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MICHEL CAMDESSUS, MANAGING DIRECTOR
INTERNATIONAL MONETARY FUND
October 8, 1998
South Cotillion Room
Marriott Wardman Park
MR. ANJARIA: Good afternoon, ladies and gentlemen. I would like to welcome you to the closing press conference of the Managing Director of the International Monetary Fund, Mr. Michel Camdessus. To his right is the First Deputy Managing Director, Mr. Stanley Fischer, and to his right is the Deputy Managing Director, Mr. Shigemitsu Sugisaki. After the initial comments that the Managing Director makes, we will turn the floor open for questions.
MR. CAMDESSUS: I am delighted to see you. As you know, I have given my concluding remarks in the plenary a moment ago. I will not repeat at length what I said there. Let me just emphasize for you two or three points that strike me.
One, in the midst of a global crisis 182 countries are gathered here, and are going together with, to use the words of Carlo Ciampi, an extraordinary sense of cohesion, seeking consensus and agreeing forcefully on what is our basic approach, endorsing what we are doing, reinforcing us in what they call our unique and central role. Of course, I am not too surprised by that, as this cohesion is reflected in my daily life by the unanimous support of the Executive Board for what we are doing, and is illustrated by the fact that all these programs in Asia and all that we are doing in Latin America and other parts of the world have been continuously and unanimously supported by my 24 Executive Directors. So it does not come as a surprise. But still, it is heartening that after almost a full week of soul searching, analysis of the causes, and forward looking reflections on what should be done, you have such an agreement. This is an important point regarding the handling of the crisis.
Two, you have the same kind of cohesion and consensus on the issue of how to go forward and how to tackle the architecture problems. The five principles we have suggested as the basic avenues for progress have been very strongly endorsed. So it is for us quite heartening to be able to go ahead, to continue navigating the stormy uncharted waters, and to go ahead with battles on two fronts: the daily battles of continuing to fight contagion and to help countries in difficulties, and the longer-term battle of recasting the structure of the international financial system--urgently, of course, but with thoughtfulness, and working in cooperation with all institutions that are with us in these endeavors.
The third point is for me truly the unanswered question of the day, and I leave that with you; namely, the fact that you have this striking contrast between, on the inside, the unanimity and the sense of purpose of and considered optimism of those in charge that there is a way out of the crisis and, on the other side, the kind of panicky atmosphere outside. From time to time, as I was spending those long hours on the podium, I was thinking about what you as journalists were thinking, doing your difficult jobs of trying to understand what is going on. I was telling myself that you could have the impression you get when all of a sudden you discover that you went to the wrong theater. You wanted to see Titanic or Cronica de una Muerte Anunciada, and you end up seeing The Great Escape or Great Expectations. I do not know how you can live with that. I do not know how you read that. I have not any kind of answer to this kind of dilemma.
I will stop my opening comments here, except for one thing. I know that, of course, you want, certainly, to concentrate during this last hour of the morning on broad systemic issues, but I know also that I will not avoid a question on where we are on Brazil. I had better tell you. We have been discussing with the Brazilian authorities during the Annual Meetings the main lines of the Brazilian government's proposed economic policy framework. The authorities have emphasized their determination, highlighted in the speech of President Cardoso on September 23, to put rapidly in place a strong, frontloaded, and sustained fiscal adjustment program designed to stabilize the ratio of the public debt to GDP by the year 2000. This will require the achievement, as from 1999, of primary surpluses of the overall public sector, in the broad Brazilian definition, in the range of 2.5 to 3 percent of GDP. The government is preparing the policy initiatives needed to ensure this outcome, and intends to announce these initiatives as soon as feasible during the month of October.
The authorities have also emphasized their firm commitment to their current exchange rate regime, the maintenance of a flexible interest rate policy, the nonimposition of any controls on capital outflows, the full service of the external and domestic public debt, and the continuation of their ongoing structural reform efforts in social security, the tax system, the budgetary system and institutions, the financial system, the labor market, and privatization, among others. The IMF management fully supports these policies. Discussions will continue in the days ahead with the aim of reaching agreement soon on a detailed program of fiscal and other macroeconomic and structural policies that could be supported financially by the IMF and other members of the international community. I suspect that the authorities will disclose a similar statement at this very hour in Brazil.
