Joint Press Conference by Philippe Maystadt, Chairman Interim Committee and Michel Camdessus
September 21, 1997
September 21, 1997, 7:15 p.m.
Convention Hall 3
Hong Kong Convention and Exhibition Center
MR. ANJARIA: Ladies and gentlemen, good evening. I would like to welcome you to the Joint Press Conference of the Chairman of the Interim Committee, Mr. Philippe Maystadt, Deputy Prime Minister and Minister of Finance and Foreign Trade of Belgium, and the Managing Director of the International Monetary Fund, Mr. Michel Camdessus.
Mr. Maystadt, would you like to make some introductory comments?
MR. MAYSTADT: Ladies and gentlemen, at its meeting in Washington last April, the Interim Committee requested the IMF Executive Board to complete its work on quotas and SDRs, and to report in time for the Hong Kong meeting. Needless to say, the Committee today warmly welcomed the agreements on these two issues.
I think it is worth stressing the crucial importance of both agreements. Indeed, I think that maybe too much attention has been given to figures and technical details on which a compromise had to be found in the final round of discussions, and not enough attention to the fundamental reasons why the decisions on SDRs and quotas are so important for the Fund and its members.
The agreement on a special one-time allocation of SDRs is important because it will allow all members to receive an equitable share of cumulative SDR allocations. This is good news for the 38 countries that have never received an allocation of SDRs since they joined the Fund. It is also good news for countries with very low reserves, because this allocation will permit them to augment their reserves and provide them with a cushion in the event of balance of payments problems. This should enable these countries, and especially the poorest developing countries, to meet part of their reserve needs at a lower cost. It was these two reasons--the fact that many transition economies have never received an SDR allocation, and the concern for all members with relatively low ratios of SDR allocation to quotas--that allowed others to support what could be called the equity allocation.
With respect to quotas, the agreement reached is important because it will allow the IMF to consolidate its financial base relative to the size of the world economy. It will permit, when needed, prompt and decisive action by the Fund. The recent market turbulence in Asia and the IMF's response supports the view that it is in the interest of the international community to have a financially strong IMF.
As a last comment on this, I would like to emphasize that the agreements on SDRs and quotas would not have been possible without the spirit of compromise that has prevailed among all members, from developing to industrialized countries. Those agreements could also not have been reached without the endless efforts of the Managing Director, who never lost faith in the merits of a new allocation of SDRs, or in the necessity of providing the IMF with the resources needed to keep fulfilling its mission in the next century.
But, ladies and gentlemen, our meeting in Hong Kong will not only be remembered for the decisions on quotas and SDRs. Indeed, I believe that the statement that the Interim Committee has adopted today on the liberalization of capital movements, and which is attached to our communiqué, will also be a kind of milestone in the history of the Fund. The purpose of this statement--what we might call the Hong Kong statement--is to provide the Executive Board and the staff of the IMF with the principles that should guide their work on an amendment of the Fund's Articles of Agreement. With this amendment, the promotion of free international capital flows will become a specific purpose of the Fund, which will be provided with appropriate jurisdiction over capital flows. I would like to emphasize the two basic principles. The first principle is that freedom of capital movements is desirable, and is an objective worth pursuing. Indeed, it is essential to facilitate the flow of savings to the most effective use at the world level. But, at the same time, the second important principle is that for these benefits to be realized, capital account liberalization should proceed in an orderly manner, avoiding premature action that can lead to reversal. Accordingly, under the envisaged amendment, the IMF will have the task of helping countries progress toward full liberalization of capital movements at an appropriate pace, and with members allowed to retain or impose temporary restrictions when needed. I believe that a development of the IMF's role along this path will help to maximize the gains from liberalization and limit the risks associated with capital flows.
It is also clear to me that this mandate for the IMF will require IMF staff to devote more resources to studying the forces behind international capital flows. But I think that this will ultimately contribute to the stability of the international financial system and to the successful integration of member countries into the global economy.
Ladies and gentlemen, I would like to conclude by focusing on two issues on which we had a very fruitful discussion: the recent market turbulence in Asia, and the debt initiative for highly indebted poor countries (the HIPC Initiative).
On the recent events in Asia, the communiqué presents the Committee's conclusions on the lessons to be drawn by national policymakers and by the Fund itself. The emphasis is put on the need to ensure the internal consistency of macroeconomic policies, strengthen financial systems, avoid excessive external deficits, and maintain an adequate measure of exchange rate flexibility.
