G7 Chairman's Statement

Birmingham, 15 May 1998

1. The Heads of State or Government of the G7 countries and the President of the European Commission met today, 15 May, to discuss the world economic and financial situation, and the challenges we face in strengthening the global financial system.

The World Economy

2. We discussed recent developments in our own economies and economic developments in the rest of the world. In our own economies we will work together to achieve sustained non-inflationary growth. Such growth and stability are more important than ever, not only for our own economies, but also for other economies in the world, particularly the recovering economies in Asia.

3. We also agreed that the challenges facing each of our own economies remain different:

4. We welcome the decisions taken on 2 May on the establishment of European Economic and Monetary Union. We look forward to a successful EMU which contributes to the stability of the international monetary system. The commitment in European Union countries to sound fiscal policies and continuing structural reform is key to the long term success of EMU, and to improving the prospects for growth and employment.

5. We recognise that all countries in the world have an interest in growth and stability in our countries. Equally we have an interest in sustained growth and stability in their economies. While we are encouraged by the progress in implementing sound policies in emerging markets that have been affected by the Asian crisis, events in recent days demonstrate that the situation remains fragile. In particular, we welcome the contribution made to global stability by the pursuit of sound economic and financial policies. Moreover, prompt action by some emerging and transition countries to strengthen their economic policies has helped limit spillover effects. Sound macroeconomic policies, open markets and continued structural reform in all countries are essential for long term stability in the world. Recent experience emphasises the importance also of good public governance.

Strengthening the Global Financial System

6. Globalisation has the power to bring immense economic benefits to all countries and people. But the Asian financial crisis has revealed that there are potential weaknesses and vulnerabilities in the global financial system. In particular we are conscious of the serious human and social consequences of such crises when they occur. We therefore see an urgent need to take steps to strengthen the global financial architecture, to reduce the risks of such crises recurring in future and to produce a system that is more robust to shocks when they occur.

7. Previous summits have also dealt with ways of strengthening the global financial system, and this should be seen as a continuing process of reform. It is essential for individual countries to pursue sound economic policies, open markets and good governance, if stability is to be achieved. At the same time we confirm the central role we see for the International Financial Institutions (IFIs) in promoting these sound policies, in helping to prevent failures in future and in responding when crises occur. Their response has been crucial in addressing recent problems and we must find ways to strengthen their role in the future.

8. We welcome and endorse the report by our Finance Ministers on ways to strengthen the global financial architecture. Of their ideas, we attach particular importance to the following:

9. We ask our Finance Ministers to take forward these ideas in co-operation and discussion with emerging market and other countries, with the International Financial Institutions and the private sector. We also ask our Finance Ministers to consider further how the existing global discussion fora, particularly the IMF's Interim Committee, could be developed to permit a deeper and more effective dialogue. We hope firm proposals on all these issues can be put forward for decision later this year, and we ask our Finance Ministers to report to us on progress without delay.

Ukraine

10. We renewed our resolve to work with Ukraine to implement strong financial and economic reform. We look forward to the Ukrainian government and parliament taking the steps necessary to agree on an Extended Financing Facility with the IMF.

11. We reaffirmed our commitment to the full implementation of the Memorandum of Understanding (MoU) between the G7 and Ukraine. In addition we have made a major effort with the funding of the Shelter Implementation Plan. We note that the funding from the G7 and other international donors envisaged under the MoU is dependent on the closure of Chernobyl taking place on schedule by the year 2000. The safety of Chernobyl Unit 3 is already giving rise to concern.

12. We commend the Ukrainian Government's decision to adopt a Financial Recovery Plan for the energy sector. We look to the Government of Ukraine to implement the fundamental reforms which are needed to make investments in the energy sector and elsewhere financially viable. With the Financial Recovery Plan in place, we look to the EBRD to complete its review of the Khmelnitsky 2 and Rovno 4 (K2/R4) project swiftly and to contribute substantially to a successful loan package, while respecting the Bank's due diligence requirements. This, like the other funding, will of course depend on the Ukrainian Government fulfilling its undertakings under the MoU.

Source: Released at the Birmingham G8 Summit