Press Briefing on Russia - - Stanley Fischer
July 13, 1998
July 13, 1998, 1:30 P.M.
[This is part 1 of a press briefing on Russia given by Stanley Fischer and IMF Treasurer David Williams. Part 2 is available at www.imf.org/external/np/tr/1998/tr980713a.htm]
MR. FISCHER: I thought I would just give you the opportunity to go through the MD's press release and cover any questions you might have. I will say a few informal words first.
First, we have here with us Mr. Belanger, who is Deputy Director of the European-II Department, who is running the Department while John Odling-Smee is in Moscow and who has been doing all the work on this side of the ocean this weekend and earlier.
David Williams is the Treasurer of the Fund and is here in case you have unanswerable questions on the GAB and what its implications are.
Jack Boorman, sitting behind you, is Director of PDR, and Graham Newman, whom you know, and Mr. Anjaria, sitting beside me.
MR. ANJARIA: Let's talk about the embargo first. We'd like to embargo the contents of the conference until 4 p.m. this afternoon, please.
MR. FISCHER: This package is one which is based on a very remarkable agreement with the Russians, basically on the budget for 1999. We have said since the beginning of this exercise, which is, I guess, about 2-1/2 weeks old, that we would be willing to make financing available to Russia if they took fiscal measures that would put this recurrent problem behind them and if they took structural measures which would promote growth.
The agreement we have with the Russians on the 1999 budget--and it is a detailed agreement based on our guys sitting down together with them and working through the budget numbers--is expected to produce a budget deficit of 2.8 percent of GDP, which would be about half the budget deficit of 5.6 percent that is expected for 1998, itself better than the 1997 budget.
It was the negotiations over the budget that took time, together with another matter, which is the need to have the decisions that are made be made credible--credible in the sense that there is reason to expect they will be implemented.
The Russian Government will take some measures to the Duma on Wednesday and Thursday. The upper house, the Federation Council, will be meeting on Friday and Saturday. Measures have to be approved by both houses and signed by the President, and we have an agreement on how to proceed in the event the measures are not accepted by the Duma and the Federation Council. And that discussion of how we were to know that these plans were something other than abstract and something that would happen was a part of the negotiations and an important part of the negotiations.
The Board meeting will be next Monday. That is to give time for these measures to be considered by the two houses of the Parliament and for Presidential action.
Now, with that out of the way, I should emphasize that while these were very long and complicated negotiations, both with regard to the central bank and with regard to the Finance Ministry, we were impressed by the seriousness on the other side. We were not in the mode of, "Yes, we'll promise you anything, and that's fine." We said, "We can't do this; how about that?" and so forth. So we regard the professionalism of the Finance Ministry under Mr. Zadounov and the central bank under Mr. Dubinin as an important bulwark of the program that is expected to be implemented this year and next.
Now, the financing is, of course, what everybody focuses on, and we have got to struggle to keep the focus on what we are concerned with, which is that these things get done. But the financing is that the Fund has agreed to provide an extra $11.2 billion to Russia this year, of which $5.6 billion will be made available on the passage of the Board's agreement to the program next Monday.
Now, I will ask you to please let me state this the way we state it. We will recommend to the Board a disbursal of $5.6 billion next Monday. If the Russians have met the pre-conditions, and if the Board approves, that will be done. Of that amount, half would be an increase in the EFF, an augmentation, and half would be the so-called CCFF, the Compensatory and Contingency Financing Facility, which allows us to disburse money to countries who are in compliance with existing programs but who have suffered from the consequences of adverse balance of payments developments--and in Russia's case it is oil, primarily oil; it is other commodities as well. So that 2.8 of this comes out of the CCFF.
There would then be two more tranches in 1998 which would make up the total of $11.2 billion additional for 1998.
So, to be clear, the first item is an additional $11.2 billion from the IMF for 1998. In addition, there are two tranches of $670 million waiting to be disbursed when the conditions are met on schedule in the remainder of this year. That means that Russia, if it stays on track, will be eligible for another $12.5 billion of financing from the IMF in 1998.
