Transcript

September 25, 1997, 12 noon
Convention Hall 3
Hong Kong Convention
and Exhibition Center
Hong Kong

MR. ANJARIA: Good afternoon, ladies and gentlemen. I would like to welcome you to the closing press conference of the Managing Director of the International Monetary Fund, Mr. Michel Camdessus, and the First Deputy Managing Director, Mr. Stanley Fischer. Before opening the floor to questions, I would like to ask the Managing Director if he would like to make an initial comment.

THE MANAGING DIRECTOR: Let me once again take the opportunity to express my thanks to the government, the authorities, and the people from China and Hong Kong. And on this occasion, I would particularly like to express my thanks to all the people who have been working with us at so many different levels, starting from the very kind escort I had for long hours of long working days, to all those who have been there making sure that everything was smooth, that everybody would be comfortable, and that these meetings could serve well their purposes. To all of them, I would like to express our deepest thanks.

You have possibly heard or read my concluding remarks at the Annual Meeting this morning. They were quite straightforward, and I presume that in preparing or writing your own concluding papers you have put the emphasis on the four-and-a-half points I put hastily together to capture the sense of the meeting.

Needless to say, I feel encouraged by all that took place here: by the support of Governors; by the very significant increase in financial resources of the Fund which will further enhance our credibility; by the new mandate we have been given in the area of capital account liberalization, which is a very significant breakthrough--not only in the history of the Fund, but possibly in the history of international economic relations; and by what Governors have said about what is the mandate of the Fund, what is the task of the Fund, and what they rely on us to do in this turbulent globalized world. This kind of friendly, supportive comment is indeed encouraging and heartening. But we also receive these words as a very strong invitation to do better. And, of course, we will try to do better in discharging our now very big mandate.

Let me mention to you also that we take very seriously what was at the beginning an initiative and is now a mandate; namely, the instruction to contribute to better governance in the world. Hong Kong is quite a place to talk about it. We know how serious the fight against corruption is here. I still have in my ears the quotation by the Governor from the Islamic Republic of Iran reminding us of the words of the prophet: "The briber and the bribee both deserve hell." The IMF will not push them down to hell. We are there, rather, to give them a new chance to avoid hell. We will not apply religious zeal in doing that, but we will put all our professionalism to strengthen the arm of those in charge in our member countries to be successful in getting rid of this major obstacle to sustained development.

QUESTION: Before these meetings started, we heard some rather forthright condemnation of the workings of the international financial markets on the policies of developing countries. Within the plenary session, we heard some echoes of those remarks, notably from the Finance Minister of Pakistan. I am wondering what you can say to ordinary people who share these concerns in the streets of Mexico City or Madras or, coming nearer to your home, in Marseilles, that, in fact, the kind of process that you are promoting is in their interests and not just in the interests of young men in dealing rooms who want to make a million dollars a year.

THE MANAGING DIRECTOR: I share the concerns expressed by the Minister of Pakistan, and those expressed by Deputy Prime Minister Anwar Ibrahim of Malaysia, and by many others. But we had a good opportunity here to think intensely about this kind of risk. And the message we have received--which is captured in the excellent statement of the Interim Committee--is to be bold in purpose in facilitating an orderly liberalization of capital, but cautious in the implementation. On the cautiousness, we have heard a lot. On the boldness and on the purpose, let me say, for the people of Madras or Marseilles, what I think. I believe that it is demonstrated that freedom is part of a program for more prosperity.

Yesterday I had lunch with the African Governors, and this is what I told them. I understand all of you want to be very cautious. You accept and you see the merits of this initiative, but you want to be cautious. We will be cautious, and we will tailor our initiative toward each of your countries and the full design of the change to your situation. But we need to be bold, because you, the poorest, are those who will benefit more from that. You will benefit a lot from a world where the other, better-prepared countries will go boldly to liberalization of capital movement. This will create--for the whole world--more prosperity, more dynamism, more opportunity, more interest for foreign investment in places with opportunities. And even if you have a regime still with some controls, and even if you are still in the business of strengthening your financial sector, your strategy for growth will be enhanced by the dynamism that this liberalization of capital movement will give to the world economy. These may not be exactly the words I would use in Marseilles, but the idea is more or less this one.

