Confronting Global Economic and Financial Challenges:
Denver Summit Statement by Seven
Denver, June 21, 1997
1. We, the Heads of State and Government of seven major industrial democracies, and the Representatives of the European Union, have met in Denver to discuss the challenges which we face in economic, financial and other areas as we approach the 21st Century.
2. We remain committed to sustaining non-inflationary growth and contributing to world prosperity. The increasing globalization of markets is an important engine of world growth that provides opportunities to all countries. Our goal is to realize the full benefits of globalization for all while meeting the challenges it presents.
3. To achieve this goal, we must:
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4. Since we met in Lyon, we have been encouraged by the many positive indicators in our economies: inflation remains low, growth continues at a solid yet sustainable pace or is increasing, and fiscal actions are reducing budget deficits. We welcome the impressive gains of the emerging economies, which have contributed significantly to global growth. We also welcome the progress of the transition economies toward creating stable macroeconomic conditions and implementing structural reforms. We call on those countries to work with us to ensure the efficient functioning of the international monetary and trade system.
5. But we still have work to do in our own economies. More must be done to restore sound long-term fiscal positions and, in some countries, to ensure the soundness of the financial system. We are concerned about the high level of unemployment in some countries, which has serious consequences for growth, public finances and social cohesion. Some of our countries have registered strong economic growth and rising employment; in others, the recovery in job growth has not been satisfactory. More needs to be done - especially in the latter cases - to increase labor and product market efficiency through structural reform. We face the challenge of ensuring that all, particularly our young people, can participate in growth and benefit from it. In this respect, we encourage the work of the OECD on regulatory reform.
6. One of the most important challenges we face is responding to the economic, financial and social implications of the changing demographics in our aging societies. It could significantly affect our pension and health care costs and influence our public budgets; reduce public and private savings, and affect global flows of capital. We therefore pledge to undertake structural reforms that will address these issues. We have asked our Finance and Economic Ministers to examine, in coordination with other competent national authorities, the economic and fiscal implications of aging, including within the OECD and other relevant international organizations.
7. Our countries' circumstances and priorities differ.
8. We discussed EMU, including its international implications. We welcome the efforts of European Union countries to achieve a successful introduction of the Euro and a well functioning EMU, underpinned by sound macroeconomic and structural policies, that would contribute to the stability of the international monetary system.
9. We reiterate our commitment to promoting international monetary stability. We have asked our Finance Ministers to continue to cooperate closely on economic policy and in the exchange markets.
10. Our governments welcome the new round of Russian economic reform launched this year to promote sustainable growth. Russia's plan for fundamental tax reform is essential to put that country's fiscal situation on a sound footing. We fully agree with Russia's intention to pursue vigorously structural reforms to improve the investment environment, promote competition, fight crime and corruption, and strengthen the social sector. In this context, full implementation of Russia's EFF program with the IMF is critical. Successful implementation will help Russia to attract higher flows of private investment. In addition, a deepening and expansion of Russia's relations with the World Bank and the EBRD, through both increased lending and guarantees, will support this ambitious structural reform agenda.
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11. International financial markets are becoming increasingly global and complex. This presents new opportunities that can lead to increased efficiencies in the functioning of the international financial system, thereby facilitating growth and prosperity. At the same time, these changes present new challenges. Beginning in Halifax and continuing through Lyon, we have encouraged financial regulators and the international financial institutions to take measures to deal effectively with possible systemic or contagion risks and foster financial stability, without stifling innovation or undermining the benefits of globalization, liberalization and competition. We welcome the concerted effort to strengthen the international financial system and endorse our Finance Ministers' report, which outlines the progress achieved in the key areas we identified in Lyon.
12. National supervisors and international regulatory bodies have put in place a network of cooperative arrangements and developed proposals to enhance the supervision of internationally active financial institutions, on both an on-going basis and in emergency situations. These efforts should help the regulatory framework better reflect market developments. Moreover, Finance Ministers have agreed to support necessary changes in laws or regulations that facilitate and improve information exchange for supervisory purposes. Steps have been taken to strengthen risk assessment, reduce foreign exchange settlement risk, and improve market transparency to help our consumers, investors, and regulators better identify, manage, and control risks. In addition, the G-10 Working Party on Electronic Money identified a set of broad objectives and key considerations to help guide national approaches to emerging electronic payment technologies.
13. The Working Party on Financial Stability in Emerging Market Economies, which included representatives from those countries, has outlined a concrete strategy to assist emerging economies in strengthening their financial systems, and the Basle Committee on Banking Supervision has developed a set of "Core Principles" which will contribute significantly to the adoption of improved prudential standards worldwide. We urge the dissemination and endorsement of these reports and implementation of their recommendations.