Paragraph 6 of the communiqué summarizes the outcome of our luncheon discussion on the implications and preliminary lessons of the recent currency turmoil. And, having now a nine-year long experience of those luncheon discussions, I can tell you that today's discussion was really among the best. The interventions of members, and especially the interventions of those members which have been directly affected by the recent events, were very constructive. Two main points emerged from our exchange of views. First, all members commended the Fund for its prompt and effective response to the events in Asia. Second, the need was perceived to improve current arrangements and practices so as to be better equipped to prevent international financial crises. The Committee invited theExecutive Board to work on this matter and to report its findings to our next meeting. I invite you to read Paragraph 6 of the communiqué carefully. You will find some directions which are given for the future work of the Fund staff and the Executive Board.
Finally, the HIPC Initiative. The Committee welcomed the pace of its implementation. You know that there are already decisions for three countries, and we are expecting decisions for three more countries, hopefully before the end of this year. I do not claim that the problem of unsustainable debt is solved, but we are confident it can be done. However, this will only be the case if efforts to achieve debt sustainability, are matched by the willingness of all creditors to share equitably the burden of the cost of the Initiative. My hope is that the spirit of compromise and goodwill that has prevailed so far in Hong Kong will convince members that have not yet offered bilateral contributions to do so. Indeed, I would like to conclude with a call to all members, and especially some important creditor countries, to make in due time a sufficient bilateral contribution in order to ensure that we have the funding required for the success of the HIPC Initiative.
MR. CAMDESSUS: Thank you very much, Mr. Chairman, for your kind remarks. I must say that after what you have said, I can no longer hide my deep satisfaction with the outcome of this Interim Committee, following the hard work of the Executive Board and the staff during so many months. We are moving forward, and we are moving forward together with an impressive consensus on basic purposes.
Attention, naturally, may be drawn first to financing issues, and particularly to the impressive amounts of money which have been pledged. You have the doubling of SDRs in circulation, bringing the total to close to $60 billion. You have the quota increase of nearly $90 billion. You have the New Arrangement to Borrow--more than $45 billion--now in the process of ratification in many countries. This is not small change. It is a decisive strengthening of the financial base of the Fund to enable it to do its job in this turbulent, new, globalized world.
But, in fact, the basic agreements touch much more substantive issues. First, the milestone to which the Chairman referred, namely, the Hong Kong statement on capital account liberalization. It is striking that such a text has been unanimously adopted after the events of the last few months in this part of the world.
Second, you have a strong endorsement of our strategy to prevent crises or to face episodes of turbulence with which from time to time we are confronted--Mexico two years ago, Thailand now. Great support also for our strategy to continue assisting developing countries in their adjustment and reform process, particularly at the moment when they embark on the demanding second generation of reforms. Endorsement, too, of our continued efforts to help countries in transition in their transformation. And endorsement, finally, of our efforts to implement the HIPC Initiative quickly and to find for it the proper financing. In this context, I am grateful to the Chairman for his warm call for all countries to contribute to the Initiative after having endorsed it so enthusiastically.
All of this is very important for the institution. It is, I would say, an outstanding vote of confidence in what this institution is doing. There are still many issues to address. You will see that we are not satisfied by the formula which has helped us, nevertheless, to agree on a substantial quota increase. We want to make it better to reflect more properly in the future the exact realities of this moving world. We also need to work hard in the next few weeks and months in strengthening the financing basis of ESAF/HIPC. But with the strong support demonstrated by the membership today, we can look forward with confidence to the task ahead.
QUESTION: Mr. Camdessus, Mr. Maystadt, I refer you to the last sentence in Paragraph 6: "the Committee looked forward to the strengthening of the Fund's Special Data Dissemination Standard." One of the big shocks in the Thai crisis was when the central bank revealed the size of its forward currency exposure. I understand the United States has proposed including in the standard the publication by central banks of their forward currency positions and that this proposal has not been greeted with universal acclaim. Could you talk a little bit, please, about the discussion that ensued on this proposal and what some of the reasons were of those who did not support it initially?
