Transcript of Press Conference by Stanley Fischer, First Deputy Managing Director of the IMF

May 8, 2001

by Stanley Fischer
First Deputy Managing Director
Tuesday, May 8, 2001
Washington, D.C.

MR. FISCHER: Thanks very much for coming to this impromptu press conference. I, as you know, announced to the staff and the Board today what I had told the Managing Director a few weeks ago, that I plan to leave the Fund later this year probably, but once a smooth transition to my successor has been arranged.

Informing the department heads, which was the first thing I did, and then the Board was extremely difficult, and the decision to leave was not reached lightly and was reached with very mixed emotions. But I knew that I had to leave at some point because I believe in jobs like this turnover should take place, and it was just a matter of what was the appropriate date to leave.

Precisely when during the remainder of the year I would leave I don't know. What I expect is that once my successor has been chosen and comes on board, I would step down as First Deputy Managing Director, stay in the Fund a few months in order to work on some papers and possibly a book that I've been trying to write for sometime, and then also be available at that time, too, if needed, by the Managing Director or my successor for consultations. But I shall certainly keep a very low profile in that regard, and then a few months after, then after doing that work, I would formally leave the Fund.

I believe you've all seen the statement I made. I would like to just say, just read the parts of it that reflect my personal feelings, which are very deep at this moment. It's been a privilege to work in the Fund during these momentous years for the international financial system. I'm extremely grateful to the two Managing Directors with whom I have served, Michel Camdessus and Horst Köhler, and to the authorities and member countries with whom I've had the opportunity to work so closely.

I would like to thank my Fund colleagues and management, the Executive Board, and the staff for their extraordinary support and friendship, which have made my time at the Fund such an immensely rewarding experience. And then, before I made each of these announcements, the Managing Director made a statement, which I can only describe as extraordinarily and possibly excessively generous about the way we have worked together during the time since he has come, and I value very much what he has said and the way we have been able to work together over this period.

When he came, I said I would stay at least a year or until I felt that he didn't need my assistance very much any longer and was fully in charge of the way the organization operates. I think both those criteria have been met. So let me stop there and take questions if there are any.

QUESTIONER: Mr. Fischer, you talk about a smooth transition, my question is did you make a smooth transition, you know, in light of what happened when the Managing Director was selected? We have some countries that, you know, didn't like the first choice, so whether shouldn't you have the transition in your post will be a smooth one.

MR. FISCHER: I think this choice is an easier one bureaucratically, so to speak. It's the Managing Director who makes the nomination, and traditionally this job has gone to an American. That narrows the field somewhat. And so I expect that it would be done with a good deal less difficulty than was the case when the Managing Director was chosen.

QUESTIONER: You've been at the Fund for about seven years now. You've worked through, Mexico, the Asian financial crisis, Turkey, Argentina. What would be your proudest moment of the time that you spent here?

MR. FISCHER: Oh, I don't know about proudest moment. I think the change, which I believe is most important in the Fund, has been the complete change in the transparency of this institution. We published essentially nothing in 1994, and we publish almost everything now. We talk to you far more than we ever did. We talk to the public in member countries far more than we ever did, and I think that is wholly to the good and I think it's made this a very different institution than it was. Moments in which as an official of the Fund one feels proud of what this institution does are many. I think the success of the Brazil program in 1999 and onwards is certainly one of them, but there are countless others that don't attract widespread attention. We were asked to design a monetary system for Bosnia-Herzegovina one weekend. The Fund of the staff started working on Saturday and by Monday they had it. The currency board that has operated so successfully in Bosnia-Herzegovina precisely as the staff of this institution suggested worked out and helped put in practice. There is Bulgaria, another country that was on the brink of hyperinflation, read disaster, that is operating well. I could go on and on.

There are many more events than the big crises taking place in the Fund, and there are many moments that one turns around and says, "Wow, what an institution to be part of. What a group of people to be working with." And that is something that happens very often.

QUESTIONER: Sort of a follow-up question. You've been described as the "battlefield medic of the world's economy," and I wondered, from the perspective you have now that these crises of the late 1990s have passed, how you would answer critics that called the IMF wrong-headed, insensitive, beholden to big bankers, and prone to make its patients sicker?

