Speech

Stanley Fischer
First Deputy Managing Director, International Monetary Fund
August 29, 2001

Friends:

I am overwhelmed by what the Managing Director, Michel Camdessus, Larry and Jacob have said, and there is no adequate way to reply. All I can say is thank you. To Jacob, Rhoda's and my friend of 32 years, thank you for your friendship and your support, for your boundless energy, and for the skill and the courage you showed in stabilizing the Israeli economy; to Larry, onetime student, onetime colleague, academic superstar, policymaker extraordinary, and friend, thank you—and I mean this—for taking an interest in the IMF and for all—well, most of—your initiatives to reform us; to Michel Camdessus, thank you for our partnership and friendship, and for the unforgettable letter that Jack Boorman just read out; and to Horst Köhler, thank you for the generosity of your words and actions—not least in organizing this lovely gathering—and for the trust that has developed between us and enabled us to work so well together in the recent crises.

I am totally delighted by this event, and I would like to thank all of you for coming. Much as I would like to name each of you, I will be invidious by singling out Risha and Paul Samuelson—my mentor, whom I first met forty years ago, in hard cover, and then in person 35 years ago, and from whom I have learned so much—some of it about economics, and whose conversation and company Rhoda and I cherish whenever we have the opportunity. And the evening is made perfect for Rhoda and me by having our children here: Michael, unfortunately minus Jill; David and Joannie; and Jonathan.

It has been a great honor and an enormous pleasure to serve at the Fund these last seven years. I expected this to be an interesting job, but I hadn't expected it to be so interesting. My arrival a few months before the Mexican devaluation in December 1994 seems to have marked a structural break in the frequency of crises—and I am sure that my predecessor and successor, Anne Krueger, hopes that my departure will mark a similar break but with the opposite sign.

Let me add how glad I am that Anne, a firm believer in the Fund and in the values it promotes, is taking over as FDMD. I am happy too that with Tim Geithner, Gerd Haeusler, and Ken Rogoff coming on board, the Managing Director has selected a strong set of replacements for the old-timers who are leaving.

What I would like to do tonight is to tell you something about working at the Fund, why it is such a special place, and such an indispensable part of the international system. And then I will conclude by sharing with you some of the memories I will be taking away from my time at the Fund.

The Fund

One of the questions I'm asked most often is how the real world of policy-making differs from the textbooks. I usually reply along the following lines. Much of what one learns in academic life is essential in dealing with the technical problems that come up in the IMF. But a key difference from the textbooks is figuring out how to deal in complicated situations with live human beings: what is driving them, what matters to them, which incentives they will respond to, and how.

We are sometimes accused of being too soft on borrowing member countries. Perhaps—but this is a cooperative institution, whose members have a right to request assistance. In responding to those requests, I often quote the Ronald Reagan maxim, "Trust but verify", which in the case of the Fund should be "Trust, but use conditionality". Nonetheless, sometimes we need to walk away, because the government we are dealing with is incapable of delivering on the needed policies, sometimes because even if the government may be able to deliver, corruption and governance problems are too severe.

It is an abiding strength of the IMF that we stand for a particular set of policies, for macroeconomic stability, for integration into the global economy, especially in trade, and for market-oriented domestic policies. Those policies do not just happen. Often we do our job by reinforcing people struggling under enormous pressures to do the right thing. I am deeply aware that it is a lot easier to say what should be done from the safety of Washington than for those who have to implement the policies, deal with the political realities in their countries, and bear the consequences if they make a mistake.

Who are those people, trying—on the whole—to do the right thing for their country? Some of them are here tonight. Let me mention, a very few of the others I have met and dealt with: in Mexico, Guillermo Ortiz; in Brazil, Pedro Malan; in Thailand, former Finance Minister Tarrin; in Indonesia, the legendary Widjojo, who has had more lives than a cat; in Russia, Yegor Gaidar and Anatoly Chubais, who understood from the beginning the stakes in the battles they were fighting, and who made choices I am glad I have never had to confront; in South Africa, Trevor Manuel; in Hungary, Gyorgy Suranyi; in Jamaica, Omar Davies; and I could go on and on.

But we cannot afford to divide the people we deal with into the good and the bad. As we say in sticky situations, the IMF deals with policies, not people. We have to work with the governments that are in place, supporting good policies, refusing to support bad policies, always putting safeguards in place when we do move. We have seen one of the best examples of IMF diplomacy and effectiveness in the last year, as Anoop Singh and his team have dealt with the complexities of the situation in Indonesia.

So far I have talked about policymakers in our borrowing member countries. This institution cannot operate without the support of our major shareholders. Gordon Brown, the Chairman of the IMFC, has done much to strengthen us in recent years. Our working relationship with the U.S. Treasury is critical to the success of the Fund. The presence of Bob Rubin, Larry Summers, Stu Eizenstat, John Taylor, David Lipton, Tim Geithner, and Caroline Atkinson testifies to the importance successive administrations have placed on that relationship. It is sometimes said, in apparent horror, that we are used by the major shareholders. Well, we are, and we are used by the minor shareholders too—and if our shareholders cease to find us useful, we will cease to exist.

