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Address by Michel CamdessusChairman of the Executive Board and
Managing Director of the International Monetary Fund
the Board of Governors of the Fund
Washington, D.C., September 28, 1999
Mr. Chairman, Governors, ladies and gentlemen, let me join Jim Wolfensohn in extending to you a heart-felt welcome to these Annual Meetings. I would like to extend special greetings to our new colleague in the ILO, Juan Somavia, and to broaden these greetings to include the heads of the many standard-setting and other agencies who are with us for these meetings. They all know how much we value their cooperation in reforming the international monetary and financial system.
Governors, the global economy has passed through a great ordeal. For a time we faced the threat of the most extensive and harshest crisis since our institutions were established. Its human cost has been immense and we may need a few more years to heal all the wounds. Remember our anxieties a year ago when the crisis was still ricocheting from one country to another. Now, the storm is abating and the horizon is brightening, even though some risks remain. Several countries that were in the depths of crisis--Korea, Thailand, the Philippines, Brazil, and others--are advancing in their recovery.
This is then, a good occasion to ask how this surprisingly quick, almost unprecedented, brightening of prospects is coming about? It is not by chance. It is evidence of the depth of globalization, and a vivid illustration of the benefits of the market economy when supported by decisive, flexible public policy-making. Above all the recovery comes from the intense effort, the wisdom and, most emphatically, the sense of cooperation of all concerned. Specifically, it can be attributed:
Governors, at the most demanding moments of this crisis your cooperation has made all the difference. When we had to take unprecedented decisions under conditions of great urgency, you were there. When we were under storms of criticism contending that we were doing more harm than good, you were there. When essential programs had to be adopted for Thailand, for the Philippines, for Indonesia, for Korea, for Brazil, for Russia, and for others, you were there; we were together. You supported all decisions unanimously. At no time was a single vote missing at the Executive Board. For this support, for this cooperation, for this unanimity, at the time of the most severe test in our history, may I simply say: thank you. Let me add here that the work of the staff and its commitment to its tasks is also a crucial, indispensable important part of this success. To them also, I say a profound "thank you."
Beyond any doubt, this is a major lesson of this crisis: in the new world of globalization, cooperation is a must. A second lesson---a lesson of this very moment--is that we always run the risk, when economic prospects have improved, of moving too slowly to implement the reforms that are needed. There is still urgent need for action, for implementation of reforms decided. So I shall largely confine my remarks today to the two domains where I see a pressing need to move quickly to implementation: first, the reform of the international monetary and financial system; and second, the offensive to eradicate poverty and to humanize globalization.
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But before proceeding, let me say a few words about IMF programs with two of our largest members, Russia and Indonesia. In Russia, the economy is recovering, and the program that began in July this year is on track. We look forward, as the program moves ahead, to Russia's advance in both structural reforms and improving governance. Amidst all the recent controversy, we should not lose sight of the real progress that has been achieved during seven years of endless efforts to assist Russia in its journey toward a market economy. Nor should we ignore the fundamental decision, on which Russia has not wavered, to seek to develop a modern market economy and integrate itself into the international community. It would be the height of irresponsibility to turn our backs on this great nation. We will not do that.
In troubled Indonesia, with the vital support of the IMF, as well as the World Bank, the ADB, and bilateral donors, the government turned the economy around after taking office last year. Economic stability in turn helped make possible the freest elections in Indonesia's history. Now these achievements are threatened. But, be sure we stand ready to resume our assistance as soon as the shadows hanging over the program are lifted. We expect to continue working with the next government of Indonesia to do our part in helping the country achieve its great potential, while we look forward to contributing, when the day comes, to the rebuilding and sustainable development of East Timor.
Now let me return to my two main themes: the work still to be done in the reform of the international financial system; and the pressing urgency of the war on poverty. In both these areas the international community has taken important steps in the past few months, indeed in the past few days. But in reality, the hard work, the implementation, is only just beginning.
I. International monetary and financial reform
First, architecture. Work is in progress. Sunday's communiqué of the Interim Committee contains an impressive catalog of significant steps. I do not need to dwell on them. Already remedies are beginning to address the deficiencies revealed by the challenges of globalization. Rightly they focus on prevention, on the golden rule of transparency, on financial sector stability, and on the definition of global standards to underpin stable, fair, efficient and transparent markets. An important step forward is the adoption by the Interim Committee of the Code of Good Practices on Transparency in Monetary and Financial Policies, which now joins the codes on fiscal transparency and data dissemination that are already in force. New facilities have been created: the contingent credit lines, and the Y2K facility. Yes, the foundations are there of a safer, more robust, more adaptable architecture.
