Press Conference by Michel Camdessus, Managing Director
October 3, 1996Press Conference
By Michel Camdessus, Managing Director, International Monetary Fund
October 3, 1996
South Cotillion Room
Sheraton Washington Hotel
MR. ANJARIA: Good afternoon, ladies and gentlemen, and welcome to the closing press conference of the Managing Director of the IMF, Mr. Michel Camdessus. To his right is the First Deputy Managing Director, Mr. Stanley Fischer.
Mr. Managing Director, would you like to begin with some introductory comments?
MR. CAMDESSUS: I can be very brief. I must apologize, first, for a very dull Annual Meeting. We had only very good news; so this was probably no news, and your life was not that exciting. Nevertheless, I hope you will find a few questions still of interest for you. Let me tell you that we have just had our concluding session this morning. You heard, possibly, what I said there, and the four points that seemed to me of importance at the end of this work. I will not elaborate on them, but I will remind you of them, as they could offer you a framework for your questions.
The first thing that is crystal clear is that the Governors have shared our cautious optimism about the global picture of the world economy for now and in a medium-term perspective.
The second--and this also was quite impressive--is the strong consensus on the most effective economic strategy for securing this better future. I no longer hear about alternative strategies to the one that has been endorsed unanimously by the Interim Committee, which is summed up in the 11 commandments you are now familiar with.
The third point is that there is a very encouraging consensus on the desire to have a strong and effective IMF for serving our countries in this process, in putting into force the agreed strategy.
The fourth theme is a sense of common purpose; a sense of partnership. We have talked a lot about a renewed partnership, which is illustrated in many respects, but particularly in the fact that now developing and transition economies do not want to wait until they are prosperous countries to share in the burden and responsibilities for the good working of the system. Indeed, this is encouraging, this is promising, and we want to build on such a basis.
Broadly speaking, to my eyes, these are the predominant features of these meetings--very rewarding, indeed, for the staff and the management of the Fund, as they are for the staff and management of the World Bank--something that imposes on us an even stronger responsibility for doing our job well.
So, now let us hear from you. Tell me what questions you would like me to answer.
QUESTION: Mr. Camdessus, you had a meeting with the Venezuelan Minister of Finance, and also I understand you reviewed the situation of the agreement that Venezuela has with the IMF. Will you please bring us up to date on this situation, and where we are heading now, given that there has been an increase in oil prices.
MR. CAMDESSUS: Yes, I met with the Minister and the Governor. I heard the speech of the Minister, which makes an extremely clear presentation of where Venezuela is now, and I entirely agree with the presentation he has made. This is for us an extremely encouraging story, when one sees where we were one year ago and when one sees the giant leap of Venezuela in normalizing the working of its economy, in bringing the deficit to balance, in normalizing the price of energy, in adopting an important range of structural measures. When one sees how strongly and positively the economy responds to that in terms of growth, in terms of the reduction in inflation, in terms of solidity of the currency, one can really be satisfied and have even more admiration for the way in which things have been handled in Venezuela, and the fact that something that was seen as absolutely impossible--I refer here to bringing the price of gasoline to market levels--has been done smoothly, and has been accepted. The compensatory social measures have been well implemented. All of that justifies a great deal of admiration for the authorities, and in particular for the President in his efforts to have the country understand what joining the 21st century means for Venezuela.
Many problems remain to be tackled--some of them very difficult, of course--in terms of rebuilding the confidence of the country in its basic institutions, but the government is determined to act in this direction. We will certainly continue, in a medium-term perspective, our cooperation with them. But the financial results of the program are so spectacular that Venezuela will not need to draw on what would normally be our contribution to its financing in the next few months. This is, indeed, a success story, and I am confident that it will be a long-lasting one.
QUESTION: I wonder if Mr. Camdessus might like to comment on the state of relations with China over the disappearance of Mr. Yang Hong. Is this jeopardizing the holding of the Annual Meetings in Hong Kong next year?
