International Monetary and
Financial Committee
Thirty-Third Meeting
April 15–16, 2016

Statement No. 33-31

Statement by Mr. Dijsselbloem
Kingdom of the Netherlands—Netherlands
On behalf of
Republic of Armenia, Belgium, Bosnia and Herzegovina, Bulgaria, Republic of Croatia,
Cyprus, Georgia, Israel, Luxembourg, Former Yugoslav Republic of Macedonia,
Republic of Moldova, Montenegro, Kingdom of the Netherlands—Netherlands,
Romania, and Ukraine

Statement by Mr. Jeroen Dijsselbloem
Minister of Finance, the Netherlands
on behalf of
Armenia, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia,
Israel, Luxembourg, Former Yugoslav Republic of Macedonia, Moldova,
Montenegro, the Netherlands, Romania and Ukraine
at the 33rd International Monetary and Financial Committee
Washington DC, April 15-16, 2016
Global Economic and Financial Prospects and Policies
The recovery continues but we need better management of expectations...
With 3,2% growth in 2016 and 3,5% growth in 2017 the global economy is expected to reach the
historic world average of 3,5%. The recovery in the Euro area continues and is broad based, with
all countries projected to experience positive growth in 2017. The recovery is supported by
improved labor market conditions and pay-offs from earlier structural reforms. The Chinese
economy has slowed down from very high growth levels but its further expansion is expected to be
more sustainable going forward. Growth in a number of other large emerging market economies,
such as India and Indonesia, remains strong.
Pessimism on global growth at the current juncture seems to be driven partly by events on
financial markets in early 2016, which featured an unusual high degree of volatility. In our view the
magnitude of this volatility did not reflect the underlying fundamentals of the global economy,
although fundamental changes in financial markets – such as lower levels of liquidity - could
contribute to structurally higher levels of volatility.
Yet volatility can also be seen as a byproduct of progress towards achieving more sustainable
growth. One example concerns China: while uncertainty on the direction of Chinese policies may
have led to excessive volatility, the necessary transition to a sustainable growth model will
inevitably generate periodic shocks in financial markets. Another example concerns the euro area:
it has over the past few years made substantial steps to strengthen its financial sector, especially
its banks. The coming into force of new bail-in rules in 2016 requires bank liability holders to fully
internalize and price bail-in risks. While increasing awareness among investors creates (temporary)
volatility, such price movements might be considered as an initial indication that rules we designed
to reduce the need for bailouts funded by taxpayers work.
Better management of expectations can limit financial market volatility. We should avoid increasing
policy and regulatory uncertainty, by leaving no doubt that we will implement the rules of our
agreed regulation. Banks are confronted with challenges to their business model but any possible
weakening of recently approved banking regulation will likely have the opposite effect of reducing
confidence. And we should finish what we started, by implementing the agreement on total loss
absorption capacity (TLAC) and, for the euro area, by completing the banking union.
Better management of expectations is also necessary regarding the real economy. In advanced
economies shrinking potential output growth is a long-term trend. In emerging market economies
it has also decreased over the past years. Hence lower growth and/or downgrades of growth
forecasts should not solely lead to calls for additional macro-economic stimulus but require a
reassessment of the degree of realism in the initial expectations of some. We subscribe to a
comprehensive growth strategy where monetary, fiscal and structural policies are mutually
reinforcing to support growth and stabilityhowever if we want to sustainably raise growth, we will
need to focus on further structural reforms.
...and a policy mix with more attention for structural reforms and the composition of
fiscal policy
This Constituency has repeatedly argued that a return to strong, sustainable and balanced growth
is impossible without walking the extra mile on structural reforms. As monetary policy alone cannot
generate growth and public debt is already high in various countries, various countries have over

2

the past few years increased their efforts to strengthen their economy through structural reforms.
This should enable a policy mix without too much weight on monetary accommodation. At the
same time there is scope to further step up structural reform efforts in most countries.
While the positive effects of various structural reforms can take some time to manifest, structural
reforms are the only durable medicines that can generate growth and raise employment in a
sustainable way. In addition to increasing potential output, structural reforms can also have
various other benefits. These include:
1. Increasing the flexibility of economies, which makes them more resilient to shocks.
2. Various structural reforms can boost short term growth by increasing confidence and
boosting future earnings expectations. Specific reforms in overregulated product markets
also offer fresh investment opportunities. This calls for well-designed, well-sequenced and
credible reform packages.