But progress is slower in other areas where full consensus has yet to emerge. Let me briefly mention four of them.
First, we have begun a period of reflection on the scope and focus of surveillance. Several aspects are unquestionable:
But, as clearly indicated in your Declaration on Partnership for Sustainable Global Growth in 1996, and as the crisis has dramatically confirmed, major destabilizing factors can emerge anywhere. These risks call for robust banking and financial systems; sound, transparent and participatory governance; arm's length relationships among governments, banks and enterprises; and supportive social policies. Now, the issue is how, and to what extent, to integrate these concerns into our surveillance and how to interact with the many other agencies. Of course, we have started. But how should the priorities be defined country by country? How can we avoid further stretching an already overloaded staff? What is the limit not to cross? And, lastly, how can we proceed with the monitoring and implementation of standards, particularly where they lie outside our traditional mandate?
We must clarify these issues. This will be a high priority in the coming months. You can be sure that a significant part of our response will rely on the arrangements we will set up with other agencies to share the task of disseminating and monitoring standards that lie outside the Fund's main areas of expertise; securities markets, accounting, auditing, insurance, corporate governance and others. We have already made significant headway in developing a capacity to assess the soundness of financial sectors, working jointly with the World Bank, and collaborating with the BIS in the development of principles for banking supervision.
Next, we have the problem of private sector involvement in crisis prevention and resolution. The volatility of private capital flows, as they swing from euphoria to panic, can and must be diminished by promoting a mature relationship between creditors and their sovereign clients, and between the financial community and the official sector. The involvement of the private sector is a matter of practical necessity, since the private sector will be increasingly important for financing the emerging market and developing countries. But it must be recognized that crises may arise which would benefit from closer cooperation and what we call "ex ante" approaches. We must now, drawing on the lessons of the actual cases that have arisen recently, try to distill a set of principles that could help to resolve crises at less cost than in the past. That being done, it will remain important, at least in my view, to have--for the protection of both creditors and debtors--a way of ensuring that countries are given time, in extreme circumstances, to seek orderly resolution with their creditors. One avenue consists of designing a mechanism that will permit a temporary stay of litigation; this could be achieved by an appropriate amendment or interpretation of the IMF's Article VIII(2b). Not all are yet convinced, I must confess!
Third, we have the debate on the relative merits of all-out liberalization of capital movements and the illusory virtues of exchange controls. This debate could, I think, soon be brought to a close. Consensus is achievable on the way to proceed with the orderly liberalization of capital movements; and in today's world of highly volatile capital flows, this consensus is all the more important. We have two core messages here: one is that, in the long term, liberal arrangements for capital movements are beneficial to global economic development. The other is that the process of liberalization should be an orderly one, tailored to individual countries' situations. Our recent proposal to introduce a gradual, country-specific approach re-asserts the equal weight we attach to both goals, and explicitly recognizes the great variety of country situations. I would urge you, Governors, to lend your personal attention to this important proposal, thereby bringing to completion the support you gave us in Hong Kong two years ago for an amendment to the purposes of the Fund and to extend our jurisdiction, as needed.
Fourth, the question of exchange rate regimes. Here, mindful of the critical importance of an issue at the heart of the Fund's mandate, we have asked for a little more time to finalize our reflection. We know quite well that many of the problems of the so-called "casino economy" are related to the nature of exchange rate regimes and to the shortcomings of international cooperation in this field. We have witnessed the effect of deficiencies in exchange systems or exchange rate management in triggering or amplifying crises, their key role in transmitting domestically-generated crisis. And we know well the role played by the volatility of exchange rates, in what seems, at times, the sheer irrationality of market developments. Clearly, for the time being, today's diversity of exchange rate regimes will continue. But equally the greater mobility of capital has made the maintenance of fixed exchange rates more demanding. In considering how to improve exchange stability we can be encouraged by:
Governors, as you see, we still face some difficult problems. They must be solved, because the soundness of the new system is at stake in each of these instances. And the soundness of this system is a fundamental precondition for any sustainable worldwide progress in the human condition. This brings me to the imperative of eradicating poverty since, as Angel Gurria put it yesterday, poverty is the ultimate systemic threat. Let me then turn to my second theme.