QUESTION: [INTERPRETATION] Mr. Camdessus, on the new architecture, could you be a little more specific about the future, because here we are dealing with different possibilities as to what this architecture will be in countries that oppose a broader role of the international institutions. Could you be more specific? Are you going to really act in support of the program of President Clinton of a contingency fund to forestall crisis? What is going to happen exactly?
MR. CAMDESSUS: [INTERPRETATION] You are touching on a lot of subjects: architecture and the World Bank--and I assume you were not referring to the magnificent architecture of the new building of the World Bank--and you touched on the contingency fund sketched out by President Clinton. I will try to respond in a few words.
First, on the architecture. What was important to me in these meetings in this area was to achieve a strong agreement on the five basic approaches that are reflected in my Annual Meetings speech. I will not repeat them. This agreement is there. And if you wish to know more about what is behind this, I recommend that you take a look at the report that I sent to the Interim Committee--of whom, in a spirit of transparency, I asked permission to distribute it to the press. There you will see everything that has been achieved, everything that has been unanimously supported, and everything that remains to be done. What remains to be done is a monumental task, be it in regard to transparency, consolidation of banking supervision, to the orderly, cautious progression toward the liberalization of capital movements or the partnership with the private sector. So this is what we are doing. There is no discrepancy on this subject with the World Bank. If there is, please tell me, because I do not see any.
Regarding the suggestion of President Clinton that we have a study and we examine a preventive, precautionary facility in the Fund, I spoke to the American authorities before the event, and I said this was a positive approach, particularly well adapted to the circumstances in which not only do we have to remedy current problems, but we also have to help countries to be prepared for the shocks to come. This is the philosophy of President Clinton. I think he has shown this through his courageous combat on behalf of our quotas. When one speaks of new facilities, one also has to speak of additional financing, without which facilities would have no meaning. But, as he is doing his job and doing his duty for the restrengthening of our financial base, it is logical that he should make a few suggestions. As you know, there are many before us now to make us more effective in our support to our member countries.
QUESTION: [INTERPRETATION] Concretely speaking, have you and the different groups--G-7, G-10, G-22--reached a concrete conclusion as to how to emerge from the crisis? Have you reached any conclusions?
MR. CAMDESSUS: [INTERPRETATION] Let me say that today there is agreement on how we can emerge from this crisis. I explained this in a few words in my address to the Annual Meetings. First of all, everybody has to contribute. Everyone must pay up, starting with the most powerful countries, which are in relatively good shape at the present time, with the exception of Japan. So the strongest economies have to contribute. The G-7 recognize that today the danger is not inflation, but slow demand. So growth must be sustained and supported. The G-7 have acknowledged that they have special responsibility for sustaining global growth, and they have begun to give good indications in the monetary field; for example, the start of monetary easing in the United States and the stance shown by the European central banks to keep their rates low in the coming months or weeks. They have shown a willingness to take action, and to take rapid action, if the need should arise--and this despite the somewhat dense language, the smoky atmosphere, that you sometimes see in their statements. Japan has also told us it will do its very best to address the problem.
Another aspect of this strategy is very strong support for what we are doing to assist countries caught up and buffeted by the crisis, to help them to deal with their problems. And there is a certain agreement on the requests I have made to all the bankers, the creditors, and the bilateral donors, all, to cooperate with additional financing if required to bolster the action of these countries.
Thirdly, an agreement--illustrated, by the way, by the proposal made by President Clinton--to assist countries which are not yet buffeted by crisis but could suffer from contagion effects so as to strengthen their position, provided, of course, that they themselves take the necessary action to strengthen their own positions. It is as if you prepare for a hurricane. You have to batten down the windows and the hatches. Whatever may be the goodwill of your friends from abroad or outside, if you have not nailed down your windows and doors, you are going to be struck by the hurricane. We are being encouraged to invent the means and to be proactive in supporting those countries which are preparing for whatever may transpire. We have gotten a great deal of support and, indeed, compliments on our work in heightening regional surveillance. We began this from the very beginning of this autumn for the Latin American countries so that they can have a combined strategy to deal with possible contagion and help the markets to distinguish between those who are lax and doing nothing, those who are doing a bit, and those who are doing their utmost to be strong in the face of circumstances.