MR. MAYSTADT: First of all, the strengthening of the Fund's Special Data Dissemination Standard means that we hope that more and more countries will subscribe to the SDDS. For example, today the Governor of the Central Bank of the Russian Federation announced that his country will soon subscribe to the SDDS. But, of course, strengthening of the Special Data Dissemination Standard also means that the Executive Board will study whether it would be desirable to be more precise regarding some data which are to be made public within this framework. You are right; there was a proposal made by a member. While it was not possible to take immediately a position on this proposal, it will of course be examined carefully by the staff and the Executive Board. So, the discussion is open; it is not closed today.
QUESTION: I think the question is probably addressed to Mr. Camdessus.
When is it realistic to expect that the amendment of the Fund's Articles will come into effect? What will be the effect of the Fund inserting itself, as it were, into the process of liberalization of capital movements; is this likely to lead to a speeding up of liberalization or--in line with what Mr. Maystadt said about an orderly liberalization--is it possible that we might actually see a slowing down or a retardation of liberalization? One final point. How do you respond to the concerns of private financial institutions that the Fund is inserting itself between the market and governments and, therefore, there could, for example, be a moratorium on payments mandated by the Fund which would be detrimental to private capital institutions?
MR. CAMDESSUS: In adopting this declaration, which as a matter of fact summarizes the work which has already been accomplished in the Executive Board, the intention is certainly not to slow down the process. The intention is to have an orderly liberalization rather than a chaotic one. All countries know now that, in one way or another, they must go in this direction.
But we are all of the view that nothing is worse in this domain than to have to backtrack. Orderly processes are of the essence. An orderly process implies also that the liberalization is put in a broader context, a context of sounder, stronger macroeconomic balances, and a context of stronger financial institutions which are capitalized properly, and which are able to resist the temporary tension resulting from the volatility in international capital markets that we will never completely eliminate.
So, what we want to do is to show the direction and equip the Fund to promote this liberalization--being very bold in the purpose while cautious in the implementation, because we know that you cannot strengthen financial sectors, put in place the appropriate supervision, and re-establish sound macroeconomic policies overnight. But, we want to go forward. We want to tailor the progress to the capacities of the countries. We do not want to push anybody in an irresponsible way in this process. Rather, we want to accompany countries in this process with our technical assistance, with our advice, and, when needed in times of particular stress or difficulties, with our financing.
How long will it take for the Executive Board, after receiving these guidelines from the Interim Committee, to conclude its preparation of the proper language of an amendment of the Articles? I do not know. We are invited by the Committee to give the matter high priority. We will take this mandate very seriously and, indeed, concentrate on it during the coming months. In doing so, we will have appropriate consultations in all parts of the world to make sure that the world is well informed of what we are doing. We will also consult all those who have something to contribute to this discussion in an informal but effective way. My hope would be that by the time of the next Interim Committee, things would be well advanced, and I would prefer to bring to the table of our Chairman an outline of the text of an amendment to the Articles. But here I must be prudent. I know that many in the Executive Board would like to do that. Many also are concerned about the complexity of the issue. We will do our best.
Coming to the latter part of your question, are we inserting ourselves between markets and governments? I am a little bit surprised by the question. I do not know if we are already inserted there or not, but I do not see this new mandate as changing the place where the Fund stands. The Fund is at the center of all these transactions. In the debt crisis in the past, the Fund played the role you are familiar with. The Fund is playing in the current financial crisis the role you see. Are we inserting ourselves in an inappropriate way between the markets and governments? I must tell you that nobody in the Executive Board, nobody in the Interim Committee, had any concern about that.
QUESTION: Last year, Mr. Camdessus came to this press conference and talked about a done deal on gold sales for the HIPC initiative. He was as upbeat and confident and positive about that mandate a year ago as he is today about the mandate on amending the Articles in relation to capital movements. Is it not time for Mr. Camdessus to admit that his Board members are resisting the recommendations of the staff of the Bank and the Fund, and behaving as creditors behave, which is never to agree to debt relief, but to carry on lending; that finance Ministers like those of Germany, and Japan, and Italy are saying, no, in effect, to debt relief by refusing to agree to sell gold to replenish the fund for debt relief?
MR. CAMDESSUS: I beg to entirely disagree with your statement. First, because it happens that in the implementation of the HIPC initiative we are not lending money but granting money. Granting money. Something the IMF has never done before.
