Transcript of a Press Conference by Carlo Azeglio Ciampi, Chairman of the Interim Committee and IMF Managing Director Michel Camdessus
April 27, 1999
April 27, 1999
MR. ANJARIA: I would like to welcome you to the press conference of His Excellency Carlo Azeglio Ciampi, Minister of the Treasury of Italy and Chairman of the Interim Committee, and Mr. Michel Camdessus, the Managing Director of the International Monetary Fund. I apologize for the delay in starting this press conference. I am very glad that so many of you are here. Since you have had some time to study the press communiqué, maybe we will have more difficult questions than we would have had if we had had the press conference earlier.
This press conference is embargoed until 15 minutes after its conclusion. I will give you a specific time at the end of the event.
Mr. Chairman, I would like to ask if you would like to begin with some opening remarks.
MR. CIAMPI: Today's meeting of the Interim Committee has been very productive, and also the discussion was very lively. You have already received the communiqué, so I will limit my remarks to some of the important points we discussed.
As for the world economic outlook, the evaluation was that since our October meeting in 1998 the risks of a global recession have declined. Policy actions undertaken by both emerging and industrial countries helped to improve market confidence. The outlook for world output remains sluggish for 1999, in part because of the contractionary impulse from the Brazilian crisis. The Committee noted that, first, after the deep output contraction in the Asia-crisis afflicted economies, activity has turned around in Korea and is bottoming out in the other countries; most of the advanced economies in North America and Europe have proved resilient to the crisis; the situation stabilized in Brazil since early March; and investor sentiment toward many emerging market economies improved. Notwithstanding these positive developments, the Committee was unanimous that there are still risks on the downside, and the member countries should continue to focus on policies required to sustain growth in the short and medium term.
The second item on our agenda was the strengthening of the international financial architecture. The Committee welcomed the establishment of the contingent credit line in the Fund. We had the press conference on Sunday. This contingent credit line is an important defense against financial contagion. Moreover, it will provide strong incentives for the adoption of stronger policies and the constructive development of the private sector. We regard this facility as a key component of our crisis prevention strategy. We discussed at length the importance of an early involvement of the private sector in the prevention and resolution of a crisis.
We then discussed the institutional reforms of the Interim Committee itself. We all agreed about the basic principles for further work, as stated in the press communiqué, and we asked the Interim Committee Deputies and the Executive Board to explore further the scope for institutional changes that may improve the efficiency of the Interim Committee. They will report at the next meeting in October.
On international standards and Fund surveillance, the members welcomed the Fund's progress in developing, disseminating, and monitoring the implementation of internationally-recognized standards. I am referring mainly to the code of monetary and financial policies and of progress made on transparency issues.
Turning to the highly indebted poor countries initiative, the Committee agreed to renew efforts to further reduce the debt of low-income countries undertaking strong adjustment programs. We have asked the Executive Board of the IMF, together with the Board of the World Bank, to develop specific proposals to enhance the current framework, which the Committee will examine at the October meeting.
On post-conflict assistance, we welcome the Board's decision to identify additional ways to address the exceptional needs of the poor post-conflict countries.
The last, but important, item on our agenda was the impact of the Kosovo crisis. The Committee endorsed the need for a rapid, substantial, and coordinated response by the international community to the economic consequences of the Kosovo crisis in order to alleviate human suffering, limit economic disruption, and avoid slippage in the reform process under way in the neighboring countries. These are the main items we have discussed.
MR. CAMDESSUS: I have nothing to add at this stage, except that I am very satisfied to see the change which is going on in the Interim Committee. The Chairman has alluded to that at the beginning of his statement. It is true that the debates have been much more focussed, much more lively, with much more spontaneous statements, and here we see clearly the impact of the chairmanship of Chairman Ciampi. I am very interested to see that this gives a renewed interest to the debates and certainly will make them even more fruitful in the future.
QUESTION: Today Mexican officials were disappointed because this new contingent credit line is going to support only countries that are out of any other traditional IMF line, like the stand-bys, because they say that several countries, like Mexico, have been implementing very strong economic programs over a long period and now coming under new rules will not be protected by this new line. I would like to know what is your opinion on that and if the IMF can reconsider this point.
