Press Conference of IMF Managing Director Michel Camdessus
August 28, 1998
August 28, 1998, 5:15 p.m.
Meeting Hall A
MR. ANJARIA: Good afternoon, ladies and gentlemen. Thank you very much for coming to this afternoon's press conference by the Managing Director of the International Monetary Fund, Mr. Michel Camdessus. Seated to his right joining him are Mr. Stanley Fischer, First Deputy Managing Director, and Mr. Jorge Márquez-Ruarte, Acting Director of the European II Department.
This press conference is live. I would like to invite the Managing Director to make opening remarks, following which we'll take your questions. Please wait for the microphone to be brought around and we will take your questions.
Let me start with my discussions with Mr. Chernomyrdin in his new capacity of designated Prime Minister. These discussions were long, friendly, frank, and constructive. He told me that he had accepted this responsibility in view of the situation of the country; and that seeing the very bad relationship between the Duma and the previous government as being a key component of the past and present difficulties of Russia, he told me that he wanted very much to work to create a kind of coalition government based on a common view of what the situation of the country requires. He was deeply involved in this business of trying to create a joint platform with the leadership of the Duma and of the Federation Council when he decided to interrupt it for having this conversation with your humble servant.
He wanted to reaffirm for me how he saw the situation both internationally and in Russia and to discuss what were the basic scenarios among which he had to make a choice. Well, I told him that there are basically two, perhaps three, scenarios, not much more. One, which has probably some support in Russia, is a kind of populist scenario. It would entail less monetary discipline, going to the printing press, reverting to widespread controls on prices, trade, and foreign exchange transactions. This to my judgment would inevitably lead to the old command economy methods, hyperinflation, with consequent dire social consequences; and once again the poorest in the country would pay for mistakes of the government. I told him unambiguously that this would lead to disaster. That, first, I couldn't see him associating his name to these kinds of policies—having worked with him for five years on a different course of action, even if it was not perfect by far. And second, I had to leave him without any illusion that such kind of policies could benefit from the support of the international community at large and from this institution in particular.
But there was a second scenario, a scenario I would call a scenario of policies for stability with growth. It would require urgent steps to restore financial stability and lay the basis for the resumption of economic growth. The establishment of firm monetary discipline—I should say the reestablishment of firm monetary discipline—with very tight control over the provision of liquidity support to banks would be critical for stabilizing the exchange markets. Stabilization could be achieved under different monetary frameworks, including a currency board arrangement. And if you introduce it, then you have another scenario but which would be basically a variant from what I call the second scenario for stability with growth.
I believe that if such scenario is adopted—with or without a currency board; this is a second order of concern—this could indeed lead to stability provided fiscal policy were extremely strong. The latest revenue prospects and the results of the government debt conversion would call for immediate further corrective measures. At the same time, the government would need to push ahead forcefully with structural reforms aimed at encouraging private sector development. You know the kind of structural reforms and measures I am alluding to. I could come back to that later on, but this is the only way to get the revival of the economy, the revival of the industrial sector, that everybody is looking for. The sooner these reforms can start, the better. There is no time to waste if the adverse impact of the crisis on the Russian population is to be minimized and growth restored.
I strongly welcomed this and also emphasized the importance of achieving broad public support for Russia's new policy package. Indeed, I told him that the entire world community is anxious to extend to Russia a helping hand, but that at this stage and in the context of such widespread difficulties in the world, this international support will wait for clear demonstration of the clarity of the orientation of the government and of the strength of the support of the parliament for the measures, particularly on the revenue side, to be adopted.
Briefly, two words on my meeting with President Kuchma of Ukraine. He reported that Ukraine has met all the prior conditions for a new extended Fund arrangement. Moreover, many measures have been taken with good collaboration and support from parliament. You know how difficult it has been so far to get the support of the parliament in Ukraine for these adjustment and reform measures. We see here a very positive move in the right direction.
