Transcript of a Press Conference by Mr. Stanley Fischer, IMF Acting Managing Director
April 4, 2000
Tuesday, April 4, 2000
[TRANSCRIPT PREPARED FROM A TAPE RECORDING.]
MR. DAWSON: Welcome. The embargo for this press conference will be approximately 15 minutes after it ends and we will set the precise time when we conclude. We have with us this evening, Stanley Fischer, the Acting Managing Director of the IMF, who will open with a few remarks and then we will take questions. Thank you.
MR. FISCHER: Thanks very much, Tom, and good evening. I am sorry to have the meeting at this time but I am travelling to Moscow shortly and we couldn't fit it in any other time this week. I am sorry for the inconvenience for your personal schedules and for any inconvenience for your professional schedules and deadlines.
The reason I thought this would be useful is that I wanted to talk about the agenda for what will be the first meeting of the International Monetary and Financial Committee, which we are going to call the IMFC, which takes place here on Sunday, April the 16th. As you know, this is the successor to the Interim Committee, which managed to be an interim committee for 25 years but finally expired last September and we now have IMFC meetings.
Now, why does this matter? Well, this is one of the most important ways in which we are held accountable and responsible to the member Governments that control the IMF. The fundamental day-to-day mechanism through which we are held accountable and responsible is the Executive Board of the IMF. But twice a year most of the Finance Ministers and Central Bank Governors of the 182 member countries take part in the IMFC meetings to review what has been done in the past six months and the agenda for the period ahead. This governance mechanism--the Executive Board and the IMFC, the governments of the countries that own the IMF--is the way in which they make it clear to the management and the staff what they think of what we have been doing and what they want us to do in the period ahead. This is a particularly important time to have such a meeting because the reform of the Fund is on the agenda and so is progress in the HIPC debt initiative.
Those are the chief agenda items and they are important, each, in different proportions for all our shareholders, the large and the small, the rich and the poor, and I expect that we are going to be told pretty clearly what they expect us to do as we move ahead. And I hope they will spend a little time also telling us that we have made significant progress on important issues in the past six months as well as over the past couple of years.
The meeting will start with a discussion of the world economic outlook which, for the first time in three years, should be a cheerful one. The world economy looks, as we have been saying for some time, much stronger than we would have dared predict and certainly much stronger than we did predict 12 months ago. We are expecting output to rise more than 4 percent, global output, in the year 2000. Inflation remains under control despite higher oil prices. The U.S. economy continues to grow strongly at rates which are widely believed to be unsustainable, at least in the last quarter. Europe is doing much better than it was. Most emerging market countries are enjoying rapid recoveries after their financial crisis. That extends even to Russia which is growing. Japan, unfortunately, has not yet returned to growth but there have been some encouraging recent indicators. Now, if we look ahead, there will have to be some rebalancing of economic growth and unwinding of the current account imbalances. Ideally that would happen through some slow down in the sizzling pace of U.S. demand growth, a sustained recovery in Japan and continued strengthening of economic activity in Europe. It is not guaranteed to happen that way and we could imagine a more abrupt and uncomfortable adjustment, but at least in the United States if that happens, policy makers have all the tools to respond to those difficulties.
Well, with the world economy looking so benign, this is the time to get on with reform. And I imagine that the discussion of the world economic outlook will be relatively brief. There will be a fair amount of patting each other on the shoulder, a little bit of wagging of fingers, and then we will get on to discuss, under the heading of IMF Reform, four important topics.
First, the safeguarding of Fund resources. Second, a review of our lending facilities. Third surveillance over economic policies, and fourth, the involvement of the private sector in crisis resolution. Now, each of these, as you know, is an issue that has been on the agenda for some time. Each of them has been discussed extensively by the Executive Board. We have just, and I must apologize for the late hour of it, put out the summing up of the Board discussion on the safeguarding of the use of Fund resources, on which we made remarkable progress and I will tell you more about it. That summing up, I believe, is embargoed until 7 o'clock so you will have time to take a look at it after this but I hope I can summarize for you what is essential.
First, on the safeguarding of Fund resources. The cases that have hit the headlines are grave cause for concern. It is critical that the public have confidence that when the IMF makes loans that those resources are used for the purposes that were intended. I think we have made in our history over 1,000 loans. There are very few cases that these things have happened. But any case is excessive and there happen to have been several lately.