Naturally, we and the World Bank and the regional banks have to be at the heart of this defense structure. Hence, the fourth prong of this strategy is to bolster and strengthen our institutions. You know what the menu here is all about. First of all, the quotas--the quota increase for the IMF. Then the New Arrangements to Borrow. The most difficult of all is to have a strengthening of the ESAF, the enhanced structural adjustment facility, which is vital for the poor countries. We also want to provide assistance through the HIPC as well, for the poorest heavily indebted countries, and we want to provide assistance for the post-conflict countries. So that is quite an array of things on our menu. We also, on an abiding basis, have to be able to adjust to changing circumstances as they evolve. Therefore, I have said that we also have to go on with our internal reform activity. All this was mentioned in my speech.
QUESTION: Mr. Camdessus, I have three quick things on Brazil. Should we assume that when President Cardoso announces the medium-term policies, until the 20th of this month, as he said yesterday, the response by the Fund will be a very quick one; that you will already know fully the content of the policies; and that that will not have much delay for further negotiations?
Second, could you tell us something about the structure of the support? There is information that this package would include some preventive sort of aspects, some contingent sorts of aspects, along the lines that President Clinton mentioned.
Third, there is also an assumption that this act by the IMF and by the international community should encourage the private investors to move back to emerging markets, to move back to Brazil. What makes you think that they will do it in the current environment, as Mr. Greenspan keeps saying, of risk aversion?
MR. CAMDESSUS: Well, briefly on these three interesting points. First, yes, we are very familiar with the Brazilian situation, as Brazil is one of the countries which values very much the technical assessment of the IMF and has been continuously--not just since this second wave of the crisis, but from the outset, including before the episodes of November last year--working with our staff. So we are familiar with the situation and thus in a position to react promptly to their requests.
But, at the same time, we do not want to speak, to comment, or to advance solutions before seeing that the solutions are owned by Brazil, its government, and its people. What I like in this case is that we are here starting disclosing the real situation in which we are after President Cardoso has, on a first occasion, given the broad philosophy of his program and is now continuously following the progress of the work of his government, advancing more the details of the program. So, yes, I can tell you that we will react as soon as we have a formal, full-fledged program in hand. But this should not come as a surprise, as the world is used to seeing us react very rapidly, and not just in Korea, in Indonesia, or in Thailand.
On the structure of the support, I cannot at this stage speak for other institutions as while we know what Brazil is considering, they know less. Before making their own decisions, they will want also to know more about where we are going. But it is true that in the case of Brazil, I would not be surprised if the Brazilians were to give a precautionary character to our support or at least to a significant part of it, because the situation of Brazil is not one where there is there a major gap which could not be solved except by a strong and immediate injection of resources.
We have here a situation of a country which tries to protect itself against the hurricane, as I was telling your colleague. Then one could expect that if this strategy works as we expect, part of the financing we could pledge could be of a purely precautionary character. But we are not yet in a position to say. We will see only ex post what will be precautionary and what will be effectively committed or disbursed.
Will the private sector feel encouraged in the present atmosphere to maintain their support to Brazil, or even to amplify it? Well, we will see. But, you know, in the case of Brazil, the incentives for them to do that are very strong, because the program is strong, because the country is strong, because their interests in the country are strong. They have here a golden opportunity to demonstrate that they are committed to Brazil and that they are confident about the medium-term and longer-term perspective of this great country.
QUESTION: At these meetings we have heard much about architecture and architects when perhaps what this world needs is a very strong project manager. Under your stewardship, there has been a crisis in confidence. We have seen governments from Russia to Malaysia reject the IMF's offers of assistance. In fact, we see that the financial markets and the U.S. Congress, among others, are now calling for change. Have you yet considered stepping down so that new leadership could emerge to take over the IMF?
MR. CAMDESSUS: I have been frequently invited to step down by, of course, very good friends of mine. Journalists have also sometimes suggested that it was time to move. I remember, in particular, a night press conference in Madrid where some of your colleagues were very eloquent in their suggestions. What I can tell you to reassure you and all those you are speaking for is that certainly the day will come when I will step down.
QUESTION: Mr. Managing Director, I wonder if we could come back to bridging the gap between the Titanic and Great Expectations. You spoke about the strategy that has been adopted for dealing with the crisis, but could you help us understand in what ways these meetings have brought that strategy any closer to fruition? There is an awful lot of commentary these days that nothing is happening in these meetings, that there is just a lot of talk, and no great progress is being made toward a resolution of the crisis. So, could you explain why you feel so much more optimistic coming out of these meetings than a lot of people who we have been quoting?