MR. FISCHER: Well, there was so many charges there that I didn't remember all of them. My view is that the Fund by and large is called in to operate in very, very difficult circumstances, very rarely makes a patient sicker. It may on occasion recognize that, make the patient recognize the sickness, and that in itself is problematic in many countries, but I think the record speaks for itself, that the Asian countries which followed the agreed programs with the Fund were the ones that succeeded and that came back most rapidly.

Even in the Russian case which is so heavily criticized, the Russian economy has been transformed in the past seven years since we started working intensively with them, is on its way to modernity. That owes a lot to what the Fund has done.

That the Fund on occasion makes mistakes, of course, we recognized that formally in the Asian case with fiscal policy, which was excessively tight for a few months at the beginning, but that we systematically get it wrong or on average get it wrong I believe is just plain wrong, wrong-headed, and not a serious charge. I think this institution has made the world a much better place and will continue to do so. The ability to affect a country from the outside is always bound to be limited, and if countries were doing well, they would be unlikely to be in the Fund for help. If the problem was easy, they wouldn't need our assistance, and that's why the success rate is less than a hundred percent.

QUESTIONER: You mentioned that you, the disposition tradition between America and the Fund, the administration, and they have made clear that they have a slightly different view of the Fund's role from the previous administration, did you feel that they deserved an opportunity to select their own Managing Director, did they give a direct signal in that regard?

MR. FISCHER: I can say definitively that the administration encouraged me to stay, and there was no indication that at this stage they had any of the desires you mentioned.

QUESTIONER: As a person from a developing country, what role do you think the developed countries will have in the future in the Fund, will it be greater than in the past?

MR. FISCHER: The question was, will the Fund play a greater role in development in the future than in the past.

What I think is happening in the international community is that the process that was invented for the HIPC countries, the very close integration between the work of the Bank and the Fund, which is going on in those cases, is something which is a very good way of doing business. It means that we do the macroeconomics in programs where there are enormous developmental components headed by the Bank. Of course, financial sector strengthening is also a part of the development process, and that's something the Fund does. So my guess is we will continue to be involved with our developing country members, that we may become more effective as a result of better cooperation with our colleagues in the World Bank, but that our eventual goal is to take all our members, and it will happen at different rates, to the point where they can rely on the private markets almost all the time and rely on the Fund for financing only in the rarest of circumstances but rely on the Fund for advice all the time through the Article IV process. So we will be involved in the development process, but in our areas of specialization, macroeconomics, and financial sector.

QUESTIONER: Which are the main issues and the main cases in terms of country cases you think that your successor will have to live with and which will your advice be?

MR. FISCHER: It's very hard to predict. Obviously depending on when my successor arrives, he or she will be dealing with the aftermaths of the recent Turkish and Argentinean crisis or if the person is chosen very soon could still be dealing with the first round of the -- with the completion of the current round of discussions with Argentina. So those are the obvious ones.

Looking beyond that, I hope that the work that is going on now to change the structure of the international system will actually mean that my successor has to deal with fewer crises. The change, the clarification of the role of the exchange rate regime in crises, the clarity of the view that either you go to the floating rate with a generous description of what floating means, edge, or the very hard peg edge, which I think is a view that is clarified from experience in the past seven years. That means that we're likely to have fewer crises of the sort we had in the '90s and in 2000 and 2001 which are essentially the crises of soft peg exchange rate systems.

We will have other crises, debt related crises, financial system related crises, and that's why the work we're doing on strengthening of financial systems and improved debt management is also important. I can't identify now which countries it will be. I think when Mr. Camdessus left the Fund he said, well, maybe it will be an industrial country. I don't know which one he had in mind, but it's hard to say. I'm sure that when my successor is chosen, I'll sit down with a list of 183 member countries, and we'll go through them, and draw up a short list, and then you'll all ask whether this or that country is on the short list of a dozen which Mr. Camdessus probably still has in his back pocket.

QUESTIONER: Treasury Secretary O'Neill yesterday said the IMF and World Bank would have to be associated with more successful programs in the future in order to get public support for the work that they do. Would you agree with that and, if so, how would you see achieving that? And just one other quick question, I wonder if you would, with your experience here at the Fund, support changing the traditional way of naming the heads of the IMF and World Bank with the European-American dichotomy? In other words, opening it up to other candidates from other countries.