In addition, the Russians in discussions with us, have requested that the current Extended Fund Facility be replaced by a new EFF starting the beginning of 1999 that would last for 3 years. Under that extended EFF, the Managing Director's statement says he would envisage recommending disbursements on roughly the same scale as the present EFF, about $2.6 billion a year.
That means that by the end of 1999, if the Russians carry out the program, that the Fund will have disbursed about $15.1 billion.
In addition, there is a description here of what the World Bank plans to do. For the remainder of 1998, there would be $1.25 billion from the World Bank; it plans another $3 billion in 1999; and then it has a pipeline. So that is $4.25 billion, but there is money still coming due, and that takes it up to $6 billion due from the World Bank between now and the end of 1999. And that, if I can do the arithmetic, is $21.1 billion through the end of 1999. And Japan has agreed to provide $1.5 billion in balance of payments support in cofinancing the World Bank, which is how you get to the Russian figure of $22.6 billion.
In addition, the Russian Government will tomorrow morning be announcing the details of a plan to convert on a voluntary basis--that is important--GKOs, Treasury Bills, maturing through June 1999, into longer-term, dollar-denominated liabilities at 7 years and 20 years. This scheme is expected to be attractive to the holders of GKOs and is expected to help take some of the pressure off the markets in two ways. One is this rollover problem of GKOs over time, and second, it would reduce the interest bill, and in reducing the interest bill on the ones that are replaced, it is also likely to reduce the interest bill on existing GKOs, because there will be fewer of them.
The Russians have agreed that there will be no further borrowing at less than one-year maturity under the program, so they are going to go longer than one year. The details of the debt offer will be announced tomorrow, and there will be a road show later in the week, explaining what this scheme is about.
Finally, the IMF, as you know, is getting capital-constrained, and this is a very significant call on our resources. As a result, the Managing Director has already started discussions with our shareholders on the activation of the GAB, and we have received indications that the shareholders will favor that, but we haven't completed the formal negotiations.
Put simply, our liquidity position is such that we have to draw on our reserve tank, and we are now doing that--asking to do that--and of the $11.2 billion that is extra provided for Russia, it is our intention to request that $8.4 billion of that be provided from the GAB.
That's the introduction.
QUESTION: So GAB funds will only be used for 1998 purposes?
MR. FISCHER: That's the present need. I wouldn't say "only"; as of now, that's the request we are making, but given the way our liquidity ratios are moving, if the quota does not take place, we would certainly be using it, would have to draw on it for other things.
QUESTION: As part of this extended maturities of the debt-holding, did you require them to hedge their currency exposure, since it is going to be dollar-denominated?
MR. FISCHER: No.
QUESTION: Dr. Fischer, what is your fallback plan--and you indicated that you have one with the government--if both houses of Parliament do not pass the requisite legislation by the time the Board meets on Monday? What is the basis of that agreement?
MR. FISCHER: I see on the wire services that they say that the President has the right to do things by decree.
QUESTION: And that would be sufficient for you?
MR. FISCHER: In the context of these negotiations, yes. But we have to look very carefully, of course, at what the decrees say.
QUESTION: A while ago, you said that $10 billion was too much for a single country. What has changed?
MR. FISCHER: Ten billion was too much for us, and we have had to draw on the GAB.
QUESTION: Can you talk about where the Fund's liquidity position is now, based on--assuming all these numbers get approved by the Board?
MR. FISCHER: David?
MR. WILLIAMS: Now, with SDRs, you have to multiply everything by a third.
MR. FISCHER: Mr. Williams is the only man who thinks in SDRs.
MR. WILLIAMS: Yes. We have net usable resources of SDR 23.5 billion, say, $31 billion. Against that, we have liquid liabilities of SDR 52.6 billion, and that gives our liquidity ratio at 45.7.
MR. FISCHER: That's now.
MR. WILLIAMS: That's now, as of today.
