Managing Director’s Opening Remarks: 2023 Michel Camdessus Central Banking Lecture

July 11, 2023

Ladies and Gentlemen, it is my great privilege to welcome you to the tenth Michel Camdessus Lecture—our signature lecture series on central banking.

We have with us many friends of the Fund, including a former First Deputy Managing Director of the IMF, Anne Krueger, and, of course, our staff—who have been working so hard over the past years to serve our member countries.

It is my great pleasure and privilege to introduce our speaker: the Governor of the South African Reserve Bank, Lesetja Kganyago.

Lesetja is well known to all of us for his impeccable credentials first as a policy maker in South Africa’s National Treasury and since 2014 as Governor.His stance as the guardian of central banks independence has been always a strength, and even more so in current times. What makes him special for all of us at the IMF and me personally is that he is an important part of the Fund’s family and the Fund’s history. From 2018 until 2021, during an extraordinary period, Lesetja served as Chair of the IMFC. During the Covid crisis that meant chartering a course for fiscal and monetary policy during exceptional uncertainty and taking decisive actions to support the Fund’s membership.

We are all eternally grateful to you for your stewardship. I want to add my heartfelt thanks for your friendship and for always being there for the Fund when we need you!

1. Extraordinary Economic Challenges

Fast forward to today, we are still faced with tremendous challenges.Russia’s invasion of Ukraine threw cold water on the global recovery from the Covid crisis and the combined impact of these two exogenous shocks translates into both slow growth and high inflation.

Growth at around 3 percent over the next five years is the weakest medium-term forecast in decades—with massive implications especially for the most vulnerable economies and people. It will be significantly harder to boost living standards, reduce poverty, and invest in the future.

We also need further efforts to fight the cost-of-living crisis, which weighs most heavily on the most vulnerable. Global headline inflation has recently declined from multi-decade highs. But this is not good enough. Even as central banks have lifted interest rates at the fastest and most synchronized pace in decades, core inflation has remained stubbornly high.

This is why most central banks should continue to signal their commitment to reducing inflation. A restrictive stance is needed until there are clear signs of cooling underlying inflation. On the fiscal side, the priority is to rebuild buffers, while protecting the most vulnerable people. Of course, tighter fiscal policy will also help with the fight against inflation.

Slower growth, high inflation leading to higher interest rates and stronger dollar also make it harder to reduce high debt levels. Too many low-income countries, and some middle-income countries, are facing crushing debt burdens—again, with massive implications for potential growth and the economic prospects of millions of people.

2. Managing Capital Flows

On top of it emerging and developing economies may face further tightening of financial conditions in case of higher- and more-persistent-than-expected core inflation in advanced economies and the corresponding rates tightening they may need to pursue.

This would have major implications for financial stability and capital flows—which is the topic of today’s lecture.

It is also an important part of the IMF’s work. In recent years, we have developed an Integrated Policy Framework which can help calibrate the best possible mix of policies. Informed by this work and a 2020 evaluation by the Independent Evaluation Office, we also reviewed our Institutional View on the Liberalization and Management of Capital Flows last year.

In some cases, foreign exchange interventions and capital flow management measures can help manage destabilizing exchange rate movements and capital flows. Coupled with macroprudential tools, this can help to reduce the domestic buildup of financial vulnerabilities. Taken together, these tools can enhance monetary autonomy in countries that are facing external shocks. Of course, foreign exchange interventions and capital flow management measures should not substitute for a warranted adjustment of macroeconomic policies.The most important lesson we learned from the COVID crisis is that countries with strong fundamentals are like people with strong immune systems, they weather shocks much better than countries with compromised macroeconomic foundat.

It is important to acknowledge that economies need to cope with frictions in trade and capital flows at a time of high geopolitical tensions. Our research shows that the long-term cost of fragmentation of foreign direct investment could be close to 2 percent of global GDP. And that would be on top of massive global output losses from trade fragmentation and technological decoupling. This would be a collective policy mistake that must be avoided.

In his lecture, Lesetja will discuss the role of capital flows in achieving sustainable growth, especially in emerging market economies. So, we very much look forward to hearing your thoughts, given that you have been at the forefront of so many policy actions.

3. Personal Credibility & Experience

But yielding the floor to our guest, let me share with our audience that part of the sector of being a fantastic central banker, the recipient of the prestigious Governor of the Year Award in 2018 in recognition of your leadership in maintaining price stability and ensuring central bank independence at a time of significant political-economy challenges is the care you give to having the stamina to do your job. Lesetja is a fitness enthusiast—and is meeting his “steps” target every month without fail. I for one want to know what is Lesetja’s target and then try to match it at least once.

Your endurance and discipline are legendary — and certainly demonstrated in having the responsibility to lead the South African Reserve Bank, two terms in a row, serving as one of the world’s most highly regarded governors.

And your effective communication is legendary—an essential for successful modern central banking. Lesetja’s first language is Sepedi, one of the official languages of South Africa and one that is especially rich in storytelling tradition and allegories.

Let me finish with one you often use to motivate your colleagues at the South African Reserve Bank to push the boundaries: “Let’s release the chickens’ feet!”

This is exactly what we should do now, as we listen to your thoughts on ‘capital flows and sustainable growth.’

The floor is yours.

IMF Communications Department


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