MR. FISCHER: Everybody would like to improve the success rate of Fund programs, but there's this inherent difficulty in this law that I have that Tom Dawson knows, which is that you know a program is succeeding when it's no longer called a Fund program. So it's the countries that are mainly responsible.

As programs begin to work, typically they tend to take them on board more and more, and I hope that will happen increasingly in future. We have tried, but we've always tried to make sure that the political system in the country takes ownership of a program, and that is one of the keys to its success, but sometimes you have to operate when the ownership is less than complete. Sometimes you have to operate, and I think it's no secret now, we're operating in Indonesia, we're trying to help that country. The political situation is very difficult. You cannot tell which way the politics will turn out, but we have a responsibility to try to help the people of that country, so we certainly aim to succeed.

I know that we are increasingly putting an emphasis on getting the political backing for programs, as has been the case in Turkey where all three coalition leaders signed the cover letter on the Letter of Intent, and I hope that will move it in that direction. But it is inherent in the way we operate, and the countries with which we operate so far, namely countries in crisis, that the success rate will be far short of 100 percent.

On the process for choosing the Managing Director, I think there's some future world in which a process, a very general process in which all the best candidates in the world are eligible. It could be desirable, provided there's a serious way of then sifting among those candidates. But there is no framework of that sort on the horizon right now, and I think the framework that exists now operates pretty well. It's done very well for the IMF over the years. I think the Fund has been gifted with a succession of very good leaders, and until some more global scheme is reached, a practical one, not some abstract idea that we ought to choose from among the whole world, but a process for doing that. Until that happens, I think the present system has operated reasonably well and should continue.

QUESTIONER: A question on timing. Was there any particular reason or incident that made you feel that it was now the right time to announce your resignation and my second question regarding in the future you mentioned a book you're going to write, and is there any other job outside the Fund that is on the horizon?

MR. FISCHER: On timing, the problem is there is never a good time to leave the Fund because it's always involved in something important and interesting, and my sense of timing was derived more from how I see my future than anything else, and then I had to fit it in with the way the Fund is operating.

I believe we've made a lot of progress on the two challenges that are uppermost on our plate at the moment -- Turkey and Argentina. Furthermore, since I don't plan to leave for at least a few months, I think by the time I do leave and with a successor in place, those problems will be much further along the road to resolution.

I was tempted to wait a few months to see how they go, but then you say to yourself, "Yeah, in six months from now there will be some other reason not to leave." So the timing is just, this looks like a reasonable time. There is no good time to leave.

On other jobs, I've had an important job with a lot of information that is probably market sensitive and so forth, and it's not been appropriate to conduct discussions about a future job. I thought I should wait until I make my intentions public and reduce my level of activity before deciding on other jobs.

QUESTIONER: I wonder if I could just touch back on the U.S. Treasury and your relationship with them. In addition to the criticisms of the Fund's advice, there's been criticisms just of the large emergency loans in general, specifically coming from the U.S. Treasury. Do you think those criticisms are valid in any way and did that affect your decision, in other words not from the Treasury side, but from your side of the new administration?

MR. FISCHER: Nobody wants to have large IMF loans to countries in trouble. We try to avoid that as far as possible. But then when a crisis comes, the question is, what do you do? What are your responsibilities to the members of the Fund? If a country, as in the case of Turkey, is willing to undertake quite extraordinary measures with apparently full political support to stabilize the situation and avoid the normal response of high inflation, but needs financing, what should the international community do? Impose additional penalties on the country because of the principle that a loan should be fixed according to some rigid formula or deal with the case on its merits?

I should point out that in the case of Turkey, the actions of the IMF and of the Managing Director had the full and explicit support of all the members of the Board and of the G-7 separately in a statement. And I believe, although I'm not sure it was a separate statement, but I know of the U.S. Treasury. So the general desire to avoid big packages, yes. The way to deal with a country in trouble, mindful of our Articles of Agreement, which say that our resources should be made available to help countries resolve difficulties, quote, "in a manner not destructive of national prosperity," namely we've got to help countries avoid even deeper recessions than would be necessary if we didn't lend to them. Taking all that into account, I think what has been done in the recent cases is what should have been done, and I also believe it's got the support of the U.S. Treasury, as well as the rest of the membership.