II. Humanizing globalization
Sound finances clearly involve sophisticated instruments, standards, and smoothly working markets, but ultimately, finances and markets are about people and for people. And it is the hard, the demanding, task--it is the honor--of the IMF, even if it is not a development institution, to try continuously to help governments, to be responsive to the cries of the poor. The cries of the poor! I believe that we must keep in our minds and hearts the heartbreaking message of the two teenagers from Guinea, found dead in the landing gear bay of an airliner, a message to--I quote--"the excellencies and officials of Europe." They said, "we suffer enormously in Africa. Help us. We have problems in Africa. We lack rights as children. We have war and illness, we lack food.... We want to study, and we ask you to help us to study so we can be like you, in Africa." This message--I presume--was also for each country and institution represented here today. It is a message from those in absolute poverty. It tells us that the extent of poverty still present at the end of a century of affluence is intolerable, and of course the degree of absolute poverty is absolutely intolerable. So it is time to respond.
But this is not new for you: social policies are central elements of government budgets, of donors' aid programs, and of international communiqués. Nor are these issues new to the Fund; for many years IMF-supported programs have explicitly incorporated social policies. During the past decade, in most countries implementing IMF-supported programs, education and health care has significantly increased in real per capita terms. At the same time there have been improvements in important social indices. But the voices of the poor around the world, are telling us in no uncertain terms that this is not enough. The time has come for a new and more decisive start.
There are two dimensions in the war against poverty: one national, the other international. The first will remain predominant. As our friends, Mamadou Tour_ and Alassane Ouattara have so frequently reminded us, the responsibility for alleviating poverty rests at home with each country, though this does not diminish the importance of the international community.
Poor countries themselves need to generate high-quality growth. We can learn from the positive experience of many African countries who, assisted by IMF-supported programs, have begun to reverse the sad cycle of one and a half decades of declining per capita growth, high inflation and external imbalances. We know the ingredients: a stable macroeconomic environment; an open, efficient market economy, a framework that fosters private investment; and, yes, transparency, financial sector soundness, and robust economic institutions. Good governance of course! With all that entails: in particular respect for the rule of law and an independent judicial system that recognizes property rights, enforces contracts and protects basic citizens' rights. On all these aspects of development policies, I cannot but echo the thoughtful remarks made by Jim this morning.
A fully articulated social dimension is of the essence. A vital interrelationship exists between growth and social development. This linkage has been too loose in our programs so far. The best route out of poverty is strong, sustainable high-quality growth. Strong social policies that address poverty at its roots lay the foundation for sustained economic growth. This is why we must aim--even if it is a long-run objective--at eradication of poverty. But for that an international contribution is indispensable. I am delighted to tell you that an important set of measures the Executive Board has just endorsed aims precisely at that: a strong, concerted effort to reduce poverty.
A central element will be the transformation of the ESAF to the Poverty Reduction and Growth Facility, to incorporate the lessons of more than ten years' experience, a new level of cooperation with the World Bank, new steps for debt reduction, and above all, an explicit link with poverty reduction. A key feature will be the formulation by countries of their own comprehensive growth-oriented policies designed to reduce poverty. These policies will be articulated, after open discussion with civil society, in the form of Poverty Reduction Strategy Papers with IMF and World Bank support. And, since the Bank will base its IDA operations on the same policies laid out in these same Papers, a far greater degree of synergy between the operations of the Fund and the Bank will be created. We look forward to the continued deepening of cooperation with the World Bank and the regional development banks, to implement these changes and to tap their expertise. Equally, we believe this approach will foster more fruitful contacts with donors, official agencies and civil society.
With the integration of social objectives at the heart of our programs; the deeper, faster, and broader debt relief provided by the new initiative for heavily indebted poor countries (HIPCs); the strong link established between debt relief and increased human development expenditure; all of this crowned by the adoption of the key principles of the new facility, the Fund is now well-equipped to give a new impulse to the fight against poverty. Starting, of course, with the expeditious implementation of the new HIPC initiative.
