The International Monetary Fund: Increasing Economic Opportunities and Meeting the Challenges in the Global Economy -- Remarks by Michel Camdessus
IMF News, April 11, 1996
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- Published: April 11, 1996
Overview and IMF purposes
- The IMF was founded at Bretton Woods, New Hampshire, during World War II to provide a permanent forum for cooperation on international monetary problems and to avoid competitive devaluations, exchange restrictions, and other destructive economic policies.
- Membership grew from 39 countries in 1946 to a total of 181 today.
- Quoted primary purposes (from the IMF's Articles of Agreement):
- "to facilitate...the balanced growth of international trade, and to contribute thereby to...high levels of growth and real income";
- "to promote exchange rate stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation";
- to provide members "with opportunities to correct maladjustments in their balance of payments, without resorting to measures destructive of national or international prosperity."
IMF policy approach and recommended domestic policies
- The Fund encourages all members to pursue sound domestic economic policies and to open up their economies to trade and investment. Broad policy prescriptions include:
- disciplined and predictable fiscal and monetary policies, including reducing government deficits to be financed in a non-inflationary way and avoiding crowding out private investment;
- liberal trade and exchange regimes to facilitate international trade and increase private sector opportunities;
- sound financial systems and flexible markets for efficient allocation of resources;
- transparent regulatory systems establishing clear rules for the private sector;
- appropriate social policies to protect the most vulnerable segments of the population;
- "good governance"—transparent and accountable governments that follow the rule of law.
Surveillance, conditionality, and technical assistance
- Surveillance:
- IMF staff review each member's economic policies and performance at least once a year (more often if necessary).
- Reviews are discussed by the IMF's Executive Board, which provides recommendations to the country concerned.
- Surveillance increases transparency, enables peer pressure and moral suasion, and can identify emerging imbalances before crises develop.
- Conditional lending and program design:
- To borrow IMF resources, a member agrees to undertake economic reforms; specific reforms are chosen by the member and are expected to be "home grown."
- Loans are disbursed in installments—usually over one to three years—conditional on meeting agreed performance targets.
- The Fund often provides technical assistance in tax administration and expenditure management, central bank operations, and bank supervision.
Financing, quotas, and concessional facilities
- Members subscribe a sum called a "quota" on joining the IMF.
- Members normally pay 25 percent of their quota subscriptions out of their foreign reserves, the rest in their national currencies.
- When a member borrows from the Fund, it exchanges its national currency for the use of an equivalent amount of a currency of a country in a strong external position; borrowing pays interest at a floating market rate.
- The IMF has separate arrangements for very poor countries: loans or grants provided by a broad range of countries are used to make very low interest loans available to the poorest members. The Fund is examining ways to put these arrangements on a self-sustained footing.
- The Executive Board is reviewing the adequacy of the Fund's quotas, and the membership is discussing increasing lines of credit on which the Fund can draw.
Empirical benefits, country cases, and crisis responses
- Growth and trade:
- It was the strong growth in 35-40 developing countries, following policies endorsed by the IMF, that helped cushion the global effects of successive recessions in most industrial countries in 1991-93, permitting world growth to average nearly 2 percent instead of a negative figure.
- Payments for goods and services are fully convertible in 114 IMF member countries.
- World trade has grown at 5 1/2 percent per year over the last quarter century, compared with 3 1/2 percent annual growth in world GDP.
- More than sixty IMF members have eliminated controls on capital transactions.
- Transition economies and Russia:
- Nine transition economies—including Albania, Armenia, Croatia, the Czech Republic, Lithuania, Mongolia, Poland, Romania, and the Slovak Republic—are estimated to have grown by 5 percent or more in 1995.
- The IMF Executive Board agreed to provide Russia with roughly $10 billion over the next three years in support of economic stabilization and structural reforms.
- Crisis interventions:
- IMF-supported efforts helped during the energy crisis of 1973-74, the mid-1980s debt workouts in Latin America, the post-1989 transition financing, and the Mexican financial crisis.
- In the Mexican crisis, IMF support helped keep markets open and capital flowing; the United States leveraged every $1 of its own support into $4 of support from other IMF members.
Future challenges, data standards, and operational priorities
- Anticipation of continuing crises:
- Crises will continue to arise and may be sudden and largely unforeseen; shifts in market sentiment can have sudden destabilizing effects.
- Strengthening early detection and prevention:
- Intensify dialogue with member countries to detect emerging problems earlier.
- Pay greater attention to the soundness of banking systems, financial flows and their sustainability, countries at risk, and potential spillovers.
- Data transparency:
- The Fund has developed data standards to guide members in providing greater economic and financial information to the public.
- Countries that tap international financial markets are urged to meet a more demanding standard regarding data coverage and periodicity; the more demanding standard is expected to go into effect shortly.
- Cooperation and capital adequacy:
- Members must provide accurate, comprehensive, and up-to-date data and listen to Fund assessments.
- The Fund must maintain a strong capital base to continue supporting members when needs arise; Executive Board is reviewing quota adequacy and membership is discussing additional lines of credit.
- Engagement with the private sector:
- Continued dialogue with the private sector is essential since private sector responses to IMF-supported reforms are a bellwether of effectiveness.
Key statistics and exact figures
- IMF membership: grew from 39 countries in 1946 to 181 today.
- IMF-supported programs: over 70 countries have programs in place or are negotiating one.
- Transition economies with growth >= 5 percent in 1995: nine countries listed.
- Russia: IMF support of roughly $10 billion over the next three years.
- Full convertibility for payments for goods and services: 114 IMF member countries.
- World trade growth (last quarter century): 5 1/2 percent per year.
- World GDP growth (last quarter century): 3 1/2 percent per year.
- Developing countries cushioning 1991-93 recessions: 35-40 countries; world growth averaged nearly 2 percent instead of a negative figure.
- Capital controls eliminated: more than sixty IMF members.
- U.S. leverage in crises: every $1 of U.S. support leveraged into $4 of support from other IMF members.
- Loan disbursement period for IMF programs: usually over one to three years.
- Quota subscription payment practice: members normally pay 25 percent of their quota subscriptions out of their foreign reserves.
Remarks by Michel Camdessus, Managing Director of the International Monetary Fund, to the Mid-America Committee, Chicago, Illinois, April 11, 1996.