With the program that the Acting Managing Director has announced for Russia, the $11.2 billion or SDR 8.4 billion, plus our commitments that are expected--new commitments that are expected--for the end of the year, without use of the GAB, our liquidity ratio would go down to 19 percent, totally nonoperationally low. With the GAB use of the amount that the Acting Managing Director just mentioned, our liquidity ratio at the end of 1998, we now expect to be about 29 percent, still very low indeed.
QUESTION: And that's an historic low.
MR. WILLIAMS: Apart from one very, very brief moment, it is by far an historic low, yes. Our lowest over a period of time was 30 percent, 29 percent--almost the same.
QUESTION: Can you break that down for us into dollar figures?
MR. WILLIAMS: Okay. In dollars, what we would expect without the GAB would be $19.8 billion. With the GAB, it would be $23 billion.
QUESTION: And that is for what period?
MR. WILLIAMS: That is what we would expect to have by the end of this year, after taking into account the Russian program now plus the new commitments that we expect for the next 5 months.
MR. FISCHER: And David, please tell me whether I am wrong, but this is an amount which we--the liquidity is needed because countries have a right to draw on the reserve tranches--
MR. WILLIAMS: Yes.
MR. FISCHER: --so this is not lendable money; this is the liquidity that is available. Countries have a right to draw. We like to keep the liquidity ratio well above 30 percent, because if Australia were to show up and ask for its reserve tranche, they have a right to it.
QUESTION: What does that mean--we have heard the $10 to $15 billion figure tossed around that currently, the IMF has in lendable resources. What would that number fall to, then, in lendable resources at the end of this year?
MR. WILLIAMS: I'm giving you what it would be in lendable resources.
QUESTION: So what would the $10 to $15 billion be?
QUESTION: So, is it wrong to have reported all this time that it was $10 to $15 billion in available resources?
MR. WILLIAMS: No. That calculation has been made by the U.S. on a slightly different basis.
MR. FISCHER: Let me get this straight. We have $44 billion?
MR. WILLIAMS: No. At the moment, we have $31 billion.
MR. FISCHER: Thirty-one. And at a 30 percent liquidity ratio, how many dollars would we need?
MR. WILLIAMS: We would then be down to 17-1/2.
MR. FISCHER: So 30 minus 17-1/2.
MR. WILLIAMS: Yes.
MR. FISCHER: So at a 30 percent liquidity ratio, we need $17.5 billion, and we've got 30, so the lendable is the difference.
QUESTION: And how much is that?
MR. FISCHER: Twelve and a half.
QUESTION: So if we were to use that number as being the lendable resources after taking Russia and other loan programs into account?
MR. WILLIAMS: No. After taking Russia into account and the net new commitments we expect in the next 5 months, we would be down to--and don't forget, we will be having repayments made, so this is the gross figure, not the net--would be $17 billion. And against that, we will have liquid liabilities of $87 billion.
QUESTION: Could we talk to you about this after?
MR. FISCHER: I think that's a very good idea, but the basic point is that after these loans, our liquidity ratio is below the number that we feel comfortable with, even drawing the $8.4 billion from the GAB. If we draw the GAB, we get our liquidity ratio to 30 percent, 29 percent. We don't like it to be below 30. That means even with the GAB, we don't regard ourselves as having lendable resources except to the extent we draw on the GAB. If we didn't draw on the GAB, we'd be $8 to $10 billion below the point at which we feel comfortable.
QUESTION: Have you gotten any indication in the last couple of days about the prospects for Congressional action? We aren't going to see anything until after the first of October, obviously; they are lobbing it into the new U.S. fiscal year. But do you get any sense that we may see a NAB in place before year-end, at least, rather than the quota, or a combination--
MR. FISCHER: I have no new information.
QUESTION: Dr. Fischer, how severely do these financial constraints impair your ability to move quickly when the next flashpoint rises, be it Venezuela, Pakistan, whatever? How severely are you now restricted?
MR. FISCHER: We are entering a region in terms of our financing where we are in grave difficulties. We have not invoked the GAB since when, David?