Accusations that the Fund is in the pocket of the US administration are as old as the institution itself. Indeed, these worries were reflected in the debate over where the Fund should be located. Keynes favored putting the Fund in New York. He was distressed to hear that the US favored Washington instead, and wrote to his authorities in London: "I reacted very vehemently, declaring that in that case these bodies could not be regarded as international institutions but as an appendage of the American administration, which was just what the critics had claimed them to be".

Keynes expressed his dismay to Treasury Secretary Vinson, who replied "that in the American view the institutions would be fatally prejudiced in American opinion if they were placed in New York, since they would then come under the taint of 'international finance' ". The Americans of course won the argument, although at the moment the DC police department no doubt wishes they hadn't—and putting us in Washington didn't help much, because we are now accused of being simultaneously in the pockets of the Administration and Wall Street.

To be effective we need not only the support of our shareholders, but also to cooperate fully with the other international financial institutions. I am happy that our relations with the World Bank have become much closer in recent years, and I would like especially to thank my counterpart, Sven Sandstrom, for his cooperation and quiet effectiveness. And to Enrique Iglesias, President of the IDB, tireless warrior for Latin America, friend of the Fund, and friend, thank you for our cooperation over the years.

What is it that makes this institution so special? What keeps it at the center of the international system, despite the criticisms from left and right?

First, there is the continuing validity of its original mission, as set out in Article I of the Articles of Agreement. Contrary to what is often said, the Fund was never just about managing a particular exchange rate system.

Second, the Fund has remained flexible, swift and responsive. Our staff is relatively small and our mission remains relatively focused. We should make it a high priority to continue to stay small, mean—well tough, and lean.

Third, the Executive Board, the secret weapon of the international system—and here I'm modifying words from Karin Lissakers' farewell speech to the Board. The Executive Board takes itself seriously, and it has earned the right to do so. This is a cooperative institution, and the Board prefers to make decisions by consensus—and watching Executive Directors working towards a compromise has been one of the pleasures of my time here. Nonetheless, the Board can move very fast when the need arises. Of course, it helps that behind every ED stand finance ministries and central banks that actually care what we do on a day-to-day basis. Not every international institution is so lucky.

Fourth, the management. I have already mentioned my gratitude to the two Managing Directors with whom I have served. Let me also thank my Deputy Managing Director colleagues: P.R. Narvekar, Alassane Ouattara, Shige Sugisaki, and Eduardo Aninat. In successive combinations, we have worked together productively and in near-total harmony. This evening I think especially of our close friend, Alassane Ouattara, a man of outstanding ability, decency, and integrity, and regret that he is still being denied the opportunity to serve his own country.

Fifth, and perhaps the greatest strength of the Fund, is the quality of the staff. I cannot speak too highly of their professionalism, their talent, their dedication, and their capacity for hard work. Whatever the challenge, the staff rises to it, be it negotiating a program with Korea in a week, or designing a monetary system for Bosnia-Herzegovina in a weekend, designing and carrying out financial sector assessments, or finding a way of financing our contribution to HIPC debt reduction. It has been a pleasure, literally a pleasure, to work with highly skilled, very pleasant, people who are willing to give heart and soul, nights and weekends, to solving the problems that are presented to this institution.

Although I would like to name many of the outstanding present and absent staff members, let me mention only two: Jack Boorman, comrade in arms in so many battles; and the late Tom Leddy, who commanded more respect with fewer words than anyone I have ever met. Their attitude, and that of most of the Fund, is to do things right; long before the management gurus discovered the secret, the Fund was practising the zero defect, Total Quality Management approach to its work.

Those are some of the ingredients. But you could mix them together and still not produce the culture of the Fund, for there is more to it than that: an attitude by everyone involved that what we do matters—for the international system, but more fundamentally for the people who live in our member countries; that people care about the issues; and that they care about the Fund.

Now to the memories:

Events and Memories

• First, of course, the Mexican crisis, which produced the most dramatic Board meeting I have seen; it took place in early February 1995, and ended with a near-unanimous vote, after the Managing Director had challenged the Board to fire him. A few minutes later several Executive Directors asked if they could change their votes. Leo van Houtven, then Secretary, never a man to let his doubts show (if he ever had any) told them no.

• In April 1995, the tequila crisis threatened Argentina; Argentina relaxed bank liquidity requirements, and raised taxes a few months before an election, and we quickly arranged a loan with then Finance Minister Domingo Cavallo. The situation stabilized, and President Menem won reelection despite the tax increases.

• Taking part in the first Middle East/North Africa Economic Summit in Casablanca in October 1994, believing—unfortunately wrongly—that the peace process between Israelis and Palestinians was irreversible. In April 1996, sitting among several hundred men resplendent in their beautiful white robes (thwabs), with gold braided agals on their heads, at a dinner hosted by the Emir of Bahrain, looking around at the fabulous surroundings, knowing that for most of my life I could never in my wildest dreams have imagined taking part in anything remotely like this.

