I have listened intently to Governors over these past days. I have heard a common sense of disquiet about the global economic situation and the near-term prospects. This has given rise to a sober and substantive assessment of the causes of the crisis and of its global effects. We have undoubtedly moved a long way forward in identifying the steps needed to establish a more durable global economic system and for addressing the crisis.
It is clear that we face a systemic crisis. But, you were determined to maintain a sense of perspective, recognizing that the globalized economy has brought enormous benefits, and that this crisis if properly addressed, could be seen in a longer term perspective as just a temporary setback. President Clinton reminded us that "A truly global market economy has lifted the lives of billions of people." Of course, serious flaws have been revealed in the system and prompt decisive action is called for. But, there is no desire to turn the clock back. Instead you demonstrated that you are ready to join forces to seek ways of making the global system more secure.
Some of our discussion has sought lessons from experience. You have observed that programs work only if governments want them to work. I was greatly encouraged therefore by the courageous statements by the Governors for Indonesia, Korea, and Thailand. I salute the valor of these countries which have borne the brunt of this crisis, and who are showing other countries that there is indeed a way out of crisis toward a future of more secure, higher quality growth—growth which could lead, as the eloquent presentation of President Menem demonstrated, also to a more equitable distribution of income.
Other legitimate questions have been raised by Governors. About the size of the support. About the policy content of the programs. About their social and political effects. About moral hazard. We shall continue to assess these issues very carefully in the work that lies ahead. Many problems, as some of you have observed, stemmed from the approach of "managed development"—too close a link between banks, corporations, and the state. This has been a new demonstration that in a globalized economy, destabilizing factors can be generated quite outside the macroeconomic sphere and develop for some time before their negative effects can be recognized and denounced.
Governors, I believe you were unanimous: a global crisis requires a global response. The architecture of the system needs to be strengthened, but not by direct intervention. The Chairman expressed it eloquently: "What is even more important than the architecture of a house is how the people inside behave towards each other and how they resolve conflicts. Here, we have good principles that have served us well over the past decades: cooperation, democratic principles, predictability, and accountability towards each other. We therefore need to build on this foundation to strengthen the architecture of the international financial system, adapting it to new challenges."
This sets the tone: the same principles that have served us so well nationally, must now be extended to the international arena. Thus the five key elements of the new architecture are defined and endorsed: transparency, sound financial systems, involvement of the private sector, orderly liberalization, and internationally accepted standards and codes of good practice. All are elements of good governance. Your discussion of the new architecture has pointed to an ambitious work program in the months ahead, as outlined in the Interim Committee communiqué.
As the architecture is being designed, inevitably the Fund is concentrating on the core issues of financial and macroeconomic policy. But we in the Fund are acutely aware that this crisis has profound developmental implications and social costs, as many Governors have reminded us. I agree entirely with Jim Wolfensohn’s eloquent portrayal of the plight of the people in these countries, and I welcome warmly the Bank’s experimental framework for sustainable development. This is a natural and necessary complement to the work of the Fund which we will support in any way we can.
For our part, we can contribute to forming a firm basis for development in the low-income countries, as the Governor for Ethiopia reminded us, by bolstering our work in the ESAF, the HIPC initiative, and post-conflict assistance. And needless to say, I am encouraged by the indications of support from contributors to the ESAF.
Turning to the way out of the crisis, Governors were very clear that this was a shared responsibility. Many around the world looked to the economies of the industrial countries to provide continuing impetus to sustainable growth both at home and abroad. In particular, Governors encouraged Japan to take measures to promote economic recovery while repairing its financial system.
The countries in crisis, countries fighting contagion, and other developing economies around the world are showing an impressive and widespread determination to maintain, and, where needed, strengthen their macroeconomic policies and adjustment programs. Governors supported our strategies to help them withstand better the worsening external environment. At the same time, they look to others in the international financial community—banks, other private creditors and investors, official creditors and donors—to play their part by maintaining their credit lines. Many Governors, recognizing the magnitude of problems for Russia in particular, and its policy shortcomings in the recent past, continue to be ready to support its efforts if Russia could embark again on a solid program for stabilization and reform.
Looking ahead to the historic birth of the euro, many around the world will look forward to its role, as the Governor for Germany put it, as "a major contribution by Europe to stability in the global economy and hence to ongoing economic recovery."
Many Governors and I particularly welcome such a longer term view, considering that the threats of the present crisis should not detract our attention from countries fighting to implement a more traditional and no less demanding agenda for adjustment and reform, in order to bring their people out of deep poverty to a world of better opportunities, if not always for them, at least for their children. This is the essence of our commitment to Africa.
As for the role of the Fund, we have been heartened by the clear statements of support that you have given us. On the immediate issue of resources I am now confident that we can expect quite soon to put behind us the issues of the quota increase, the NAB, and the equity SDR allocation.
You have strongly endorsed the Fund’s resolve to apply the golden rule of transparency to itself. The external evaluation of the ESAF has set the stage for other such evaluations of our operations, and we are pressing ahead with an external evaluation of our central activity, surveillance. We shall work with our members more actively toward the more widespread dissemination of documents related to the Fund’s surveillance and programs of financial support.
As requested by the Interim Committee, the Executive Board will thoroughly review the roles of the various institutional components of the international monetary system, including the need to strengthen and/or transform the Interim Committee, to make it, as the Governor for Italy has said "capable of effectively orienting the strategic choices of the IMF."
Many Governors have placed strong emphasis on Bank-Fund collaboration. We will certainly be looking at ways in which we can strengthen the already close collaboration between Bank and Fund, especially in the financial sector. Also in the months ahead we will be reviewing surveillance, carrying forward the amendment of our Articles for the purpose of capital liberalization. At the same time, we expect to continue assisting as many countries as needed against contagion and the consequences of this crisis.
In brief, I leave these meetings with three thoughts:
First, that in resolving the crisis, we must move to a higher level of international cooperation in striving urgently for effective solutions. Very good progress has been made in these meetings.
Second, that an extensive agenda for action awaits us in moving toward a more durable international monetary system. This week the tasks ahead have come into much clearer focus, including the need for adapting and strengthening the IMF itself.
Third, you have given us a strong sense of support for the role of the Fund and the Bretton Woods institutions in general, at the center of the international financial system.
This endorsement is highly encouraging and renews for us the determination to fulfil the trust and responsibility you place in us. In this spirit, we can be quietly confident that we shall indeed emerge from this crisis better equipped to live with, and benefit from, the globalized economy.
Thank you, Mr. Chairman for the excellent way in which you have conducted these meetings. I wish you, Governors, and your delegations a safe journey home, and look forward to our meetings in a year’s time under the chairmanship of the Governor for Nepal.
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