MR. WILLIAMS: 1978.
MR. FISCHER: Twenty years.
MR. WILLIAMS: Seventy-eight was the last one--for the United States--but the real one was in 1976.
QUESTION: So for all intents and purposes, does this mean that without the money the administration is trying to get from Congress, you really can't do any more emergency lending?
MR. FISCHER: No. There is more money in the GAB--what is it, $12-$13 billion that is usable?
MR. WILLIAMS: Ten-point-six billion SDRs, $14 million.
MR. FISCHER: There is another 14 we could draw on in the GAB if lenders agree, but in the event of a major crisis, we would be in difficulty.
QUESTION: I’d like to get back to the GKO a little bit. You will definitely correct me if I am wrong, but as I understood it, the GKO debt was sort of effectively dollarized by hedging activity, that when a U.S. bank, for instance--they are very active in the GKO market--when a U.S. bank went in and purchased GKOs, they offset their exposure in rubles through dollar hedge positions, and often, those dollar hedges were with Russian banks--as a matter of fact, primarily with Russian banks, big Russian banks. Now, if the Russian Government were to devalue the ruble, that would really stick, and with these hedge positions in place, Russian banks effectively could collapse. Is that a concern, or is that another reason why you had to move quickly to (a) avoid a ruble devaluation and then, secondly, sanction what is now officially a dollarization of the GKO by the conversion?
MR. FISCHER: There are more reasons.
QUESTION: It is pretty complex, yes.
MR. FISCHER: We don't know those numbers for sure. We have been told that those hedges have been coming down because they have become very expensive, so that less of the GKOs are hedged than were before. This is what we were told, but you know, everybody tells you everything in these cases, so I don't know if that's for sure.
I wouldn't say that that was a factor. I mean, we were aware in this case as in other countries that the financial sector vulnerabilities would affect the way the system would respond to the devaluation. There are other reasons to worry about a devaluation, namely, the inflationary consequences. But I would like to put it in almost the opposite way. We have said from the beginning that the problem with the devaluation is more than anything else that it doesn't solve the underlying problem. The underlying problem is the budget and the financing needs. So if you devalue, you sort of relieve the pressure on the markets for a while, causing difficulties, but unless you got the budget in shape, and the devaluation wasn't going to do anything for the budget, you would be back in this situation.
That is why we have focused so heavily on the budget and getting the deficit down. And we--let me put it this way--if all that had happened here had been a negotiation in which we didn't get the budget changes, no matter what, we wouldn't have supported it. So we are not out there to prevent the devaluation for another 3 months. Of course, we hope it is to be avoided. We are out there to prevent this crisis situation from continuing, with or without a devaluation. That's the main goal of this program, and certainly the Russians are giving good signals of willingness to deal with the problem.
QUESTION: Do you still see a danger, though, if there were a devaluation--say, 8 to the dollar or whatever--that that would endanger--effectively undermine--the Russian banking system?
MR. FISCHER: It would have adverse consequences on the banking system; it does everywhere. And you see, the trouble is you never have these numbers. Now, that's what we believe, but precisely what the numbers are, I don't know.
QUESTION: Okay. Just one last question on this. Then, the move to dollarize the GKOs--it makes sense to stretch out the maturities, but also to dollar-denominate these securities. Is that also to sort of shift the burden away from the Russian--is the idea to shift the burden away from the Russian banking sector onto the shoulders of the Russian Government?
MR. FISCHER: I hadn't thought of it that way. I think our analysis was much simpler. Their dollar rates are much lower than their ruble rates, and if you're going to have a fixed exchange rate, you might as well lose lower interest rates. Maybe you've got a better analysis than we have, but that was the thinking.
QUESTION: The statement released by the IMF this morning doesn't mention what economic forecasts have been built into this agreement with Russia. Can you give us some idea, sketch for us broadly, the way you see the Russian economy over the next 2 years, either in terms of growth or in terms of contraction.
