Paris, 27-28 April 1998
1. The OECD Council at Ministerial level met on 27-28 April 1998 under the chairmanship of Mr Jaime Gama, Minister of Foreign Affairs, and Mr António Sousa Franco, Minister of Finance, of Portugal, assisted by the vice-chairs from Hungary and Korea. Prior to the meeting, the Chairman led consultations with the Business and Industry Advisory Committee (BIAC) and the Trade Union Advisory Committee (TUAC) to the OECD; both organisations submitted statements for the consideration of Ministers. Ministers discussed key policy challenges of the globalising economy which they face in meeting the aspirations of their citizens -- promoting economic growth and employment through sound macroeconomic policies and structural reform; the better integration of environmental, social and economic policies; and the strengthening of the multilateral system -- thereby ensuring sustainable development and a durable improvement in living standards. They focused also on the global implications of the financial and economic situation in Asia. Against this background, Ministers discussed the OECD’s role, its achievements and future work.
ECONOMIC GROWTH, THE GLOBAL IMPLICATIONS OF THE ASIAN CRISIS AND THE MULTILATERAL SYSTEM
2. Ministers noted that the Asian financial crisis has highlighted the growing interdependence of countries in the world economy as well as the importance of having well-functioning markets and efficient economies and supportive mechanisms of international co-operation and solidarity. They believe that recent events have confirmed that good governance and effective structural policies -- concerning financial systems, regulatory reform, corporate governance, and labour and product markets -- together with stable macroeconomic policies based on sound and transparent public finances and control of inflation, are critical to good economic performance, employment, social cohesion and the smooth functioning of the global economy. Ministers stressed the importance of a quick return to financial stability and economic growth in Asia through the rapid implementation of the macroeconomic and structural reforms necessary for recovery. They called on OECD countries to contribute to that recovery with policies that sustain growth and domestic demand, further open markets and improve conditions for investment. In this regard, domestic demand-led growth in Japan would contribute significantly.
3. Ministers welcomed reforms being undertaken by countries in Asia and recognised their growth potential over the longer term but also urged countries affected by the crisis to implement fully and expeditiously the recommended reforms agreed with the IMF, the World Bank and other relevant international institutions. The events in Asia have underlined the importance of international monetary and financial co-operation and of the advantages of all parties working together in a co-ordinated manner to prevent, manage and contribute to overcoming crises of a global nature.
4. Bearing in mind the upcoming WTO Ministerial, Ministers also noted that the impact on trade and investment of the current financial and economic situation in Asia poses challenges for the multilateral system. All countries have a substantial stake in economic stability and development in the Asian region. Ministers agreed on the importance of all countries maintaining open markets, resisting protectionist pressures, sustaining the momentum for future broad-based liberalisation building further on current levels of market access, undertaking regulatory and structural reform, and providing a receptive climate for investment. Ministers confirmed the importance of stable trade financing facilities and of providing development assistance, as appropriate, targeted to help address the economic and social implications of the financial crisis for affected Asian countries.
5. Ministers reaffirmed the Organisation's commitment to contribute to the international effort, led by the international financial institutions, to overcome the Asian financial crisis as rapidly as possible, through policy dialogue and co-operation in its areas of expertise. They stressed the important role of the OECD’s peer review mechanism in contributing to sound macroeconomic and structural policy environments in Member countries. They endorsed the establishment of an OECD special programme addressing structural issues arising from financial instability in non-member economies, to complement on-going co-operation with emerging and transition economies in Asia and elsewhere. In this context, Ministers welcomed the commitment on the part of many non-OECD countries to a path of continued liberalisation, structural reform, good governance and the maintenance of a favourable investment climate, which contribute both to the good performance of those economies and to a strengthened multilateral system.
6. Ministers noted that, despite the effects of the Asian financial crisis, the underlying economic situation in most OECD countries is generally good, with sustained output growth and low inflation expected in nearly all. Economic growth in 1998-99 is projected to average around 2 1/2 per cent in the OECD area, though with very different prospects across the regions, including some strengthening of growth in continental Europe, marked weakness in Korea and the prospect of a resumption of growth in Japan with its stimulus package. Nevertheless unemployment remains at over 7 per cent, some 35 million persons, for the area as a whole and it is forecast to remain around 10 per cent in Europe.
