Transcript

PRESIDED BY:
STANLEY FISCHER,
FIRST DEPUTY MANAGING DIRECTOR, IMF

DAVID M. CHENEY, DIVISION CHIEF,
EDITORIAL DIVISION,
IMF EXTERNAL RELATIONS DEPARTMENT

AND

THOMAS C. DAWSON, DIRECTOR,
IMF EXTERNAL RELATIONS DEPARTMENT
THURSDAY, SEPTEMBER 9, 1999

[TRANSCRIPT PREPARED FROM A TAPE RECORDING.]

MR. FISCHER: Thanks very much for coming to this briefing. It is the second in a series of briefings and press conferences associated with the Annual Meetings which, as you know, are going to be held during September 28-30.

Since this event has a tendency to stray from the Annual Report, I will first make a statement about the Annual Report and take questions on that, before taking other questions.

Two years ago, this briefing took place after the Thai devaluation and the IMF agreement with Thailand, but before the breadth and depth of the Asian crisis had become clear. One year ago, we met in the aftermath of the Russian devaluation and unilateral debt restructuring at a time when it seemed the Asian crisis could be in the process of becoming a global crisis, and that was before the LTCM episode.

This year, the worst of the crisis seems well behind us, with most of the Asian crisis countries recovering fast, largely in the context of IMF-supported programs, with Brazil's IMF-supported adjustment program succeeding with growth more rapid than had been expected, and even the Russian economy doing better than expected, also in the context of an IMF-supported program. But there are, of course, still important elements of fragility, first in individual countries and most obviously today in Indonesia, and in the fact that the cost of borrowing for emerging market countries has recently risen again. The emerging market bond index spread now stands at almost 1,200 basis points, which is lower than the peaks of 1,500-1,700 basis points a year ago, but higher than the 850 basis point trough reached in mid-May 1999, and, of course, much higher than the numbers of around 350-400 basis points, that we saw before the attack on Hong Kong in October 1997.

The Annual Report is a report on our work program, and that consisted mainly, as it always does, of surveillance, lending activities, and technical assistance activities in a variety of areas to our many member countries. But, of course, as you know, in the aftermath of the financial crises, the IMF and the international community have also directed considerable efforts to developing and beginning to implement--and that is important--a set of wide-ranging proposals to reform the international financial system.

The fiscal year that ended in April 1999 saw a continuing heavy demand for IMF financing. New disbursements of IMF credits reached a record of $30 billion, and since the end of April through the end of August, we have disbursed an additional $4 billion. New loan commitments in fiscal year 1999 which ended in April totaled more than $43 billion, and we have committed an additional $11 billion from end-April through end-August.

The increase in IMF quotas to $281 billion under the Eleventh Quota Review, which, of course, had not yet been concluded when we met a year ago, took effect in January 1999. This led to a sharp increase in the amount of uncommitted usable resources we have--that is, the amount of money we could loan out if it becomes necessary--to $77 billion. While our liquid liabilities also grew, the "liquidity ratio," which is the ratio of net uncommitted usable resources to our liquid liabilities, nearly doubled to 89 percent. At the same time as the quota increase went into effect, our borrowing capacity under the GAB and the associated New Arrangements to Borrow, the NAB, rose to around $46 billion.

Now, the Annual Report, as you know, is a publication of the Executive Board, which is our decision-making body, rather than of the staff, and the sense in which it is their publication is that we sit down with the Board in several exhaustive sessions and literally go through the report line by line until there is agreement on the text. The Report is based mainly on summings-up of Board discussions on major policy issues during the financial year, and many of those have been published separately, as part of our successful efforts to enhance our own transparency. So you have already seen a considerable part of what is in the Annual Report.

You will also find throughout the report attributions of points of view to "most Directors," "many Directors," and "some Directors." These wordings reflect the fact that the Board is not a monolith and that its members who represent our 182 member countries may and quite often do express diverse views on an issue, and the "some," "many," "most," et cetera, "Directors" is a way of conveying a sense of the range of views in the Executive Board on an issue. Decisions are usually reached on the basis of the Chairman's sense of the meeting--that is, on the basis of a consensus. The sense of the meeting is also gauged by sitting with a set of the voting rights of each Chair and actually looking at how a majority view is being formed, but we rarely take votes. The Board, when it is clear which way it is heading, will typically say okay when the consensus is announced.