MR. CAMDESSUS: I am a little bit surprised to hear that Mexico could feel abandoned by the International Monetary Fund or not particularly protected. I think the IMF is on record and has been enough criticized for having done for Mexico all that was necessary when this country was under tremendous shock. Even at a time when the IMF did not have the supplementary reserve facility, or the CCL, the IMF did its job. We are at this moment working with Mexico to see on what basis we could provide support during the present year and the next one to its efforts at consolidating its situation. So far, we have not talked about a CCL for Mexico--CCL did not exist--but we have other instruments perfectly adapted to the situation of Mexico. Provided we agree on what should be the key elements of the reformeffort of Mexico in the next few months and years, you can be sure that we will certainly find a way of providing your country with the needed support.
QUESTION: Are all countries invited to apply for this line, or not?
MR. CAMDESSUS: This is for all countries which have their macroeconomic policies, their debt management, their constructive relationship with the banks, and their adherence to the new standards which are being created at this moment in order. This is open to all. As I had the honor to tell your colleagues two days ago, this is a facility which is there to give encouragement to the entire membership to adapt itself to the new world, to invite all countries to address their own vulnerabilities, to invite all countries to adhere to their standards, to invite all countries to establish a mature and constructive relationship with the banking community. When a country, having performed all these efforts, will see the need for adding a public line of defense to the line of defense it has organized with private creditors, then we will be there to negotiate with them such an arrangement. So nobody is excluded. Everybody is invited to go to excellence in macroeconomic policy and financial policies and then to be eligible for this facility.
QUESTION: Could I ask Mr. Camdessus: do you agree with the comment that Robert Rubin made in his statement that now is the time to start considering a change in constituencies in the Fund to give more of a voice to emerging markets and, implicitly, presumably, to reduce the over representation of Europe?
MR. CAMDESSUS: What I can tell you is that we are at this moment launching a major study, for which we have mobilized world experts, to see if the formulae on which our quotas are calculated are still the best possible ones in view of what has been the evolution of the world economy. This study had been decided when we agreed in Hong Kong on our last quota increase. We will have this study. This study will then be seen by the Executive Board. If the Executive Board agrees with the results of this study, then, when we have a new occasion to augment our quota, or possibly before--but I do not see that before, probably--the countries' quotas will be calculated according to the new formulae, and then we will see what are the changes in the ranking of countries. Then, on the basis of that, we will see if there are objective reasons for changing the composition of the Executive Board. The Executive Board has changed many times in the past. It is normal for it to follow as precisely as possible the evolution of the membership. Should it lead to European members, more from emerging countries? Well, we will see what will be the quotas, and we will proceed according to the quota distribution. This will require time, patience, and a very high spirit of consensus in the membership.
MR. CIAMPI: I want to add that the formula of the constituency is valid and important.
MR. CAMDESSUS: A point I have made very strongly.
QUESTION: Mr. Managing Director, in the forefront of these meetings, you and the World Bank President, Mr. Wolfensohn, have said that you were getting together with Russia? I have not heard anything of that recently. It was said before, and you yourself said, that it might just be a couple of days until one could come to some kind of agreement. Would you please say something about that?
MR. CAMDESSUS: I did not talk about a couple of days, I think. But I told you that it was my expectation that we could rapidly agree on a program with Russia. As we were on the eve of these Meetings, and as we expected an important Russian delegation to come, I felt that we could take advantage of their presence in Washington to try to settle the last details. We will meet tomorrow or the day after with the Russian delegation, and I will personally spend some time with them. In the meantime, I hope that the work of the staff and Russian officials will have clarified the last issues remaining to be discussed and that we will be able to agree on a program. Then, of course, we will expect the Russian authorities to deliver the prior actions which will be part of the program before we could be able to disburse our financing. This will probably require several legislative operations. It will also require further work with our friends of the World Bank in certain domains, but nothing which should take a long time. So I confirm what I told you earlier; namely, that we are not far from an agreement. I am happy to tell you that, because it reflects on the part of our Russian colleagues a very serious determination to adapt their policies further and to respond to the invitation of the Interim Committee to take vigorous action to tackle the root causes of the crisis, especially persistent fiscal imbalances, structural rigidities, and financial sector weaknesses.