MR. CAMDESSUS: I do not intend to comment on that, because I do not want to reduce the relationship between the IMF and such an important country to a case, which is a difficult one, on which all our attention is devoted, but which should not lead to our missing the wood for the trees. And I do not want to harm either our relations with China or the prospect of a successful Hong Kong meeting or the personal condition of Mr. Hong by inappropriate public comments on that subject.
QUESTION: You have spoken frequently in these last few days of the problem of the fragility of the banking sector all over the world, in the industrial and the emerging markets. You have also mentioned that you will strengthen your cooperation with the World Bank in that sector. Could you be more precise about in which areas you will be moving in your work, together with your other partners, and especially with the BIS as well.
MR. CAMDESSUS: Thank you for your question. When I referred to our cooperation in this domain, naturally I referred initially to our cooperation with the World Bank. As you know, this is very easy; indeed, cooperation with the World Bank is our daily experience. But you possibly noticed that during my opening remarks I also referred to our cooperation with the regional development banks, each of them in their own area, and also to the very constructive relationship we have with the BIS. We had this experience, in particular, in Eastern European countries and the former Soviet Union, where they helped us to assemble and mobilize an enormous effort of technical assistance from the central banking community. Now, we intend--and I know that this is also the desire of the BIS--to apply this kind of practical relationship to this new focus of particular concern. We will also work with the regulators for banking and financial activities to see how to work together in order to avoid the recurrence of the dramatic events we have seen in so many countries.
I must tell you that, here, when one sees the dangers looming on the horizon, this is certainly not a situation where there will be "fighting for turf." For, even if we put together all our means, all our resources, we will be too small for the task. So be assured that all the heads of the institutions involved will try to work to make sure that each institution works to its best comparative advantage and that our cooperation will be credible enough for all authorities around the world to add to the modest means we have.
As far as cooperation with the World Bank is concerned, this is extremely simple. We at the IMF have both financing and surveillance competence--indeed, of a universal dimension. The World Bank has important financing means. Pooling surveillance and financing with the technical assistance and financing means of the other institutions, can create a critical mass of instruments and actions to start making a difference. But I am sure that, when we meet again next year, we will be able to announce to you more precise details about the first steps in this cooperative framework.
QUESTION: [interpreted] The Mexican Minister of Finance yesterday announced that the Mexican government was working with the International Monetary Fund on a three-year program to relieve debt payments of Mexico to multilateral institutions such as the World Bank and the Inter-American Development Bank. Could you comment on this, from the point of view of the IMF, as to what it is about?
I have a second question. A few days ago you said that the IMF was working with the Government of Mexico on the country's economic program. This to some extent irritated the Minister of Finance of Mexico. In the Council of Ministers, he said that the Mexican Government would not allow the International Monetary Fund to design Mexico's economic policy.
MR. CAMDESSUS: [interpreted] The Minister is quite right. We never claim to replace countries in the design of their policies. As your Venezuelan colleague here will tell you, in Venezuela the program with the Fund is called the "Venezuelan Agenda." The Venezuelans are absolutely convinced that this is their country's agenda and not the dictate of the International Monetary Fund.
Working with Mexico, we wish to continue doing the same with them too. We wish to see what is Mexico's agenda, how to help the Mexicans in their work on preparing the program, and how our resources can, in whatever way, support the important efforts they are making for Mexico. That is what we are doing. We are working with the authorities on a three-year program for Mexico that will continue what has been done over the past 15 months with some degree of success--linking up a policy of structural reform of broad scope with the immediate urgent program that had to be implemented.
Having said this, in particular in the case of a country such as yours, which is recovering quickly, let me emphasize that the problem is not financial resources--or, if so, only in a very secondary fashion--but rather the design and the content of the program. This is what you are doing: you are looking to your future, choosing a future, choosing the ways to bring it about. Among these means, of course, there is financing; there is the issue of knowing how to relieve, if necessary, the cost of Mexico's repayments to the IMF and to other creditors. But this is in the universe of means, and not the single primary question.