QUESTION (Interpreted): I have a question for Mr. Camdessus on his opinion on Latin America after the crisis in Southeast Asia and on the basis of his conversations with the Governors of the region, in particular countries such as Mexico and Peru. In the region, there is some concern about the possible loss of relative weight for these countries within the Fund as a result of the quota readjustment.

THE MANAGING DIRECTOR (Interpreted): Well, you have raised many issues in just a few words. I would like to tell you a few simple things. One is that however serious has been the crisis in Southeast Asia, Latin America has not been affected by this. This tells us something about the strengthening of its macroeconomic base there. It also tells us that this has to be pursued, and the strengthening of its financial system in Latin America must continue as well. So that is my initial reaction.

Secondly, you mentioned loss of relative weight in the Fund. I have told the Latin American Governors on Tuesday the following. I said, "Gentlemen, when I was sitting, during my holidays in France, I was writing the initial paragraphs of my opening remarks, which Ms. Hansen here finalized--and, of course, she has lent them a particular charm, which I must have sabotaged a bit when I actually read them--and as I was working on this I realized that for the first time in 11 years the words "Latin America" did not, in fact, come out spontaneously. I thought to myself, "What is this?" I thought, "Well, it's because Latin America is doing well." As they say in France, happy, fortunate peoples do not have any history. Therefore, I was pleased to think that Latin America did not come to my mind, after so many years when the Latin American countries were the star issues of these meetings, as is the Thai Minister today. Of course, you get a certain amount of stimulus or adrenaline when you are the front line star, but, in fact, in respect of the Fund, it is far better not to be in the limelight, not to be a star that everyone is focusing on, and it is far better to work on a macroeconomic basis calmly back at home.

As to the reduction in the quota, well, here what we are doing is applying formulas which do exist, which I think are not altogether optimal, but these are the ones that have been adopted by the institution, and we have to implement them. The arithmetical formula, the algebraic formula, stipulates that certain quotas will increase and some will decrease. What will happen? Nothing. I hope that the increasing strength of the Latin American economies in the years to come will give them an even more forceful position. But it is not so important that they increase in their quotas with the IMF, but rather that their growth performance rises and increases.

Now, turning to Mexico and Peru. I am delighted to be able to say here, after having discussed at length the question of Thailand and whether growth would resume in Thailand--it is a pleasure, indeed, for me to be able to say this--that Mexico is now far stronger than it was before. The growth rate at the present time is nearly 7 percent, and we expect and hope that next year it will be above 5 percent and nearly at the 6 percent level of growth performance. This is a very favorable time for Mexico.

Now Mexico does not have to be anymore in the limelight, where it is trying to emerge from a debt crisis, as it had to contend with twice. But what is, I think, far more important is that, thanks to the caliber and the quality of the implementation of Mexico's programs, and in particular thanks to excellent fiscal discipline and prudent monetary management and a speeding-up, an acceleration, of its reform process, what is wonderful is that Mexico will continue to grow at nearly 6 percent. I read that there was a statement made by the new majority, [Lacon ??]. They all agree on the importance of fiscal responsibility. This is absolutely paramount for Mexico at the present time.

So it seems to me that the new element and the most promising aspect at the present time is precisely the democratic normalization process which is under way. In terms of overall development, I think this is a very constructive, positive thing to see that there is this consensus, which is of a much broader magnitude in the country. Am I speaking Spanish or English? I seem to have switched. This should provide a far sounder basis for the implementation of growth policies, which are so absolutely essential so as to allow for broader efforts for social and human development. And I believe, and the international community expects, that with this new majority in the Congress they will be working with a very deep sense of responsibility, endeavoring to strengthen and bolster the most promising economic prospects of Mexico.