Second, I was last year extremely enthusiastic and happy because a few days before the Interim Committee we had achieved an unexpected and remarkable consensus of the Executive Board in favor of mobilizing the resources needed to finance this initiative. You will remember, surely, the description I made at that time of this financing, based primarily on bilateral contributions to the maximum possible amount, but with it being understood that if at a given moment in the implementation of this initiative we were confronted with the impossibility of securing the needed funds through this call for bilateral contributions and through the resources available in a special fund of the Enhanced Structural Adjustment Facility (ESAF) itself, then we would proceed with--as we put it then--the optimization of the use of our reserves. This agreement is still our operational framework. I am still in the business of obtaining bilateral contributions from the membership. If, as I suspect, you are interested in collecting as many resources as possible for the heavily indebted poor countries, I believe that you should be interested in supporting this approach. The reason is that, instead of using resources which will in any event be available for use either directly or indirectly for helping the poor, we are tapping additional resources through bilateral contributions. If it becomes indispensable to optimize the use of our reserves, do not worry. We will do that. But as long as I can add more money for the poor, permit me to do that.
QUESTION: The communiqué talks about a code of good practices. Can you tell us what this means? Who is going to come up with the code for whom, and how are they going to implement it if it materializes?
MR. MAYSTADT: The communiqué refers to the possibility of establishing a code of good practice in the area of transparency. Several members of the Committee emphasized the need to promote transparency and to promote good practices. One member suggested that those practices could be put in what he called a code of good practices. Again, this was a new idea. We did not want to rush into an approval of this idea without careful consideration, but we agreed that the Executive Board should study the possibility of establishing such a code.
QUESTION: It says here in paragraph 5 that "rising capital flows may require some adaptation of exchange rate arrangements to changing circumstances." This is a little bit vague. Could you please explain better what you mean by it?
MR. CAMDESSUS: It is possibly vague, but it reflects a very important reality. In this globalized market, it is particularly important not only that all governments have the strongest possible macroeconomic framework and, indeed, compete for the excellence of their macroeconomic framework; it is also important that there be a strong consistency between the macroeconomic framework and their exchange system. Many of us had in mind, or course, the recent experience of Thailand, and the efforts of the authorities there to maintain the peg of their currency with the dollar at a time not only when the macroeconomic situation was becoming less strong, but also at a time when the U.S. dollar was finally re-establishing itself in a much more normal constellation with other currencies, and in the process appreciating substantially. In the past, when markets were much more regionalized, this kind of situation could be sustainable, and governments tended to resist market pressures or to gain time by intervention. In this new world, it is impossible. More flexibility in exchange rate policy is of the essence not only to protect countries against powerful waves of speculation, but also to convey the proper signals earlier to investors and to the authorities--which, confronted much earlier with the realities of the markets, might be expected to take any necessary corrective measures sooner.
QUESTION: I have a question for Mr. Maystadt and one for Mr. Camdessus. Mr. Maystadt, you remarked in Jakarta on the possibility of temporary controls on capital flows. How does this fit with what was agreed today on capital account liberalization and the change of the Articles of Agreement?
Mr. Camdessus, on the HIPC initiative: has there been any discussion of specific elements of Chancellor Brown's proposals--the eligibility of debt, including post-cut-off date debt, and the productive use of export credits--and was this not a big opportunity, with all this unanimity you had, to bring the Germans on board and resolve the gold sale problem?
MR. MAYSTADT: On your first question, the possibility to introduce temporary restrictions in exceptional circumstances, and with prior approval of the Fund, is included in paragraph 4. It is only in exceptional circumstances and with prior approval of the Fund that we could envisage such temporary restrictions. The most important thrust of the statement annexed to the Communiqué is that we all agree on the goal, which is full liberalization of capital movements, but we all agree that this should be done in an orderly manner, and at an appropriate pace in order to avoid the necessity to go back.
MR. CAMDESSUS: On the suggestions of the Chancellor of the Exchequer, I can tell you that, yes, we did have an exchange of views on them. But it was the first time that many of the members had the occasion to consider these ideas and to discuss them. Even so, many members were very interested, and a small debate started developing around them.
