Press Conference of Michel Camdessus, Managing Director
December 18, 1997
December 18, 1997
International Monetary Fund
Third Floor Meeting Hall
I would like to ask Mr. Camdessus if you would like to make some introductory remarks.
MR. CAMDESSUS: Thank you very much.
Well, as I am a little bit late, due to my meeting with the prime minister of Turkey, who is presently in town, I will try to keep my introductory remarks very short. But there are a few items on which I owe you a few explanations. One is the important initiative of Japan yesterday in the fiscal and banking areas--an initiative we do welcome here. Second, in the Fund these last few days, we have been quite busy with the adoption of a new instrument for the IMF to be even more effective in addressing what we call here the crisis of the 21st Century. But as the 21st Century has started 2 years ago or 3 years ago in Mexico, we will immediately utilize this instrument for the continuation of our program in Korea. Also, I would like to tell you that today's Executive Board has adopted the first review of our Korean program, allowing us to make a further important disbursement in support of that program. These are the points I would like to cover briefly.
Let me start by a few words on Japan. I really do welcome these fiscal and banking initiatives. They are an important step toward reviving a flagging Japanese economy and supporting a turnaround in the Asian region more generally. The fiscal measures, including the proposed temporary income tax cut and the supplementary spending package, are somewhat more than we had anticipated and should ensure that fiscal policy provides a moderate degree of stimulus to the economy in 1998, following the substantial withdrawal of fiscal support in 1997.
The proposed restructuring of corporate taxes and taxes on assets markets also mark a significant improvement in the tax system which should bring longer-term rewards. Thus, the authorities have demonstrated flexibility in responding to short-term macroeconomic developments while maintaining--and, of course, we attach great importance to that--their commitment to needed medium-term fiscal consolidation and reform.
You will hear tomorrow morning Mr. Mussa presenting to you the conclusions of our Executive Board on the exercise we had here to revisit our World Economic Outlook following all of this turmoil in the Asian region. Mr. Mussa will comment on all of that, but I must tell you that important as these measures are, they don't lead us at this stage to modify our analysis of the Japanese economy's macroeconomic situation next year. Mr. Mussa will comment on all of that tomorrow morning.
We have attached great importance to the banking aspect of this package. It injects public funds to bolster the deposit insurance corporation. It represents an important step toward dealing with the lingering problems of the Japanese banking sector. The goal of these measures is to ensure the stability of the banking system while advancing the needed resolution of the bad loan problem. Toward this end, it will be essential to ensure that the public funds are used to promote the needed bank restructuring rather than to support unviable institutions. And, of course, I am certain that when the details of the program will be unveiled, we will be totally reassured in this respect. A transparent and credible plan for using the funds to close insolvent institutions and to restructure undercapitalized banks, along with Government plans for strengthening regulatory and supervisory disclosure standards, will lay the foundation for a successful transformation of Japan's financial system as the "big bang" initiative unfolds.
I will stop here for Japan, but I would like to say that if we want to be on record to welcome these measures, it is because we see the systemic importance of these initiatives. We believe here that the solution of the problems in Asia required action on both sides: on the side of the emerging countries toward the strong implementation of adjustment programs and in the key creditor country of the region, Japan, in the strengthening of its own financial structures to allow it to continue to play its leading role in this region.
Finally, the review of the situation in Korea. Under this new facility, we have much more frequent reviews of the programs, and today's review was particularly important, as the last 3 weeks have been critical for the success of the program. Korea started in an extremely difficult situation, just discovering the need of a major operation, under a kind of psychological shock, I would say, in its public opinion but also in the minds of its leaders. Korea was in a phase of an electoral campaign which is not, in general, a very propitious time for taking major steps.
I must say that the Executive Board has been satisfied with the way in which the program has been not only maintained but developed and strengthened during this phase. The Executive Board was strongly supportive of Korea's efforts to restore stability and confidence in financial markets. Although initially tentative, the authorities' policy adjustment efforts have been strengthened during the last week, as a domestic consensus has developed quickly in support of the program. In some instances, the authorities' policies have gone beyond what is required in the program. I welcome in particular the Korean Government's decision to raise interest rates to help stabilize the won, the elimination of the daily limit on exchange rate movements and the progress in financial sector restructuring and reform, including as regards the merchant banks. The authorities, in one word, are demonstrating their ownership of the program, and you know that this is critical in helping restore confidence, as has been the support for the program by the leading presidential candidates.