The Report this year has four parts: the first part, an overview; the second, a summary of the Board's discussions of the global economy--including their discussions of the World Economic Outlook, and the reports on international capital markets. Part three describes our activities in 1998-99, notably our work to help strengthen global financial architecture, the Board's surveillance activities, lending, and work on the ESAF and HIPC Initiative. And then the fourth part is about internal issues of IMF staffing, organization, and budget.

There are three major themes in this Report: first, financial crises and our response; second, architecture; and, third, debt relief for the heavily indebted poor countries.

On the first topic, financial crises, the Board has held several meetings to review the lessons from the Asian crisis, particularly from the experience of the crisis countries, Indonesia, Korea, and Thailand, that have IMF programs. We have, of course, also drawn on experience in other countries, including the Philippines which was in a program, but did not go through a crisis of the same dimension, and Malaysia which had a major crisis, but was not in a program.

The lessons that are being drawn are by now becoming familiar to you: the need to analyze regularly, particularly in the context of our surveillance, the appropriateness of exchange rates and the exchange rate regime of a country; the critical need to provide to the markets, and the public more generally, full, accurate, and clear financial information not only on the public sector, but also on the private sector because, as you know, in the case of, say, Indonesia, the debt problems were, to a very large extent, those of private debts; the need to strengthen financial systems, including regulatory and prudential regimes; the need to adapt institutions and regulations in creditor countries to better ensure the appropriate pricing of risk and thereby seek to inhibit bandwagon or herding behavior; and to seek to reduce the systemic risk associated with financial market turbulence. Those things are all known. What is important is that work is getting underway or is well underway in the IMF to implement the policy conclusions that have been drawn from the recent events. The Report also provides a chronology of developments, including the IMF's response to the crises in Russia and Brazil.

We have discussed implications for the design and implementation of our own programs, and one of the important lessons that is being drawn is that we need to help countries to strengthen social safety nets to cushion the adverse impact of crises and adjustment on the poor. This work is typically done by the World Bank. It was in the Asian crisis programs from the beginning. It will turn out, and I think it is being seen in the case of Thailand, in particular, and Korea, that the social costs of these crises were much less than popular accounts at the time suggested, but, nonetheless, everything needs to be done to try to reduce those costs, and the Board has focussed on that.

We have also focussed on the need to explain to markets and the general public the full content of programs--I think that was better done, say, in the Brazilian case than it had been earlier--and, of course, the need to be flexible in adapting programs to changing circumstances. You will certainly recall that that has been the case in the Asian and the Brazilian and Russian crises.

On the second topic, the architecture, you know what are the proposals that have commanded broad support from the international community: number one, the promotion of transparency and accountability, and the development and dissemination of internationally accepted standards and codes of good practice; second, the strengthening of financial systems; third, paying greater attention to how capital markets are liberalized and making sure that it is done in an orderly way; fourth, seeking to involve the private sector more fully in forestalling and resolving crises; fifth, ensuring that the exchange rate regime is appropriate for the circumstances of the country; sixth, ensuring the adequacy of the IMF's own resources; and, seventh, the provision of contingent credit lines from the IMF, and from the private sector as well, as lines of defense against financial contagion.

Those of you who have visited our web site--and there must be some of you because a lot of people do--know that we have made a lot of progress in increasing the transparency of our own operations and discussions, and also in publishing the results of Fund surveillance. We are publishing PINs after most Board discussions of reports on Article IV consultations. We now publish summings-up of what the Board said when we make loans to countries--use of Fund resources cases. We have released Board documents relating to the debt relief initiative, and we have asked for public comments on them. We have published the conclusions of the internal and external evaluations of the ESAF. The Board has commissioned and discussed external evaluations of surveillance and economic research activities--those are two reports. And we publish on the web site continually updated information on our liquidity position and on members' financial accounts with the IMF.

