other ways to encourage international banks and investors to make better use of the information and analysis that is available; the Fund should pay more attention in future, during its regular economic surveillance, to the vulnerability of domestic financial systems to potential shocks and reversals in capital flows.

I believe this should go hand in hand with the desirable widening of the IMF’s Articles to cover capital account issues, on which we agreed in principle in Hong Kong. we need to reflect on different ways to ensure that when there is a crisis, international private sector investors continue to play a full part in its resolution.

It will be important to ensure that private investors have a continuing, and if possible enhanced, incentive to make a full assessment of the risks before they invest in emerging market countries; it is absolutely right for the IMF to have focussed in recent Asian programmes on the need to reform and strengthen domestic financial systems.

We should consider whether more can be done to enhance the quality of assistance we give to emerging market countries in this area, including through improved cooperation with financial regulators in developed countries, who I believe have an important contribution to make, and with the World Bank.

I look forward to discussing these and other issues with you and colleagues over the weeks and months ahead.

Yours sincerely

GORDON BROWN