MR. CAMDESSUS: Look, very sincerely, I believe that nothing could have happened more than what has happened. Of course, I know that the expectations were extremely high, but what has not been fully perceived is that we are dealing here, I repeat, with a monumental task; to go from an agreement on the principles, on the general outline of the architecture, which was the centerpiece of the agenda, to the completion of the work, you have a enormous gap. What we wanted to achieve now was this agreement on the key tenets of the program and to have everybody on board for that, including on the most delicate aspects of it. This consensus is there. Now we must go to the implementation. And, as you like, also, the movie metaphors or references, I will tell you that that now will be The Longest Day.
QUESTION: Mr. Wolfensohn spoke a great deal about the need for a social net, as he did in his speech, and he continued talking about that today at great length. Can you see how you emerge out of these meetings, if your thinking on that has changed, if you think the IMF needs to be more preoccupied than it has been in the past with the social impact of its programs? If you could put that in the light of Brazil, that would be great.
MR. CAMDESSUS: Well, I will put that in the light of Brazil. But, you know we are two different institutions, with two very different mandates, inspired by the same ultimate concern, which is the prosperity of the world and the progress of living standards of all and, in particular--even if it is not put that way in our Articles of Agreement--of the poorest. But we serve this common purpose through the different vocations of the institutions. The World Bank has the vocation for financing development, and particularly sectoral and social issues; social safety nets and the alleviation of poverty are at the heart of the mission of the World Bank. The Fund serves the same purpose through different channels.
In the case of Brazil, nothing can be more important from a social perspective than what we have done to help the Brazilians to escape from hyperinflation and to bring an advanced degree of price stability. You remember that after two years of the real plan, 10 percent of the Brazilian population had seen an increase in income in real terms such as allowed it to cross the poverty line. It is a remarkable achievement, done not through social safety nets, but through an effective policy of disinflation. This is where the IMF must chiefly concentrate. But we must also help the countries, together with the World Bank, to see how utilizing the scarce resources of the public sector and of the budget--how by concentrating them on the basic tasks of education, health and rural development--you can bring more equity in distribution.
And talking about Brazil, I would say that, yes, Brazil is one of the countries in the world, certainly in Latin America, where the distribution of income is less equitable, to put that politely. I hope that, thanks to this strengthening of the fiscal basis of the country, Brazil will be in a much better position to go ahead with major progress toward more equity in the distribution of income, as we have seen Argentina doing, and as was very graphically explained in the speech of President Menem to the Annual Meeting.
QUESTION: Mr. Camdessus, may I bring back an issue which was explained and discussed at the presentation addressed by the President of the USA. High-tech has been one of the reasons for the creation of the financial crisis, because it actually takes away the funds without much of a hassle as it brings the funds into action. Now, with further progress in high-tech in coming years, how will this be avoided?
MR. CAMDESSUS: One cannot say that high-tech is the cause of the crisis. High-tech is a central element to this wonderful revolution we are witnessing in international markets, which has, of course, negative effects if they are poorly utilized, but which can have extraordinary positive effects if countries equip themselves properly to take advantage of them. You know, high-tech, plus opening of frontiers, this leads to globalization. Globalization is, first, a kind of pooling of all the international resources to put them at the disposal of all in the world at the lowest possible cost.
This is a blessing, of course, and we have seen that as being behind the formidable acceleration of developments in many developing countries during the beginning of the 1990s. But, of course, you have the other side of the coin, namely the possibility of capital flowing out at the speed of light, and leading investors to become all of a sudden risk-averse. Well, what can we do to benefit from this progress and not to suffer its misgivings? We have discussed that at length. Nobody suggested that we should try speed up the light or the telecommunication. Everybody suggested that we had, one, to help countries to be less exposed to risks by having much more prudent macroeconomic policies and to be quicker in correcting any imbalance which emerged; and, two, to try to make the markets themselves better regulated, creating--in particular, through the set of standards on which we are working now--at the world level the same kind of discipline which prevails at national levels.
But the experience in the national markets shows that these kinds of things are never a given. Rules for supervision, for instance, or rules for disclosure, which are appropriate at one moment in time, could later appear not to be sufficiently adapted, sufficiently precise, sufficiently tough in a different context. So, we are all invited to vigilance and to continuously monitor developments much more closely than we have been doing so far.
QUESTION: Mr. Camdessus, there have been a couple of events over the last two days that have caused financial markets to abandon what little bit of decorum they still retained. One was Mr. Greenspan's speech yesterday, which seemed to indicate that U.S. monetary policy is going to be eased further. The second is the possibility of compromise in Japan leading to a bank reform bill that could actually be implemented. I wonder if you could comment on those two specific events and what they represent. Third, can you give us your reading of why the markets are doing what they are doing in response to this?
