IMF Press Conference of Michel Camdessus, Managing Director
April 14, 1998
April 14, 1998, 9:00 a.m.
IMF Meeting Hall
MR. ANJARIA: Good morning, ladies and gentlemen of the press. It is a great pleasure to welcome you to the opening press conference for this Interim Committee meeting by the Managing Director of the International Monetary Fund, Mr. Michel Camdessus. It is a pleasure, also, to introduce to his right Mr. Stanley Fischer, the First Deputy Managing Director of the International Monetary Fund. The contents of this press conference are under embargo until the end of the press conference, plus 15 minutes. I believe most of you already know the system, because you are raising your hands even before the Managing Director has made his introductory remarks. We will try to take everyone in turn, but we have a lot of press and limited time.
I would like to now invite the Managing Director to make a few introductory remarks before we turn to the questions.
I believe we will have the most overcrowded agenda in the recent history of the Fund for this meeting. So, I would like to give you a little bit of an idea of where I think you could find newsworthy elements. I will not talk very much about the world economic outlook. You heard Mr. Mussa yesterday. The transcript of his press conference is on the Internet already. Let me make only three or four points about the world economic outlook.
First, the crisis in Asia. Our analysis shows that this will produce a mild slowdown in world economic trends. We expected one year ago to have 4.25 percent growth in the world economy in 1998. Now, we will have 3.1 percent growth. So, what we have lost here is more than one GNP point of growth. This is, indeed, a lot. Behind that, you have many jobs lost, a lot of income lost, and, indeed, a quantity of disruptions and suffering in the world, particularly in these Asian countries. Of course, this gives you an idea of the seriousness and determination with which we will try to work in strengthening the architecture of the world monetary and financial system.
Also worth noting in the world economic outlook is a still serious concern about the Japanese situation, even if we are quite encouraged by the recent announcement by the Japanese Government of its intention to stimulate growth through appropriate fiscal action and consolidation of the banking sector.
We have two major elements of hope. One--and it is frustrating for me to tell you that we will not be able to devote enough attention to it--is the great prospects opened by the progress in the European Monetary Union. Now, you have there in Europe these 11 countries which are like 11 pilgrims seeing from a distance the towers of Santiago de Compostela or Notre Dame de Chartres. Perhaps they are only seeing the towers of the European Central Bank in Frankfurt, but they are seeing their objective. This is only the beginning of the story, and you have for Europe both promises and challenges which remain to be met. I will not dwell on that today. We had no time in the Executive Board for concentrating enough on this great development for the international monetary system, but we will do that in time for our October meetings.
Let me now tell you what is behind this ambitious language of renovating the architecture of the international financial and monetary system. Architecture. This is possibly just a strong enough word to characterize our goal. It is because we want to have a system well established on a rock-solid basis. But it is much too strong a word to characterize what we have done so far, valuable as that may be. So we are between ambitions and still too modest results of our work. But, nevertheless, it's worthwhile to take stock of all of that.
Where are we? The Asian crisis coming in the footsteps of the Mexican one has given full clarity to what can be seen as the most obvious weaknesses of the present system. Its vulnerability to crisis, the speed of the contagion phenomenon, the centrality in each crisis of problems emerging in the banking and financial sector, as well as instances of bad governance. We also have the imperfections of the preventive system. We have all these suspicions about the unfairness or opacity in the system, and about the scope for speculators to create damage in the system. You have the deficiencies, also, in the resolution system; the potential--limited as it may be--for moral hazard; the uneven involvement of the private sector in the solution of the crisis; and the disproportionate cost for the poorest. We have all these deficiencies, weaknesses to be addressed. They shouldn't allow us to lose sight of the extraordinary potential for growth and prosperity for all countries of full integration into a globalized market. All of that only makes more pressing the need to make the best possible use of the instruments at hand for turning this potential risk into opportunity.
I would like only to put my finger on three elements which we see as decisive in creating a more solid system. One is information. In a time of revolution in communications technology, if transparency becomes the golden rule of the system, we can have--through better information, better dissemination of information--an extraordinary force for helping rationalize markets' reactions, markets' expectations, while facilitating accurate decisions by policy makers. So, one element on which to build is information.
Second, there is an enormous potential for growth in a system dominated by private capital flows in a framework of orderly capital account liberalization--with "orderly" meaning not slowness but country-tailored, and properly sequenced. If we are able to proceed with such liberalization, then we will have a decisive factor for progress.