Most recently, the Board has agreed on the presumption that member countries will release the Letters of Intent, Memoranda of Economic and Financial Policies, and Policy Framework Papers that underlie the programs that we support, and most countries are doing that. That is a major and important change. We are also in the midst of an 18-month pilot project during which member countries can voluntarily release Article IV staff reports. We are publishing PINs after Executive Board discussions of policy papers, and we have substantially liberalized public access to the Fund's archives.

If you look back just a few years, we have come a very long way on transparency.

Finally, the third main topic, the operation and financing of ESAF and implementation of the joint IMF-World Bank HIPC Initiative, and it involves all the other multilateral institutions as well, to provide debt servicing relief to heavily indebted poor countries. We have had Board discussions aimed at improving the effectiveness of both the ESAF and the HIPC Initiative in helping poor countries grow and attain external viability, and particularly in reducing poverty. I think we see the balance among the objectives of the ESAF and the HIPC Initiative moving in the direction of a greater emphasis on poverty reduction, per se.

As of April 1999, the end of the period covered by this Annual Report, the Executive Boards of the IMF and World Bank had reviewed the eligibility for the HIPC Initiative of 12 heavily indebted poor countries and work was underway on others. Seven countries had qualified for debt relief and three others were expected to follow. Debt relief totalling $6 billion in nominal terms--$3 billion in 1998 net-present-value terms--had been committed to seven qualified countries. Assistance for Uganda and Bolivia had been released.

That was the position as of April, but responding to widespread concerns on the part of NGOs, the media, and religious groups, as well as governments and international organizations, that the HIPC Initiative did not provide enough debt relief for poor countries, the Fund and the Bank have considered further changes to strengthen it.

In April 1999, the staffs of the Fund and the Bank posted estimates of the costs of various proposals from member governments and civil society for amending the HIPC Initiative, together with the summaries of Board discussions and the reports on which they were based, on both our web sites to solicit public feedback. We hope to reach decisions to strengthen the HIPC Initiative and to find a method of financing the ESAF, which is how we finance our participation in the HIPC, for endorsement by the Annual Meetings in just under 3 weeks.

So that is the summary. Thanks very much for listening. We can turn to questions now.

MR. DAWSON: The questions will be on the Annual Report in this part of the press conference. Thank you.

A QUESTIONER: It may be an obscure question, but I was rather interested in your arrears figures. Just at a time when the IMF is urging the private sector to watch who it lends to, how could the Fund get itself into a position, admittedly over a number of years, where Sudan owes $1.3 billion? And if they pay back at the rate of $60 million a year, it is going to take them one hell of a long time to pay it back.

MR. FISCHER: I should say all this happened before I arrived, so I am speaking from the perspective of an outsider. I have no real knowledge of what precisely went on inside, but from the perspective of an outsider, whenever this was, 10 years or so ago, there was a time when Sudan was regarded as economically very promising, and there was talk about it becoming the bread basket of Africa or the Middle East, with its enormous amount of fertile land and lots of water. I suspect it was at that time that these loans were made.

On the $60 million annual repayment--that is not how these things are being settled. A number of countries have come out of arrears. What you do is try to get them to do better vis-à-vis the Fund by beginning to make payments, and when the economy improves, if it does, under a program of that sort, then at some point it may become possible for them to move to a different level of arrears clearance as the balance of payments improves. Sudan has just passed a new stage in the arrears clearance process. So the idea of the $60 million is to keep them current, to keep them current on the arrears, to keep them paying with the hope that the economic situation will improve and that when it does we could expect an increase in the rate of repayment. That has happened in a number of other cases.

A QUESTIONER: Just looking back over the past year at the technical assistance, the surveillance, and the lending aspects, what did the Fund do particularly well during that financial year, and what do you think it could have improved upon?

MR. FISCHER: Well, I am sure we could have improved upon everything we do.