MR. CAMDESSUS: Well, we are in a situation of crisis; we are in a situation where rationality is not the most obvious feature of market behavior. Alan Greenspan had a very striking experience of that yesterday when announcing the best of possible things, namely a readiness to move with diligence, if the need arises, toward easing liquidity and lowering interest rates further. He had a reaction which was truly the opposite of what he could have expected, as the market has interpreted him as signaling that he could be more concerned than his very words--always very limpid, as everybody knows--were suggesting.
You also yesterday had developments in Japan, good news apparently, regarding progress in the bank reform debates. All this seems to have prompted an extremely vivacious reaction of the exchange market, with the yen all of a sudden going upward in what, I would say, seems to me a somewhat disorderly manner to, at this stage, an inappropriate level. I must hasten to say that an appreciation of the yen is something we must expect in a medium-term perspective if progress in the Japanese economy materializes. But what is occurring in the present days is too much of something which could be good in a medium-term perspective.
QUESTION: Bulgaria has been a good example of IMF policy by introducing a currency board one year ago. Are you going to recommend the same measure to Russia?
MR. CAMDESSUS: Look, we have time and again repeated that currency boards is one of the instruments in our arsenal for monetary policy. Like all weapons, they can be utilized appropriately, be put in the proper hands, and at the proper moment. I think we were right in proposing a currency board to Bulgaria at the beginning of this year. It has produced remarkable results for a country that was in the midst of a very severe financial crisis.
But for a currency board to work effectively, you need a certain level of reserves; you need an extremely strong and credible commitment of the authorities on their monetary and macroeconomic policies. We need ongoing efforts to strengthen the banking sector for them to withstand the shocks you can have under such a regime. The day Russia will have achieved such things, then indeed the question of a currency board could be raised as a positive thing.
But at this stage in Russia you need different things immediately. In particular, you need a national consensus--when I say "national," it means that the state Duma should be on board--on what will be the stabilization and reform policy. Of course, we have heard here from Minister Zadornov that they are going in that direction and working hard to put together such an agreement. But, in view of the problems Russia must tackle immediately, I do not see a currency board as a solution for the next few months.
QUESTION: I would like to know what is your opinion about Prime Minister Prodi's proposal of using the excess reserves of the central banks in Europe to create new jobs. I would like to know if you discussed it and, if yes, if there are any results for the future.
MR. CAMDESSUS: I am very interested in optimizing the use of the exchange reserves of Europe, but I do not see how you could take them out of the central banks and utilize them to create jobs. Nevertheless, it is true that you have in Europe a new problem of determining how much of countries’ exchange reserves should be left within the national central banks with the advent of the euro. What I tell my friends in Europe is that if they have reserves in excess, I could provide them with excellent investment opportunities through the IMF.
QUESTION: We are in serious trouble with the monetary crisis, obviously, and the markets are rocking and rolling on a regular basis; it is very disconcerting to many people and many countries. Clearly, what would be the easiest thing to do would be to create a central monetary system and, indeed, you have that about to be launched in Europe in January. We have the groundwork laid, I know for sure, in North and South America with the Summit of the Americas, the signing of that accord.
How soon do you see this happening in the regions: that each region will have a central currency which could then go to a global currency? And, Clinton has called for a lead regulator as part of the reform for the IMF. Do you feel that the IMF would be best filling that role, and, if so, will that determination be made in this longest day you referred to between now and the meetings in the spring?
MR. CAMDESSUS: Well, I must tell you that this is not a question I can answer by yes or no, or in one minute. But what I can tell you is that, yes, we are going toward a multi-polar world in the monetary field. No doubt the euro has now the standing of a major super currency, together with the dollar, but they are not alone. The yen also has an important role, which will, I hope, be consolidated by the strengthening of its financial system. You have other major economic centers developing in the world which, come the next century, will emerge as major players in the world arena. You have India; you have China. I hear that people in the MERCOSUR are talking about one day or another having a common currency. We go, no doubt, in the direction of a multi-currency system. And if you will kindly look at my Annual Meeting address, you will see that it is my belief that an important role for the IMF in the future will be to facilitate a smooth working of this new form of international monetary system based on an active surveillance by this institution.
IMF EXTERNAL RELATIONS DEPARTMENT