Transcript of a Press Conference by IMF Managing Director Michel Camdessus
September 30, 1999
Also present: Stanley Fischer, First Deputy Managing Director, International Monetary Fund;
Shigemitsu Sugisaki, Deputy Managing Director, International Monetary Fund;
and Thomas C. Dawson, Director, External Relations Department, International Monetary Fund
Transcript prepared from a tape recording
MR. DAWSON: Welcome to the closing press conference of the IMF. I am Tom Dawson, Director of External Relations. Immediately to my right is Michel Camdessus, the Managing Director of the IMF; to his right, Stanley Fischer, First Deputy Managing Director of the IMF; and to my left, Mr. Shigemitsu Sugisaki, Deputy Managing Director of the IMF. I believe the Managing Director has some brief opening remarks.
MR. CAMDESSUS: They will be very brief, because I presume we have plenty of things to discuss and I would be happy to answer your questions.
Let me tell you the things which are foremost in my mind as we come to the end of the Annual Meetings. Possibly, first, indeed, the very heartening comments we heard about our action during the last year, in particular, and the very encouraging comments and suggestions about what remains to be done. As a matter of fact, I was a little bit surprised, perhaps a little bit concerned, to see that for the Governors, the Asian crisis is behind us. The staff of the IMF is much more prudent. Yes, we see a recovery, that countries are doing well, striving to implement the reforms they pledged. But, Governors consider that apparently it is over, that we did the proper job to shorten the very painful time of adjustment. Now the countries are continuing with their task. From there, the Governors tell us to continue doing this kind of thing in other parts of the world while continuing our work on architecture.
Architecture was also another important theme. You know that. A lot of praise for what has been already done, particularly in the domain of transparency and standard setting, and all of that, and a degree of impatience perhaps to see the job concluded. Possibly I am projecting my own impressions, so I leave that to your judgment. But it is true that we have still a few important issues on the table and we will have now to concentrate on that.
Possibly, an important contribution of these Annual Meetings to the architecture business was to find the proper rationale, the proper foundation for the social pillar we wanted to add to this architecture. This proper foundation has been particularly well formulated by Minister Angel Gurria from Mexico, when he said that poverty is the ultimate systemic threat. The architecture of the economic and financial new world, the new globalized world in which we are now will not be solid if we are not able to better integrate poverty reduction concerns at the heart of our strategies. We have had this concern in mind for a long time, but never has it been so strongly brought to us, and never, at least in the Fund, have we had such unanimous support for putting poverty reduction at the heart of our actions, of our surveillance, of our facilities; such an endorsement for the changes we have introduced, together with the World Bank, on the HIPC Initiative; and the changes we have introduced on our side in the Fund in creating the Poverty Reduction and Growth Facility, substituting it for the old ESAF, drawing the lessons of 12 years of experience under ESAF.
You know all of that but, for us, an extremely encouraging vote of confidence, those votes of confidence one can believe because people put their money where their mouth is. The vote of confidence was when we were able to see 91 countries bringing additional money -- additional to our own contributions through our off-market transactions of gold, to complete the financing of our facilities, making the successor of ESAF a permanent instrument, making the HIPC, as far as the Fund is concerned, solidly, fully financed. Out of Ninety-one countries, out of them 58 developing countries; out of them, several that had benefited in the past from ESAF and consider it a great thing to help poorer countries than themselves benefit from this kind of IMF support.
This leads me to think that we must be on a good track here, as the so-called bitter IMF medicine has been tried on people, but these people found it good and are ready to find money to help other people in the world benefit from this kind of medicine. Of course, bitter medicine, as you all know, for all the dictators of the earth, all the corrupt people of the earth, all the bad governments of the world. But certainly it is very good medicine for those who want to strive to improve the living conditions of their people.
Well, all of that will bring us, as I presume Mr. Wolfensohn has told you, to adapt our cooperation, our working methods with the World Bank. We have established all of that and, indeed, we will continue learning by doing. We enter here into a new phase of our life in working together with the World Bank, -- an exciting time indeed. But this is not the end of the history. History continues. And the next stage is Seattle and the need to complement aid efficiently with trade. Yesterday President Clinton came here to tell us how committed the United States is in utilizing fully this opportunity. As you know, we have made some suggestions to open properly this new round by inviting the industrial countries to immediately open their markets to all the products of the poorest countries. We will be there, Jim and I, supporting the efforts of our new colleague, Mr. Moore.
I will stop here and take with great pleasure your questions.
MR. DAWSON: If I can ask for people to identify themselves when they are called upon to ask questions.