I told him that if we obtain the necessary financing assurances, and particularly the final indications on the settlement of their financing arrangement with the private sector, I would be prepared on the basis of this program to call a meeting of the IMF Executive Board on very short notice to consider Ukraine's request for financial assistance. And we have prepared a package, if I remember well, of the order of magnitude of $2 billion in support of this EFF arrangement.
It is a strong program that is suited to the economic problems of Ukraine. It has the full support of the President as I have just told you and it deserves the support of the international community as well.
Well, now a few words perhaps on the rest of the world and the contagion. You know that contagion effects from the crisis in Russia are spreading to many regions in the world including some of Russia's neighboring countries, Eastern Europe, Latin America, and South Africa. Asian markets, too, have been adversely affected by the Russian situation. And in recent days, the financial markets and in the United States and Europe have also weakened.
Some attribute part of the contagion to the unilateral restructuring of domestic debt by the Russian authorities, claiming that such action could be envisaged elsewhere. Let me make three points.
First, the IMF regards the Russian action as highly regrettable and extremely unfortunate. Here I would like to correct a misperception of some media in the recent days. It has been said that the IMF was not on board last week, the weekend before last, in supporting the dramatic change of policies in Russia, and that this was because we were against devaluation of the ruble. This is not factual. We did support it, a needed change in the exchange policy of Russia, but it's true that we made every effort to try to convince the Russian authorities to avoid the unilateral avenue for restructuring the debt and to press them to go to a more consensual direction. But even if the situation in Russia had become almost untenable, and this is true—and this led to the decision that was taken—I strongly urge today, as before, the Russian authorities to work with their private creditors to find a cooperative response to their problems.
Second, we do not regard that (unilateral) approach as a constructive one for any other country to follow.
And third, we do not see a similar operation as being in the least justified, nor contemplated, in emerging markets in other regions. In this connection, let me emphasize that it is absolutely necessary for private markets to learn to differentiate among countries. I don't see any other country among the emerging markets being in the very dire situation of Russia.
What needs to be done to raise the confidence of private markets is a good question. The policy prescriptions are clear. Private markets support countries with strong fundamentals that pursue sound macroeconomic policies. Moreover, governments need continuously to be prepared to adapt their policies in response to changing circumstances. This is an increasingly globalized world that poses increasing demands for policy prudence and adaptability if countries are to reap the benefits of globalization.
Many countries are now being affected by contagion. To discuss some of these issues in the context of Latin America, I have proposed a meeting with a group of western hemisphere finance ministers and central bank governors for next week in Washington. The goals of that meeting are to review the status of their economies and policy measures that they have taken—and important measures have indeed been taken in recent months—to deal with the changing external circumstances, and to indicate their willingness to take further measures to defend their economy if that should become necessary. The meeting will also provide an opportunity for the international community to indicate its preparedness to assist members pursuing the right policies that may nonetheless need financial assistance.
In reality, what we will be doing is what we now call regional surveillance. You know we have been talking a lot about the new architecture of the international monetary system and the change in methods that this requires. Regional surveillance is one necessary step in this direction: to have peer pressure play its full role in bringing the region onto a better footing. And I must tell you that the idea of this meeting has been accepted with great interest by all the countries involved. They will be joined by the United States and Canada as part of the big region and I'm certain that we will establish this way as an important precedent for the future, an important example for all other regions in the world.
In that context, finally, let me turn to the crucial issue of the role of financing in addressing the difficulties of the world today. At the moment everybody considers that the resources of this institution are certainly very limited for doing its job. I want to be very clear on that. The IMF is prepared to help countries that are committed to help themselves by pursuing appropriate policies. Much has been said about the remaining usable resources of the IMF and the ability, the possibility, for the IMF to respond to future requests for assistance.
Once again I want to be clear. We still have both normal Fund resources available to help our members as well as, under appropriate circumstances, resources from the General Arrangements to Borrow. If a country asks for our assistance in support of a strong program, we will continue recommending to the Executive Board the normally justified level of support. We will not go for any under-funding of the programs due to the scarcity of our resources.
