Press Briefing by IMF First Deputy Managing Director Stanley Fischer on the 1998 IMF Annual Report
IMF News, September 11, 1998
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- Published: September 11, 1998
Key statistics and Fund liquidity position
- Member countries borrowed US$26 billion from the Fund in the past financial year (nearly four times the previous year).
- Disbursements from end-April through end-August: US$11 billion (amount drawn).
- Amount committed in financial year 1997/98: US$43 billion (some committed amounts not drawn).
- Additional committed since end of financial year: US$10 billion.
- Stock of net uncommitted usable resources fell to US$30 billion at end of the financial year from about US$59 billion a year earlier; that US$30 billion has now become about US$28 billion.
- Liquidity ratio (net uncommitted usable resources / liquid liabilities):
- At end of fiscal year: 45 percent
- Now: about 36 percent
- Compared with: 121 percent at the end of fiscal year 1996-97
- Historical average: 70 percent
- Management regard 30 percent (possibly 25 to 30) as a lower reserve/liquidity bound; 25 to 30 corresponds to around US$19 billion to US$23 billion in usable resources.
- Implied immediately available lending capacity under that reserve view: US$5 billion to US$9 billion.
- Management could consider temporarily going below the 30 percent liquidity ratio only if there were a clear prospect that additional resources would be available soon.
Lending activity, commitments, and resource needs
- Record level of Fund lending driven by the Asian crisis and global reverberations.
- Large sums committed/drawn are “very large sums relative to the base, the lending base, of the IMF.”
- Emphasis on the need to strengthen financial resources through:
- Approval of the quota increase
- Approval of the NAB
- Management’s appeal for rapid action (including by the U.S. Congress) so the Fund can meet ongoing demands.
Annual Report scope, transparency, and Board process
- Annual Report characteristics:
- Executive Board publication, not a staff publication.
- Four sections: overview; summary of Board discussions (non-country-specific); description of activities in the financial year (surveillance, financial support for members, the ESAF, the HIPC Initiative, capital account liberalization); staffing, organization and budgets.
- Chronology of developments updated through July to supplement Board discussion summaries.
- PINs (Press/Public Information Notices) and Article IV consultation summaries are published more rapidly on the IMF Website and collected in hard copy three times a year in IMF Economic Reviews.
- Annual Report was made slimmer by excluding selected Article IV summaries to avoid large lags (e.g., a report could be 16 months out of date).
- Board decision process:
- 24-member Board reviews and approves the report on a page-by-page basis.
- Typical Board discussion of the report takes 8 to 10 hours and can run into the next day.
- Trend toward greater transparency: increasing reporting about Board deliberations and operations.
Lessons and policy themes from crises
- Recurring lessons emphasized by the Board and Fund:
- Importance of timely and accurate information (reserves, off-balance-sheet transactions of central banks and banking systems).
- Broadening Fund reviews of individual economies to include financial sector issues.
- Contagion and interdependence: Asian crisis and subsequent Russian devaluation raise systemic concerns.
- Transparency: balancing transparency with the need to obtain sensitive information.
- Effectiveness of surveillance depends on member countries taking Fund advice seriously and implementing recommended measures.
- Strengthening the international financial architecture:
- Expected convergence of various reports (G-10, G-22, staff reports) toward themes:
- Strengthening members’ financial systems
- Improved surveillance
- Better information disclosure
- Addressing moral hazard from official financing
- Defining private sector roles in crisis resolution
- Trade-off identified: involving the private sector in crisis resolution versus avoiding increased volatility in capital movements.
Capital account liberalization and Articles amendment
- Ongoing discussion of a possible amendment to the Articles of Agreement to make orderly liberalization of capital flows one of the Fund’s purposes and possibly extend Fund jurisdiction.
- Controversial and complex issues highlighted:
- Whether freer capital flows are desirable
- Feasibility and necessity of legal jurisdiction for the Fund
- Preconditions for liberalization: improved banking/supervisory standards and overall quality of banking systems
- Management stance (Stanley Fischer): amendment could help accomplish capital account liberalization properly; not an endorsement of hasty or partial liberalization (e.g., opening the short end and keeping the long end closed).
Activities for low-income countries and debt relief
- ESAF (concessional lending) review:
- Internal and external assessments undertaken.
- Summary of staff lessons posted on the IMF Website with an electronic mailbox for feedback.
- HIPC Initiative:
- Process of providing debt relief begun for six heavily-indebted, low-income countries, in cooperation with the World Bank and other lenders.
Surveillance and governance
- Clarification of IMF role on governance issues.
- Guidance to members on transparency in fiscal policy making.
- Further work on principles of monetary policymaking.
- Continued effort to help members strengthen financial systems.
Questions and country-specific remarks (highlights)
- U.S. Congressional ratification of quota increase and NAB:
- Management urged rapid Congressional action; quota increase requires 85 percent support (thus the U.S. must accede).
- Use of Fund gold or market borrowing:
- Management view: prudential and technical reasons constrain use of gold or similar measures for rapid crisis response; holding reserves preserves members’ confidence in the institution.
- Brazil:
- IMF in close contact with Brazilian policymakers.
- Market responses described: initial hesitations, then interest rate raised to 30 percent and later to 50 percent.
- Fiscal action: announced strong cut in fiscal spending in 1998 at an annual rate of 1.5 percentage points of GDP; plan to announce shortly a medium-term program with fiscal reforms to stabilize public debt in relation to GDP within the next 3 years.
- IMF stands ready to provide financial assistance if requested.
- Malaysia:
- Reimposition of controls viewed as unlikely to help in the long run; risks reducing foreign investment and access to global markets if sustained.
- Hong Kong:
- Changes by the Hong Kong Monetary Authority described as technical improvements to broaden the monetary base eligible and to make the currency board operate more transparently and smoothly; measures include a transparent mechanism for setting discounting interest rates.
- Latin America:
- Majority of IMF programs are outside Asia, including low-income members.
- IMF stands ready to help countries willing to pursue appropriate policies; consideration of access to GAB resources mentioned (General Arrangements to Borrow totals US$15 billion).
- High interest rates pose fiscal pressures; if sustained, would require further fiscal tightening.
- Russia and political changes:
- Early days; IMF will judge by policies rather than personalities; Moscow office kept abreast of developments.
- Institutional support and public debate:
- Management recognizes need to improve the IMF’s public image and to make the institutional case; relies also on member governments (e.g., U.S. Treasury) to make the case for Fund support.
Press Briefing by IMF First Deputy Managing Director Stanley Fischer on the 1998 IMF Annual Report, September 11, 1998 — edited transcript