I can tell you that in my personal capacity I have commented positively on the ideas of the Chancellor. I like the idea of trying to speed up implementation of the debt initiative, particularly in the way in which the Chancellor envisages its being speeded up, which is an invitation to potential candidates to come forward with high quality programs which wouldallow them to benefit from this facility sooner and by as much as possible. This does not mean in any way that the Chancellor tells us to be more flexible while spending the money. No, he tells us that what the HIPC is there for is to make these countries get rid of this burden of debt as rapidly as possible, but inviting them to come forward with convincing programs to avail themselves of the opportunity. He suggests also, as you know, that the Paris Club try to show flexibility in the handling of several elements of its rescheduling or debt reduction operations. And he suggests that export credit agencies avoid financing unproductive investments or operations. The ideas are indeed interesting; but also complex technically. If we still have problems with cut-off dates in the Paris Club, for example, it is because such dates represent very central elements in the relations between creditors and debtors. Similarly, the question of the practices of export credit agencies must be discussed with all interested bodies. But the fundamental ideas are quite interesting.
On the gold sale issues, I would not like to single out Germany as you do. I remind you that the consensus of last year had the full support of Germany. It was unanimously voted in the Executive Board. It requires the management of the Fund to make every possible effort not to resort prematurely to the so-called optimization of the management of our reserves, but rather to try and raise as much financing as possible from bilateral contributions. We are doing that. And let me mention in passing that Germany has agreed to contribute a very significant amount of money bilaterally for this purpose.
I am certain that in the coming months our Executive Board and the Executive Board of the Bank will work hard in trying not only to analyze but to also respond positively to the suggestions of the Chancellor, in the process giving a new impetus to the debt initiative.
MR. MAYSTADT: Allow me to stress this last point. It is also an answer to a previous question. The agreement last year in the Executive Board, endorsed by the Interim Committee, was also an agreement on the sequence: first, bilateral contributions, and then, if needed, the sale of a limited amount of gold. So it is quite important to remember that there was a sequence. The German representative, like the other members, is quite right when he says that we must first execute the first phase of the sequence to get enough bilateral contributions.
QUESTION: Mr. Camdessus, Chancellor Brown also announced today that the United Kingdom would henceforth publish details of forward positions in the foreign exchange reserves. Do you think that that is an example which other countries ought to emulate?
MR. CAMDESSUS: It is an excellent example. He will not be the first doing that. Already a few other countries do that, but not that many. I support this initiative as you may imagine. In the present world, the more transparency prevails, the better to introduce as much rationality as possible in the behavior of all economic agents and of the markets in general. It will require some time to define exactly the rule all countries subscribing to the Special DataDissemination Standard should respect. We will work on that. Work has already started at the staff level. I hope that a great number of countries will agree to release such data.
QUESTION: Mr. Maystadt and/or Mr. Camdessus, now that the parochial matters of the special one-time SDR allocation and the quota review are finally settled, after all these years, now that the adoption of an amendment promoting the free movement of capital seems to be just a matter of time, and now that the HIPC initiative seems to be going in the right direction, what then will be the agenda for the IMF in the years to come--in other words, the unfinished agenda?
MR. CAMDESSUS: I like that notion very much. But I must tell you that we have quite an uncompleted agenda.
Let us take current account convertibility. We have made enormous progress during the last few years, but we have only 140 countries under the Article VIII regime. So we still have 41 countries to go.
Then we have the job of creating the conditions for capital account convertibility for the entire membership, recognizing that only a few countries are already there. It has taken 53 years for 140 countries to accept Article VIII. I hope it will not take that many years for the new challenge we have. But clearly the new mandate in this area will occupy us for a number of years. Quite separately, we will have a lot to do with our 181 members to accompany them toward more prosperity and higher-quality growth. Let me remind you of the enormous agenda opened under the Interim Committee’s declaration last year concerning a Partnership for Sustainable Global Growth, particularly with respect to the second generation of reforms. All of that is quite an agenda. On occasion I ask myself if we are not overstretching--not the Fund, but our staff--with all the complex tasks and responsibilities we are being given. Be that as it may, clearly the Fund will be busy for some time more doing the right things.
MR. MAYSTADT: Maybe I can add just one more reflection. I think we agree that the creation of European Economic and Monetary Union and the introduction of the euro will be a major change in the international monetary system. Personally, I think that it might be possible in some years’ time to relaunch the debate on the rebuilding of the international monetary system; to relaunch, that is, the debate on the best ways to introduce rules which might ensure more stability in the international monetary system. This is a medium-term goal, but I think in due course the IMF could play a crucial role in this matter.