As to Peru, there is very little to be said. I have, in fact, mentioned time and again that many, many things have changed for the better in Peru, but that it is now time to apply very strict discipline in all spheres of governance, economic, and social progress, and discipline is of the utmost importance so that Peru can become the land of opportunity that it deserves to be. In my country, in Marseilles, when they talk about Peru, the expression if you want to talk about a wealthy country, you say, "It is Peru"; it is like saying, "It is El Dorado." In fact, Peru is equated with prosperity in French.

QUESTION: It seems to me, Mr. Managing Director, that an important side issue or theme of this conference has been the whole dilemma of moral hazard. In particular, Secretary Rubin and Chairman Greenspan and others have emphasized the need for the IMF to make clear in future programs that part of the conditionality is that private uninsured investors and creditors not be fully protected from loss. I say "side issues," sir, because it seems to me that in your various speeches you have not mentioned this. I am wondering why. It seems to me an issue that you would want to get out in front on more.

THE MANAGING DIRECTOR: Let me explain to you. I would suggest for you to have one minute with Ms. Hansen here at the end of this press conference. You could not imagine how difficult it is to put in even 40-minute speeches all the tenets of the 11 commandments plus all the other priorities of the IMF. So our tendency is not to state the obvious or not to repeat what we do every day. [The issue of moral hazard is with us every day for me since I am in the Fund ??] But it is an extremely difficult issue to translate in simple words and universally a valid proposition for whatever circumstances.

I take an example. When, just three weeks before the IMF is invited to make a program with Thailand, the government takes measures extending very broad guarantees to the creditors of financial enterprises in difficulty, what do you do, as the IMF? Do you put as a conditionality for the treasury of the country to renege its word? As a former treasurer of my country, I would never have accepted such a condition, because my word is my bond. So, in the case of Thailand, we had to respect this commitment of the country. Starting from that, we have done everything we could in the design of the program for the shareholders of these enterprises to lose their share, for the holders of subordinate loans to lose, for the other creditors to be rescheduled under conditions under which they will not optimize the use of their money, and they will lose somewhat. Our effort is to try to make sure that those who take unconsidered risk be punished and to spare as much as possible the taxpayer money from rescuing irresponsible, nonchalant financial managers of these institutions.

I entirely agree with Allan Greenspan and Secretary Rubin on the considerations they had. We are always thinking to see how we could do that better. But in given circumstances you must have, as I have said, your priorities right. Here, to preserve the word of a government is for us something which has a priority over all other considerations. But, this being said, you can be sure that we try to discourage these kinds of moves from governments. But, as long as they are not in programs with us, we can try to persuade; we are not always followed.

I stop here. I was about to quote a French philosopher.

QUESTION: I just was interested to find out what progress you saw, from here on, on the Asian fund that has been discussed on the fringes. That was one question.

The second question I wanted to ask was, just concerning the growth in China, you have--

THE MANAGING DIRECTOR: Wait a minute. One question. You have put a question on the so-called Asian fund. We will stop with this question. If not, your neighbor will be a little bit sad not to have an opportunity to put his own question.

On the Asian fund, it is true that it was more than on the fringes. As apparently there was a lack of consensus among players on this matter, the attention was quite captured by this issue. The views of the IMF have been expressed extremely well by the [silent ??] man here at my right a few days ago. Needless to tell you, I entirely share the views he expressed. I can summarize in a few words.

For us in the IMF, based on 53 years of experience with the rest of the world, what matters is surveillance; and, through surveillance and appropriate distillation of its lessons, to avoid a crisis whose correction, whose cure, cost always a lot, not only to the international opportunity, but to the poor people of the interested country.

One of the lessons we draw from the Thai experience is that something was missing there which is well present in other parts of the world, namely the mutual regional surveillance by the neighboring countries embarking together in a dialogue, watching together the situation, trying to read together the early signals, the indications of turning points here or there, and exerting mutual pressure to help themselves to persevere in the right direction and, if needed, to embark timely in the corrective measures. This is, indeed, No. 1, and fundamental.