The third element on which to build is our institutions. They are permanently in the process of reform. Crises are a formidable force for pushing our adaptation, and this adaptation is in process. And I believe that we will come out of this crisis better equipped for crisis prevention.
So, the challenge for the Interim Committee will be to face squarely these deficiencies and to use properly these positive factors. While it would be too much to expect a proper mixing of all these elements and the creation of a new system from three hours of deliberations by the ministers on Thursday morning, I believe that they will be able to do a good job. In this regard, let me tell you how Chairman Maystadt has structured the Committee’s work.
Five points will be taken under the architecture discussion. One, the role of the Fund and other international institutions in strengthening the structures of international and domestic financial systems. We always have this obsession of weaknesses in the financial institutions being a central factor for crisis. Let's see how to address that.
Second, how to strengthen further the Fund’s surveillance and how to give more teeth to its recommendations.
Three, transparency; how to make sure that the needed data are released, in a timely manner and in the proper format. And what more can we do to give the appropriate publicity to our advice.
Four, the role of the Fund in the management of a crisis. Our own assistance and the role of other official support.
And, finally, the involvement of the private sector in crisis resolution.
These are the points on which the discussion will be concentrated. You will see when I give to you the next items on the agenda that, as a matter of fact, our own work will be focused on all of that. After the architecture, next on the agenda is the liberalization of capital movements under an amendment of the Articles. This is the Hong Kong mandate. Where are we in implementing this mandate?
Then, you will have the adoption, I hope, of a code of good practices on fiscal transparency. You will see that we attach more and more importance to designing international standards for the key domains of governments' and institutions' functions in order for everybody to know what are the proper good practices to follow, and in order for us to concentrate our surveillance on the proper issues. We have already made some progress in this direction, in the domain of data dissemination for instance. We have done that, also, in the domain of banking practices together with the BIS. Now, we are doing this in the domain of fiscal transparency. I hope that here the ministers and governors will adopt our proposals, and this will be a new element in establishing the collection of standards which will guide our action.
Then, I was telling you about the disproportionate impact of crisis on the people in the poorest countries. You will not be surprised if we come back to ESAF and the highly indebted poor countries initiative. On this, we will tell the ministers where we now stand, and what are our intentions for reforms in this area. With that, we will probably adopt a communiqué. We will discuss it with you in the evening of the same day.
I believe I could stop here and now answer your questions.
QUESTION: I wonder if you could give us some newsworthy elements on how to look at Latin America today. I am specifically interested in your comment about putting more teeth into the proposals that the Fund makes and how do you make that stick in Latin America, especially when so many countries are going through elections in the very near future?
THE MANAGING DIRECTOR: Times for elections are always times for extra vigilance, and there is a particular sense in giving more teeth to our surveillance in times of elections. This being said, if I had to say only one word about Latin America, it is my great satisfaction to see that the long-lasting efforts of Latin America during the last, say, 10 years have transformed this continent. From being seen in the 1980s as the continent of lost growth, the ill continent of the world economy, one now sees that thanks to the efforts at stabilization and continuous structural reform, this continent has been able to resist the contagion of the crisis.
Remember, in November you had plenty of rumors, not about if the contagion would cross the Pacific, but when. And, as a matter of fact, thanks to the strength of these economies now, and the efforts of several of these countries to strengthen even more their defenses, Latin America has resisted the crisis, and its growth has been only mildly affected by the Asian crisis. In this respect, I want to pay tribute to the strong reaction of Brazil, which was strongly attacked by contagion at beginning of November, but which has been able to take timely, determined action not only in the monetary field, but also in the budget and structural field in order to be in a better shape to resist it. The results are there. Brazil has resisted the crisis and has now, if I am well informed, higher exchange reserves than before. We see this effort to resist the crisis in Venezuela, in their effort to put together a precautionary arrangement with the IMF. We see this effort in Argentina, which has agreed on a program with us only a few months ago, a program which is in good shape, as a matter of fact, contrary to what has been said here or there. And all of that, even if there are problems in a few countries, shows that Latin America has made significant progress and is on a good track for the next few years.
QUESTION: Recently the term bureaucrat has been used in quite a derogatory way with respect to the IMF in the U.S. Congress and other organizations. Do you think there is some ground to those accusations? What can you respond to that? You also mentioned transparency. Some people have been saying that transparency should start, first, within the IMF. Also, what can you say about that? If you allow me just a parochial question, a comment on convergence in EMU and what you think of Italy at this point?