3. If well chosen, structural reforms can lead to a simultaneous reduction in inequality and,
especially in the case of Europe, a reinforcement of its social model. For example, better
and more accessible education will not only increase labour productivity but will also
improve social mobility.
Adequate communication on the merits of structural reforms is important to increase public support
and, by taking into account country specific circumstances, improve country ownership. Taking into
account country specific circumstances would imply for example a focus for the euro area on
reducing the tax wedge and improving insolvency regimes, for the US on increasing labor
participation by active labor market policies, for China on enforcing market discipline on state
owned enterprises, for emerging market economies on dismantling bottlenecks for infrastructure
investment and for low-income economies on measures geared towards increassing economic
diversification.
Given the importance of structural reforms, we welcome the IMF’s empirical analysis on the
macroeconomic effects of reforms. The IMF proposes better sequencing and prioritizing of
structural reforms based on the business cycle and available monetary and fiscal space. At the
same time, policymakers need to use the current momentum for reform. Hence, calls for proper
sequencing and sufficient macro-economic accommodation should not result in delays and eventual
annulation of necessary reforms. Strong growth performances of various euro area programme
countries in the last few years illustrate that a credible package of structural reforms can have
positive effects, also in the short run. Packaging of reforms, such as a combination of labor and
product market reforms, enables policy makers to smooth possible adverse effects for specific
groups in society.
Prudent fiscal policies should remain another element of a well-balanced and growth friendly policy
mix. We call for caution when using expansionary fiscal policy. Many countries already have high
public debt. This increases vulnerability in the face of future shocks and could damage growth
through confidence effects. In order to increase resilience, reducing public debt levels should
remain high on the agenda.
Alternatively, countries can stimulate growth by improving the quality of public finance. This
includes adjusting the composition of public expenditures and taxes towards growth friendly budget
items but also working on the efficiency of public expenditures to have a bigger bang for the buck.
Such steps can for example lead to both increased and better spending on public infrastructure.
This will, together with measures that stimulate private investment, increase countries’ capital
stock and potential output. At the same time we caution against generic statements on the
potential of additional public infrastructure investment to increase growth. Country circumstances
should be taken into account and traditional quality standards for projects should be maintained.

