Speech

Washington, D.C., October 5, 1998

I would like to welcome our new Chairman, Minister Tarrin. Minister Tarrin has worked tirelessly to deal with his country’s problems and we have done our best to support his efforts. It is quite fitting that our meetings be presided over by a leader from a country that was at the epicenter of the Asian crisis, but that now seems to have recovered stability and the promise of growth. Your experience, Mr. Minister, will surely deepen our reflections on this crisis, on how to restore sustainable high growth, and on the lessons we must learn both to help prevent such crises in the future and to deal better with those that unfortunately will occur.

At this stage in the proceedings, it is traditional to put on record our appreciation of our former Chairmen. Anwar Ibrahim was not able to be Chairman of the Development Committee for very long. But it was long enough for him to demonstrate his outstanding talents, his vision, his commitment to public service, and his conviction in the benefits that can be achieved through international cooperation.

Anwar also did an outstanding job as Finance Minister of Malaysia. As a great patriot and talented economist, he helped to shelter his country against the first waves of contagion from the current crisis. In the present circumstances, I want to put on record my admiration for him, and my best wishes for him, his family, and country.

Many countries are now facing extremely challenging economic and social situations. The sharp declines in economic activity and the deterioration in social conditions in Asia that have been spawned by the crisis are stark; in many countries, years of progress in improving living conditions are being reversed. The unexpectedly severe recession has aggravated unemployment and poverty and in some cases sparked social unrest, which at times has been very serious and very disruptive. Moreover, the growth prospects of many other developing countries have been affected by weak external demand, falling commodity prices, and sharply reduced access to external financing. Much is at stake and our collective actions will affect the well being of millions of people. We must do everything we can to speed the recovery from the crises and to reduce the risk of future crises. There is a lot to do and I will touch on only a few main tasks this morning.

First, I would like to assure you that we at the Bank and the Fund are fully engaged in helping countries deal with this crises. This you know, and so I will not dwell further on the subject.

Second, with the collaboration of the World Bank, the Fund supported programs in Asia have sought to cushion the adverse social impact of the crises through well-targeted social safety nets and increased spending in the social sectors. We are continually reviewing the social content of these programs with a view to strengthening them, and I am delighted to tell you that the Interim Committee has placed emphasis on this. More generally, we all need to work together to enhance social protection and improve the standards of living in all developing and transition economies. We will rely increasingly on the Bank for the analysis and formulation of policies in this area, and to assure consistency between these policies and those agreed under Fund supported programs..

Third, the industrial countries have a key role to play in speeding the recovery from the crises by sustaining global growth and containing deflationary risks. In turn, developing countries need to further strengthen macroeconomic policies and structural reforms, and maintain market-oriented open economies. Given all the problems that we are facing, it is not surprising that the benefits of openness are being questioned. But I believe strongly that it is crucial not to yield to the temptation of superficially attractive dirigiste policies. The message from the Interim Committee was also very strong in this regard. Economic history has taught us many times that these policies do not work. They hamper economic growth in the affected countries and damage the operations of an international financial system which, even if imperfect, has brought huge benefits to the world community over the years.

In my view, the right response to the present crisis is not to turn our backs on open markets, but rather to better address their vulnerabilities. We must better oversee the process of financial market integration and provide effective safeguards against possible risks. To do this, we all need to strengthen institutions and promote transparency and good governance in the public and private sectors to make markets function better.

The Fund has an obligation, working with the international community, governments, and the private sector, to promote an open and orderly global economy. To that end, we are working to strengthen the architecture of the international monetary system, and are making progress on various fronts: first, in encouraging the transparency of member’s policies and data, increasing disclosure by market participants and, yes, being much more open on Fund policies and operations; second, in developing, disseminating and adopting internationally recognized standards and best practices; third, in enhancing the role of the private sector in the prevention and resolution of crises; and fourth, in providing a framework for an orderly and cautious liberalization of capital account transactions. Some of these issues are very complex—and some are divisive. But we need urgently to make progress in these areas if we are to have the tools at our disposal to effectively promote a more stable international monetary system.

Looking ahead, I would like to underscore the Fund’s continued readiness and my strong personal commitment to strengthen and adapt our operations, policy advice, and technical assistance. I also want to assure you of the continued readiness of the Fund to provide financial assistance to support the adjustment efforts of all member countries, particularly the poorest. However, to do so, we need a strong resource base. Hence, it is imperative that the membership move forward on bringing into effect the quota increase under the Eleventh Review and the New Arrangements to Borrow, and on completing the financing arrangements for the ESAF and the HIPC Initiative. If you want us to do our job, we need your help. The members of the Development Committee should not take the financing for granted. We will not make it without your contribution. We are at a time of reckoning The Fund’s continued ability to play its full role, and with it the capacity of the international system to help countries in trouble, depends critically on early action in these areas.

Mr. Chairman, the past year has presented us with many difficult challenges and important lessons. Now, we all must press ahead to restore confidence and reinforce the foundations for high-quality growth and lasting improvements in the living standards of all developing countries. I am sure that with the support of our membership, we will achieve these objectives.