THE MANAGING DIRECTOR: I will not second-guess the European Commission, nor the European Monetary Institute, who have seen Italy as converging properly and being one of the 11 pilgrims I was mentioning earlier. I am only very satisfied not to have waited for their opinion to announce to you that to my judgment Italy should be one of them.
Now, accusations of being bureaucrats here. Well, I have been a bureaucrat all my life, if you see a bureaucrat as somebody who would devote his life to the service of the common good in national or international institutions. So, I will not apologize at all for being a bureaucrat. I will also tell you of my pride to be here at the head of the most magnificent bureaucracy in the world. If you find one which serves the common good better, please tell me. We will try to follow its example.
Now, on transparency. We want to be as transparent as possible. I could read to you a full list of efforts developed in this institution during the last few years to provide you with more, and more, and more, and more timely information about what we are doing. Almost every week you have something new in this respect. The last example is that you had the letter of intent of Indonesia on the Fund’s Internet site even before its consideration by our Executive Board.
In this domain we have two difficulties; I would say, two challenges. One is the fact that the IMF is never alone. The IMF is always itself, plus a given country. We deal permanently with information which is the property of a given country. Of course, when we put our own thoughts in it, then we can publish that, and we publish that generously. But when we deal with this commodity which is the secret information provided to us by a given country, we must respect the intentions of the country and we cannot, without losing its confidence, publish that information without getting from the country the appropriate authorization. This is something which from time to time prevents us from being as transparent as we would like. This is a challenge.
The second challenge is that we have two responsibilities. The one you like very much, is to try to disseminate information in the world--which is good for having an international market work in an orderly way. But the other responsibility is to be the private, discrete advisor of individual countries in our continuing relationship with them, and particularly in times of stress and difficulties. We cannot sacrifice one of these tasks to the other. In particular, our impatience for disseminating information should in no circumstances alter the quality of our relations with our member countries, and our ability to help them do the right thing. This, in a few words, is my explanation for the criticism we are receiving for not being transparent. It's a challenge. We must live with that. I'm happy to see that in this patient dialogue with our countries, we are able to make a significant progress in joint transparency. In particular, I call your attention to the fact that having adopted only in May of last year what we call the press information notice, already 62 countries have consented to our going public with the opinion of the Executive Board on their policies--an opinion that is given to you without any kind of alteration, in its full candor and detailed nuances. This is progress. We expect to be able to do more. It will take time. But, I'm sure--and I perceive that also in the Executive Board--that our membership sees more and more the virtues of transparency.
QUESTION: Please allow me to ask a rather parochial question. Since the last financial crisis, for the first time I felt myself secure when I read the world economic outlook which says that Korea would experience a relatively high level of recovery next year. Having said that, would there be any macroeconomic policy recommendation to be changed to experience that kind of recovery, or just sticking to the reform itself will bring that level of recovery? Can you elaborate on that?
Related to that, you are familiar with the Korean situation and you already visited Seoul, Korea several times. In Korea there are severe investigations and hearings which will decide who should go to prison over the economic crisis. Do you judge that the cause of this crisis to be human error or just circumstantial problems. I asked this question of Mr. Summers before.
THE MANAGING DIRECTOR: Did Mr. Summers send many people to jail?
Look, we are witnessing in Korea a remarkable phenomenon. It is not only by sticking to its program. But, as he told me, by implementing it 120 percent, President Kim Dae-jung is obtaining probably a quicker recovery and regaining more quickly the international markets' confidence than we expected. I could give you many numbers of course. But just look at the remarkable success of the bond issue last week by your country. It was covered three times. A record subscription. This shows that markets now have understood that Korea sticks to its program and has a wonderful potential for recovery and for being rapidly in stronger growth conditions than before.
The very speed of recovery, of course, may require that sometime down the road we, together with your authorities, will see if there are things that need to be adapted in the program--something that we did a few weeks ago. We are always ready, if there is justification, to adapt programs. But at this very moment, I don't see any urgency for that. We agree with the authorities on their monetary policy and fiscal policy orientations. We salute their efforts to continue with the structural program in the tripartite context that has been initiated recently. All of that is very promising, and I would say that this demonstrates something the President himself has said, namely, that if this program is implemented well, the crisis will have been for Korea a blessing in disguise. Of course, I understand pretty well that the authorities would have preferred not to have the crisis and to have the blessing without the crisis, and that there are certainly people trying to see why this crisis occurred. We in the IMF ourselves have been surprised by the speed of the contagion, and the magnitude of the disaster in Korea. As usual in events of this kind, there are circumstantial elements, contagion elements, certainly human errors here or there. It is not for me to pass judgment on that. I am very anxious to see your people concentrating more on the bright prospects for the future than on the mistakes of the past.