14. These efforts to promote financial stability and mitigate possible financial crises are part of an important ongoing process to which we attach great importance. We urge our national supervisors to develop further and implement proposals to enhance international regulatory cooperation. We call on the international financial institutions and the international regulatory bodies to fulfill their roles in assisting emerging market economies in strengthening their financial systems and prudential standards. Our Finance Ministers will consult with the relevant supervisory and international regulatory bodies and international organizations to develop approaches for further actions, and report prior to next year's Summit on progress in implementing these initiatives.
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15. The rapid growth of global trade and private capital flows requires continuing adaptation and reform of the international financial institutions (IFIs). We therefore reaffirm our support for the ambitious program of IFI reforms underway following Halifax, and our conviction that their comprehensive implementation will substantially strengthen the effectiveness of the international monetary system. We pledge to work collaboratively with the institutions as they pursue these efforts, and to cooperate among ourselves and with others having a stake in the international monetary system to provide them the resources and multilateral support needed for success.
16. We value the IMF's surveillance of the international monetary system. We place particular importance on the IMF helping countries build long-term potential through trade and investment liberalization. By the time of the World Bank/IMF annual meetings in Hong Kong, we seek substantial agreement on key elements of an amendment to the IMF Articles to give the specific mandate to promote capital account liberalization to meet the new challenges in global capital markets. We welcome the IMF's progress in strengthening surveillance and promoting improved transparency. Increased attention to financial sector problems that could have significant macroeconomic implications, and to promoting good governance and transparency, will help prevent financial crises. Equally important is appropriate transparency in the Fund's activities with member countries. We welcome the IMF's progress in these areas. We seek substantial agreement toward a proposed amendment of the IMF Articles to provide for an "equity" allocation of Special Drawing Rights, and ask the IMF to work toward completing agreement by the time of the World Bank/IMF meetings in September.
17. The World Bank's Strategic Compact represents a welcome commitment to a new direction, emphasizing greater Bank impact on poverty reduction, strong new partnerships with the private sector, and a concentration of operations on countries genuinely committed to sound policies and the welfare of all their citizens. We fully endorse the Bank's commitment to a stronger focus on building institutional capacity, especially in the poorest countries, and its recognition of the central importance of transparency, accountability, and good governance in this effort. We look forward to full and timely implementation of these commitments. We urge the regional development banks to participate fully in meeting these same challenges. We welcome the World Bank Group's initiative to present at the Hong Kong meetings innovative ways to support private sector infrastructure investment in developing countries.
18. Transparent, accountable, and responsive public institutions are essential to achieving sustained economic development and healthy democracies. In this regard, we welcome the long-standing efforts of the World Bank to promote good governance and adoption by the Asian Development Bank of a good governance policy. We urge the IMF and the World Bank to finalize governance policies, consisting of principles and guidelines on best governance practices.
19. It is incumbent on us to help ensure that the IFIs have the multilateral support and financial resources needed to succeed with their ambitious and important reforms. For the multilateral banks, this means meeting our financial commitments in full, particularly with respect to vital concessional lending operations such as IDA. We also agree that the Multilateral Investment Guarantee Agency (MIGA) needs sufficient resources to continue to support, in close cooperation with other members of the World Bank Group, private sector investment in developing countries. Recognizing the importance of ensuring that the IMF continues to have adequate resources to fulfill its systemic responsibilities, we ask the IMF Board to work toward completing the Eleventh General Review of quotas by the time of the Hong Kong World Bank/IMF meetings in September. Continuation of the ESAF with adequate resources is needed to maintain a full role for the IMF in promoting growth and development in the poorest countries.
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20. We reiterate our commitment to sustainable and widely- shared economic growth and development, and reaffirm our full partnership with developing countries and the multilateral institutions, as agreed in Lyon. We remain committed, through this partnership and our bilateral efforts, to meeting the interrelated challenges of eradicating deep-seated poverty, investing in human potential and promoting dignity, and building on the clear lessons and major achievements of the past decade. We recognize and welcome the complementary and increasingly important role of the private sector in meeting these challenges.