If at some point we run out of resources, the international community will have to face its responsibilities and decide whether countries that are helping themselves should be abandoned by the international community. I know the history. I know the 53 years of history of this institution. This has never happened. I expect that the countries in need applying strong and credible policies will continue receiving the necessary assistance from this institution.
Thank you very much, ladies and gentlemen. I have seen you taking notes. I should have told you before starting that what I have just told you is at your disposal and could be distributed to you at the end of this meeting. And so you will have the very interesting exercise this evening of comparing what I have said with what I was prepared to say.
QUESTION: Mr. Camdessus, on the point you raise about the populist versus the second scenario of stability with growth, what kind of statement did you make to Mr. Chernomyrdin about whether you thought you might be able to go forward on September 15 with the next tranche of your existing program? If we look at the devaluation and we look at what was written in last month's agreement, then I suppose you'd have to rewrite that agreement, wouldn't you? Did you tell Mr. Chernomyrdin that you would be able under certain conditions to go forward with that money?
I have a related question about whether they have enough money for a currency board, but I should stop.
MANAGING DIRECTOR: You are right in stopping. Because it's true that the first question was discussed with Mr. Chernomyrdin but not the second. On the first question, I told him that further disbursements of financial assistance to Russia from the IMF may take place in September. Of course, I told him, look, 15th could be possibly a very difficult date for you to do the needed homework, but if you are able to make the homework by a given date in September, if all actions needed to restore stability are taken, if you are able to put the EFF program back on track and to strengthen the fiscal content of the 20th of July program, then the IMF will be ready to disburse its own contribution for the amount expected.
But the situation in Russia is so precarious that concentrated efforts by the Russian authorities are required immediately to allow us to be in a position in September to go ahead with our disbursements. And I must tell you that Mr. Chernomyrdin perfectly understood that. He is familiar with our methods and he knows that the July 20 program has in particular an important component of prior actions in the fiscal domain. He knows that he needs for that the positive votes of the Duma. He accepts the challenge.
QUESTION: A follow-up question on that. Do we understand you correctly that the fiscal targets remain the same? The fiscal deficit targets, for instance? And all the rest of them? You will not be restructuring the program itself to go on with it?
MANAGING DIRECTOR: No. The package will not be exactly the same because since the adoption of this program, measures have been taken which have contributed to distort the budget deficit question. In particular, the debt restructuring which has been adopted has added to the expenditures in the budget. The expenditures have increased in several other domains. This will require an effort together with our staff, which is always ready to work with them on that, to reestablish the financial track. The Russian authorities recognize that and we are on our side ready to discuss matters with them. Mr. Chernomyrdin has told me that he recognizes the validity of the budget program of his predecessor and if anything he wants to strengthen it.
QUESTION: What in your mind would be enough to restore the confidence of the investors that everybody is talking about? Because everybody assumed that the program of the $22 billion would be enough to restore the confidence. It apparently wasn't. So what would be enough? Another package of what amount? Or probably another political gesture or what?
MANAGING DIRECTOR: Well, I would tell you that the confidence of investors, the confidence of people in Russia is certainly not an arithmetic proportion of the magnitude of the financial support by the international community. Confidence needs to be restored. It cannot be restored if it is not by the clarity of the political choices and the demonstration of the commitment by the adoption of measures supported by the Duma.
This is the indispensable and only way to restore confidence. If these measures are adopted, then I am certain that the financial package will be revived and I am certain that even after suffering the negative consequences of a debt restructuring the international investors will see that they have every interest in helping us to put this country back on track and to cooperate with it. It will not come immediately. They will want to see action. They will want to see a steadfast implementation of the commitment of the government and the continuous support by the legislative body, but if this is there, I believe that the support will come.
QUESTION: I've got a couple of questions. One is I was thinking currency board as Mr. Wood was, so I wanted to ask you what circumstances would need to be met for Russia to have a currency board, to implement one?