QUESTION: Regarding Japan's economic stimulus program, you said at the National Press Club on April 2nd that you would be happy if stronger emphasis was put on tax measures rather than wasteful public spending. Since then, the Prime Minister Hashimoto announced a temporary income tax cut worth Y4 trillion, which accounts for just one quarter of the Y16 trillion in the economic package. It seems to me that the markets were not particularly impressed with the announcement. What would you say to the size of the income tax cut and the nature, temporary nature and the effectiveness of the income tax cut, which is not a permanent one, and overall do you think Japan has done enough to become an engine of the Asian economy again?
THE MANAGING DIRECTOR: I like very much the objective you mentioned to make Japan, again, an engine of growth in Asia, and in the world, as it has been for so long. We are not there yet. But I salute the announcement by Prime Minister Hashimoto of his fiscal measures. There is something encouraging there. The fact that there is a particular effort to have a significant amount of clear water in the overall package is, indeed, very important. And, among the real measures, I like the particular emphasis which is put on fiscal measures--temporary measures, perhaps, but with the promise to consider somewhat down the road the possibility of making permanent what might now be seen as temporary. All of that goes in the right direction. There are also measures of investment and public works. I wouldn't like to be quoted for saying something I have not said. Not all public works are a waste of money or a source of corruption. You can have timely and useful public works, and I hope that those that will be part of this program will respond to this definition. The difficulty at this stage in passing a final judgment on the measures announced by the Prime Minister is that, due to the very circumstances of Japan, these measures are not yet finalized. They are not defined in all their details. But, I hope that on the occasion of the forthcoming meeting, the Japanese authorities will have excellent opportunities to give us more details. And I am sure that the other countries of the world will be happy to give their support to this new orientation of the Japanese government.
QUESTION: I have two questions. One on Japan, one on Indonesia.
On Japan, just a quickie. There is a report out of Tokyo just a couple of hours ago that Finance Minister Matsunaga has been criticizing and is very angry with the IMF, saying it was difficult to understand why the IMF is forecasting zero growth, and basically taking issue with Mr. Mussa's projections yesterday on Japan. The finance minister of Japan upset with the IMF, can you comment on that?
Secondly, on Indonesia, you've just concluded the third plan with Indonesia. There is criticism of the IMF for not having been sufficiently equipped to sufficiently be able to know what to do in Indonesia, for having applied macro policies and taking a long time to learn that it was really private sector corporate debt and bank restructuring issues, more World Bank than IMF material. How do you comment on that criticism?
Finally on Indonesia, why should we believe that Indonesia will stick to this plan when it hasn't in your past two failed plans?
THE MANAGING DIRECTOR: I was not informed of the particular uneasiness of the Minister of Finance of Japan about the comments of Mr. Mussa. We have produced for Japan our professional guess of zero growth for this year. But we would love to be wrong and to find in the package of the Minister--when we have all the details--elements for changing this number to something significantly more positive. I don't rule out this possibility. Indeed, I look forward to the occasions we will have in the next few days to discuss with him and his associates how the detailed program they have in mind could bring us to a higher number.
1998 is one thing. What matters is the longer term perspective. And here, I will certainly tell the Japanese authorities that what matters is to have the things in the right perspective, and not to forget that the basic underlying problem of Japan is still of a structural nature. There are still a lot of things to be done, even beyond the Big-Bang initiative, to open Japan to the rest of the world. There are still a lot of things to do for the real estate market. Then, of course, to have a proper fiscal reform, transforming to a permanent status part of the present measures. And of urgency now, to give the proper angle and the proper teeth and the proper efficiency to the banking restructuring measures.
Now, Indonesia, the mix of macro versus structural measures. Here, of course, I hear we are not enough in the macro, we are much too much on the macro; we are not enough in the corporate sector; we are not focusing enough on the banking sector. You put all of that together and you mix, and you have all the cocktails of criticism you want, provided you start from the assumption that the IMF must be wrong. But, what I will tell you is that in reality we have no choice but to address simultaneously the major macro deficiencies of this economy and its major deficiencies in the banking and in the structural domain. It would have been nonsense to have the illusion that by solving the macro imbalances, you will have Indonesia on a long track of sustainable growth. Nobody would have believed that. So, we had to do the two things simultaneously, difficult as it may be.
