**Statement of G7 Finance Ministers and Central Bank Governors**

**17 February 2001**

**Palermo**

1.  We, the Finance Ministers of the G7 countries, the Central Bank
    Governors of Canada, Japan, the United States, and the United
    Kingdom, the President of the Euro-group, and the President of the
    European Central Bank, met today in Palermo with the Managing
    Director of the International Monetary Fund to review recent
    developments in the world economy. We, the Finance Ministers and
    Central Bank Governors of the G7 also discussed the progress made
    towards strengthening the international financial architecture, in
    particular by laying plans for the reform of Multilateral
    Development Banks, the implementation of the HIPC Initiative and
    ways to proceed beyond debt relief, including for the preparation
    for the Genova Summit. We also met with the Finance Minister and the
    Central Bank Governor of Russia and with Representatives of the
    European Commission to discuss recent developments of the Russian
    economy.

**Developments in the World Economy**

2.  Although global growth this year is likely to be somewhat slower
    than we expected when we last met, the basic factors that have
    supported sustained growth in many of the major industrial economies
    remain in place. We agreed on the need for both macroeconomic and
    structural policies in all our countries to support growth. In this
    context, lower energy prices and stable oil markets are important.

3.  We reemphasized our commitment to foster conditions for sustainable
    growth worldwide. In this context, we stressed the importance of
    continued cooperation among the G7 countries. More specifically.

-   In the United States, economic growth has slowed, though economic
    fundamentals remain strong. Monetary and fiscal policies should aim
    at supporting sustained growth, while preserving budgetary restraint
    and price stability and increasing national saving over the medium
    term.

-   In the United Kingdom and Canada, growth remains healthy and
    unemployment is low, with some signs of a temporary slowing in
    economic growth. Policies should continue to sustain growth and
    employment over the medium term, while meeting inflation targets.

-   In the Euro area growth prospects remain favorable, thanks to strong
    domestic demand. Policies should be directed at enhancing growth
    potential, through continued coordinated reform efforts aimed at
    increasing product and labor market efficiency. Tax reforms are
    being implemented while pursuing fiscal consolidation. In view of
    Europe\'s aging population, budgets and social security systems need
    to be further strengthened.

-   In Japan, while a modest recovery is expected, prices continue to
    decline and downside risks remain. In this context, monetary policy
    should continue to ensure that liquidity is provided in ample terms.
    Efforts to strengthen the financial sector should be enhanced.

**Exchange Rates**

4.  We discussed developments in our exchange and financial markets. We
    reiterated our view that exchange rates among major currencies
    should reflect economic fundamentals. We will continue to monitor
    developments closely and to cooperate in exchange markets as
    appropriate.

**Emerging Market Economies**

5.  After two years of strong recovery, the outlook for emerging market
    economies has become more mixed. We welcome the substantial progress
    achieved in emerging Asia to reduce vulnerabilities, including the
    improvement of the external debt structure in the crisis-affected
    countries, and the adoption of more sustainable exchange rate
    regimes. To secure future growth, it is important to pursue
    necessary reforms of the financial and corporate sectors. In Latin
    America, sound macroeconomic and structural policies are needed to
    help reduce vulnerabilities. In all emerging market economies, we
    stress the importance of further intensifying efforts to implement
    internationally agreed standards and codes. The pace of reforms
    should not be relaxed.

**Russia**

6.  We welcome the recent improvements in the macroeconomic and balance
    of payments situation of the Russian economy. We strongly urge the
    Russian authorities to step up the process of economic reforms and
    meet in full their financial obligations in order to restore
    promptly normal relations with the international financial
    community. While some elements of the comprehensive tax reform
    package have been adopted, critical challenges remain, such as
    enforcing the rule of law, attacking nonpayments and barter,
    strengthening the banking system, improving corporate governance,
    and fighting money laundering. On the latter, we urge the Russian
    authorities to move quickly to remedy the deficiencies identified by
    the FATF in June 2000. We call upon the Russian authorities, as they
    address the difficult and complex process of economic transition, to
    implement a credible program of reform, and create the essential
    market institutions and infrastructure for sound growth. In this
    context, we encourage the Russian authorities to continue to work
    with the IMF and World Bank.

**HIPC and Development Beyond Debt Relief**

7.  We noted with satisfaction that the implementation of the enhanced
    HIPC (Heavily Indebted Poor Countries) Initiative has already enable
    22 countries to reach the Decision Point. These countries are now
    receiving significant debt relief. We are committed to helping them
    implement their poverty reduction strategies and thereby reach their
    Completion Points. This will lead to \$34 billion of debt relief
    under HIPC, reducing the debt of these countries on average by two
    thirds. We noted that most of the eligible countries that have not
    yet reached the Decision Point are currently in, or just emerging
    from, conflict. We call on these countries to reach a peaceful
    resolution of their problems and we intend to help them in their
    reconstruction efforts.

