Statement by Michel Camdessus at the Third meeting of Western Hemisphere Finance Ministers, Cancún, Mexico
February 3, 2000
Statement by Michel Camdessus,
Cancún, Mexico, February 3, 2000
Managing Director of the International Monetary Fund
at the Third Meeting of Western Hemisphere Finance Ministers
Ministers, colleagues, friends, ladies and gentlemen:
I was delighted to receive an invitation from my friend, Angel Gurría, to participate in this meeting—in this magnificent setting that so wonderfully blends Latin charm and Caribbean grace—to discuss the outlook for the world economy and for Latin America and the Caribbean. The changing world economy is always full of surprises, and in recent months it has handed us some very pleasant ones. Indeed, several times now, we have had to make upward adjustments in our estimates of world growth. This does not mean, by the way, that our estimates were wrong, but, rather, that the forces of recovery set in motion in a number of countries have contributed efficiently to the strong dynamic at work north of the Rio Grande. We now believe that world growth exceeded 3 percent in 1999 and will be very close to 4 percent in 2000. This is nearly one point above our projections of a year ago.
The estimates for Latin America and the Caribbean have been revised upward several times as well, and there are signs that after a sometimes severe recession in the early part of the year, growth resumed in almost all the economies of the region. As a result, its growth rate for 1999 as a whole was slightly positive. But how abrupt the shock was! We hope that with greater financial flows in 2000, recovery will gradually take hold, with growth climbing to nearly 4 percent for the region as a whole.
In economics, of course, unpleasant surprises rarely spring from random circumstances; nor do pleasant ones, for that matter. Indeed, I can cite several factors that contributed to the robustness of both the world and the regional economy:
- First, prudent monetary management in the developed countries, and the continuing dynamism of the U.S. and Canadian economies;
- The strong and rapid recovery of the Asian economies, particularly in Korea and Thailand, following significant adjustment efforts; and
- The steady recovery of raw materials prices.
But you who guided the Latin American and Caribbean economies during this difficult period have—through your own efforts to limit contagion and restore confidence—made a vital contribution as well. I would describe your economic management over the past year as a mixture of courage and prudence. Courage in taking often unpopular steps in difficult political circumstances, and prudence in always making the search for macroeconomic equilibrium and market confidence a priority. I will cite but one example: that of our host country, Mexico, whose authorities managed to maintain fiscal and monetary equilibrium despite strong financial pressures, sharp fluctuations in oil prices, and, of course, some skittishness about the forthcoming elections. I could mention several other examples, of countries large and small, in the tropics and in the highlands, whose careful management helped improve the region's prospects. I would like to take this opportunity to express my appreciation and gratitude for those efforts.
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It is thanks to those efforts that we can now look to the future with optimism. Being optimistic, however, is not the same as being reckless; therefore, I believe—as always—that a few words of caution are also in order. Let me tell you why:
First, because there is still considerable uncertainty about external factors, particularly the availability and cost of financing. We must therefore remain vigilant.
We should be cautious about internal factors as well, for despite the progress achieved, the region's economies still have weaknesses. These problems, which vary from one country to another, are nothing new to you, so I will not elaborate on them. However, I would like to highlight the most serious of them:
- Recent gains notwithstanding, the fiscal position remains fragile in many countries of the region, often as a result of structural problems—deficiencies in the systems of tax collection and intragovernmental transfers, spending programs that are in large part inefficient—that need to be tackled head-on.
In the financial area, banks in many countries are still undercapitalized and the existing regulatory systems are obsolete and inadequate: this is another area urgently in need of reform.
There is much to be done in the institutional sector as well. In many cases, government institutions and practices are antiquated and not sufficiently representative; it is therefore imperative that they be made more transparent and more efficient.
I have left for last what is probably our most pressing and essential task: the reduction of poverty, which continues to afflict an unacceptably large number of people in Latin America—a number that the recent recession most likely increased. We all know that strong, sustained growth is required for lasting poverty reduction, and that this in turn requires macroeconomic stability and efficient markets. But there is another link between growth and poverty that I want to highlight, one that we see more and more often in our daily work at the Fund, namely that reducing poverty and inequality of opportunity through efficient social policies has a positive impact on economic growth and allows countries to achieve a higher and more stable growth rate. There is, then, a connection between growth and social welfare that has often been overlooked and that we can and should exploit more fully.
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These are major challenges, and the improved outlook we now see cannot serve as an excuse for ignoring them. On the contrary, this outlook affords us an opportunity to deal with those challenges efficiently and for the long term. However, I also share the concerns that some of you have expressed: these persistent problems may be even more difficult to solve than earlier ones, for three reasons:
- first, because these are largely structural problems and positive results are usually not obtained for quite some time;
second, because it is more difficult to win support for reforms as the sense of urgency generated by the crisis and the recession wanes; and
third, because these reforms are taking us into relatively uncharted territory, with few examples to guide us.
As you enter this more sensitive phase, I would like to assure you of the support of the Fund—and I am not talking about financial support alone, although you know that you can count on that—indeed, we have significantly increased our financial assistance to this region in recent years, so that our commitments now exceed US$35 billion, if we include the US$7.3 billion now under consideration to support Argentina's exemplary economic program. No, it is another type of support that I have in mind—a dimension that I believe has yet to be fully explored and exploited. I believe that the Fund can be used very profitably as a forum for the discussion of regional policy options—as we did in Washington in September 1998 when tensions were running high in the financial markets and we got together to exchange ideas and advice. I believe that the importance of this dimension is growing, because the economies of the region are being increasingly integrated into the world economy and with the economies surrounding them. This is a dimension that we take more and more into account in designing our programs, in the context of our annual policy discussions, and I suggest that you take advantage of it, as I believe you could draw greater benefit from it.
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My friends, I have come to the end of my remarks, but it is not yet time for me to say farewell to Latin America. Enrique Iglesias is giving me the opportunity to do that in March 2000 at the IDB Board of Governors Meeting in New Orleans. But, in a way, it is time for me to say goodbye to Mexico. In the early 1980s, Mexico set me to working for Latin America and it has kept me in active duty ever since. And I must say that the contract terms were not negotiable, either: the recruitment committee was made of giants with energy and talent to burn. Their names were Gurría, Mancera, Silva Herzog. Not long afterward I concluded that it was they who sent me to the IMF, where I encountered other giants, on both sides of 19th Street: Ortiz, Kafka, Malán, Filardo, Berrizbeitia, Beza, Loser—to name only a few. I am deeply grateful to all of them for inviting me to join forces with them in thirteen years of hard work—including one crisis that threatened to become systemic—and for the pleasure of seeing the Mexican economy strengthen and move to the forefront of the worldwide process of reform and modernization. I should also tell you that I am proud of having been involved, at least in part, in so many developments and in the renaissance of your country. Many thanks for that, and for your trust and friendship throughout the years.