Now, I understand pretty well that in the Indonesian environment everybody knows these kinds of reforms do not go easily, and that vested interests can conspire to, let's say, delay them, if not subvert them. With that, you must start again and start again, and start again. But why do I believe that the Indonesian authorities will stick to it now? Well, because they know pretty well the cost of not having accepted and adhered to it earlier. The cost for the country has been tremendous. Each time we had to revisit the program, we had to strengthen it. This time, we have an excellent program. I pay tribute, as a matter of fact, to the Indonesian technocrats with whom we have worked during these three weeks of day and night efforts to really go to the roots of the problems, to really find solutions which preserve the long-term objectives while taking in due consideration the immediate social cost of these measures. This has been done. I am confident that this will work.
QUESTION: You have mentioned that the program that Argentina has with the Fund is in good shape. But, as you know, there is this growing deficit, trade deficit, and in the current account deficit, and there has been some recommendations of the Fund that our minister says that they are not going to implement. So, I want to ask you two questions. What does it mean, in the context of Argentina, for the Fund to give more teeth to its recommendations? Second, what can be the impact on the program if these recommendations are not implemented?
THE MANAGING DIRECTOR: Each country reacts in its own way to IMF therapy. Now, I use this reference to the medical domain because very frequently we are depicted as the good or bad doctors, the surgeon, etcetera. When you prescribe a given therapy to a patient, you must know its reactions. In Argentina, there is a very quick and brilliant reaction to the IMF's prescription. This is part of the Argentine scenery, and something I see with great sympathy. It is true that recently after we agreed on a new program with Argentina we visited Argentina for a first review, and, interestingly enough, we decided with the authorities to publish the normally secret report of our staff to the authorities. Transparency, ladies and gentlemen. As usual, this document was totally precise and perfectly sincere. It was full of appreciation for the authorities' efforts, and it was part of the conclusion of a dialogue which was not at all confrontational, but which was constructive, and to which the Government, the congress, and the labor unions had all contributed. But, it was a balanced set of compliments and warnings. Compliments for the way in which the fiscal program was on course. A compliment for the very high rate of growth with no inflation. But also warning because, due to the very strong activity of the private sector, the current account deficit is going up in a way which for the IMF is worrying. It's our job, as you know, to be particularly attentive to current account developments, and to err--if we have to err in this domain--on the conservative side. We made clear that Argentina had to be careful with current account developments, and that we could see in this situation of the current account some reason for moderating somewhat the rate of expansion, and perhaps for postponing or delaying elements of an expenditure program--for instance on highways--which is not of the most immediate urgency.
While we also see in this program important elements of structural reforms, we also saw that in the domain of labor reform the most recent developments were not totally in line with the spirit of our recommendations and had the potential to introduce more rigidities there. So, this too was mentioned.
This is the overall assessment of the situation. The letter indicated that Argentina was nevertheless on track with the program, and when the country is on track, the program goes on.
QUESTION: India is one of the countries which was able to escape the contagion to some extent, at least, though the growth rate is now slightly down. This year’s WEO points out that the 1999 reforms have lost steam and India has to grow faster, India has to reform more vigorously. Can you amplify where you need more vigorous reforms in India? And secondly, there is a fear in some circles that if you open up India too much, open up the economy too much, then the local industries will be swamped. And with the kind of news you see these days of banks becoming megabanks and still larger behemoths, this really engenders a fear that when you deal with corporations whose budgets are bigger than that of the central government, you may not be able to deal with them. I was wondering how you view this.
THE MANAGING DIRECTOR: We are concerned in the Fund, as the Indian authorities also certainly are, by the problem created for the Indian economy by the sheer magnitude of the public sector's deficit. This certainly must be addressed. We are, of course, delighted that India has escaped so far the contagion of the Asian crisis. This is partly due to the fact that India is a continent in itself, and less dependent than other economies on developments in international markets. This being said, the only thing I would fear for India is not too much opening, but not enough and too late.
I believe that India should grow more rapidly. And on that, I entirely agree with the goals of the Government. But it is not by slowing down the opening of the economy that you increase the long-term prospect of growth for the economy, but just the opposite. I would certainly insist on the fact that India has not much to fear from opening, except if opening is too late, and too slow.
There are also many elements of a structural agenda which should be high among the priorities of the new government. I would mention the need to develop an efficient infrastructure; the need to reform and divest public enterprises; a need, once again, for trade and foreign investment liberalization; the need to reform and strengthen the financial sector to pave the way for a move to a more liberal capital account regime--something from which, provided it is done in an orderly way, India should benefit most.