As a matter of fact, we understand that Mr. Kim has been declared the winner of today's presidential election. Like the two other leading candidates, he has given his support and reiterated his support to this program. And we look forward to working with his administration and--before that during the transition period--with whatever arrangement there will be with the current administration to work together closely to make sure that the program not only does not lose its momentum but gains an increased momentum.
In view of the need to strengthen confidence, it is very important for the Korean Government to continue to move decisively in financial sector reform, improving corporate governance and further liberalizing the external capital account. Regaining market confidence necessarily takes time. Steadfast implementation of the Fund program will address the current difficulties and turn the situation around on a lasting basis.
So, it is with this note of cautious optimism that I wanted to conclude the presentation of the state of affairs with Korea. Let me just mention that in concluding this review, the Executive Board has authorized the release of the second tranche, bringing to $9 billion the total amount of our disbursements so far out of the $21 billion we had committed.
I will stop here and be happy to take your questions.
QUESTION: S.Y. Kim, Business Newspapers of Korea. As you pointed out now, we have a new elected president, and it means that the political rhetoric is now over, and we are ready to listen and act if necessary advice and message is given, and having said that, I'd like to hear some message or advice you may wish to deliver to the newly-elected president and the contenders, as well as current Korean authorities on that. And related to that, what could be the next major steps and next agenda that Korean authorities should step on, especially about the plans for restructuring the financial sector, including the quite clear exit policy.
MR. CAMDESSUS: Well, thank you very much for this question, and I will use your channel, of course, to convey publicly my best wishes of full success to the president-elect and to the current president, if I may say so, for a harmonious transition. It is important that, in spite of the extreme difficulties of the situation, this transition in Korea has been a peaceful one, a truly democratic one. Now, if I think about the contenders, I would tell them that I am certain they will join forces in supporting this major program of their country.
Many ask me why we insisted on having the endorsement of the program of the last administration by the key contenders. My response has been that this is so important; that whoever is elected, the full success of this transition of Korea to a new age will require the full support of the entire country and particularly of those who could have run the country if the electorate had so decided. Here, I know that we can count on their patriotism and on their statesmanship to join forces with the president-elect. They had this program in common. I am sure that now they will be as one man behind this program, forgetting, at least for some time, their political quarrels, such that the winner in this game will be the people of Korea and the economy of Korea. So, my message is to tell them that I trust that they will join forces in serving their country at this important juncture in support of a program which has all of the potential to recreate the basis for prosperity--a stable and sustainable prosperity.
To the new president-elect, I would say that I have been happy to exchange messages with him recently. He asked me to see him face-to-face soon. I hope to have this privilege shortly, and in the meantime, he certainly knows that he can count on the technical support of the IMF as much as needed during the phase of implementation of this program.
The next major steps? Well, they are there, defined by the program, and I am sure that the new Government will give its own contribution to the design of this program. There are many things still to be done and to be made more precise in this program, and I am sure that the authorities will take advantage of the broad political support they have to make this program even stronger, even more effective, to give it even more chances to contribute to an early recovery of the country.
QUESTION: Tim Ahman, Reuters Financial Television. I wanted to ask what your current assessment is of the willingness of foreign lenders to South Korea to roll over short-term debt at this stage. Does there appear to be a willingness for the most part that would seem to avert any further need for multilateral funds?
MR. CAMDESSUS: The assessment of our Executive Board is that this program is well balanced, with the contribution of the multilateral institutions not only massive, but also front loaded. You will hear soon about the contribution of the World Bank, about the contribution of the Asian Development Bank. These two institutions will probably disburse during this very month. So the contribution of the multilaterals is there, and we don't see the need the need to change the calendar of it.