How large will be our support for the program? We will talk of the size of the IMF support when we look at the program. We do not have a pre-set package for $10 billion, another one for $5 billion, or another for $2 billion. No. We analyze the situation. We look at the country's ambitions. We try to see how to achieve those ambitions. We see if there is a financing problem, and, if there is one, how to resolve it. One could build a program for Mexico in which there is no financing need. One can build another where there is an enormous financing need. We discuss the various issues and look at what needs to be done. We look at the degree of openness of the economy. We look at the level of necessary investment. We look at the degree of domestic saving that has to be achieved. Then we see if there is a financing problem. We will be extremely objective, very sympathetic, with a desire to support Mexico's efforts.
QUESTION: Mr. Camdessus, for some time now, both the Fund and the Bank have been promoting private sector investment as a desirable and even unavoidable ingredient of enhanced economic development. The problem is that, when privatization is too rapid, it leads to a kind of economic and social Darwinism, with the weak falling by the wayside. I know you have also been promoting safety nets, which can mitigate the problem to an extent, but do you think the safety nets are wide enough or applied widely enough to keep the pain of privatization within bearable limits?
MR. CAMDESSUS: This is an immense question. We have a wide variety of experiences in privatization, in almost all countries in the world now, but particularly in developing countries and countries in transition. We have had extremely good and extremely bad experiences. We, the countries and ourselves with them, have not been always successful in putting together at the appropriate time, for the appropriate amounts, and with the appropriate design, the safety nets which are necessary. Such safety nets are needed not so much because you privatize, but because very frequently in the public sector you had some, let us say, inappropriateness in management, which needs to be replaced by enterprises becoming profit oriented and requires a high degree of streamlining to recover normal conditions of competitiveness. This requires safety nets. This requires retraining of people. Indeed, the staff of the World Bank and the IMF always try to influence the countries to make sure that the safety net instrument will be in place at the appropriate time. It has not always been the case, and this has led us to redouble our attention on this front.
I would like to add that, even if the experience has not always been the one we would have preferred, nevertheless privatization is normally positive for the country in question and for its people after some transition time. Privatization adds efficiency to the system and helps improve the allocation of resources; and normally this translates, sooner or later--and frequently sooner--into an improvement in the conditions of those working in these sectors.
QUESTION: What exactly is the status of the negotiations to double the resources of the general arrangements to borrow? Has there been a final agreement reached or are there still details to be worked out?
MR. CAMDESSUS: I have lost sight of the developments on this matter since the beginning of the Annual Meetings. I know that during the Annual Meetings the G-10 and NAB countries have met, formally or informally, to lay down the last details. The issues remaining to be solved were not of fundamental importance. I am certain they have made further progress, and I am certain that the final text of the arrangement will soon be transmitted to the Executive Board for consideration and adoption, and then for transmission to parliaments in the countries where it will require legislative action. I take it that the agreement is there and that the GAB will be doubled to somewhat in excess of $50 billion.
QUESTION: Both you and Mr. Wolfensohn have this year stressed the importance of fighting corruption. My question is: will IMF surveillance in future include good governance, including the fight against corruption, and, further, in view of the fact that the press have been in the front line of the fight against corruption, will the IMF tell us what it discovers in the course of surveillance about corruption, so that we can strengthen your hands to fight this problem?
MR. CAMDESSUS: Thank you very much for this offer of good support. It is perfectly true--I say that without any kind of irony--that the international press plays an enormous role in helping contain bad governance and corruption in many of its aspects. It is true that I have talked with emphasis on these issues, as indeed has my colleague Chairman Aninat. It is not, as you know, the first time that we talk about this, and it is certainly not the first time that we act on these matters.