The technical assistance activities are very interesting and ongoing. They are generally well done. There is an enormous amount of experience in the Fund, and the most important thing our experts bring is knowledge of what is done in a lot of other countries. From time to time, we try to draw lessons from technical assistance. One of the lessons you learn all the time is that technical assistance that is not really requested and not really integrated into what a country is trying to do is less successful than that which is based on demand from the country. "Demand-driven" works better than "supply-driven". I believe that most of our technical assistance is regarded by the staff as successful. There are some occasions when it does not work. You give advice, and it simply is not adopted: then the resources were not well used. But I believe that the activity is generally well done. On the question of whether it could be improved, we are looking at ways to make sure that we do send technical assistance only to places that are going to use it effectively, and we are trying to find better ways of doing that. We may also need to try to involve other institutions more to get more resources into this activity.

On the lending activities, there are obviously some programs which work better than others. There are programs like the Indonesia program which, through June 1998--which is in the period covered by this Report--really could not work because of political uncertainties, but which then began to work very well as the government implemented the program, and which is now again in a period of great uncertainty as a result of factors that are quasi-political. Those problems are very difficult to deal with.

I am sure in the second part of this press conference we will talk about Russia. So I will not go into that case now. I think the great bulk of what we do on lending is successful. This includes cases you often do not hear about. In fact, I have this law of IMF programs which is that how you know when an IMF program is going well is when the press does not refer to it as an IMF program. So the Asian programs--the IMF still has programs with Korea and Thailand, we still send our missions, they still report, there are still Letters of Intent--I notice great news magazines writing articles on the recovery of Asia without mentioning the IMF as being involved. That means that they are working. When the programs are not working, that is when they are known as IMF programs. Similarly, in Brazil, that is an IMF-supported program. It is working, with all its difficulties. So the great bulk of programs work.

On surveillance, and in particular the country-by-country surveillance in the last year, one test that is often used which I think is not fully appropriate, is: did you see every crisis coming? In the last year, I think in terms of surveillance, the possibility that Russia would go into a crisis was well understood. It was understood that there were risks there, and that there would be very adverse consequences around the world. I do not think it was anticipated how big it would be, but the general idea was there.

I think in the last year, surveillance has been fairly well done, but it is a much more delicate job than is generally recognized. It is the easiest thing in the world to predict crises. All you have to do is blow the whistle every 10 minutes and then you will catch every crisis. But to be reliable, you have also got to say when there is not going to be a crisis, and that is when the difficulties arise. We could view everything with alarm, but it is more useful to distinguish, for example, between situations which, though difficult, could be resolved without a crisis, and situations where crisis is more likely.

On developments in the world economy, the WEO and so forth, I think we have been broadly right, as is the case with almost all of these activities. All forecasters are usually a little bit late on calling downturns and upturns. The Asian economy probably turned in the third quarter of 1998. We were cautiously saying that, but with very muted breath because we had been accused of being too optimistic before, and that probably stopped us a little bit from saying what we thought at the time, but I think in the past year, we have basically got it about right, even if we never get it exactly right.

A QUESTIONER: Mr. Fischer, one question on the architecture thing. In, I think, June, in Cologne, the leaders of the G-7 recommended a change in the name and format of the Interim Committee. I would like to ask you how is that discussion going in the IMF, and what difference would it make to have, as I have seen--I remember they suggested that the World Bank president, the BIS president would become part of it, and also there would be some more regular Deputies meeting. What difference could that make to improve the actions of the Committee?

MR. FISCHER: The change of name suggested at the Cologne Summit--to the Financial and Monetary Committee, I think--something in that area could be adopted. It is certainly more elegant than "Interim Committee."

On the attendance of the President of the World Bank and General Manager of the BIS, they are already attending. I think the sense is that they should participate more fully so that the Committee hears not only from ministers, but also from heads of other institutions. I think that could help in the process of coordination and the formulation of policy positions.

Then, on the Deputies' meetings, we have had one last April, and we are going to have another one. It is a way of preparing for the Interim Committee, and most international meetings are done that way. G-7 Deputies meet before G-7 Finance Ministers to prepare the agenda, to get a clearer sense of what the issues are. We had some concerns. I speak of the Executive Board, which I do not represent, but there were some concerns before the April meeting that it would be unclear what the relative roles of the Executive Board and Deputies meeting would be in preparing for the Interim Committee spring meeting, but, in any event, it was very successful. What I think it will mean is that a lot of unnecessary issues get out of the way beforehand, issues which would have taken time, and that the Committee will focus in a better prepared way on fewer major issues. So my guess is that those Deputies' meetings will become a permanent part of the scenario, although at some point as international fora multiply and meetings multiply, the fact that there are only 365 days in the year is going to require some rationalization of something.