The second thing which has emerged extremely strongly--and, of course, we cannot but share--during all these discussions here is that there is something which is part of the common good in the world since now many years, the fact that there is a single institution in the world which has gained enough credibility to negotiate with the country in crisis the appropriate conditionality for the support of the rest of the world, including the closest regional friends of the interested country.

I have time and again quoted my admired friend, Mr. [Gresham??], who invented the law on quality of currencies, the bad one pushing out the good. If you were to invent a softer conditionality somewhere--I do not speak only about Asia, but in Europe or whatever other place--of course the conditionality of the IMF would not be used, but the credibility would not be bought or found in the market place.

So, if you want credibility, better to have only one source of conditionality, professional enough, based enough on solid experience, and so far only the IMF has that. So, whatever the scheme you could adopt, it should be working on base of IMF conditionality and, indeed, I would say, be subordinated to the IMF to take risks. If the IMF does not put money somewhere, well, you should yourselves why before embarking in financing.

So, I see with great pleasure that, when talking about conditionality, all those who have discussed this issue see that whatever scheme could be imagined, and so on, must be based on IMF conditionality and in accompanying IMF financing. Then you can be sure that if the dialogue worked this way, with participation and support of the IMF, then you will avoid many crises.

Let us imagine that, nevertheless, a crisis arrived. We have learned something very strong and very positive from the Asian countries recently that there is a solidarity among themselves, and that even if they are a little bit guarded in entering in mutual criticism, they are prompt to react when one of them is in trouble. The extremely expeditious way in which our support for Thailand has been put together is a demonstration of it. So, I am relaxed. I do not need immediately a very special scheme to bring the support of Asia, if it were to be necessary, because I know that they will be there.

Now, there are problems which can arise. I understand perfectly that governments could be interested in seeking, for example, a kind of standing authorization from their parliaments to contribute to an operation of mutual support, if the need arises, at the invitation of the IMF. This can make sense for the government, depending on their Constitutional arrangement, to try to seek that; but I do not see any particular urgency there. I see even less reasons for big disputes in coming to these simple conclusions.

QUESTION: Mr. Camdessus, international speculators attack economies with weaknesses. Do you think such action is constructive or destructive in the world financial sector?

The Managing Director - Do you want me to take destructive measures in the world financial sector?

QUESTION: Yes.

The Managing Director - I?

QUESTION: No. International speculators attack economic weakness. Do you think such action is constructive or destructive in the world financial sector?

The Managing Director - We have witnessed here a formidable, temporary, but very strong pressure of speculation. Of course, it is always a dangerous development indeed, and from time to time it obliges countries to overreact in some way to preserve the basic balances and equilibrium of the country.

What I would say is that when you see speculation somewhere, you must ask yourself why, as speculators never like to lose money. If they speculate, it is because they see somewhere a weakness or rigidity which would make them very safe conditions for making money. So, if speculation is part of market life, what this crisis tells us is that you should not try to outlaw speculators, because you will create only parallel circuits for speculation. What you must do, with a sense of urgency, is to compete for excellence in the management of your economy in such a way that you will not attract the attention of the speculators and that they would not dare to speculate against you.

I believe this is one of the lessons many Ministers have brought home rightly, namely never to allow a weakness to develop which would offer a possibility of speculation and attack from which the economy could suffer. The problem is that when a speculation starts in a given country due to political mistakes in this country, generally it tends to spread over and you have a spillover effect on the neighbors. Then these neighbors pay some price for it, even if the speculation against them is less strong than against the original victim.

What this tells us is not only that everybody must be very careful in being ready to resist speculation, but that when you have a neighbor making mistakes, ignoring the warnings it receives, then you have better to sit together with your neighbor and to tell him, look, if you trigger a domino effect in this region, I will be the victim of that, so please correct your macroeconomic stance. I think one lesson we have learned here is that you do not combat effectively speculation by controls or by decision of an administrative nature, but you combat them by the excellence of your macroeconomic policies.

