Brussels, 14/04/2008 (Agence Europe) - At the spring meeting held this weekend in Washington, the finance ministers and central bank governors of the 185 member countries of the IMF and the World Bank approved the conclusions of the report by the Financial Stability Forum (FSF). Prior to this on Friday 11 April, their G7 counterparts committed to putting in place the measures advocated in it, some of them within very specific timeframes. The G7 also agreed to modify its message on exchanges, referring to the drop in the US dollar.
The recommendations made by the FSF, which is chaired by Mario Draghi, aim to restore confidence in the markets. This is also the aim of the ultimatum accompanying some of the immediate priorities in the report, which is particularly directed at the banks. They notably have 100 days to shed light on their level of exposure to risk, their amount of asset impairment and their estimates of the market price value of their complex and illiquid instruments. Financial institutions should produce “robust risk disclosures… at the time of their upcoming mid-year 2008 reports” and strengthen their “capital adequacy, where necessary”. In the view of the President of the European Central Bank, Jean-Claude Trichet, the FSF recommendations should be followed by the private sector, “but also by those responsible for monitoring, execute a supervisory authority, those who are responsible for accounting”. The prudential supervision will therefore be strengthened by the end of the year, with the Basel Committee due to “raise capital requirements for certain structured credit products such as collateralised debt obligations of asset-backed securities”. Finally, rating agencies are invited to review their rating systems for complex products and act to avoid conflicts of interest between their rating activities and their commercial activities.
In its final declaration, the G7 stressed that the global economy continues to face a difficult period and is still facing many risks associated with the ever-present weakness of the American residential real estate market, the tense conditions on the international financial markets, the international impact of high oil and raw material prices and the inflationary pressures resulting from this. The G7, which is concerned about the excessive movements on the exchange markets, added an implicit reference to the depreciation of the dollar. “Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability”, the G7 press release indicates. The change to the usual wording, which the G7 has used since its meeting in Boca Raton in February 2004, coincides with the American authorities' repeated commitments in favour of a strong dollar. More traditionally, the G7 goes on to say: “We continue to monitor exchange markets closely and will cooperate as appropriate. We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate.
The G7 also approved the proposal for reform of the IMF on quota and voice reform, new surveillance mechanisms and a reduction in spending (EUROPE 9637). On Saturday, the International Monetary and Financial Committee, the political body of the IMF, also welcomed the project, albeit calling for a review of the methodology for the regular re-examination (every five years) of the quotas and an examination of the payment of dividends to shareholders. (A.B.)