But, Governors, there is a price to pay for debt reduction. And for the Fund it is high. It has implied that we engage in exhaustive, indeed exhausting, negotiations to convince countries to contribute in one way or another to this effort. For their contributions, I thank all of them--on a preliminary count, 88 countries, of whom the large majority are developing or transition countries, including several who have used ESAF resources themselves. And I should beg their pardon for my, perhaps at times, intolerable persistence. On the part of the Fund itself, we have accepted that the IMF should almost triple from 5 million ounces to as much as 14 million ounces the stock of gold we will utilize to generate, through off-market transactions, the earnings needed to complete our contribution. Governors, for the Fund the job is done. The pledges that you have made, once they have been ratified by our members, will complete the IMF contribution to this initiative--a one-time truly exceptional operation in this most worthy of causes.
But, still more is needed for this strategy of poverty eradication to be credible. One important element is to boost trade as well as aid: for that, the industrial countries must make a bolder effort to open their economies to all the exports of the poorest countries. This small step need not await the so-called Millennium Round of trade negotiations to be launched in Seattle later this year, which of course we hope will bring major advances for the entire global economy. This is fundamental, but, at the same time, the trend decline in official development assistance must be reversed. In conference after conference, we--the industrial countries, developing and transition countries, international agencies alike--have made pledges to promote human development. It is now imperative to put the financing in place. Remember the Copenhagen Declaration, which pledged to reduce by half the level of extreme poverty by the year 2015. In numerous other international gatherings, we have pledged to realize at least six other challenging targets in the next 15 years: universal primary education, a two-thirds reduction in infant and child mortality, a three-fourths reduction in maternal mortality, universal access to reproductive health services, together with the elimination of gender disparities in primary and secondary education by 2005.
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Have a look at the small gray cards you have on your tables summarizing these seven pledges (see Attachment) and let's imagine for one minute that they will be duly implemented: what a giant leap toward a better world, what a giant leap toward empowerment of the most disadvantaged among the poor: women and children!
These commitments are a challenge to both developing countries and donor countries. For the poorest countries, the poverty reduction strategy I have just outlined should contribute significantly. On the donors' side, at a moment when we must, alas, recognize how far there is to go to meet the target of devoting 0.7% of GDP to development aid, let us stop merely lamenting this failure and see how to get back on target. A practical contribution to making sure that the pledges are implemented would be to monitor indicators that would allow us to check, each year, where we stand and to help us, if needed, to identify effective ways and means to transform pledges into action. Today I call all other relevant institutions to join with the OECD Development Assistance Committee in preparing these indicators and in sharing responsibility for this assessment.
Governors, when preparing for all the celebrations of the Millennium, let's decide to make the coming decades, the decades of pledges fulfilled.
Finally, in this reflection on the use of our limited concessional resources, we cannot forget that repeated demands have been made for the alleviation of post-conflict situations, and that in many countries good policies have not survived the resurgence of armed conflict. We will of course continue to respond to these tragic situations, but we must be more proactive. That is why initiatives for peace are essential. And that is why I have no hesitation in repeating today some suggestions that have been made to restrain arms trade and military expenditures:
We must endorse them. Just think how many ploughshares could be forged with such an oversupply of swords!
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Governors, before closing, let me underline the urgency of a number of tasks that must be addressed in the period immediately ahead:
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Governors, times of respite can be dangerous times, they can be short-lived; the temptation may not be, perhaps, to rest on our laurels, but to wait and see or to turn to different agendas. Governors, don't miss this opportunity to show the world that you--together--don't need the pressure of a crisis to do your collective job for the good of humanity. I say this with all my conviction: it is urgent! Next year, it could be just too late!
Mr. Chairman, Governors, ladies and gentlemen, as we look back at the past two years, we take pride in having worked with you, and learned with you; we were saddened, as you were, at the difficulties facing your people, and have rejoiced when your policies with our support have begun to show positive results:
All these efforts have bought us time, not for celebration, but for action to move the world economy from its present recovery to a path of high-quality sustainable growth and through that, through all our techniques and thoughts--as Pierre Teilhard de Chardin used to say---to full humanization. The need is there. The agenda is defined. The pledges have been made. Targets have been set. It is time for action. Let us go forward.
IMF EXTERNAL RELATIONS DEPARTMENT