They are an abuse of the trust on which this institution operates and they are an abuse of the public trust and we take them seriously. We have safeguards now in place, through the monitoring of our programs, through the cross-checking we do on data. It is very difficult to cheat unless you are really excellent in making the inconsistencies in data consistent. But we clearly need to go further.
What the Board agreed to do is to introduce from the middle of this year a two-stage safeguards assessment for central banks of countries that borrow from the IMF. At the first stage, we will request from countries seeking loans a set of documents including details of auditing, management structure and internal controls, as well as relationships with the Government and any subsidiaries and we will ask for access to independent auditors.
Every central bank that borrows from the IMF will have to publish annual financial statements that have been independently audited to international accounting standards. Now, the great bulk of them do but that will now be required. If our examination at the first stage of this two-stage procedure says that all these processes are fine and meet standards we expect, that is the end of the assessment but, if necessary and that information is not reassuring, then we will carry out on-site reviews and those reviews will involve Fund staff, experts from other central banks and accountancy firms.
Now, one could see this as an imposition on countries borrowing from us but it is hard for me to see that. If they don't have these procedures in place, they should have them. And, so, the fact that the Fund will insist on them seems to me a service to member countries, not an imposition, and I hope it will be taken in that spirit by countries that want to borrow from us.
We have some tools available to us to deal ex-post with countries that have misreported to us, whether the misreporting was intentional or unintentional, and the Board made it clear in their discussion that they intend to use these procedures and we are working on further operational details.
None of this guarantees that Fund resources will not be misused. If a country is sufficiently skillful it could cover up some of this, but I believe that we are limiting the scope of potential problems and doing everything we can to ensure that the resources that we provide are properly used. We will hear what Ministers say on this in the IMFC meetings.
The next item on the agenda is the review of the IMF's lending facilities. We have, over the years, accrued a large number of lending facilities. It is way less, by the way, then the number of lending facilities of the Fund/Bank Credit Union but somehow it occasions concern that we have such a range of facilities. And we have, since the start of this year, eliminated four facilities, the Y2K facility--that is sort of obvious since the problems are over the currency stabilization fund, the buffer stock financing facility, and the contingency element in what used to be the contingency and compensatory financing facility. Those are gone.
We are reviewing now the remaining facilities. And the question is whether we need them all and whether they are ideally designed. There are sort of two views about how to reform an organization. One is you start from first principles and you decide what it should be doing. And the other is you look at what you are doing and you figure out whether it is achieving the goals you want and whether you can do that better?
Well, in reviewing the Fund facilities, I think we are actually taking a pretty basic look at what it is the Fund should be doing and the questions that will arise are whether we are happy with the terms on which we lend and the maturities on which we lend under the various facilities. There will clearly be an intensive consideration of the contingent credit lines, the CCLs. They have not yet been used. They are, I am sure, an excellent instrument. They are a preventive instrument. They should be used. There are understandable reasons, namely there is no financial benefit to a country accepting a CCL relative to accepting an SRF, the facility to which we lend to a country that gets into crisis. So, we are not rewarding countries financially under the current terms of the CCL for entering this arrangement and for meeting a fairly demanding set of requirements. And I expect that there will be support--it is not uniform--there will be support for us to take a fundamental look at this and to revise the terms of the CCL.
We will have to revisit the problem of longer-term lending by the Fund, whether the EFF, the Extended Fund Facility, is being used appropriately. It was clear in the Board that there is widespread support for the view that there are countries to whom we lend for structural reforms that should receive longer term financing. But, nonetheless, a sense that we ought to be careful about when we use it and not use it too freely.
Finally, we will have to come back to the issue of repeated borrowers. The paper that you will get at some point soon, I hope, will show that these are fewer than thought of but they may, nonetheless, be too many. That reexamination of the lending facilities has, of course, been urged on us by many of our shareholders but most notably by the Secretary of the Treasury in his speech in London in November and a lot of progress has been made in that regard.
The third point, surveillance. Surveillance is critical to the prevention of crises and we have done a great deal in that area, including the surveillance of exchange rate regimes, the soundness of financial sectors, capital account developments, and external vulnerabilities.