The IMF has not always called this a good governance strategy. Often it has spoken of assisting member countries in moving to a market-based system, with a leaner and more effective government, with less scope for discretionary and ad hoc decision making, less state interference, less preferential treatment, reduced scope for rent seeking--all of that, which boils down to a very significant reduction of the scope for corruption. Each time you create a regulation, you create an opportunity for corruption. Each time you reduce a regulation to the minimum, you reduce the scope for corruption. If, in this new effort to streamline regulation, you draw lessons from experience precisely in order to have these regulations transparent and evenhanded, then you are already in the business of fighting corruption in the most effective way. Indeed, you know that we have always advocated transparency and accountability in public finance and continue to do so. You know about our efforts in institution building, particularly in the domain of treasuries and of central banks. All of this is nothing less than support for good governance. Indeed, we will continue doing this. We will intensify it, but our action will not change in nature. It will be intensified. We are now backed in this endeavor by the universal endorsement of our membership. Now a Minister of Finance is no more able to tell the staff, addressing a corruption issue, "This is none of your business." We will be able to show him the declaration, Partnership for Sustainable Global Growth, and tell him, "Sir, you have signed this, and it is my duty to enforce it." I hope this stronger backing will help make a difference.
Can we go further and make a kind of explicit conditionality on these issues, adding this kind of conditionality to the possibly already too numerous performance criteria we monitor in borrowing countries? My answer is no, except when there are specific instances where we are confronted with clearly identified issues of corruption or bad governance having an impact on the county's macroeconomic performance. Except for these very specific cases, we will continue acting by persuasion and joining forces with the World Bank and the regional development banks to progressively lead the countries to put their deeds behind their words.
QUESTION: The Government of Poland claims that it is closely following the IMF recipe for its economic policies. Still, year after year after year the inflation persists at over 20 percent. So, what is wrong with the IMF prescription, or maybe the patient is just pretending that it is taking the medication?
MR. CAMDESSUS: I presume that possibly the reality is that the causes of inflation in Poland are still so deeply rooted that the authorities, with the support of the IMF, have difficulties in delivering rapidly all that they would like to deliver. One of the key problems in Poland is the fact, for instance, that you have a system of wage determination--of indexation--that is still not conducive to a rapid decline of inflation. Nevertheless, Poland is making enormous success. And the fact that Poland has these difficulties in going down from, let us say, 25-30 percent to the low single digits is not without precedent in the history of fighting inflation in the world. Our experience is that you can relatively rapidly go from hyperinflation to, say, two-digit inflation, and from a high two-digit inflation to around the 20 percent level. But, going from that level to single-digit inflation is difficult. After my recent discussions with the Deputy Prime Minister and the Governor of the central bank, I have no doubt on their resolve to tackle inflation, provided they get appropriate support from the Parliament and all those involved in these difficult decisions. It will still take some time and a few difficult structural measures. But I am sure that Poland can legitimately aim, say by the turn of the century, at reducing inflation to very near the level that will prevail in western European countries.
QUESTION: What is your latest analysis of the situation in Russia economically and politically. The IMF's surveillance is a precondition for rescheduling debt in the London and Paris Clubs and, therefore, also for the integration of Russia in the international capital markets, and we know that Russia is moving to launch its first Euro-dollar bond issue.
MR. CAMDESSUS: Sir, you should not expect from me a political analysis, because I am not at all equipped for that. What I can tell you is how our program with Russia is going, and it is going well. You know that it is a three-year program, with very detailed monthly performance criteria for the first year in terms of reduction of inflation, monetary control, budgetary policy, and structural changes. In spite of the enormous difficulty in which Russia has been living for some time, it is complying with a program that is not at all, as you know, an easy one. It is a program that will bring Russia in 1997 to the Maastricht criterion of a 3 percent budget deficit, and to 2 percent the year after. It is a program that has already delivered a zero inflation rate for the month of August.
Indeed, even if there are enormous difficulties, particularly for tax collection, we observe that the government is taking steps to reinforce its administration, to reinforce the tax system, to take corrective measures; that it is courageously fighting to continue with the program. On this basis, I am ready to give to the London Club and the Paris Club my most positive assessment of Russia's progress. I hope that Russia will continue finding, both among its bilateral partners and in the financial markets, the support it deserves.
QUESTION: [interpreted] Mr. Managing Director, concerning the debt relief program for the poorest countries, do you feel that this year there has been a change in the approach, and, if so, what would be the message of hope that you would like to convey to the poorest inhabitants of the planet? Then, a more direct question: what is your appraisal of the structural adjustment program with Algeria?