A QUESTIONER: I wanted to ask you a question about something which I think is dear to your heart, the amendment of the Articles of Agreement concerning the capital account. I wanted to ask, first of all, if you could tell us what the status is of the discussions; and secondly, whether it is correct to say that foreign direct investment will be excluded, that there is more tolerance for short-term controls than, say, existed prior to the 1997 Asian crisis, and that there is more recognition, say, than in early 1997 that, for many countries, adapting to new rules on liberalization of capital account will take quite a long time.
MR. CAMDESSUS: You are perfectly right: This is one of the issues very close to my heart and one of the issues for which I feel a little bit impatient in seeing the slowness of progress since the inspiring pledges which were taken in Hong Kong in October 1997. Of course, the experience of the Asian crisis has reduced somewhat the enthusiasm of many, and has led everybody to qualify better what is good capital account liberalization. As a matter of fact, the Asian experience has shown that you can have extremely bad liberalization, the one that frees short-term movements and multiplies the administrative impediments, for instance, to foreign direct investment. Here, the experience of Korea is a very inspiring one, one on which the President of Korea himself, on the occasion of our first conversation after his election, told me: "Don't be intimidated, go for capital account liberalization, but the right one, not the one we had in Korea and which contributed to the crisis."
So, we are now trying to see where the consensus could be among our members. In order to facilitate the decisions, we have been analyzing all the recent experiences with capital controls to draw the proper lessons from them, because from time to time you hear that an experience with capital controls has been extremely successful, but then when you see which kind of capital controls have been established, maintained or have been cancelled, you discover that in reality, the experience does not tell you that much compared with what you already knew.
Now we have studied these experiences; we are continuing with that. We feel assured enough in our conceptions, in the Management of the Fund, that we have put on the table a proposal - - we call it the "Third Way" -- the Third Way being a way between extreme, indiscriminate liberalization and an exceedingly cautious approach, which would deprive the world of the benefits of the freedom of capital movements. It is a way which would be based on a voluntary liberalization at the initiative of members, properly sequenced, after the proper measures of stabilization of the macro framework and consolidation of the banking and financial sector would have been put in place, with a regime allowing, of course, for short-term controls. But I remind you that this tolerance of short-term controls is already in our Articles and we have never considered removing it. What we suggest is to use them with caution, because maintaining them when they are no longer necessary can create the wrong incentives and distort the movements of capital.
We will have special clauses for foreign direct investment, depending on the direction of these flows - - are they inflows or outflows? - - and the nature of the investment considered. All of that is on the table now; we have not started our work. I hope that we will promptly find the elements of a consensus in this direction.
A QUESTIONER: Considering this new phase, this new architecture that we are talking about and the concept that poverty reduction and financial stability go hand in hand: do you see the IMF changing somewhat the programs, for example with Brazil, and reducing the primary surplus to allocate some amount for the social area, and is the IMF considering including targets in the social area in its regular stand-by programs?
MR. CAMDESSUS: We don't like to multiply the elements of conditionality. Of course, you have seen me in the opening ceremony put particular emphasis on inviting the countries to respect their seven pledges for human development. Countries have already taken these pledges. Normally, they don't need to be added to the conditionality of the IMF. Of course, it is proper for us to engage in a dialogue with countries to know if they make the proper progress in this direction, particularly as we know better and better now that the relation between growth and poverty reduction is a two-way avenue -- the growth needed to be able to reduce poverty, but also the very positive impact of efforts at poverty reduction to maximize rates of growth.
So, more and more, this relationship between poverty reduction and growth will be on our agenda, but this is not a reason for us to take immediately the initiative of changing our programs. When a program is there, we are for its being fully respected unless the country takes the initiative of changing the program. For the time being, what I observe is that in the program of your country, Brazil, in particular, there is already for this present year and next, a very significant effort, in particular in the domains of education and health. This is perfectly compatible with the program we have, and we look forward for more powerful development and growth in Brazil to create even more room for more action in the direction of helping the poorest -- it being understood that only the effort made to promote the poorest can significantly reduce one of the most terrible problems of Brazil, which is the very unequal distribution of incomes.
A QUESTIONER: My question is about the Japanese economy in the context of the world economy. Governor Hayami of the Bank of Japan, while in Washington, repeatedly expressed his willingness to exercise flexibility in the conduct of monetary policy in Japan, especially in responding to new developments in the foreign exchange markets. Will you welcome his statement, especially given the G-7 nations' shared concern about the impact of the yen appreciation for the Japanese economy, as well as the global economy? Specifically, Mr. Managing Director, have you changed your position on the G-7's coordinated intervention and unsterilized intervention, after having listened to what Japanese officials said during the past week?