MR. FISCHER: I actually haven't seen the document, I must confess. We are coming to you very early in this process. We are only going to get the documents tonight from our team, with the forecasts and all that, and I haven't looked at the forecasts recently, so within a couple of days, I could answer that question, but I can't now.
Mr. Anjaria will tell me not to guess, but I would guess that we would see a resumption of--we would see modest growth in 1999 under the program. Remember, if this program succeeds, it has the elements to then have interest rates come down significantly.
QUESTION: Can you tell us a little about the specifics of the measures that are going to the Russian Parliament between now and the Board meeting next week, as regards the specific structural reforms that you expect them to put in place?
MR. FISCHER: I don't want to get very specific, Blair. Let me just say that there is a lot on fiscal federalism and how the revenues are shared, and possible shifts onto budget or into budget of various funds that were running independently outside the budget; some straightening out of the taxes. We expect the first part of the tax code to be passed.
But I think the interesting one--the reason I am not giving them to you is that I think the Russians should reveal them--is fiscal federalism, which is quite important to this, and there are some interesting innovations there.
QUESTION: Are you concerned about any possibility that there might be some greater portable upheaval or political tension if the Duma doesn't pass these measures and Yeltsin is forced to do this by decree?
MR. FISCHER: No. We'll just have to see what happens. I don't know to what extent that would happen, and relations between the administration and the Duma have been quite rocky on occasions in the past, so it wouldn't be a huge surprise.
QUESTION: Dr. Fischer, would you discuss the reason why only the Japanese Government accepts a bilateral basis of support.
MR. FISCHER: I think we are very appreciative of what the Japanese Government is doing, not only in Russia but also in other countries, including Indonesia. I am not sure, and I guess when you go to press conferences with the other bilateral donors, you can ask. But it is a delicate question. I am never quite sure which way to react to this. The IMF and the World Bank were set up for a particular purpose, and the G-7 are the shareholders, so it is their resources in an important sense. So I am always a bit cautious about saying there is no contribution from the bilaterals. It is formally true, but on the other hand, this is their money. It is a good way of doing it. And if, in the longer run, they were to decide they wanted to internationalize it more, and make the fund larger and operate that way, that's another way of doing business.
QUESTION: Just in terms of constraints on your funding and other things that could be coming down the pike, I know it's not technically related to Russia, but officials in Pakistan are saying the IMF was due to consider releasing a tranche to Pakistan this week, perhaps as early as today, but now will no longer go ahead and do that because of the impact of U.S. and others' sanctions against Pakistan.
Can you just sketch for us briefly where we are with Pakistan at the moment? I mean, was such a tranche due to be considered, and are your financial constraints playing any role in that at all?
MR. FISCHER: I think it's safe to say that in the Pakistan case, these are not financial constraints. These are related to sanctions and whether particular governments could vote for--the G-7 has agreed to certain sanctions, and if the G-7, with 45 percent of the vote, something like that, decides it is not going to support something, it is hard to get it through. But I would not attribute the Pakistan difficulties to our financial problems at the moment.
QUESTION: And the tranche was due to be considered this week?
MR. FISCHER: I don't know the exact date, but reasonably soon.
Do you know, Jack?
MR. BOORMAN: I think it was to be considered around this time. It was on the Board schedule long before these events took place. It wasn't something that had been constructed in recent days.
MR. FISCHER: After the nuclear test and the imposition of sanctions, you have to redo the program, and that would move the date, anyway, and that's what Jack is saying.
QUESTION: Are you concerned about the possibility of default by Pakistan?
MR. FISCHER: We are obviously always concerned and always watching closely and in close consultations with countries, and I hope and believe that Pakistan understands that, with the international financial institutions--with the close financial relationship they have with us--default on obligations to the Bank or the Fund or the Asian Development Bank would complicate the situation enormously. I think they understand that.
QUESTION: Now that we have moved to other countries--
MR. FISCHER: I thought you were interested in Russia.
QUESTION: --we are--but you have some things coming up with Indonesia also this week. What can you say about that, on what precisely you are going to consider?