A QUESTIONER: Do you feel that you can now confidently say that the crisis is over, in spite of what we are now seeing in Indonesia and Ecuador, for example?

MR. FISCHER: The dating of the business cycle in the United States is always done ex post: turning points are never called until after they occur. It is hard to tell, until history is done, precisely where you are. But there is a very clear sense that tensions have eased. In a strange way, you could almost date it: just after the Brazilian devaluation took place and was accepted fairly well by markets, then what had looked like it was going to be a global crisis had eased significantly. Now, there are still many problems, and as you say, Indonesia is a major concern, but we have always drawn a distinction between the problems of Indonesia, which have been more political, and those of other Asian countries. Ecuador is definitely a difficult case: it is a major problem, but it is a smaller country with less systemic significance.

But the world is never stable; the IMF is always busy with programs in countries. I have a sense that it is now more like being back to the normal underlying level of instability, although I could turn out to be wrong later. That is the feeling now, and the change came almost on a day--I would say 3 days after the second IMF program with Brazil went into effect in March. The level of tension declined remarkably.

MR. DAWSON: The discussion heretofore is embargoed until 6:00 p.m. Eastern Daylight Time on Sunday. Would there be any questions on the record on other subjects? There will be no embargo on answers to these questions.

A QUESTIONER: About the so-called "Russiagate," don't you think that there are evidences now that the IMF needs a kind of political coverage since Mr. Berger and Al Gore wrote in the past few days that the Russia problems were political problems, about nuclear power and stuff like that? But, anyway, they are problems with Russia. The problems arrive finally to the IMF. So don't you think that the IMF could have a real need about the kind of political body able to defend IMF in these situations?

MR. FISCHER: We have that body. It is the Executive Board, and it is the Board of Governors or the Interim Committee. There is no decision that the IMF makes on lending which does not have the support of the Executive Board. The Executive Board represents all our member governments in proportion, roughly, to their roles in the world economy. There is nothing we do that does not have the support of at least 50 percent of our membership and it is very, very rare that we do something on as narrow a margin as that. The meetings that take place of the Interim Committee are meetings of central bank governors, but also, and more so, of political-level representatives, namely finance ministers. I assume that when the Italian Treasury Minister speaks in the Interim Committee he is representing a position that is being coordinated with the Prime Minister and with the Foreign Ministry, and similarly for all other countries.

It is another matter as to how this is perceived in public. My impression is that how we are governed and what the governance process is, is not generally understood. And one of the reasons the Managing Director has argued for some time that we should have the Council, which is mentioned in the Articles of Agreement, operating at a higher level, is to provide the political cover that you are describing. But I believe it is there already and it is a matter of perception and of the willingness of governments that have supported actions in the IMF to say so. Some of them do and some of them do not.

You can ask where do the politics end and where do the economics begin. You will not find the IMF staff, who are professionals--and the longer I have been here, the more I respect their professionalism--you will not find the IMF staff supporting or being willing to stand up in the Board and support things which they think do not make economic sense. So that is where the politics ends.

It is inevitable that we, an institution working with resources owned by governments and run by a Board vote in which governments vote, will reflect the preferences of the governments that own us; there are some who find that very hard to deal with, but I think it is entirely appropriate. We are dealing with public money. It is not public money that is wasted: countries that deposit their reserves here get a return on them. This is a concern of the governments who have made deposits here, and who are represented in the Board. That should be understood, and in many cases, they do get out and say that they supported actions and explain why they supported actions.

A QUESTIONER: We have been hearing, Dr. Fischer, for a long time from the U.S. administration and from others that a strong dollar is in the U.S. interest, and now we are seeing the dollar weakening to levels, I think, near a 3-year low. What are the implications for the U.S. economy and for the global economy that we are seeing something of a realignment of currencies?

MR. FISCHER: Well, I think Mike Mussa does his press conference a week next Wednesday (September 22) on the World Economic Outlook.