MR. CAMDESSUS: I understand perfectly your first question; I understand less the second. What I can tell you is that I support the statements of the Central Bank Governor of Japan, pledging flexibility. It is not that frequent that the Governor pledges flexibility, ladies and gentlemen, so we all should welcome that. Second, the agreement which has been endorsed by the G-7 and then by the Interim Committee to provide ample liquidity at this moment to the Japanese economy in order, together with the maintenance of a strong fiscal stimulus, to help the recovery continue to develop in spite of the possibly too rapid strengthening of the yen. We believe that, on that basis, and provided indeed this injection of ample liquidity materializes--something I have no doubts about--then things could normalize without going to what I have called in some instance the last resort instrument, which is intervention in the exchange markets.
I am not changing my position on coordinated, unsterilized interventions. I can only tell you that this kind of thing must occur in very specific and infrequent circumstances.
A QUESTIONER: [Interpreted] - The World Bank released a report a few weeks ago saying that in the 1990s there were 76 financial crises, 20 more than in the 1980s. I would like to know how far corruption was involved in these financial crises through this decade, particularly in Mexico in 1995 and in Brazil last year.
MR. CAMDESSUS [Interpreted] - When we speak of financial crises, I assume you mean banking crises. There were a lot. In general, when there are banking crises, they are connected with many factors, including corruption. But, in general terms, the central element of financial crises is the low capitalization of banks, their bad distribution of credits, their mistakes in management. We don't have any studies here that have attempted to analyze whether the corruption factor in these crises has been dominant or not. Crises have been serious, their cost for countries enormous, and naturally the reasons we have to combat corruption are numerous. But, with regard to Mexico and Brazil and their crises, in our eyes the most important thing is that they have implemented machinery and mechanisms that will consolidate their financial systems and make them solid instruments for the support of their economies.
A QUESTIONER: Mr. Camdessus, I wonder why have you chosen to be so assertive about the Fund programs in Russia being so successful at this meeting, indefensible to turn one's back on Russia, no evidence of theft of IMF money, and that it is a program that works; I am thinking of July 1998, when your colleague to your right said this is very much a last chance for Russia. One would think there would be a bit of embarrassment about the Russian programs in the past, particularly since it has cost so much political support for the Fund here in the States, in the Congress.
MR. CAMDESSUS: Thank you for this very interesting question. Cost of political support to the IMF: this remains to be seen. You have attended these Annual Meetings, and I must modestly state here that we had, I think - - unless you have seen something different -- unanimous support for what we are doing, including in Russia. No Governor objected to the fact that I said that it would be the height of irresponsibility to turn our backs on this great country.
I was assertive, you are right, for a very simple reason. It is that this kind of throwing out of comments, of allegations of all kinds, at times of amalgamations - - and you know that this kind of thing can remind you of things we thought during the Stalinist trials, -- no, all of that had possibly blurred the perception of reality and the very fact that what is at the heart of our mission in Russia, namely supporting the difficult transition of this economy to a market economy, is presently working. Indeed, the program we have since last July is being overperformed. It was good, it was necessary to be a little bit assertive on that, because, if not, this central reality would not have been perceived. Second, it was good, I presume, to be assertive in saying that there was no evidence of theft of IMF money in Russia, because this is the fact and that all these allegations, amalgamations, suggestions, rumors, etc., were just blurring this reality, at least to my knowledge, and at this stage. So, this is the reason why I took this line to try to serve the truth.
This being said, our work in Russia is extremely difficult. We know pretty well that we are working in a universe where there is flight of capital, corruption, instances of bad governance, and in a country where it is absolutely essential, as the Governors have reminded us, to make a major effort, together with the Russian authorities, to make totally unquestionable the financial integrity of the financial institutions of Russia. We are doing this work. But I believe that if this is a priority for us, it is also a priority for the Russian authorities, and we give them credit for working in that direction.
A QUESTIONER: Mr. Camdessus, you once were a venerable member of the Group of Ten and you probably have appreciated the role, the historic role of the Group of Ten for the Fund, the last 50 years, and the role of the non-G-7 countries in the Group of Ten. What are your thoughts when you hear that the G-10 members, particularly the non-G-7 members in the G-10, are worried that, with the American-pushed proliferation of groups -- Willard Group, the new Group of 20 -- that there will be a lessening of input from the European countries, who are traditional capital donors of the Fund and the World Bank. To make the question even more complicated, we have a representation regime now in the G-7. How do you see as an insider of the Group of Ten, how do you see all this working out in relation to the Fund?
MR. CAMDESSUS: As you said admirably, it is a complicated question. Now, let me tell you that I am not a venerable anything. It is true that at the end of a long career in the civil service of my country and of the international community, I have been a member of the G-10, worked with them, valued very much the admirable contribution of the group providing the Fund with a kind of informal think-tank where many of our reforms have been progressively elaborated. So, I salute the contribution of the G-10.
