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G7 to examine changing role of development banks

TOKYO: The Group of Seven industrial nations agreed on Saturday to examine whether the role of multilateral development banks needs to evolve to keep pace with rapid changes in the world economy.

The review will be part of the effort the G7 is making to strengthen the international financial system to avert a repeat of the crisis that rocked Asia in 1997 and then spread to Russia and other emerging economies.

In a communique released after a day-long meeting, G7 finance ministers and central bank chiefs said they had reviewed with satisfaction the progress being made and were encouraged by the discussions being held at the IMF on a broad range of issues to make the global financial system safer.

British finance minister Gordon Brown said the G7 was committed to keep up the pace of reform even though the emerging market crisis was now over.

"This is the right time for these reforms to be made," Brown told a news conference.

"The pace of change, strengthening the international financial architecture, is continuing, and our announcements in the communique about the further work we are doing shows that we are determined to use this period of growth to make sure that the changes that we know are necessary are fully implemented," Brown said.

Brown said the need to examine the role of multilateral development banks such as the World Bank flowed from a recent suggestion by U.S. Treasury Secretary Lawrence Summers that the International Monetary Fund should concentrate on financial emergencies and get out of the business of long-term lending.

German Finance Minister Hans Eichel said there had been a very lively discussion of Summers's proposal.

He said it might be possible to envisage a pared-down role for the IMF, but only on condition that a way is found of ensuring that private-sector banks and investors do not pull their money out of crisis-hit countries.

Eichel chided the United States for foot-dragging on the issue of involving the private sector and said he hoped the G7 could reach a common position by this Spring's meeting of the IMF and World Bank.

Even so, he said most G7 participants had expressed reservations about just how far it would be possible to cut back the IMF's role.

"For the poorest countries in particular, the IMF will continue to play a decisive role," Eichel said, adding it was impossible to imagine the private sector stepping into the breach.

Safeguarding use of IMF funds

The Group of Seven nations said they looked forward to a review by the IMF and World Bank to strengthen safeguards on the use of their funds.

Finance ministers and central bank governors of the G7 said that the benefits and opportunities of the international financial system could be undermined by corruption.

Referring to a review by the World Bank and the International Monetary Fund, the statement said: "We expect the international institutions to also strengthen governance and anti-money laundering measures in programmes with member countries." In order to secure the benefits of the global financial system, "we must ensure that its credibility and integrity are not undermined by crime, poor regulatory standards and harmful tax competition," the statement said.

It called for a task force to identify jurisdictions that did not cooperate to prevent money laundering, and said the G7 was concerned about offshore financial centres and tax havens which undermined international standards of financial regulation, and which were shelters to avoid or evade tax. The IMF temporarily suspended disbursement of loans to Indonesia last year over a banking scandal, and urged Russia to do more on banking, transparency and governance - codewords the IMF uses when referring to official corruption.-Reuters