The dollar's level, in terms of effective exchange rates, is now about 8 percent below the peak it was at in the summer of 1998, and 20 percent-plus above the trough it was at in the spring of 1995. So it is much more towards the upper end of the range it has been in, and this is in terms of the effective exchange rate. Many, of course, focus on dollar/yen, but even in terms of dollar/yen, the rate is halfway between the previous trough and previous peak. So there is room to go.

What you will see and what we have said in public is that there is a need for rebalancing of the current account deficit of the United States. The United States operated for a long time as the sole engine of the world economy, and inevitably in that case needed to have a large current account deficit. The staff has thought that that was not sustainable or desirable for very long, and that the adjustment process would involve a change in the exchange rate. That is happening in an orderly way. The U.S. policy, as described by the Secretary of the Treasury, still is to want a strong dollar, but there is a lot of room between where it was 4-4 1/2 years ago and where it was 3-3 1/2 years later for it to be strong without being at the peak level of a year ago.

A QUESTIONER: I have a couple of follow-up questions on Russia. You mentioned Russia in the context of success of the IMF. I am very anxious to hear you talk about the Russian program in that context.

Can we say that it is business as usual with Russia, and do you see any reason for it not to be business as usual?

Finally, you also mentioned that the Report talks about "many Directors," "some Directors," "most Directors" supporting or objecting to something, and can we talk about the quantity number of Directors supporting or opposing the Russian program?

MR. FISCHER: On Russia and business as usual, one aspect of the IMF programs with Russia, certainly since 1994 or 1995 and possibly earlier--I just did not follow them in the same way then--has been a continuing emphasis on the need to collect tax revenues from institutions and companies that were not paying them--in particular, the natural resource exporters. That is at the heart of the problems which are now being discussed in the press.

The concerns about capital flight and the differing degrees of illegality in capital flight: capital flight may be wholly legal, capital flight may reflect tax evasion, and capital flight may also reflect illegal activities. Those are three different levels.

We do not doubt, and our programs have not doubted for a long time, that a significant part of the problem of the Russian economy was failure to pay taxes by those earning large amounts of foreign exchange and failure to remit the foreign exchange. There has not, I think, been a program in which there have not been special efforts directed at dealing with that problem, including the program agreed in July 1998 going all the way to measures to, for instance, deny access to the pipeline to oil and gas companies that had not paid their taxes and other things.

These are massive political issues, as you know, in Russia, and as we went through these discussions, I often reflected on how the discussions would look in any other country and what we would be told if we were discussing the need for a government to refuse access to oil pipelines, to oil exporters, in any other country you could name. Those are big measures designed to get at a very tough problem. They turned out to be politically difficult to implement because of the great strength--political strength--of the companies involved.

Those efforts at tax collection are the main way in which the Fund has been dealing with this difficulty. The Fund has been engaged with it from the beginning, and we continue to be engaged in trying to deal with that problem.

Now, capital flight, per se, is very difficult to deal with because one of the absolutely guaranteed ways of generating corruption is to put on capital controls. Once you allow certain people, but not others, to get access to foreign exchange you open up one of the critical ways of generating corruption. Or if you go the dual exchange rate route, which some countries have, you then have the problem of who gets to buy foreign exchange cheaper at the rate that is less devalued, and that is another standard source of corruption. So we have generally not supported capital controls, although in the last year they have been imposed. Exchange controls have been imposed, and we have tried to help them operate more successfully. I do not think they have been more successful.

We have also throughout tried to track very closely what happens to our money and what happens to the money of the Russian government. It was in IMF programs that the attempt to set up a functioning treasury in Russia was undertaken. When we started working with Russia, each ministry got its money and did not report--did not provide an accounting--to the central government. In a series of actions which took a long time to implement, a central treasury was set up. It took a particularly long time to be able to get the so-called "power ministries," including the defense ministry, into the treasury system, but that has now happened and the reporting is now happening, so there is better control of what is happening to government money as a result of actions undertaken in the IMF's programs with Russia.