MR. FISCHER: There is a review of the program. There is a Board meeting scheduled for Wednesday on Indonesia. It is for the next tranche, $1 billion, under the program.
I believe--and I stand ready to be corrected--that the Indonesians have already published their LOI for this.
MR. NEWMAN; Yes, they have.
MR. FISCHER: So the details of what this is about are on the Internet.
QUESTION: Is the funding gap issue being resolved to your satisfaction on as timely a basis as you would wish?
MR. FISCHER: Gee, I wish I could craft the words as well as that. Yes, we are seeing progress on that.
QUESTION: So you expect an announcement about that coming out before Wednesday?
MR. FISCHER: I don't know about announcements, but it is clear we are making progress, sufficient progress, to go to the Board. It is not entirely closed. We need a bit more done, but it is moving in an encouraging way.
QUESTION: I'd just like to get back to Russia a little bit. I have been away for a while, so I don't know if you have explained this, but there have been a lot of reports about external pressure from shareholders on the IMF to boost the size of your funding in Russia. Can you address that? Was there indeed strong pressure coming from the White House and other shareholders, and what was the reasoning behind throwing a lot of money behind this enterprise at this stage?
MR. FISCHER: I actually was impressed at the extent to which we were left to negotiate this in the way we thought technically best and without political pressures. They meet a variety of dates on which--first, over the $670 million tranche, where we wanted them to take certain measures related to tax collection, oil pipeline access, other things like that, where one could see that a lot of people really hoped they would get the money, but we just stood firm.
Similarly in this one, day-to-day, there have been noises that it is critical to reach an agreement--various people are saying that, the market is saying that--but we were not going to do it until we got the agreement that we wanted.
So I would say I am, if anything, impressed by the extent to which our shareholders did not pressure us into reaching a premature agreement.
As to the financing, I sort of don't know how to relate to that. The fact is that you go into these things with some preconceptions, and you know that whatever numbers are there are part of the bargaining process; you know when you read reports in The New York Times on what the Russians say that that is part of a bargaining process; you know when they report later that the number is double the number they reported earlier that all you are being told is it is double their number, not double anything that we had said to them. And if you read The New York Times report carefully, there was never confirmation from the IMF of those numbers, which is why it had to be written as "The Russians say...."
We have a motto which you have heard more often than you care to, that we are willing to provide more financing for stronger programs. I think we got a strong program.
QUESTION: Clearly, a couple weeks ago, even some of your shareholders were thinking a smaller amount of money--when the $15 billion figure, for instance, was floating around, the high end of the range, some of your own shareholders were suggesting that that number was a bit frothy. But it is pretty close to that number, so some changes must have occurred in your thinking, and I am just wondering what was the pressure--what was the fundamental reason, other than your showing your balance of payment--I know you crunch numbers and stuff--but was there something that fundamentally happened in the last few weeks that necessitated putting more money into the pot?
MR. FISCHER: Basically, what we decided was either this is going to happen and be strong and a stronger program, or not. That was our initial basis for going ahead. Now is the time to get the Russian Government committed to a set of actions which will solve this running sore of the fiscal problem. And if that was done, we were willing to try to provide enough, in conjunction with a private financing deal, to take care of the short-term liquidity needs of Russia; that was it.
Now, the numbers don't harden in our minds until we get much closer to the end, but as I said, there is a bargaining process going on, and you know very well that if one side or the other puts a number on the table as part of a discussion in which those who are lending will end up somewhat higher than they initially said, then those who will borrowing will end up somewhat lower than they initially said.
QUESTION: How will you be monitoring the process, this new program?
MR. FISCHER: The same way as we monitor the existing one. We've got people in Moscow. We've had exceptionally good cooperation with the central bank in these negotiations. I think we'll have all the numbers we need to monitor.
QUESTION: That means that every so often, you will go through the same process of--
MR. FISCHER: Whenever there is a tranche release, yes, every time there is a scheduled tranche release. And I think it suggests here, or says here, that there will be--this says the rest will be made available during the remainder of the year. Well, the remaining $5.6 billion would come, we expect, in two tranches.