QUESTIONER: Is it true as you said in these seven years the most important change is transparency. I remember that seven years ago we did not have any access to information, so that is from the point of view of information, but from the point of view of policies, and what is called IMF recipe, what has been the most important changes and do you think that globalization has made the IMF more flexible in their programs?

MR. FISCHER: In terms of, quote, "IMF recipes," there is certain balance sheet, eternal verities that have to be observed: budgets have to be financed, and if you can't finance them by borrowing or if the path in which you're going to try to finance them looks unrealistic, then you have to do something about it. So you'll never get fortunately an IMF which moves away from the verities of trying to get strong fiscal positions in member countries, where the temptations of short-term fiscal expansionism, electioneering, et cetera, are frequently visible. So I don't think there have been big changes in those regards, and I certainly hope there won't be. We'd better pay attention to the fact that balance sheets have to balance, that budgets have to be financed, that balances of payments have to be financed, and that you can't continue borrowing at an excessive rate forever.

The big changes I think are in the underlying approaches. First, the emphasis on the financial sector, which has become a far more central element of IMF work in crises and outside crises. Similarly, the emphasis on debt management, the external dimension of the financial sector. We started increasing our emphasis on the capital account at the Hong Kong meetings in 1997. That was derailed by the Asian crisis, but I believe it will return. We have to worry more and more about the way countries interact in the capital markets, and whether we're more flexible, whether it's globalization that's making us do that, it's hard for me to say what has moved more, whether it's the basic approach of countries to policies where we see all over Latin America, particularly I think now Brazil or Chile or Mexico, and in the elements that Minister Cavallo has emphasized, much more belief even now than there was just seven years ago in these basic pro-market policies, that has moved. Maybe we have moved, too. Whatever it is, I am very proud of the fact that I think in Latin America the relations of the Fund with the member countries are far, far better now than they were in the middle of the 1990s.

QUESTIONER: I understand you're reluctant to discuss any future job, but would you at some point be ready to cross the street and head, being a U.S. national, head the World Bank?

MR. FISCHER: I'll cross that street when I come to it, thank you.

QUESTIONER: Two questions. Is it safe to assume that you had never anticipated completing your second term in office, which I believe would have ended in 2004, and secondly, given your seven years as Deputy Managing Director, what qualities should Mr. Köhler look for in personal attributes, should he look for when naming your successor?

MR. FISCHER: I think I knew for a long time that 10 years was a very long time on this job. There is a sort of trade-off that takes place over time. You become more experienced and I think you lose a little bit of the excitement and the edge, and I prefer to leave when I think the trade-off is very favorable, at a moment when I have a sense, but of course it's my sense, not other people's sense, that the benefits of the experience are outweighing the fact that when I see a crisis I now realize it's my ninth crisis, and not the first, and you learn a lot in the course of those crises.

On the qualities of my successor, I think that this job can be done many different ways. It is probably not the best thing for anybody to choose his or her successor. It is almost certainly not the best thing for anybody to specify what his or her successor should be like. The Managing Director will make that choice, and I've seen in my previous existence in academic life a person of one sort replaced by somebody totally different, thinking goodness what were they thinking of, then seeing three years later, what a brilliant idea that was. I don't think one should think of cloning people, and everybody will do the job differently, and there are many ways to do it.

Let me, before we conclude, just say a word to you. I was warned about the press before coming to Washington. I don't want to make you feel too good, but the truth is that I think that the experience I've had with the press has been really extraordinary, extraordinarily kind, extraordinarily professional. I hardly ever in seven years regretted anything I've said or the way I've been treated by any of you, and I hope that the relationship which I've had with you is one which can continue for my successor and for this institution.

We have come a long way in our openness, in our willingness to talk. I think it's wholly to the good, and I think what you have done in enabling us to get on the record when we should be on the record and sometimes getting us on the record when we should have been but weren't willing to be has been one of the best parts of this job. So thank you, too, for all that has gone on in this period. Thank you.


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