21. This partnership is based on shared responsibilities and shared interests. For our part, we are committed to a sound global financial system, open trade and investment regimes, and consistent and sustainable growth in the advanced economies. We must ensure that adequate development assistance is available, and that it be concentrated primarily where it will have greatest impact, on the poorest countries in danger of being left further behind, and on the priority human resource investments that are the ultimate source of sustainable development. For their part, recipient countries must pursue sound macroeconomic policies; make fiscal choices that genuinely promote development and minimize unproductive expenditures, especially military expenditures; ensure the best possible use of our support; and respect the basic rights of individuals. We will reinforce these efforts with our active support. We reaffirm the Lyon commitment to support the IFIs' efforts to curtail unproductive expenditure in developing countries through our aid and credits.
22. Our partnership with the developing countries, particularly in Sub-Saharan Africa, where problems associated with poverty and marginalization are acute, can deepen and take on an additional, more market- oriented dimension as they implement comprehensive, outward looking and effective economic reform measures to promote financial and fiscal stability, trade and investment liberalization, sustainable development, and growth. We urge the IFIs - in particular the World Bank and the African Development Bank - to reinforce their efforts to support reforming Sub-Saharan African countries in particular to identify priority problems and reinforce steps toward openness, regional integration, and deeper participation in the world economy. Such actions should assist productive foreign investment and domestic capital formation. We call on the IFIs to report on their efforts by the time of the Hong Kong World Bank/IMF meetings. In addition, we welcome an increased focus on microenterprise development strategies in developing countries to broaden participation, and underline the importance of best practices in microfinance through bilateral and multilateral assistance.
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23. We welcome the substantial progress that has been made in implementing the new debt initiative launched in Lyon to help heavily indebted poor countries (the HIPC initiative) implement the bold reforms needed for debt relief to lead to sustainable financial positions and stronger growth. The IMF and World Bank have established specific mechanisms to provide effective multilateral debt reduction for countries qualifying under the HIPC initiative, and have made available initial funds for this purpose. The Paris Club has also shown its readiness to fully participate in the initiative, on the basis of fair burden sharing.
24. We look forward to further implementation of the agreed framework for this initiative in the coming year and expect additional countries to qualify for relief in the months ahead. The IMF, World Bank and Paris Club should fulfill their roles, including the provision of interim relief. They should also continue to coordinate closely with other multilateral institutions to assure their participation, taking into account the particular needs of the African Development Bank. The success of the new initiative relies on a combination of strong debtor reform programs and effective debt relief. We welcome that some countries have already substantially reduced bilateral concessional debt. Other countries should reinforce efforts to reduce or, where possible, extinguish such debt for the poorest reforming countries.
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25. We urge the IMF and the multilateral development banks to strengthen their activities to help countries fight corruption, including measures to ensure the rule of law, improve the efficiency and accountability of the public sector, and increase institutional capacity and efficiency, all of which help remove economic and financial incentives and opportunities for corrupt practices. We support and encourage the IFIs in their efforts to promote good governance in their respective areas of competence and responsibility.
26. In addition to its closer focus on broad governance issues, the World Bank has taken concrete steps against corruption by raising public sector procurement standards worldwide through greater transparency and rigor in the standards it applies to Bank- funded contracts. We urge the regional development banks to collaborate fully in this effort, including by establishing procurement standards that meet the highest standard.
27. We welcome the commitment of the OECD Ministers in May to criminalize bribery of foreign public officials in an effective and coordinated manner. We urge the prompt implementation of their previous recommendation on tax deductibility of such bribes. We are committed to submit criminalization proposals to our legislative bodies by April 1, 1998, and to seek their enactment by the end of 1998. We are also committed to that end, promptly to open negotiations of a convention to be completed by the end of this year with a view to its entry into force as soon as possible within 1998.
28. We reiterate our commitment to improve international cooperation between law enforcement agencies and financial regulators on cases involving serious financial crimes and regulatory abuse. We ask our experts to report and make recommendations at next year's Summit.
29. Money laundering poses a continuing threat to the democratic values and financial integrity of all of our countries. The Financial Action Task Force (FATF) is leading the international fight against money laundering, and we believe that the FATF should continue its important work. The key challenge will be to spread the anti-money laundering message to all regions of the globe. FATF should consider expanding its membership to include a select group of nonmember countries committed to the Forty FATF Recommendations which can play a significant role in their regions. FATF should seek stronger cooperation with regional organizations, the support of the international financial institutions and the cooperation of the international financial services industry. Over the next year, we urge the FATF to review ways to advance its essential work and look forward to receiving its conclusions when we meet at next year's Summit and consider renewal of its mandate for an additional five-year period.