2

3

IMF policy issues
The functioning of the International Monetary System
Since the last IMFC meeting in Lima, several important steps have been taken that contribute to a
more robust and effective International Monetary System (IMS). Our Constituency very much
welcomes the entry into effect of the 2010 quota and governance reforms. The doubling of quota
resources ensures that the IMF is less dependent on temporary borrowed resources, while the
redistribution of quotas to EMDCs and the move to an all-elected Board strengthen the legitimacy
of the Fund. Furthermore, the decision of the Executive Board to include the renminbi in the SDRbasket as of October 2016 will ensure that the composition of the basket better reflects the global
reserve currencies used in the IMS. We also welcome the recently approved reform of the lending
framework for programs with exceptional access support; our Constituency has been very
supportive of this proposal from the start. The reform strengthens the IMF’s policy on sovereign
debt restructuring by increasing the flexibility for the Fund to provide financing on the condition of
a reprofiling of existing claims and by enhancing market discipline through the involvement of
private creditors.
Our Constituency sees scope to further strengthen the IMS, but we encourage the IMF to focus on
several key issues. First of all, stronger domestic policy frameworks and deeper financial markets
are a key priority for the Fund in order to increase the resilience to shocks, in particular in
emerging and developing countries. The IMF should thus provide the right incentives at the
national, regional and global level with candid surveillance. Adequate macroeconomic and financial
policies, including structural reforms, are a first priority against shocks in the broader context of
the IMS. The Fund could also conduct further analytical work and monitoring to deepen its
knowledge on capital flows in close cooperation with the BIS, FSB and OECD. The IMF should
encourage its members to continue policies aimed at opening up financial accounts and liberalizing
capital markets. Capital flow management ought to be seen as a policy tool to address financial
stability risks only when excess (volatility) in financial flows cannot be reduced by macro-economic
adjustment. They should be used with caution and on a temporary basis.
Adequacy of the global financial safety net
The GFSN is a crucial component of the IMS as it ensures that all countries have potential access to
liquidity support in reserve currencies to address external funding crises. The GFSN has been
significantly strengthened in size since the global financial crisis and the composition has evolved
by adapting to new circumstances and incorporating key lessons from the crisis. Our Constituency
is of the view that there is currently no need to question the adequacy of the size of the GFSN for
both the short- and medium-term. The discussion on the GFSN should primarily address the
question whether its composition is adequate and whether all countries have sufficient access.
Given that not all countries are prone to the same type and size of shocks, due to structural
differences, there is a logic for the GFSN to consist of multiple layers that address a broad range of
risks. The euro area has significantly strengthened its safety net for several components, with the
establishment of the ESM. Several other regions have also set up their own Regional Financing
Arrangement (RFA), although these remain largely untested. Some countries have relied more on
self-insurance to prevent risks from materializing. Developing countries’ access is mostly limited to
the IMF. In our Constituency’s view it is important that all IMF members have sufficient access to
liquidity support of the GFSN.
The role of the IMF in the IMS and GFSN
The IMF has a central role in the GFSN. Due to the strengthening of the IMF’s surveillance capacity,
the expansion of the lending toolkit with precautionary instruments and the increased access limits,
the Fund’s position in the GFSN is stronger today. At the same time, this role can be further
strengthened. The Fund can contribute to the cooperation between the different actors within the
GFSN. This in particular applies to the cooperation with RFAs. The IMF could use its technical
expertise to provide assistance to RFAs, in order to strengthen their institutional functioning and
lending operations. Since RFAs are heterogeneous, it is important that measures to strengthen

3

4

cooperation take into account differences in mandates and respect the independence of RFAs. The
IMF, through its programs and surveillance capacity, can address moral hazard within the GFSN, by
ensuring that financial support is accompanied by policy incentives to prevent new risks from
materializing. The IMF should ensure that appropriate conditionalities continue to be set for all
types of programs. The Fund should use the flexibility within the current lending toolkit, in order to
tailor support to country-specific needs.
The resources of the IMF make up an essential part of the GFSN. Our Constituency has committed
itself to a Fund with an adequate size. The current level of resources provides a large buffer against
downside risks. As it currently stands, we do not see a need to increase the Fund’s lending
capacity. We expect several measures to decrease the demand for IMF resources, including the
recent reform to the Fund’s lending framework for exceptional access programs and financial
regulatory reforms (in particular more effective bank resolution regimes), that reduce the likelihood
and/or cost of financial sector crises. We also stress that the 2012 bilateral borrowing agreements
were set up as a temporary credit arrangement at an exceptional time when there was a pressing
need for an increase in IMF resources and that these have been predominantly provided by
European members. A renewal of the bilateral agreements as a bridge towards the quota resources
and NAB should not be taken for granted.
Our Constituency finds it important that the IMF remains a quota-based institution, since quotas
underpin the Fund’s governance by anchoring voting power of members. They also underpin the
Fund’s finances and ensure that the burden of providing resources is shared between members. In
this context, we look forward to the discussions on the 15th review of quotas and are committed to
reaching an agreement by the Annual Meetings in 2017. We reiterate the IMFC’s commitment to
treat the 15th review of quotas and the review of the quota formula as an integrated package. GDP
and openness must remain the two main variables in the formula as they best capture the role and
mandate of the Fund. The methodology of openness should remain unchanged and its weight in the
formula should at least be maintained.
IMF lending
In our Constituency, Armenia, Georgia and Ukraine currently have a financial arrangement with the
Fund. Ukraine is currently implementing a comprehensive program of adjustment and reforms with
strong support of the IMF. The first review has been successfully completed and the process of the
second review is currently ongoing. Cyprus has successfully exited the IMF program. We would like
to thank the Fund for its continued support.

4