Understandably enough, during this phase of uncertainty, one could have seen some timidity, I would say, on the side of many bilateral lenders to reduce their exposure or to roll over on less generous terms than before their present exposure. I am confident that what the IMF is doing, along with the first steps of the new elected president and the contributions of other multilateral institutions, will encourage them to be a little bit more open in their discussions and cooperation with their Korean counterparts.
We hear about many operations which are in discussion now between private creditors and private debtors, between corporations in Korea, corporations outside, foreign bankers, foreign and Korean bankers. We encourage all of that. We believe strongly that this program has truly the potential to put Korea very soon on a very strong footing and that the maintenance of commercial financial links between Korea and its creditors, without any interruption, is important. There are moments when the bilateral creditors and the private creditors must show understanding, and I hope and I encourage them to do that, remembering that Korea is a country with a very low foreign debt. We are talking here about a country whose foreign debt is 20 percent of GDP, something very enviable by any international standards, surely?
QUESTION: Mr. Camdessus, I have two small questions. Can you foresee that further tranches of the South Korean program will be given under this new facility? And what determines whether it will be given under normal credit arrangements or the new facility? And the second question is if you get a higher interest rate, which is, I guess, covering the higher risk of the Fund as well in this facility, what do you do with the revenue out of this interest? Will you increase reserves? Or what happens with it?
MR. CAMDESSUS: Well, good question. Extremely good question. And, of course, I have my ideas about that. But as we wanted to have our priorities in order, I have suggested to the Executive Board to keep this question of what to do with this increased revenue to a later stage. In the meantime, we will put this money in a special account and decide how to utilize it in the first weeks of January. But you are right: as this higher interest rate corresponds to an increase in risk, part of it, a significant part of it, will certainly have to be allocated to our reserves--not all, possibly, but on that, you can imagine that the Executive Board will have lively discussions.
On your first question, how this new facility fits in the overall program of disbursement of the Fund, it's very simple. This new facility covers one year normally, so, our disbursements from now for one year will be made under this facility. And after that, the terms of the ordinary stand by will cover the remaining part of the program.
QUESTION: How many more tranches would be made during this one-year.
MR. CAMDESSUS: Five.
QUESTION: My question concerns openness of information. Critics say that you didn't see this Korea problem coming, and you should have, and they read out from the World Economic Outlook that everything was, if not fantastic, certainly not something that would suggest an approaching crisis. Did you see things differently than contained in that World Economic Outlook? And secondly, on the question of the agreement with the Koreans, there are reports that the Koreans are going to sue the IMF if you were the ones that released the letter of intent. But Mr. Anjaria wrote yesterday that it had been released by the Koreans. Where is the truth?
MR. CAMDESSUS: On this last point, I will ask Mr. Anjaria to clarify. But what I can tell you is that it has not been released by the IMF, because we only release documents when we have the authorization to do that by the interested government. We were pressing them to release the letter of intent, certainly.
So, Mr. Anjaria, what else can we say about that? It is not frequent that a journalist asks me about the sources of a leak, you know.
MR. ANJARIA: Briefly, two things were released. One was a letter of intent, which many other countries release also. This was released by the Korean authorities. And the second is the staff report, which is normally not released but was, nevertheless, still released in Korea and then put on the Internet.
MR. CAMDESSUS: Now, the first part of your question: we didn't see the crisis coming. What is true is that we didn't foresee last July that we would have such a formidable crisis developing in December in Korea. This is true. But if you read our documents, from the Article IV consultation in 1996 we were putting strong pressure on the Korean authorities to take very seriously the problem of the weaknesses of their financial sector, the problem of their current account deficit and the problem generated by the uneven opening of their economy and the restrictions put on foreign capital inflows.
I don't know what we said in the World Economic Outlook last October. I have not checked that. At that time, we were so concerned by the crises in Thailand and Indonesia that we were talking with the current authorities privately: please strengthen your defenses and, in particular, take great care of your financial sector and your current account deficit. And they were starting to take measures, and I remember having praised them for being active in strengthening their macroeconomic stance. And then, we saw, by the time of the Annual Meeting in Hong Kong or just a little bit after, that things could very rapidly deteriorate. And then, Mr. Fischer and myself visited Korea separately in a totally discreet way to tell the authorities that it was essential to take action with no delay. They were in the political context that you are familiar with. They had, as many others, a tremendous difficulty in recognizing the facts. Korea had had such a long, continuous record of successful policies that it was extremely hard for them to recognize that they could be exposed to such a shock. We told them that others had been a few months before in the same kind of comfortable perception of where they were but that the world was changing with such a rapidity that they should forget about something which may have seemed satisfactory three months before and start strengthening things. They started taking action, but it was too late.