This being said, and lastly, there are many things on which certainly the international community must work quietly, because the issues are complex, to try to discipline as much as we can market places. Of course, there are many suggestions. For instance, listening to the speech of the Deputy Prime Minister [Anwar Ibrahim] from Malaysia, I read there several suggestions for studies the IMF should undertake or regulators should undertake. Several of them, anyway, are already under way, particularly in one of the specialized committees in Basle.

These are interesting ideas, and I must tell you that we will be, all of us, very attentive to this suggestion and many others, in particular to make sure that those who [have?] very solid macroeconomic bases not to be hurt too much by the consequences of the mistakes of others.

QUESTION: Let us continue to practice in your good Spanish.

The Managing Director [interpreted] - I have a tendency to mix up my English and speak "Spanglish."

QUESTION [interpreted]: You were talking about the domino effect and about the neighbors who suffer the consequences of weaknesses and crises of other countries. As you know, I am from Uruguay, and when Brazil breathes we almost catch pneumonia.

So, let me ask you about the tequila effect and the southeast crisis, which might be called the "monsoon" effect.

The Managing Director [interpreted] - What were you saying about tequila?

QUESTION - No, I said the southeast Asia crisis, which we might call the "monsoon" effect, that has swept through all these countries. I would like to ask you how you see Brazil and the [southern cone] and the future for them, because there is much fear that in Brazil there are certain weaknesses which may affect not just the [southern cone]--we will catch a cold-- but also the whole of Latin America.

The Managing Director [interpreted] - Please do not talk about catching a cold in Latin America, because we know a lot about that. I think that the end of this century and beginning of the new century need to be a period of good news for Latin America of the pursuit of progress, as I just said to your colleague. What I welcome is the fact of the strengthening, and that it is confirmed, so that despite the facility of transatlantic and transpacific communications, the monsoon or "El Nino" will not affect MERCOSUR and would not reach [Rio de la Plata] and [Parana] and go up into Brazil.

I think, naturally, that in your countries there is tremendous solidarity between the economies, which shows that the process of integration and MERCOSUR is progressing well. We, of course, welcome that as your conquest. All countries have weaknesses, obviously. If you find one that does not have any weaknesses, I would like to know about it, and we would have to put the country in a museum so that we can look at it, gaze at it through all eternity.

What I am interested in is whether a country is handling itself well enough to progressively and prudently reduce the risks. All those working with [Cardozo] and his success in the Real Plan, they have the strengthening of the economy. I think that this strengthening is something that all countries in the region will benefit from.

QUESTION - I would like to follow-up on that question about Brazil, if I might. I am sure, as you know, some economists have expressed some concerns about the direction of Brazil's current account deficit, whether Brazil's exchange rate is overvalued. The IMF, in its World Economic Outlook, specifically projected a current account deficit for Brazil of 5 percent of GDP next year.

The Managing Director - Four to five.

QUESTION - All right. I would like to ask you if you are concerned about the direction of Brazil's current account deficit, its exchange rate situation, and whether they are headed for difficulty, and what they need to do to avoid some problems down the road.

The Managing Director - Well, as you have read extremely well the World Economic Outlook, you have found there partial responses, at least, to your well-justified curiosity, so I will not repeat what you have found in the World Economic Outlook.

It is true that the current account deficit is high, even not disproportionate. It is true that it is financed, at least half of it, by foreign direct investment. It is true that the authorities are working patiently to strengthen the financial basis to reduce the public sector deficit, which is one of the counterparts of this current account deficit. It is true that the authorities are working hard in strengthening the financial sector of the country, continuing a very bold program of privatization.

Some have expressed concern about the exchange rate, the too slow path of devaluation. I observed that during the last few months the devaluation has been more rapid than the depreciation of--than the movement of prices. What is more striking for me in Brazil is the clever flexibility they put in trying to adapt the exchange rate to the economic situation than a kind of rigidity in the exchange regime. Everybody knows how costly it can be for the country, but the Brazilians did not need to have the example of Thailand to know in which direction they have to go.

So, I will disappoint you if you expect me to give a more pessimistic note than the one you have in the World Economic Outlook. I trust the Brazilians once again to continue on a solid path in which they have embarked with the planned Real.