My other question related to Latin America, the meeting next week that you have called, I was wondering what U.S. and Canadian officials will be attending and what are the dates of that meeting?
MANAGING DIRECTOR: Let me answer immediately your second question. Yes, Canadian and U.S. officials have been invited to this meeting, Federal Reserve and Treasuries, as in Latin America. And I think it is very important to have a dialogue North-South, if I say so, around these policies, in the same vein as we do in the context of APEC with the Asian countries.
Now, what circumstances would allow a currency board to be established with chances of success in Russia? Well, I must tell you that the very circumstances and the very policies we are basically suggesting under the stability for growth scenario. At this juncture, you need to stop monetary creation. You need to stop liquidity injections even for the dubious purpose of saving banks. You need to have a budget deficit reduced to the extreme. You need to have a very strong commitment of the authorities to restructure with our help the banking sector. This is what we are suggesting.
After that, of course, as Mr. Wood was suggesting, to establish a currency board, you need a level of external reserve matching the monetary base and at this stage we will have to see how to get to such a level depending on where the exchange rate stabilizes. These are the technicalities. What matters is the decisive orientation of policies towards stability and growth.
MR. ANJARIA: The dates for the meeting of western hemisphere officials are September 3 and 4.
QUESTION: Do you see in Latin America, especially in Mexico and Brazil, a danger of devaluation? And why is regional surveillance in Latin America to take place right now, when people were talking about having this kind of meeting early this year like in February or March?
MANAGING DIRECTOR: The Latin American ministers and governors have plenty of occasions for meetings, and they do that in an almost continuous way, particularly in the framework of the relations with the Inter-American Development Bank. But surveillance is another thing. Especially, regional surveillance, namely bringing ministers and governors together to help mutually in identifying the problem, in passing a judgment on the situation, and in encouraging mutually and helping mutually in taking steps which would be more difficult to take in isolation. We thought that it would be important at the moment when Latin American countries are treated perhaps unfairly by the markets—which don't differentiate them enough from developments in other parts of the world—that they give to the world this signal of their cooperation, of their confidence in their own policy frameworks; and that, in this way, they provide simultaneously to the markets the reassuring indications which deserve to be given.
Danger of devaluation? I would tell you that if these governments were not ready to continue, as they have done so far, adopting the macroeconomic stance to the circumstances, then we would have such a danger. But what I see is the opposite. It's a continuous effort to strengthen policies particularly in Argentina, in Brazil, in Chile. So I believe that there is no reason to believe that they have now to change the course of policies and to accept a deterioration of their exchange rate which wouldn't be justified by the underlying economic situation.
QUESTION: I guess I'm a little unclear still on the currency board. What you seem to be saying, and I might have this wrong, is that you're favoring the type of steps that could lead to a currency board, but you're not necessarily advocating that Russia establish one. Is that correct?
MANAGING DIRECTOR: It's perfectly correct. They must make their own choice. What the country needs is the policies in the monetary and fiscal side which anyway are indispensable for the good working of the currency board. Of course, they can decide to have up-front a currency board in order to create the confidence, or they could establish one in the framework of policies already in the course of implementation, or they could decide not to have it but to have the policies. This should be their choice. On that we are very pragmatic. The experience we have with currency boards—and we have supported or suggested several of them in recent years, contrary to what is said from time to time—is that what matters are policies more than the currency board by itself.
QUESTION: It doesn't seem likely, at least at this moment, that the Russian Chernomyrdin, who I gather from what you say is in agreement with your basic thrust, can get that sort of agreement out of the Duma and out of the Russian government. If he can't, assuming that they can establish a government that can even talk to you, what will you do? If they can't do this by the end of September, what will the IMF do? Simply not give any money or not act at all?