QUESTION: Still on quarterly monitoring, or will you be back on monthly?
MR. FISCHER: September and early December.
QUESTION: And what is the timing for the two tranches in the EFF--the same?
MR. BELANGER: August, and then, when they put everything together.
MR. FISCHER: They will coincide; okay, so it will be 2.8 plus 670--twice.
QUESTION: Just back to the financing constraints, you say if there were another major crisis, you would be in difficulty, when in the past 9 months or so, there have been a string of major crises. One never really knows for sure when the next one is around the corner. Are you effectively saying that if anyone is thinking about going to the Fund for a decent amount of money, think again, because we don't have the cash?
MR. FISCHER: We have an obligation to our members to make our resources available to them. That is part of the agreement of the international community with countries that play by the rules. Those who join the IMF and who follow its rules, who have liberalized trade and have done the other things have a right to ask the Fund for resources. That is part of the deal by which the international community lives. If they ask us, and we have the resources, we will provide them as we have to Russia, but we will have to be very careful, and at some point, our shareholders will have to make a decision--either they want the Fund to be able to meet the agreements which are an implicit and critical part of the way this system, which has worked extremely well, works, or they want to do something else. But it cannot continue this way.
QUESTION: Can I ask you a question on the U.S., what the administration is seeking as a total of 18--14.5 of that is for the quota increase which would go into the lendable resources. Is that single amount enough to put you back where you need to be, or is the fact that the U.S. has not approved it holding up other countries' contributions?
MR. FISCHER: As a formal matter, the quota increase cannot go into effect until 85 percent of the voting shares have been voted. That means if the U.S. vetoes it--without the U.S. share, it doesn't happen. The others will come on board 10 seconds after the United States has voted it. That is what is holding it up.
QUESTION: And how much additional resources would you have with the--once they all come in?
MR. FISCHER: The total would be another $90 billion--
MR. WILLIAMS: Ninety-two billion, of which $67 billion will be usable.
QUESTION: Alternatively, have you considered going to the capital markets, the way the World Bank regularly does, if not to solve financing, perhaps to complement funds you are getting from the outside?
MR. FISCHER: The whole basis on which the Fund works is different from the World Bank. There is an old line which is true, which is "The Bank is a fund, and the Fund isa bank." The Fund is a bank. Countries make deposits, and we use those resources, and they still have a right to those deposits. That is the way we do it.
Now, we have a backup line of financing, which is the GAB. It is borrowing from countries, member countries. We are a very different organization. We went to the markets, and we want the assurance that the current form of financing brings, and that is in our Articles of Agreement. Countries have agreed this is the way the Fund should work. That's the way it ought to work.
MR. ANJARIA: I think we should conclude.
MR. FISCHER: One more question.
QUESTION: Mr. Fischer, I have a question on the Japanese economy. Prime Minister Hashimoto announced that he will step down from his position, and Secretary Rubin says that whatever happens politically, the Japanese Government should do their economic reform rapidly and effectively.
Do you share this view with Secretary Rubin, and what do you want to do post-Hashimoto administration?
MR. FISCHER: Oh, absolutely; it is absolutely critical now for Asia and the rest of the world, but particularly for Asia, and of course, most of all, for Japan. We have been arguing for some time that a permanent tax cut of significant magnitude is important and that speeding up the banking sector reforms is also important; that the "bridge bank" idea is a component of what needs to be done, but the "bridge bank" idea is a way of dealing with failed institutions. There are many which have not failed which have bad assets in their balance sheets that need to be dealt with, that need to be written down, either sold off, bought by somebody else, or managed, but they must be recognized and placed with realistic values. That is not in the program yet.
Moving on to deal with the overall system, particularly with the core of potentially healthy banks, is really critical. So we have seen a little part of the solution with the "bridge banks," with the provision of financing for Deposit Insurance Corporation, with the provision of financing for the recapitalization of banks, but still no overall plan for the banking sector, and that is extremely important.