QUESTION: In Brazil, the former governor of the central bank, Mr. Lopes, has revealed that in January the IMF urged Brazil to adopt a currency board, as Argentina had done. Why was that the position of the Fund at the time, and how did the Fund react to the fact that Brazil, instead of adopting a currency board, floated the real?
MR. CAMDESSUS: Sir, you know, certainly, that the former chairman of the central bank of Brazil is now a subject of judiciary proceedings. These are circumstances in which I abstain from public comments.
QUESTION: Mr. Camdessus, talking about the HIPC Initiative and ESAF, the statement reads on page 7, the last paragraph, "It also urged the Executive Board to adopt as soon as possible the decisions needed to ensure that the initiatives--meaning ESAF and HIPC--are fully funded." One, does that include the sale of gold? If so, what are the amounts being talked about? Thirdly, when do you hope to reach a decision about the sale of IMF gold?
MR. CAMDESSUS: You read well, sir. This will certainly entail some sales of gold, and I must tell you that the Interim Committee meeting today has been particularly important, as we heard that there is now practically a unanimous consensus in the Committee for accepting that inasmuch as bilateral contributions do not cover the entire cost for the IMF of the HIPC Initiative, we should proceed--as we said in 1996--with the "optimization of our reserve management," which was code at that time for mentioning gold sales.
On the amount of gold sales, initially we were considering the sale of 5 million ounces. Higher numbers have been pronounced by a few members of the Interim Committee. We will have to see what are the exact needs and where the consensus lies among the members of the Committee. When will this sale start? The decision will certainly be taken soon, because I have perceived from the members of the Interim Committee the wish of coming very soon to a finalization of the financial arrangements for funding HIPC. After that, after the decision, as you can imagine, we will proceed in an orderly and prudent way; it is certainly not our intention to proceed in such a way which could introduce disorderly developments in the gold market. We have a certain experience of sales of gold, as during the 1970s we sold three times or more the amount we are considering today. We did that in a very smooth and transparent way at that time. We intend to proceed similarly this time.
QUESTION: If I read the statements from the various members of the Committee, I get the impression that the discussion on the internal structure of the Committee of the Fund and the proposed changes in the Committee have been the most lively, because also your press releases were the shortest on that issue. Is it a fair summary that reading these statements basically all the Europeans were running against what they perceive as an American dominance in the proceedings and decision making of the Fund, and that basically Rubin said nyet?
MR. CIAMPI: We have discussed these topics mainly during the lunch. It was a very interesting, lively discussion, and we agreed on following a pragmatic approach. This was a common view. The idea is to let the Interim Committee operate now in a more efficient way according to the present situation and to look at possible institutional changes only in order to get more efficiency. Of course, now, we have to go deeper into this problem, and it is up to the Executive Board and also to meetings of the Deputies to develop further proposals for the next meeting in September. But our aim is not to change for the sake of changing; it is to change in order to get more efficiency in our institutions.
QUESTION: I have a question about the issue of involving the private sector in resolving crises. You said that a lot of time was devoted to that and I wonder if you could elaborate a bit on how much disagreement there was whether a case-by-case approach should be adopted versus a more formulaic approach. Also, did anyone speak up for the poor bondholders, who were so exercised about the prospects that their rights as creditors might be abridged?
MR. CIAMPI: It was a subject which was discussed mainly in the meetings of the Executive Board when preparing the new contingency instrument. This was seen as one of the main problems, and involving the private sector was seen as being one of the best ways of reducing the risk of contagion. I believe that the press release on the contingent credit line which was distributed on Sunday is also very clear on this point.
MR. CAMDESSUS: I am afraid that the characterization of there being two sorts of groups of members of the Interim Committee, one being for ex ante regulation, and the other for a kind of case-by-case approach, suggests a greater dichotomy than exists. It is true that on certain issues you have this difference of underlying philosophy, corresponding of course to something deeper, which is the different legal cultures of the members of the Interim Committee. But there are very few issues on which the debate is so sharply contrasted. What prevails during all these discussions is a high degree of pragmatism and an effort by all to try to see what is the best way to achieve, above all, mature relationships between banks and their clients--constructive relationships, establishing a continuous dialogue between them and contributing to a more permanent flow of information, not limiting the dialogue only to the moment you grant the loan. On that, everybody agrees.