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30. Trade and investment are essential to increased prosperity, sustainable economic growth and job creation. We attach high priority to full and effective implementation of the Uruguay Round agreements to support the goals of further trade liberalization to spread the benefits of globalization. Globalization will only be sustainable if everyone enjoys the benefits of the resulting economic gains. We welcome the WTO's first Ministerial Conference in Singapore in December, and the important trade agreements covering $1 trillion in information technology goods and telecommunications services achieved earlier this year and look forward to its expansion. We believe that it will be in the interests of all WTO members to secure a financial services agreement by the end of this year, on a full MFN basis, that contains significantly improved market access and national treatment commitments from a broader range of countries. We shall negotiate constructively to achieve such a result and urge our partners to join us in this effort. Similarly, we look forward to a successful completion in 1998 of the OECD negotiations on the Multilateral Agreement on Investment.
31. We restate the primacy of an open, multilateral, trading system based on the WTO. Next year's 50th anniversary of the GATT provides an occasion to reflect on what we have achieved and an opportunity to look to the future. We endorse the program of work and timetable for further trade liberalization built into the Uruguay Round agreements and elaborated by Trade Ministers at Singapore. We are committed to building the widest possible support for this process. We agreed to explore further market opening initiatives, taking into account developments in the world economy, the widening membership of the multilateral system, and important traditional trade barriers that remain. While rejecting the use of labor standards for protectionist purposes, we renew our commitment to the observance of internationally recognized core labor standards.
32. We attach a high priority to expanding the membership of the WTO, on the basis of commitments to adhere to WTO rules and to provide commercially meaningful market access. As agreed at Singapore, we also support the further integration of the least- developed countries in the trading system, through a plan of action, including, for example, providing predictable and favorable duty- free market access conditions for their products on an autonomous basis to help foster the expansion and diversification of their exports. We look to the WTO-UNCTAD-ITC Conference to enhance their capacity to benefit from increased trade and investment. We each will continue to improve, through various means, access to our markets for least-developed countries.
33. The development of electronic commerce has the potential to yield great benefits to all our citizens and enterprises. To do so, it must be able to grow in a predictable and stable environment. We have directed our officials to work with the OECD, WTO, other appropriate international organizations, and the private sector to identify opportunities to facilitate global electronic commerce, as well as the challenges it poses to ensure preservation of national security interests, consumer protections, effective tax administration and the ability to deal with criminal activities, including money laundering.
34. In Lyon we initiated an effort to standardize and simplify customs procedures. We urge our customs experts to complete their work in the next year and report prior to our next meeting on their efforts to standardize both the data required by customs and other related administrations to carry out their responsibilities and the form in which data are to be reported electronically, and to reduce data requirements to a minimum consistent with effective administration of customs responsibilities.
35. The globalization of national economies has increased the challenge of harmful tax competition. As stated in the Lyon communique, tax schemes aimed at attracting financial and other geographically mobile activities can create harmful tax competition between states, carrying risks of distorting trade and investment, and could lead to the erosion of national tax bases. Harmful tax competition also undermines the fairness and neutrality of the tax system. Hence we attach great importance to the work undertaken by the OECD. We hope that the OECD can produce its conclusions and recommendations on this subject in time for our consideration at next year's Summit.
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36. We encourage Ukraine to tackle the challenges of reinvigorating economic reform and creating a more welcoming environment for investors. Immediate progress on the ambitious reform plan outlined by the Ukrainian government last fall is crucial to that effort and to gaining access to the considerable financing package already available from the IFIs and the donors. Decisive steps are now needed by government to improve the legal standing and practical treatment of investors. This is key to developing the private business sector, without which reform will fail.
37. We have made significant progress in implementing the 1995 Memorandum of Understanding (MOU) with Ukraine on Chernobyl Closure. We reaffirm our commitment to assist Ukraine, within the context of the MOU, in mobilizing funds for energy projects to help meet its power needs in 2000 and beyond after Chernobyl's closure. To date, projects have been agreed totaling over $1 billion. We call upon Ukraine to continue to undertake the reforms necessary for sustainable growth, particularly in its energy sector.
38. We agreed on the importance of securing the environmental safety of the sarcophagus covering the remains of the destroyed Chernobyl reactor. This task is inevitably beyond the resources of Ukraine alone. This is a major challenge for the international community. We have decided to add to the commitments we undertook in the MOU with Ukraine. We endorse the setting up of a multilateral funding mechanism and have agreed that the G-7 will contribute $300 million over the lifetime of the project. We call upon concerned governments and other donors to join us at a special pledging conference this fall to ensure full implementation of this project.
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Source: Released at the Denver Summit of the Eight