We are being asked to take an important role in surveying how countries do on meeting international standards and codes. And by the middle of this year we, together with the World Bank, should have about 20 countries involved in the pilot reports on the observance of standards and codes. We call them ROSCS. They are working pretty well. I am impressed by how good, particularly, the financial sector assessments in those ROSCS are.
We have done for several countries a very careful external evaluation of the strengths and weaknesses of their financial sectors. This is critical, as we have learned from the Asian crisis that this be done and I see countries actually beginning to ask for these and to ask for them on an urgent basis. I believe that part will be very, very successful in years to come.
Ministers ask which standards should be assessed, who should assess them. We, the IMF, are not going to assess the observation of international accounting standards or domestic accounting standards, that is not something we are good at. Other agencies will have to do that. We will have to see how we deal with them and make them public.
There will be questions about whether these processes should be voluntary or compulsory, whether the results should be published, how will we take account of the fact that you cannot expect a poor country, with a much less sophisticated financial system, to meet exactly the same standards as the most advanced countries. Those issues will all have to be discussed.
The next topic, private sector involvement. I believe there has been progress here. We have frequently said this is the most difficult aspect of the reform of the international system. And we have had some experience now. We have dealt with several countries, with Romania, with Ukraine, Pakistan, Ecuador, each of them different. I think one thing has happened in this process. It has not been an easy experimental process but the one thing that has happened is that it seems now to be understood by the private sector participants that this could happen if a country has significant external financing difficulties. And we no longer are being told this is outrageous, this will ruin the financial system, this will stop flows to emerging markets--all the sorts of things we were being told a year or a year-and-a-half ago. We have seen several of these cases. And we have seen them work.
We have seen the Pakistan debt exchange work, the Ukraine debt exchange seems to be working. We have seen a case--Ecuador, which was in extreme difficulty--where a country was unable to meet its debts, that feared legal consequences, extensive litigation, but so far these have not happened. That is not guaranteed that will continue. Because the private sector understands as well as we do and as well as everyone else does that there wasn't another way out but to restructure the debts in some way if Ecuador was ever to get into a sustainable medium-term situation.
And, so, this process is moving ahead. There will be questions and disagreements. Some of our members believe we need a very firm framework in place. Others believe that we need general principles. Some say you must establish private sector involvement in every case. Some say in some cases the Fund's catalytic role can work. Those issues are all there but there has been progress.
Finally, on the agenda will be debt relief, poverty reduction and growth strategies for the poorest countries. Inevitably, this will not be the main locus of that discussion. The discussion of these issues is going to be centered more in the Development Committee--which is a joint Fund/Bank Committee but fundamentally the governing body for the World Bank--but the Finance Ministers who sit in the IMFC will want to review this progress. They will also have to be considering some important issues.
The first is that we are happy that there has been agreement on debt relief in the enhanced HIPC initiative. We are happy that the Fund, in particular, has been able to identify most of the financing for it. But we haven't got it all. Other institutions have not been told how they are going to pay for debt relief and the issue of paying for debt relief is something that must be on the minds of our members as they meet to discuss progress and the regional development banks, in particular, have a severe problem of financing.
We, as you know, are waiting for the second tranche of our potential financing, the permission to sell a further five million ounces of gold, or at least to undertake a transaction, which will liberate some of the capital gains on gold, that still has to be agreed to by the Congress.
The second element that will arise in the HIPC initiative is that there is a tension between two elements in it. One is speed and the other is the desire that countries own their programs. We want to be sure, because all the evidence says that is what makes programs work, that the poverty reduction strategies we are discussing are those formulated by countries and not developed by the Bank and the Fund. They must be country-owned. But that may take a while. Those processes cannot be controlled.
At the same time we want to move rapidly. We have got to find a way of squaring that circle. The Ministers will have to grapple with those issues. They will have to tell us in which directions they want us to proceed. Where do we find that out? We find that out in their final communiqué, which is fundamentally the basis on which we take our work agenda ahead in the coming period.
So, this is a period of stock taking, it is a time to concentrate on issues of extreme importance to the poorest countries, the debt initiative, the poverty reduction strategy and issues fundamental to the reform of the international financial system.
Thanks. Let's take questions now.