8.  We urge all creditors to participate fully in providing on a timely
    basis their share of debt reduction under the enhanced HIPC
    Initiative. The G7 governments have gone beyond the HIPC targets and
    agreed to commit to provide 100 percent debt reduction on ODA and
    eligible commercial credits for countries qualifying for HIPC debt
    reduction. We urge other bilateral creditors to take similar action.

9.  We consider that debt reduction is only one element of a broader,
    more ambitious strategy for poverty reduction, based on three
    pillars. First, action is needed to launch a new multilateral trade
    round and to open further markets to exports from the poorest
    countries. Second, a more favorable environment for attracting
    private investment needs to be created in the poorest countries.
    Third, within country-owned poverty reduction strategies, resources
    need to be channeled, in a more efficient and coordinated way, to
    the social sector, as we work towards the objectives contained in
    the 2015 International Development Goals (IDG).

**Strengthening the International Financial Architecture, including
Reform of the Multilateral Development Banks**

10. We noted the progress made to reinforce the international financial
    system. We look forward to further progress prioritization of IMF
    conditionality, implementation of the internationally agreed codes
    and standards, crisis prevention, private sector involvement, and
    financial liberalization. We note the need for further discussion on
    quotas at the IMF Board.

11. We also discussed the main features of the reform of the MDBs,
    following on the recommendations contained in the Fukuoka report of
    July 2000. The MDBs have made considerable progress on internal and
    policy reforms in recent years, but more can be done to focus their
    action on poverty reduction, consistent with the IDG. Key principles
    of the reform are: greater selectivity in setting priorities, focus
    on the needs of the poorest, effective and transparent internal
    governance, and improving development impact.

12. To this end, MDBs should:

-   Further improve and strengthen accountability and transparency,
    including through the establishment or the reinforcement of central
    control mechanisms to ensure compliance with agreed policies and
    safeguards;

-   Enhance substantially coordination and interaction among themselves
    and with other development actors;

-   Ensure full and timely disclosure of all program and policy
    documents;

-   Undertake expeditiously a comprehensive review of pricing policies;

-   Integrate due diligence and fiduciary diagnostics into country
    assistance strategies and in decisions on the choice of lending
    instruments.

In our view, selectivity in setting priorities and improving development
impact require particular attention to: appropriate provision of global
public goods, good governance, private sector development in lower
income countries, and financial sector development, including fighting
financial abuse. We look forward to intensifying our dialogue with the
MDBs to this end and to reviewing progress at the Spring meetings.

**Action against the Abuses of the Global Financial System**

13. Following our report to the Okinawa Summit and the Heads\'
    recommendations we note the positive evolution of the dialogue with
    the countries involved. The Financial Action Task Force (FATF) has
    recently reported the significant progress made by most of the
    fifteen non co-operative countries and territories (NCCTs) listed in
    June 2000. Seven countries have already enacted most, if not all, of
    the legislation needed to fight money laundering effectively. We
    encourage those jurisdictions to demonstrate their willingness and
    ability to implement these reforms, so that they can be de-listed at
    the earliest possible time. To this end, we remain committed to
    continuing dialogue with the identified countries, and to provide
    technical assistance where possible. However, we reaffirm our
    commitment, where dialogue has failed to generate adequate progress,
    to implement coordinated countermeasures that may be recommended by
    the FATF at its meeting in June 2001. We urge the International
    Financial Institutions, in particular the International Monetary
    Fund and the World Bank, to help NCCTs implement the relevant
    international anti-money laundering standards (the FATF 40
    Recommendations), as appropriate, through technical assistance,
    program design and policy dialogue.

14. We reaffirm our support for the efforts of OECD to address harmful
    tax practices. We encourage the OECD to continue its efforts. We
    encourage the efforts of the OECD member countries to meet their
    commitments. We welcome the cooperative dialogue which has been
    established with countries and jurisdictions outside the OECD area.
    We welcome the new commitments made by some jurisdictions to
    eliminate their harmful tax practices by end of 2005. We encourage
    others to make early commitments, so that as few jurisdictions as
    possible are included in the list of uncooperative tax havens which
    we look forward to examining at the Genova Summit. We encourage all
    OECD governments to consider offering, under the auspices of the
    OECD and other international organizations, technical assistance to
    cooperating jurisdictions, if needed to comply with their
    commitments.

15. We welcome the intent of certain OFCs to improve supervisory,
    regulatory, co-operation and information exchange policies and
    practices and encourage OFCs to disclose assessment findings,
    including those done by the IMF, as a means of demonstrating
    compliance with and progress in meeting international standards in
    these areas. We ask the FSF to monitor the implementation of its
    recommendations and to consider means of recognizing progress being
    made by certain OFCs and recommend any future action, if necessary.