MANAGING DIRECTOR: Well, I will tell you that you are defining the basic question of the moment. This is a crucial crossroads for Russia. Here we need a response coming from the country and from those which are responsible for the destinies of the country. They will have to decide. It was my job to put those things very clearly to them, and I spent some time during that long night to explain the different scenarios for them to see clearly how they confronted and where each of them were leading them.
But they are a sovereign country and they must make decisions, and if the decisions were not their decisions, anyway they wouldn't work. Let's imagine that they go to the so-called populist scenario. Then, of course, we couldn't support them and you would never recommend even to support a scenario where they would try to mix let's say the command-populist approach with some nice market economic reforms. They must make the clear choice. If they cannot, this will not, of course, be the end of our cooperation. We will continue with our surveillance. We will continue trying to convince them to go to the right course of action. We will certainly continue extending technical assistance, help them in damage control. But I would not recommend financial assistance because you cannot support policies in which you don't believe.
QUESTION: I address this question to Mr. Fischer. The FT today quoted Mr. Fischer in two ways. I don't know if these quotes are accurate, but they raise an essential issue, and that is whether the G-7 should be doing more as it did in the Mexican case, for example, to back or to add to the funds that are at the IMF's disposal? One quote was that we could have pulled it off this time if it had not been for George Soros and his call for devaluation. And the other quote is similar to something that appeared in a German paper: it was clear to me that the situation became untenable after the G-7 did not hurry to help. Now, I don't know if either of these are accurate quotes and perhaps they aren't. If they are accurate or some form of them, could you elaborate and sort of explain what the role of the G-7 is here?
MR. FISCHER: I think in the first instance those quotes are from the German newspaper. I’m not aware of any similar discussions with the Financial Times.
We have to recognize that the G-7 are the major shareholders of the IMF and it was for the international community to decide at this point how much further to go in supporting Russia. The program that we had agreed in July was fully financed on the assumption that the creditors of the GKOs were willing to rollover their GKO holdings. Once, for whatever reasons, it became clear that they were not willing to do that, then the available financing was inadequate. Given the attempt by creditors to get out, the international community as a whole faced the question of whether to continue support to make possible that withdrawal of funds. And the international community—that's the Fund and the Fund’s shareholders—decided that would take more resources than were available. It was a tough decision. It was one that had to be made on the basis of a clear evaluation of the dangers. I think they were fully appreciated, but also on a clear evaluation of the resources available to the Fund and to member governments. And the decision was made on that basis that there wasn't enough financing available, neither here nor bilaterally, to make that happen. So there was no disagreement between the Fund management and the G-7 on the fact that at this point the resources that were needed were more than were available to the international community to deal with this problem.
QUESTION: In your talks with Mr. Chernomyrdin, did you get a sense of how he evaluates, or did he indicate how he evaluates the pressures he will be facing and their comparative strength? The pressures exerted by his own domestic crumbling bank system, the pressure by the Duma, the pressure by the international financial institutions, the pressure by millions of state employees who haven't been paid for a month? Did he indicate in any way that the advice he is getting from you is not the only type of advice he is getting and he might not be able to totally follow up on that?
And basically the same question from the other side. How do you rate the influence that the IMF has on Russia at the moment?
MANAGING DIRECTOR: I will tell you truly that I don't know where to put our influence on the Richter scale on Russia. I don't know. Possibly we have some influence. When I saw Mr. Chernomyrdin this time, well, I had not the impression that he was under a very different set of pressuring forces than in different circumstances in the past. He is a man with whom we have put together many of these very important programs which have produced the results which are now being jeopardized by this crisis. He's used to living under strong pressure. He's a man for these kind of circumstances. Possibly at this time, the pressures are a little bit higher. But I saw him and I quoted his very words when I told you that he saw the situation as tragic but not hopeless.
Now, will he be able to convince those powerful forces who are pressing for the let's say populist or laxist policies after so much suffering in the country and so much impatience for reviving the economy? Will he be able to convince them that the only way of reviving the economy is to go through the reform avenue and not through the facilities of printing money? This is the challenge he has in front of him. His response will be part of history.