MR. DAWSON: Thank you very much. If I could just note, we will have an additional press briefing next week as part of the normal run-up. We are not trying to restrict what you ask about, but if you want to, we would appreciate it if you focus, in particular, on the meeting. That this is, in some sense, a substitute for the breakfast that used to be held off the record prior to the meetings. But we, of course, leave you to ask the questions you wish. As is usual, if you could, please, identify yourselves and your organization.
A QUESTIONER: I would like to ask you just a couple of things regarding the upcoming Action Week of the opponents of the IMF.
When I asked one of your spokespeople to comment on the upcoming events, the only answer he gave was the meetings will take place as usual. And, now, however, of course, we all know that the stated goal of the opponents is to shut down the meetings. It is relatively easy to see that if there are even thousands of demonstrators it will be very difficult for the Ministers who participate in the meeting of the Interim Committee, to drive up as they have in the past in their limousines. What are your contingency plans? Is it possible for the participants of the meeting to be flown in, let's say, by helicopter? I mean can they enter the building through the roof?
A QUESTIONER: And secondly, could you rule out that the time of the meeting could be moved, let's say moved forward to Saturday or Friday night? Is that something which you allow as a contingency or is that something you would rule out?
And, thirdly, of course, changing the venue, that is the other logical thing to do. Do you have any contingency plans to move it to a venue outside the downtown area, like the Pentagon or the--
MR. FISCHER: Okay. First, I am really glad we had this press conference because the helicopter idea hadn't appeared--
MR. FISCHER: --before and we hadn't figured that one out, and maybe it is not a bad idea.
But I don't know.
MR. DAWSON: That was a joke.
MR. DAWSON: I think.
MR. FISCHER: Look, the local authorities, the local police forces and those responsible for security at the meetings are taking very seriously, as they must, the possibility of disruptions here. They are making plans to ensure that we can have the meetings. I wouldn't say they will be absolutely as normal. It could not be as normal if there are massive numbers of people in the street trying to close down the meetings. But we are working to try to make sure that the meetings take place. The material that is being discussed at these meetings is very important for the operation of the world economy, for the people who live in the world economy. And you don't really expect that whatever contingency plans we might or might not have would be made public at this stage.
But I can say that we are taking this seriously. That the local authorities are taking it seriously. That blocking of access to various institutions is not something that is legal. That the meetings should take place and that measures are being put in place to try to make sure that happens.
A QUESTIONER: The Prime Minister resigned yesterday in Japan and Mr. Mori would be a successor, maybe you know. First, how do you assess the change of the Japanese administration regarding economic policy? And second, have you ever met with Mr. Mori and, if so, how did you feel after the meeting?
MR. FISCHER: Thanks very much. Let me first say how sorry we are in this institution about the unfortunate severe illness of Mr. Obuchi. I don't think that it is either appropriate or possible at this stage to say what difference it will make with a new Prime Minister and a new cabinet. There has, in fact, been considerable continuity in Japanese economic policy over the years and we don't know at this stage what potential changes, if any, there would be nor do I think it is appropriate to speculate on that right now. So, I am sorry, I will just duck that question.
A QUESTIONER: It is my understanding that the new Managing Director is not going to be here for these meetings. Is that the case and wouldn't it be appropriate for him to be here while you are discussing reform issues?
MR. FISCHER: Mr. Köhler faced a difficult decision about when to take over. He has responsibilities at the EBRD and he has been pressed there to stay beyond their annual meetings in the middle of May. I am not sure that he wants to stay as long as that. And then on this side he would have faced the question of coming into a meeting facing a lot of issues on which a lot of preparatory work has been done that he would not have had the time to take part in.
This work was instituted essentially under Mr. Camdessus, the work that is going up to the meetings now. You can be absolutely sure he will get complete reports on everything that has happened at the meetings. Mr. Dawson has spent some time with him already. I plan to this weekend.
He is a voracious reader of briefings and he will be fully briefed and I think that will be adequate. But he just had to decide essentially whether to drop everything and come over, say, a few weeks ago, immediately upon his election or to wrap up systematically at the EBRD and he chose the second.
A QUESTIONER: Most of the news that you are giving us is positive and I mean certainly people in the IMF feel that the institution has been functioning very well in the last couple of years and did very well after the '97 crisis.