MR. CAMDESSUS: [interpreted] Let me begin with your second question. Algeria's program, which the Fund is supporting under the extended Fund facility, covers the years 1995-97. Algeria is proceeding well with this program, complying with the performance criteria. I think you are all aware of the major problems that the country still has to address in political terms in respect of the society at large in Algeria, but we believe that strengthening the Algerian economy will contribute to creating a better environment whereby progress, both economic and social, can be achieved. This is absolutely indispensable in light of the youth of the Algerian population and the tremendous difficulties regarding housing and employment.
I saw just recently that President Zeroual took note of the progress that had been achieved within the framework of Algeria's arrangement with the Fund, and made it plain that he wanted to persevere and achieve even better performance, and I certainly fully share this desire.
Let me now turn to your first question on debt. After having addressed the problem of commercial bank debt and having contributed thereby to the recovery of a large number of middle-income indebted countries, we at the Fund are now addressing the debt problem of the poorest countries in close conjunction with the World Bank and Paris Club. You are doubtless aware of the new initiative that Jim Wolfensohn and I took whereby the poorest countries will be aided provided that they take the necessary steps to put their own economic house in order. This is the HIPC initiative, which has been endorsed both by the Development and Interim Committees. Moreover, the Executive Board of the Fund, supported by the Interim Committee, has taken all the requisite steps so that there will be a de facto continuation of ESAF, which will also support this new HIPC initiative.
I am not claiming that everything is going to be absolutely rosy for the future; this is not a complete reversal of the situation. But you can be certain that our institutions will do their utmost to see that this additional assistance for the most heavily indebted countries will blend in with their own homegrown efforts, which are going to be the basis for their better living conditions for the future.
QUESTION: [interpreted] I would like to refer to the recent report of the IMF that said that money laundering affects the macroeconomics of countries and, therefore, this was of concern to the IMF. I am wondering what the role of the IMF can be in money laundering activities.
MR. CAMDESSUS: [interpreted] Yes, it is true that the Fund did make such an affirmation. There are many countries in which the very fact that there is quite intense money laundering, or suspicion thereof, means that you have a kind of uncertainty, which reigns over the overall economic climate and the government, and this can have a paralyzing effect for all those who endeavor to improve the performance of these economies. This is why at a time when we are striving to strengthen and step up our actions to improve banking and financial systems and make them less vulnerable, we believe that we can look to ways to help reduce the scope for money laundering.
Let me give you an example. It is clear that in a country where you have very weak or nonexistent banking regulation, or where you have banking regulation but it is not applied, money launderers can thrive. We want to make life a little bit more difficult for these money launderers. We do not believe that we, along with the World Bank, are going to make a decisive change in the situation all alone, but when we work together in partnership we create greater hopes for the future, and we awaken certain forces that perhaps have been sleeping up until now, and this is the direction in which we want to move.
QUESTION: As you may know, this week there were some renewed tensions in the European Monetary Union, with some back and forth between France and Italy about whether Italy is going to be able to meet the Maastricht criteria. Two questions. Do you think such public discord threatens the viability of the EMU, and, in your view, are enough of these countries going to be able to meet the deficit requirements to make the EMU a viable enterprise?
MR. CAMDESSUS: I reassure you immediately that public disputes--words across the Alps--are the daily bread of a long history in Europe. This does not threaten at all the viability of the EMU process. All of that is part of life.
But what is important, and what I would like to emphasize, since you referred to Italy, is the fact that Italy is making important efforts to stabilize its economy and to put in place for 1997 a budget that, if fully implemented, would make it possible for Italy to converge and to meet the Maastricht criterion of a 3 percent budget deficit. We in the Fund are particularly satisfied with that. We have recommended such an objective for its own sake and because Italy has a lot to gain by participating in the EMU, not least a dramatic decline in the very high interest premium Italy is now paying over the deutsche mark. This would be good for Italy, but, of course, it would be equally good for the whole system.
I have still, of course, a bit of reservation, because, while cuts in expenditures account for almost half of the package, the second part is to be achieved through new or increased taxes, and this part of the package is not yet designed or fully disclosed. Our recommendation to the Italian authorities is to define the tax portion of the package as soon as possible, because this is the only way to remove any suspicions in the markets, and elsewhere, as to what Italy can achieve with respect to January 1, 1999.