QUESTION: Jeremy Pelofsky from Bloomburg News. I wonder if you could address maybe one or two areas where you did not see progress in the report that you received or reviewed today-- one or two areas that were of particular concern despite approving the second tranche today.
MR. CAMDESSUS: No, on that, I can be very straightforward. All the measures we had
recommended the government to take before the first review of the program have been taken,
they have even taken more than those recommended. In particular, we had recommended the
suspension of nine merchant banks; they have suspended 14. They have taken the measures I
mentioned earlier on interest rates and the foreign exchange market, and they have adopted a
bit earlier than expected several other measures for liberalizing capital markets and
foreign investments in Korea.
QUESTION: U.S. Treasury Secretary Rubin yesterday said he was not in favor of increasing the quota beyond the 45 percent that was agreed to in Hong Kong. Do you have any response? Do you anticipate that the Board will still consider this proposal, or will it die?
MR. CAMDESSUS: No, I will tell you: it has been said in the newspapers that I had told my Executive Board that the situation has changed since Hong Kong; that we had unexpectedly to commit $32 billion in support of Indonesia and Korea; and that, if the Governors of the Fund wanted immediately to adjust their decision of Hong Kong to this new reality, they would now have a welcome window of opportunity to change the rate of increase of the quotas from 45 to something around 70 percent.
But the decision is with them. It's true that we do not have an immediate need for additional liquidity. If Governors prefer to have two tranches--45 percent now and sometime down the road the necessary complement--it is their responsibility. They must observe what is the political setting, the political framework in which this decision must be taken.
It happens that the United States and several other countries--but not all, of course--
prefer to stick to the 45 percent now, taking the risk that the next quota increase would occur within a much shorter interval than the traditional five years. This is the responsibility of the Governors. It was my responsibility to put on record the real situation and transparently to say that things have changed since Hong Kong. They will decide on how to proceed. If the United States would prefer to postpone--and Secretary Rubin has said that--they have the possibility of making this decision, as we need an 85 percent majority for a quota increase, and the United States has 18 percent of the voting power.
QUESTION: Could you first just say exactly when you took this trip to Korea that you were mentioning, the one that was in total discretion? And my main question is what sort of disguise you wore.
MR. CAMDESSUS: I don't remember the exact date. It was sometime between October and December. It was, then, probably in November.
Which kind of disguise? As we are not that many today, I will tell you that the most effective disguise is never to have disguises. And to go there gently and preferably alone. Then, nobody observes that you are there. This is my technique. So, in telling you that, I know that I take some risk in that you will be prepared to trace me better. But, okay, I must be transparent.
Your question, though, brings me back to the question on our capability to foresee crises. We have some capability to foresee things; we are very serious in following all of the early warning signals; and we want to improve even better this capability. Tomorrow, in fact, our Executive Board will review two of our systems for data disclosure, including how to capture better a few things which are still missing, particularly in the area of short-term indebtedness.
But you should recognize that in any case, we cannot build the international system on the assumption that all crises can be foreseen. We must build the system on the assumption that we do everything we can to prevent crises through our surveillance, through the strengthening of many things which still remain to be strengthened. One will, of course, always have crises. And this is why, wisely enough, our Executive Board has provided us with the supplemental reserve facility.
Now, ladies and gentlemen, I would like to take these 30 last seconds of this press conference to wish you and your families a very happy holiday season. This has proven to be a significant and momentous year for the world economy, for the press and for the IMF. We are continually impressed by your accurate coverage of often complicated events involving our institution. We are impressed by your objectivity, your professionalism, and we are grateful for the interest that you show in our work here at the IMF and in the way in which you portray it to your readers, viewers and listeners.
Thank you very much, good night and happy new year.