And, yet, at the same time, the Fund is facing probably more criticism than it ever has both from radicals and from sort of establishment critics. I wonder how you explain that and could you talk a bit just about the mood inside the Fund, whether you feel you are understood or not?
MR. FISCHER: You know, whenever anybody criticizes you, you think that you are not understood. The world has been through a really very massive crisis, starting, you could say, with Mexico and then Asia, Russia, Brazil, that at one point in late 1998 looked like it could threaten worldwide recession and a severe one.
That was a scare on a scale that is very rare. And we did things in a great hurry. The crisis was very pressing. We made some mistakes as we have reported. There is inevitably controversy about what was done in Mexico, some were concerned about the moral hazard potential of that case, which I don't think was very large. Certainly in Asia, where you know about the controversies and where the question has to arise, a system in which that number of crises happens that quickly something must need to be done about it. And there must be some reexamination of all the institutions that operate in it.
I think of this as a very natural period. It was not the right thing to do when the crisis was in midstream. We didn't have time for this reexamination when countries were being hit one after another by what, for a short period, looked like absolutely inexorable forces. We were able with some imperfections to stabilize that and to turn the situation around much faster than anybody expected. It was not the IMF fundamentally, it was the countries that pursued the right policies.
It was the industrialized countries that cut interest rates when they should. But it was also the contribution we made, not least, in Latin America. Now, is the time that stability has returned that we should be doing what is being done now. There are bound to be many ideas around. If you read the debates on this institution, in 1944, there were very different visions of what it ought to do. And I think this is fine.
I see the debate going in a direction that reaffirms the value of the IMF as the central monetary institution in the system, that raises questions about the way we do business, but that does not fundamentally challenge the three main things we do. One is surveillance. In fact, there has been a virtually unanimous conclusion that we need to do more of that, make more information available. That does not question though--and I think it undervalues--the technical assistance we provide. We are the way in which the world spreads its knowledge, its collective knowledge about how to carry out policies.
That is not really well understood. It is a very important part of what we do. A central bank governor called me last week and said, I need to reform my central bank, could you send me two people? That sort of thing happens all the time. This is where that knowledge is.
And thirdly, there hasn't been a fundamental challenge to our lending except perhaps from some versions of the Meltzer Report but even there in the final versions they step back somewhat. Important questions exist and need to be looked at.
So, I don't regard this as an inappropriate period. Are we understood? I am concerned, of course, that critics see us as creating damage in the world economy. I don't think we do that. I think we are a force for the good. I hope we can reason with our critics, both those who write in the scholarly journals and in Congressional reports and elsewhere and those who are criticizing us in the streets. I would like to reason with them.
But there are some fundamental differences. We believe that the process of opening up the world economy in the past 50 years has been one of the absolutely critical driving forces that has created more prosperity around the world than has ever been seen, more rapidly than has ever been seen. We believe that. We believe it should continue. Some of our critics don't and to that extent there is a lack of agreement. But on most issues there is fundamental agreement.
I don't know how individual staff members feel but my sense of this institution is that it has a truly remarkable esprit de corps and that people believe in what they do and work extremely hard to do what they are asked to do. And it is a remarkable institution and I haven't detected now any resentment of the pressure we are under. It was tough during the Asian crisis at times. But that has eased off and we are in a much more balanced period of debate.
A QUESTIONER: In one of the many interviews Mr. Köhler gave last week, he mentioned that the question had to be decided or should be raised whether the Poverty Reduction and Growth Facility would stay with the Fund or should go over to the Bank. You mentioned HIPC, you mentioned the task of staying in the poverty mode, so to speak, but is there anything being discussed there?
MR. FISCHER: PRGF is how we lend for HIPC. So, when talking about HIPC, I was talking about PRGF. Mr. Köhler and I have discussed this issue about the PRGF. There was no indication of that particular line in our discussions. I saw him reaffirm in the press somewhere today--I have a collection of clippings here--that he believed the Fund should stay there, should stay in that business. I think he believes that our poorest member countries have a right to access IMF facilities, like every other member.
So, I don't quite know what that report is about but I will be seeing him on Saturday. I don't think I should comment on reports I don't believe and I will leave it at that.
A QUESTIONER: I have a question about what you said about the U.S. economy. You said that the growth rate is unsustainable. At the same time you said that you believed the monetary authorities here have the tools they need at their disposal. Can you elaborate a little bit on where you see the U.S. economy headed and whether you see a serious down-turn?