What you are alluding to is to the sense of frustration of those of the 10 who are not among the seven, in having the impression that plenty of things are being done outside their control. I must tell you that those of the 24, namely the members of my Board, who are not members of the 10 - - Spain, Australia, Austria, and many others - - are very frustrated not to be among the seven and not among the 10. So, this is an element of the international life we must live with, namely that to work efficiently you tend to restrict the size of the group, but if you want consensus, if you want to reach out to the world, you need enough people at the table.
One of the permanent elements of the international life is this dialectic between these two concerns for efficiency and outreach. What I see at this moment -- as usual, in all times of intense crises, soul searching, and need for imaginative contributions -- is a proliferation of groupings, mushrooming, for the best possible purposes. This makes the life of the institutions a little bit difficult, because an institution such as the IMF must provide intellectual food to all these groups, and our staff are running around the world trying to attend all these groups. There is a degree of disorder in all of that, and I look forward to, let us say, the establishment of the new architecture and to obtaining the support of the seven, of the 10, of the 24, of the X -- there is a Group of X being engendered -- to start rationalizing all of this.
On top of all of that, you have a kind of a debate, a transatlantic debate, which should be very interesting to observe from your own vantage point, namely the fact that on that side of the Atlantic there is a tendency to see the Bretton Woods institutions, in particular the Fund, as dominated by Anglo-Saxon forces; and here in America you see our institutions as being Euro-dominated institutions. And your humble servant, of course, here is a French socialist; while in France -- you know that pretty well -- I am an ultra neo-liberal Anglo-Saxon and, indeed, a member of the exclusive Washington consensus.
We must live with that, and now, of course, we have an element of lessening, perhaps, of this problem, provided that works -- namely the strengthening of the old Interim Committee into a new committee that has many merits, including its new name, as its name is IMFC, which means not the Committee of the IMF, but the International Monetary and Financial Committee. We hope that this reinforced committee will help to reconcile all these misunderstandings and all this proliferation of initiatives into a solid, strong central body.
A QUESTIONER: This has been a meeting where the Fund is stressing poverty alleviation more than I can remember before. Do we, under these circumstances, still need a World Bank? To follow on from that, there have also been an unprecedented level of rumors that you yourself will be stepping down. Would you like to set our mind at rest?
MR. CAMDESSUS: Oh, on this last point, I hear that Mr. Dawson keeps repeating that I enjoy my job. I must confirm it.
Second, emphasis on poverty in the Fund, but also in the World Bank. A need for a World Bank? Absolutely, provided you don't ask the IMF to take control of the World Bank and provided you only encourage us to work together hand in hand, putting our brains and hearts and our money, of course, in serving these twin purposes of poverty reduction and growth.
But, more than before, a concern for poverty in the IMF, I would introduce a slight nuance here. All those who have watched us for a long time remember that for a long time each time we speak about growth we qualify it by the words high-quality growth. And if you go to the initial definitions of high-quality growth I had the privilege to suggest, it was growth which contributes in a sustainable way to improving the condition of the poorest, while respecting environment and national cultures.
So, the concern for poverty was there. It was a long effort to have this concern, of course, not only permeating all the institution in all its dimensions, but to be accepted widely in the membership. It is true that we had for four years, ten years, a very lively debate in our Executive Board about the kind of, almost, legitimacy for us to talk about poverty. Well, we tried to provide movement by working. Now all of that is universally recognized; we are encouraged to go in that direction.
A QUESTIONER: In your first press conference before the conference started at the IMF Meeting Hall, I had raised an issue about Pakistan and what is the latest position of Pakistan, the tranche that Pakistan will expect to get. Your statement, if you recall, was that Pakistan has pledged to certain conditionalities and they have not actually fulfilled some of them. You will be meeting them and then you will be actually on to giving a statement what has happened finally.
MR. CAMDESSUS: I told you that I will discuss these issues with the Pakistani delegation; I confirm it. This meeting will take place at 4:30 this afternoon, so I cannot tell you what we will conclude. But, I will congratulate the Pakistani government for being one of the ESAF countries which, seeing the merits of this instrument, has agreed to provide us with a contribution, modest of course, in view of their difficulties, for allowing us to transform this instrument into an even more effective one in support of the poorest in their poverty reduction and growth strategy.
A QUESTIONER: When the Pakistan ESAF is signed or revived, the government has to sign a letter of intent, this is my understanding, committing it to certain macro policies. Why has the IMF asked Pakistan to sign a new letter of intent just to release the tranche, and what were some of the major issues that prompted you to demand a new letter of intent? This can be answered before 4:30, I am sure.
MR. CAMDESSUS: We are applying to Pakistan the same kind of methods as to any of our members on the occasion of a review, when they are new, when the program went through difficulties, or when circumstances have justified some changes in the thrust of the program. So, nothing special here for Pakistan. Thank you for your question.
MR. DAWSON: Thank you very much.