QUESTION: [interpreted] You referred, in reply to my colleague's question, to the fact that the Fund and the Bank can carry out activities or participate more actively in making it more difficult for money launderers to exist. I would like to ask specifically, how can you do that, by what means; second, whether you have in mind any instruments or methods to put the money launderers on the run; and third, whether in the Fund and Bank's programs to strengthen financing situations, you have any intentions regarding certain measures such as banking secrecy, which exists in my country.
MR. CAMDESSUS: [interpreted] Well, I must say we have not recently discussed matters of banking secrecy, which are, of course, part of the overall panorama. But what we have in mind is far more modest and much closer to our specific sphere of competence, our discipline, and our tradition. What we want to do is ensure that the central banks and the banking regulatory and supervisory bodies have the necessary legislation and instruments at hand--and, if not, to understand why not and by what measures can one begin to create such a structure. In other words, the central banks need not only the necessary regulations, but they also need the instruments, the human resources, the methods, the procedures--all of these have to be put into place so as to ensure that the banks will abide by the regulations that may exist.
If we are able to achieve this, and, of course, we have now been endowed with the mandate to press forward with this, I think we shall be able to make great strides forward. Little by little we would like to have the authorities have this necessary competence and have the necessary control regulations. This is something that we have decided to work toward with the World Bank. In other words, we are going to provide not only the financing but also the requisite technical assistance to endow member countries with this kind of expertise. I am sure there are many other tasks that we will also have to address along the same lines, and we will see how we will share the work with our friends in Basle at the Bank for International Settlements, and elsewhere.
QUESTION: [interpreted] A further question. I was thinking that there are certain countries that do have certain internal domestic regulations, but they have been in fact pinpointed as possibilities for money laundering operations, for example, banking secrecy laws. I am wondering whether you intend to do something to plug those loopholes.
MR. CAMDESSUS: We are going to look at these matters with the authorities. We will try to identify whether this is where the problem lies, or whether the problem is actually elsewhere. Once we have studied this and discussed it with the regulatory community, we can approach certain countries about their banking secrecy regulations.
QUESTION: [interpreted] Mr. Camdessus, you answered a question by my colleague from Algeria. I would like to know, in addition, which countries cannot meet the conditions for debt relief measures because they are behaving well economically? Which are the countries that will not at all have access to the HIPC initiative? I know Mali has behaved well.
MR. CAMDESSUS: [interpreted] There are several condition for eligibility to the initiative, besides, of course, its limitation to the poorest countries. The main one is that the countries must show, through persevering effort, that they are working to put their house in order; in other words, to put their economy in working condition. Here, I congratulate Mali on its exemplary efforts in this direction. This is the basic condition. So, for those countries that have not yet started, we will ask them to start as quickly as possible by introducing a three-year program supported by our ESAF, after which they must continue for another three years, but they will already have the certainty of being able to benefit from this facility. In the case of Mali, where there is an ESAF program in place, you can be sure that the already successful efforts will be taken into account to determine its eligibility.
Now, Mali, like many other candidate countries, must also show the World Bank and the International Monetary Fund that it is in a position where the debt is unsustainable; that is Anglo-Saxon jargon, but it means in effect that there is a debt burden which we see as detrimental to development. If this is shown, then we have a number of criteria you are well aware of. But if it is clearly demonstrated that Mali meets the criteria, then Mali, like other countries, will benefit.
I have observed myself that the members of the Development Committee wanted to be both firm on the implementation of these criteria, and flexible. These are two words that seem to be somewhat contradictory. To have firm flexibility or flexible firmness, what does that mean? We have considered the approach at great length with my colleagues in the World Bank. We want to be absolutely sure that any country that objectively needs the support will obtain it. What I can say to you is that if Mali continues firmly implementing the program it has undertaken, then Mali will achieve macroeconomic policy results that will improve the conditions of its population, and we will have been proud to have supported it.