QUESTION - Mr. Camdessus, still on the ASEAN Monetary Fund, you have explained very well what role the IMF should play in such a facility. But you also said that there is a lack of consensus as to what form the facility would take. Can you tell us in your opinion what form should such a facility take?

The Managing Director - Look, I cannot tell you much more than what I have told you. If there was a problem with this idea of a facility, or fund, or scheme, whatsoever, is that possibly very ambitious ideas have emerged with not enough previous debate among all potential actors. What I would like to see in the next few months is precisely this debate to take place in the peaceful and friendly context in which we used to work. The IMF is there, ready to provide ideas, suggestions and, of course, to contribute to whatever final system will prevail.

What impresses me is that finally the consensus on what are the building blocks of this scheme is much broader than the potential disagreement on it. So, I am confident that the dust will settle in the next few days or weeks--perhaps it has already settled, I do not know--and that we will go toward something good for the world, namely the Asian countries working more closely together to avoid the resurgence of episodes whose costs for themselves and for the world community have been put quite in evidence by the Thai crisis.

QUESTION: In the WEO report you expressed some concern about inflexibility of labor markets in Europe as a threat to the euro. Do you feel reassured by what people from Europe have told you about that here this week, and how do you feel about Russia's insistence that it is going to join the G-7 next year?

The Managing Director - Who wants to join the G-7?

QUESTION - Chubais said yesterday evening that when the Finance Ministers next meet in April in Washington--

The Managing Director - This is a very different story, indeed. He wants to join the G-7; he wants to divorce the IMF. I could talk about Russia and his suggestion, but your first point was on Europe's labor markets and product flexibility and the views of the IMF on that.

We think strongly that this is the missing element, to my judgment, for being absolutely certain that the EMU will serve well its purposes. This is why, with possibly a degree of impertinence to my former friends--still friends and former colleagues in the European financial community--I have said in my speech that the Europeans would be better to have their priorities right and to give at least as much importance to these needed reform of the labor and product markets, as to the decimals on the defined criteria in the fiscal field. I mean it.

The rigidities still remaining there explain--at least 80 percent of unemployment in my own country and in Germany and in others--it is time to move there. We cannot leave all these poverty traps open in Europe. It is time to move here with the same boldness. Europe has been able to demonstrate, in times of low activity, to put the fiscal numbers in order.

But I would like to emphasize a point I had no time to put in my speech, namely the fact that we should not contrast too much the effort to consolidate the budget and the effort to modernize and flexibilize the labor markets, the pension regimes, the social security regimes, because they are finally the same thing. And you have a vicious circle developing in Germany and France and in other countries which, through too generous and too rigid systems of social protection, impose tremendous costs in the budget, would precipitate low activity, more unemployment, and you go on and on and on toward regression. This must be stopped and I call to leadership in Europe to at least tell the truth to the people of Europe that the euro can be a wonderful perspective for Europe provided these remaining issues are addressed squarely.

Now, Chubais's joining the G-7, I have not the key of the G-7. I go there from time to time. I look forward for the G-7 to open its door to those who are in a position, in view of their world responsibilities, to play there a constructive role. I was delighted to have contributed somewhat to open the doors of the Paris Club to Russia.

Now, I know your next question about the intentions of Russia to go to a friendly divorce with the IMF. I celebrate that. In Russia they say a friendly divorce; in the Philippines, where the Catholic conception of divorce is possibly a little bit tighter, they prefer to talk about graduating from the IMF University. Anyway, let us talk in terms of divorce.

I would like very much this idea, for several reasons: (1) because it will mean success for us, a success of which I have never doubted, as you know; (2) it means that we will continue, in one way or another, living together but I will no more pay for the expenses of the household. Our love will continue to be exuberant, and I believe the lady there will be even more charming.

Mr. Anjaria - On that note, I would like to close the press conference and invite you to the lunch offered by President Wolfensohn and the Managing Director of the Fund. Thank you very much.

[1:00 p.m. END]