Where there are from time to time disagreements is when we consider the need for changing the instruments. Should we or should we not change the bond contracts, for instance? Or when, with the view of having in extreme situations an orderly workout of difficult situations, one considers whether it would be good to give the possibility to the IMF to declare a stay on payments to provide for some time, not too long, during which a consensual solution could be found, avoiding during this period a flurry of litigation which could lead to very undesirable solutions and which would harm for long the creditworthiness of the country involved.
So, this is more or less the debate you have. You talk about the poor bondholders. I must tell you that we have not discussed the point really in any kind of detail. My distinct feeing is that the sanctity of the contracts has been repeated in several statements, and you have that somewhere in the communiqué. But not excessive compassion for bondholders who have received a very high risk premium of 500, 600, 700 basis points and then would like to escape the obligation to participate in a concerted solution of the crisis because they have a paper which is entitled bond instead of being credit.
On that, there is in the membership a very strong desire to treat everybody in an evenhanded fashion, to do everything to help the countries, and to create incentives for the countries to pay their creditors as well as possible and to accept for that the needed adjustments. But if in the short term there is a need for a kind of reorganization of the debt, everybody considers that it is just fair to have all the creditors to participate, except when they have a particularly privileged status.
QUESTION: I was wondering whether it is possible to know anything more about Kosovo. There was a meeting this afternoon and is it possible to have some details about it and on the Fund's response to the crisis?
MR. ANJARIA: May I just offer a point of information on that. Tomorrow morning, at 9:00, the Fund and the Bank staffs will have a joint briefing for the press on this evening's meetings in Kosovo.
MR. CIAMPI [interpreted]: Regarding the meetings of the Interim Committee, you have a full paragraph, Paragraph 6, on Kosovo.
QUESTION [interpreted] - Mr. Camdessus, you have just pointed out that all 182 members can be eligible for the CCL. However, this afternoon the governor of the central bank, Mr. Guillermo Ortiz, your friend, commented that there was unnecessary rigidity on the part of the Executive Board of the Fund, which meant that we Mexicans were not eligible, and that he would talk to the Board for them to review the case, because it is a question of the quota, in terms of the liquidity, rather than the contingency, in terms of our resources. I would like you to comment on this point, please.
MR. CAMDESSUS: I am not surprised that the President of the central bank calls the rules of the Fund as being somewhat rigid. They are rules that apply to all, and must be clear. I see not rigidity, but the existence of rules that apply to all as being very necessary. I think that your country will benefit from the existence of this facility in two ways at least; first, because I have no doubt that your country and, in particular, your monetary authorities, will see the considerable interest in adopting the behavior, the approach, of the rules for debt management, in abiding by the codes of good conduct and considering the methods of rehabilitating the financial system that this facility suggests and makes necessary. So, even though your country may not be able immediately to benefit from the contingency credit line, it would benefit from the fact that the policies that it generates will be good for Mexico. Second, it would benefit from the fact that all your neighboring countries, the other emerging countries, will hopefully enter into similar approaches and policies to adapt in the international context. This will make less frequent these crises and these threats that might damage or harm Mexico from the outside. Mexicans, thus, will be able to applaud this facility, this new facility and these rules, and will be able to count on the IMF to apply them with all objectivity.
QUESTION: Managing Director, Secretary Rubin mentioned in his statement about the reflationary pressure on Japan and the importance of taking necessary monetary policy. Mr. Chairman, could you comment on that point, and is that almost the consensus in the Interim Committee?
MR. CAMDESSUS: You have in the communiqué language regarding the concerns of the Interim Committee in view of the remaining weakness in Japan and the uncertainty prevailing on the prospects for an early recovery. You have language recognizing the important policy initiatives in Japan aimed at stimulating domestic demand, easing financial sector strains, but stressing also the importance of Japan implementing the stimulus measures it has taken, using all available tools. This language has been unanimously supported, including of course by the Japanese delegation. This is what the Japanese government wants to do, and it enjoys the support of the entire international community for that.
MR. ANJARIA: Thank you very much, ladies and gentlemen. Just a reminder, we are releasing this book, the paper on architecture. Embargo on that, the communiqué, and this press conference 15 minutes from now, 9:00 p.m. tonight, please.