On reserves, as you know, IMF loans to Russia commingled with other resources, other reserves that Russia had. We get weekly reports on the Russian reserves, and monitor them to see if they are in accordance with our agreements. In the cases where we believe that the reserves data might not be accurate, which was the 1996 episode and the 1998 episode, we have asked for special audits which were done. You know what the outcome was in the 1996 case. There was mis-reporting to the IMF, but this was not a corruption issue. In the 1998 case, where there were widespread charges that the loans made to Russia had been stolen, the audit does not show that to have been the case; it has been able to track the money that was paid by the IMF into the Russian central bank's account at the New York Fed, from the New York Fed to the commercial bank in which the central bank held its money, and from that bank into the foreign exchange markets for intervention in Russia.

So we have tried to track very hard. We have tried to track through the budget. We have tried to track the reserves, and now, as you all know, another audit is underway just to make doubly sure that money has not been going through other subsidiaries of the central bank in the way it went through Fimaco in 1996, even though we do not have indications that that has been happening.

So it is not business as usual in the sense that all the concerns about capital flight and potential money-laundering are not being taken into account. And we are looking to find ways of strengthening the controls we place on our money. But it is business as usual in the sense that the fight against one critical source of corruption, non-payment of taxes, has been at the center of our programs for 3 or 4 years, and we are continuing in that way, in that we have been trying to increase the control and accountability of the central government and the Central Bank of Russia for the resources which they are supposed to manage. We have been trying to improve that system for a long time, and it has in fact been significantly improved in the context of IMF programs.

I am sure we can do more. We will continue to seek to do more, but we also have an IMF program with Russia in which the Russians, on the macroeconomics, have delivered more than expected.

A QUESTIONER: In your answer to the previous question, you stated that you are looking to find ways at strengthening the controls over IMF funds. What types of steps can be taken in the future that might be under consideration or potentially should be under consideration by the IMF and by the Executive Board?

MR. FISCHER: The main controls that we are looking for are controls within the governments that we are lending to. What we would like to know and what we try to make happen is that in every government we are dealing with the internal control systems of the government in the budgetary system, and the accounting systems of the government meet international standards, and we are continually operating with countries via technical assistance to upgrade those systems and to track money, and similarly within the central bank.

We are also thinking about how to strengthen our control systems over the money we lend. Very frequently, the money we lend is supposed to be added to reserves. We can usually find out whether that is done by tracking the systems within a central bank and by tracking the data that are reported by the central bank. The central banks we deal with typically are audited annually. There is such an audit of the Central Bank of Russia. We have access to it. And this year, we sent a member of our Treasurer's Department staff to inspect the accounts of the Central Bank of Russia, who came back and reported that they did seem to be as they were represented to be, and that they are audited. So we try to make sure that there is proper auditing going on all over the place. That is the central basis for our ability to know that the money we are transmitting is being handled correctly.

I could imagine that from time to time when there is some reason to be concerned, we would have to do more as in, say, the audit of those cases in Russia in which there were suspicions about what had gone on. There is in Indonesia now an audit taking place in the Bank Bali case. That is not an IMF audit, but it is an audit which the IMF indicated would be necessary for us to be able to continue our support, and we may have to institute some other systems of auditing. We are just thinking about this, about seeking to upgrade our systems, but the basic fact is that we do already, and have for some time, followed very closely what is going on within treasuries and within central banks, and we have in some countries daily reporting on reserves, and in most countries weekly reporting on reserves. So we are pretty close to it, pretty close to it in any case. But more may be necessary.

A QUESTIONER: Of the $4.8 billion disbursed to Russia in July 1998, $3.8 billion, we know, was used in the foreign exchange market, and the other $1 billion to support the budget. Was that $1 billion earmarked for particular expenditures?

MR. FISCHER: The $1-billion equivalent to the budget was not earmarked, that is, for specific purposes. It was for general budget purposes, and it went into the general revenue account of the government, so where precisely it was used cannot be answered on that basis. The question would have to be, can you--if you look at this revenue side of the budget and the expenditure side of the budget--can you account for Russian government spending in 1998? That checking is done by our missions and also by our Moscow staff, but there was not a specific audit of what happened to that specific billion dollars.