MR. FISCHER: Well, this is certainly a good day to discuss that issue and I suppose there were points during the day when people, some people must have been quite worried. The U.S. economy grew at over 7 percent in the fourth quarter of 1999. That is not sustainable. We have no evidence that productivity growth rates will sustain growth like that at all.
The current account deficit is very large. That growth will slow down. I don't think that the slowing down of growth would pose any particular problems. The current account deficit being large is a reflection not only of high investment in the United States but also of low personal saving. I see the Secretary of the Treasury will be unveiling some programs to encourage personal saving in the United States.
But I do believe the U.S. has the tools to deal with any significant slow-down if one were to come. And what we are talking about now is the possibility of a continuation of these 9 remarkable years of continued recovery. Can that recovery--it just means growth--can we maintain that? And people are asking whether the Fed can do it? It's a very difficult task to carry off but it's not an impossible one.
What I was saying was, well, even if that doesn't work, we still have a budget surplus. We still have interest rates that can be reduced significantly. If there were serious signs of a slow-down in this economy to below the potential growth rate, to levels that would worry anybody about the possibility of recession, we have the means in the United States to deal with it and that is all that I meant.
We are projecting--Mr. Mussa will tell you more about this next Wednesday--continued growth to the United States. I think that is the most likely outcome.
I was just looking at what would happen if there was a worse outcome and saying, even that can be dealt with.
MR. DAWSON: Since Mr. Fischer has a plane to catch, maybe one last question.
A QUESTIONER: If I could follow-on from that, if you believe that the U.S. has the tools to, in some way or another, you know, achieve a soft landing and hit a sustainable growth pace, where are the risks lying now then for the world economy? I mean oil prices is obvious but there has been an OPEC meeting that may begin to deal with that. What other factors do you think that are out there that need to be watched at the moment?
MR. FISCHER: Well, you have, again, the continuing concerns about Japan which are a major issue. We see signs in the TANKAN survey, the improved pickups in investment late last year, that the economy is probably recovering, but it did have a recession in the second half of 1999. And whereas the U.S. has these reserves of policy, Japan does not. And they are at the limits of fiscal policy and they are at the limits of monetary policy and that is the difference.
So, that is a continuing concern. European growth looks better. The issue in Europe is whether structural reforms will be sustained. We have seen signs that that is becoming politically difficult in some countries. That is a matter of concern.
At the level of the global economy, the Latin American economies, several of them are coming back but it will require staying on track with policies. I think that they will do it. I think they are fundamentally different places than they were 15 years ago but if you wanted to be a pessimist you could do that, I wouldn't do that.
MR. DAWSON: Yes. One really last question.
A QUESTIONER: Could you just comment briefly on your trip to Russia and tell us what you hope to accomplish there?
MR. FISCHER: Yes. There is something called the Higher Economic School--which I don't know his formal position, but Professor Yevgeny Yasin who was the Economics Minister in the previous government, and is sort of the granddaddy of Russian economists and respected across-the-board, runs that institution and decided to have a major post-election seminar. He set this up a long time ago to discuss the reform agenda for Russia.
And he has got all the suspects lined up for this event. It will be a largely Russian event and that is extremely important. It will be two days of presentation of papers by Russians on how they think the economy should develop.
Yasin is a reformer, a very realistic one. But he has invited various people from outside and every 10 minutes I get a phone call from somebody who says I just want to speak to you before I go to Russia and I say, I'm going to be there, too. I don't know who is going but more and more people seem to be going from outside as well.
Of course, I will also take the opportunity to meet with Russian officials, including I hope, the President-elect, the Acting President Putin. We will talk about what his views are on economic reform programs for Russia. Inevitably we will talk about relations with the IMF.
But this is not fundamentally a negotiating mission. It is a get-acquainted, discuss the underlying issues, discuss the way ahead, and then see what the staff, how the staff should follow-up on that.
Russia will not have a government in place until the President is formally inaugurated on May 7.
So, we will not be in a position probably to go into formal negotiations before that and he may not have his program ready to present. He is playing this very correctly, according to the Constitution for reasons that I think we should all respect.
MR. DAWSON: Thank you very much. The embargo will be lifted at 5 minutes after 7.