• My regular visits to Egypt and Jordan, with whose authorities I developed very close and warm working relationships, due I am sure, to my friend Shakour Shaalan, who represents both countries in the Executive Board.

• The Asian crisis, which put the Fund to the test as rarely before, and I hope as never again. There are countless memories: being driven through Bangkok in a van with darkened windows on a secret visit in May 1997; meeting with the finance ministers and central bank governors of ASEAN in Hong Kong in October 1997, seeing the fear in their eyes, and feeling totally inadequate as they pressed for answers to what to do; meeting with President Suharto, fascinated by the complexities of a man who had done so much for his country and its people, and yet appeared unconcerned about the corruption that surrounded him; the Board meeting for Korea, with the Treasurer of the Fund, David Williams, standing at the door of the Board room, waiting for the vote, to give the signal to send the money; the Christmas Eve, 1997 conference calls that set up the coordinated rollover of the Korean interbank credit lines, with European deputies being on the line—and none too happy about it—at 3 a.m. on Christmas morning; meeting in Singapore with Senior Minister Lee Kwan Yew, his son Deputy Prime Minister Lee, and Prime Minister Goh—and being told by the Prime Minister that Singapore is run by the father and the son and the holy Goh; meeting with Anwar Ibrahim in Kuala Lumpur in May, 1998, understanding how tenuous was his position, and admiring his courage.

• And I remember the continuous work that went on inside the Fund and in the crisis countries, with the twelve-hour time difference minimizing the time available for sleep, both for those on the line in the crisis countries—for Hubert Neiss, the IMF hero of the Asian crisis, Wanda Tseng, Anoop Singh, Bijan Aghevli, and for their teams—and for those in headquarters. The debates on what to do on macroeconomic policy and on financial sector restructuring paralleled those outside the Fund, and there were good reasons for the choices we made, even though our initial judgment on fiscal policy was faulty. And of course I remember the virulence of the criticism of the Fund, as well as our profound gratitude to those who stood up to defend us, among them then Treasury Secretary Bob Rubin, Jean-Claude Trichet, Bill McDonough, Fred Bergsten, Jacob Frenkel, and Rudi Dornbusch.

• Visiting Moscow at the end of July 1998, explaining to the economic team that the situation did not look sustainable, and that they needed to consider the alternatives; and then ruining vacations in the south of France and on Mykonos as the crisis worsened. By contrast, my visit to Moscow this June, when I met with President Putin and many old friends, and came away believing that after all, the work we had done had succeeded, for Russia is now firmly embarked on the path of market-oriented economic reform, along the lines we—along with many others—have advocated. And here let me acknowledge in particular, Anders Aslund, whose optimism about Russia helped sustain us in difficult times.

• My regular visits to Tokyo, wondering—as I still wonder—what lessons we should draw from the difficulties faced by the Japanese authorities in restoring growth, sometimes disagreeing on policy in Japan and elsewhere—especially at the height of the Asian crisis—but always being treated with the utmost courtesy.

• Early in February 1999, leaving for Brazil from Davos at 4 a.m., driving through the beautiful snow-covered moonlit mountains, worrying that this could become a disaster. But thanks to the steadfastness of President Cardoso, and the skill of Pedro Malan and Arminio Fraga, helped by the outstanding work of the Fund team led by Teresa Ter-Minassian, disaster was avoided.

• The inauguration of Tito Mboweni as Governor of the South African Reserve Bank in August 1999, was a great and happy event. For someone who had grown up in that part of the world, it was simply incredible to take part in that racially mixed party, and to experience the atmosphere of friendship and respect in which power was handed from Chris Stals, who did an excellent job for his country as Governor, to Tito Mboweni, who is doing an excellent job as Governor.

• Well, I could go on for a long time, but I will stop with two more personal memories, the roots trips, together with most of my children: in 1995, to my father's home town of Liepaya (he called it by its German name, Libau) in Latvia; and in 2000, to my home village of Mazabuka in Zambia. Our trip to Mazabuka was enriched by the warmth of the company of Goodall Gondwe, the Director of the Fund's Africa Department, who as a Malawian, grew up very close to where I did, and who seemed almost as excited as we were by the visit.

• In Libau, which when I was growing up could as well have been on the other side of the moon, we found several of the places and buildings in my father's photographs, but what we found mostly was evidence of the destruction of what had once been a vibrant Jewish community, as well as evidence of the damage wrought by fifty years of communism. In Mazabuka we were welcomed by the current residents into the home in which I grew up, and by the current owner into the store my father had owned, and we had lunch and talked with people who had known my parents and had known me as a child, and I discovered—contrary to what everyone had told me—that Mazabuka had progressed considerably since I lived there. I came back feeling a bit more optimistic about Africa. And as I came back, I reflected that it is a long way from Mazabuka to the IMF.

Well, those are some of the memories—and I must confess that as I told these stories, I realized that I may never again face challenges of the same intensity, nor enjoy in future the exhilaration of working with such outstanding people. But life has to move on.

None of this could have happened without your support, especially the loving support and understanding of my family—the children, and most of all, Rhoda.

Thank you all for these seven extraordinary years.