7. In this context, Ministers discussed recent policy developments and challenges facing OECD countries. They confirmed their commitment to pursue policies to achieve strong sustainable growth and reaffirmed the need for macroeconomic policies focused on sound public finances and effective control of inflation. They also agreed on the need for fiscal consolidation over the medium term in most OECD countries, in order to reduce debt levels and help meet the challenge of ageing populations. Where tax burdens are high and action is still needed to reduce deficits, the main efforts should involve containing expenditures, although tax reform may also have a role to play. Different cyclical positions may call for different policy settings in the short term, however. In particular:
-- In the United States, a general government budget surplus has been achieved for the first time in decades. The policy framework there should continue to be directed at sustainable expansion and to increasing national saving. At the same time, given the tight labour market, any possible resurgence of inflationary pressures in that country should be watched carefully.
-- With respect to the European Union, Ministers welcomed the convergence of budget deficits and inflation rates in EU economies, as this will allow the EMU to come into being on a broad base. Continued pursuit of sound and credible macroeconomic policies, within the stability framework, together with the pursuit of structural reforms, is critical for job creation and sustainable non-inflationary growth throughout the EU. However, it is important that recovery in EMU participating countries be increasingly based on sustained growth of domestic demand.
-- Ministers welcomed the substantial policy measures announced April 24 by the Government of Japan aimed at achieving domestic demand-led growth. They noted the intention of the Government of Japan to put the measures in the package into place quickly. Ministers noted that further progress in the strengthening of the financial system and in structural reform would help establish a sound basis for sustainable growth led by domestic demand. Over the longer term, fiscal consolidation remains an important goal in a rapidly ageing society.
-- Ministers welcomed the efforts by Korea to overcome its economic difficulties through the implementation of its programme of reforms. Continued vigorous pursuit of the reform package, including financial reforms, improved corporate governance and enhanced competition through more liberal and non-discriminatory trade and investment policies, supported by continued high savings and an educated workforce, are necessary to restore economic prospects and put the economy back on the medium-term track of high growth.
8. Ministers recognised the importance of having an open and well-informed public debate on trade and investment liberalisation in the globalising world economy, in light of public concerns about the effects of such liberalisation. They welcomed the Organisation’s study "Open Markets Matter: The Benefits of Trade and Investment Liberalisation", which outlines the substantial gains to be made through continued liberalisation by all countries to promote efficiency, innovation and consumer choice; develop better quality goods and services; raise incomes; and sustain economic growth and net job creation. Ministers noted that liberalisation is one important component, among others, of what must be a coherent set of policies aimed at achieving a durable improvement in living standards. At the same time, there is a need to ensure that the gains from liberalisation are as widely shared as possible, and that policies are in place to help, in particular, those most affected by adjustment. Bearing in mind the need to build public support for the multilateral system, Ministers agreed accordingly on the importance of ensuring maximum possible transparency.
9. Ministers are convinced that globalisation offers great opportunities to enhance economic growth and improve welfare, both in Member and non-member economies. They recognised that these benefits will be fully realised and widely shared only if structural reforms are adopted which encourage and facilitate governments, firms, and citizens to successfully adjust and innovate, taking into account the needs of the most vulnerable and the need to prevent people from drifting into long-term unemployment and social exclusion. Ministers agreed to pursue policies to that effect, taking into account the need to integrate economic, social and environmental objectives in promoting sustainable development.
10. In that context, Ministers agreed that action is needed to secure: sound macroeconomic conditions and financial systems; comprehensive reforms in both labour and product markets and tax and welfare systems; strategies for lifelong learning -n the public and private sectors; an adequate response to the social, fiscal and financial implications of ageing populations; better corporate governance and regulatory practices; the effective development and utilisation of new technologies including in electronic commerce; the full benefits of trade and investment liberalisation; and sustainable development. Ministers called on the OECD to contribute to this ambitious agenda by charting the way in which countries can best take advantage of the opportunities and meet the challenges of globalisation.