A QUESTIONER: We heard today from the Japanese government that there was a second consecutive quarter of positive GDP growth in the second quarter--growth of 0.2 percent. What is your assessment for the Japanese economy? Also, do you see a need for upward revision of the World Economic Outlook from the version which was released by the Dutch Finance Ministry?

MR. FISCHER: One of the reasons that we do not make the WEO available before it is available is that we do keep updating until the very last minute.

We were above the consensus on Japanese growth for 1999, anyway. The 0.2 percent is a little bit above what we expected for the second quarter, but not very different. If Mr. Mussa was here, he could tell you for sure whether they were going to raise the forecast a little relative to what it was, but it would not be a major change. We had thought they would be basically about zero in the second quarter or very slightly negative. It came in a bit better than that.

A QUESTIONER: Mr. Fischer, you said shortly before that there is more room for the U.S. dollar to go down in light of the past trough level of the dollar, and today, the Japanese yen has strengthened sharply further against the dollar. Do you think it is fair to say that the sharp appreciation of the Japanese yen is detrimental to the fledgling Japanese recovery? My second question is: Do you have any concern with the effect of the sharply depreciating dollar on the U.S. stock market and financial markets?

MR. FISCHER: I do not like ducking questions, but I really do not want to do Mike Mussa's press conference. So I will just leave him to answer those questions.

MR. DAWSON: We want to give you something to look forward to.

A QUESTIONER: You mentioned Indonesia being a point of fragility. Now, Mr. Neiss said today that the next mission will not go as scheduled this week. What does Indonesia have to do to get a mission and presumably then to get more IMF money?

MR. FISCHER: There are two things happening in Indonesia. There is the East Timor situation, which is a humanitarian disaster and a political disaster. Indonesia made the decision that the people could vote, which was widely applauded as a sign of change in Indonesia but is now having great difficulty implementing that decision. That is a problem for the entire international community, and that inevitably will be taken into account by our membership.

Even if East Timor were settled--and we hope it will be settled very quickly--there is economically the huge issue of the Bank Bali case where a study was undertaken by PricewaterhouseCoopers. It should have been presented to Mr. Mar'ie Muhammad, the former Finance Minister, who has been appointed to deal with these issues as one of the most respected men in Indonesia, and there seem to be delays in giving him the study and questions about precisely what is in the study, about what the results of that study are. So these are issues which have to be resolved. They are right at the heart of the heart, if there is such a thing, of the Indonesian program, namely the Bank Restructuring Program. If that is being used for political purposes, which is what the charge is, then we are in an extremely difficult situation. That is what the effort to find out about it is all about, and that issue needs to be resolved.

MR. DAWSON: Maybe two more questions.

A QUESTIONER: Can you tell us about the plans for disbursing the next tranche to Russia and how optimistic are you that it will get done this month as sort of initially envisioned, and are you getting any pressure from any particular member governments to take it slow?

MR. FISCHER: There are not pressures that I am aware of at the moment.

In terms of the macroeconomics of the Russian situation, the mission that has just come back reports that the macroeconomic situation, as I mentioned earlier, is a little better than expected, the budget is ahead of where it was expected to be or where it was required to be and so forth, but some of the other actions, including information from this audit, are not yet ready.

We have a technical problem which could well push this into October, namely that the Board stops meeting on the 22nd of September for the Annual Meetings, and so I think it is possible this would go over into October.

MR. DAWSON: Last question, who has not asked?

A QUESTIONER: On HIPC and the financing of HIPC, if the reports which are now circulating on your gold options and what you will decide on selling or placing gold, if that is all correct, is it feasible that you can finance from these proceeds your part of the HIPC initiative, or do you have to have other sources of financing additionally to the gold sales?

MR. FISCHER: We have been seeking to get financing from two sources. One is bilateral contributions, and the other is what used to be called optimizing the use of our reserves, but now seems to be referred to as finding a way of using the capital gains that we have on gold to this end.

Without the bilateral contributions, it would be very difficult to finance our expected contribution to the HIPC Initiative. So we need more than the various methods now being explored of using the gold capital gains.

MR. DAWSON: Thank you very much.

[End of press conference.]