IMF steering committee communique

WASHINGTON (Reuters) - The following is the full text of the communique the International Monetary Fund's International Monetary and Financial Committee released on Saturday.

1. The International Monetary and Financial Committee held its seventeenth meeting in Washington, D.C. on April 12, 2008 under the Chairmanship of Mr. Tommaso Padoa-Schioppa, Minister of Economy and Finance of Italy.

2. The Committee met at a time of unusual uncertainties surrounding global economic and financial market prospects. It stresses that the challenges facing the world economy are of a global nature, requiring strong action and close cooperation among the membership. The Committee is confident that the key reforms recently agreed by the Fund's Executive Board, including the strategic refocusing of the Fund on its core mandate based on its comparative advantage, will strengthen the Fund's role in promoting global financial stability and international monetary cooperation and in serving its universal membership effectively at this critical juncture.

The Global Economy and Financial Markets -- Outlook, Risks, and Policy Responses

3. The Committee notes that global financial instability has increased since its last meeting. World economic growth has slowed and growth prospects for 2008 and 2009 have deteriorated. Risks to the outlook come from the still unfolding events in financial markets and from the potential worsening of housing and credit cycles. Inflationary risks -- notably from higher food, energy, and other commodity prices -- have also risen. The Committee agrees that policymakers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control. While each country's situation is different, coherent action must be taken, taking due account of cross border interactions.

4. In the advanced economies, monetary policy should continue to aim at medium term price stability, while responding flexibly to signs of a more pronounced and prolonged economic downturn. Fiscal policy can also play a useful countercyclical role. In the United States, temporary fiscal easing will help to counter downside risks to growth. Other advanced economies have also experienced financial turbulence and their growth rates have declined; when consistent with medium term fiscal objectives, automatic stabilizers should be allowed full play. Further progress should also be made on: safeguarding medium term fiscal consolidation in the United States; product and labor market reforms in Europe; further structural reforms, including fiscal consolidation, in Japan; addressing supply bottlenecks in oil exporting countries; and reforms to boost domestic consumption in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries.

5. The Committee welcomes the actions taken by the central banks of the advanced economies to provide liquidity support to ease strains in interbank markets, and calls for continued vigilance to deal with the financial turmoil. Further prompt actions by large financial institutions to disclose losses and repair balance sheets by raising capital when needed and mobilizing medium term funding will contribute to restoring confidence. The Committee sees the ongoing work in several fora aimed at managing and drawing lessons from the financial turmoil as a key step to strengthen the stability of the global financial system and to reinforce the supervisory and regulatory frameworks. In this context, it welcomes the Fund's work in these areas, notably the Global Financial Stability Report and the report prepared by the IMF on The Recent Financial Turmoil: Initial Assessment, Policy Lessons, and Implications for Fund Surveillance. The Committee underscores that continued close Fund collaboration with the Financial Stability Forum (FSF), the Bank for International Settlements, standard-setting bodies, and national authorities will be essential to ensure that the lessons from the crisis are effectively shared and that agreed policy actions are rapidly implemented. In this context, the Committee welcomes the policy recommendations by the FSF and calls for their timely implementation; it also emphasizes the importance of strengthening the Fund's financial surveillance role, including through the Financial Sector Assessment Program, and its capability to identify risks in the future. The Committee will review further progress on these issues at its next meeting.

6. Emerging market and developing countries have so far continued to grow strongly and show resilience in the face of the ongoing financial crisis, though their growth prospects have moderated and inflation risks have increased. For many countries, containing inflation and addressing vulnerabilities remain key priorities. Other countries may have room to respond to a further worsening of the external environment by countercyclical monetary and fiscal policies without jeopardizing their stabilization gains. Commodity-exporting countries, exposed to the risk of significant swings in commodity prices, should maintain progress toward economic diversification. The Committee notes that a number of developing countries, especially low-income countries, face a sharp rise in food and energy prices, which have a particularly strong impact on the poorest segments of the population. The Committee urges the Fund to work closely with the World Bank and other partners in an integrated response through policy advice and financial support.

7. The Committee reiterates its strong support for a prompt and ambitious conclusion of the Doha Development Round of trade negotiations.