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Argentina and the IMF

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IMF Surveillance -- A Factsheet

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PRESS CONFERENCE ON LATIN AMERICA
OF
MICHEL CAMDESSUS, MANAGING DIRECTOR
INTERNATIONAL MONETARY FUND
JAMES WOLFENSOHN, PRESIDENT
WORLD BANK,
AND
ENRIQUE IGLESIAS, PRESIDENT
INTER-AMERICAN DEVELOPMENT BANK

September 4, 1998
Meeting Hall B
IMF Headquarters
Washington DC

MR. ANJARIA: It’s a pleasure to welcome you to this press briefing of the Managing Director of the International Monetary Fund, Mr. Michel Camdessus, and it is an honor to have in our midst today at this podium Mr. James Wolfensohn, President of the World Bank and Mr. Enrique Iglesias, President of the Inter-American Development Bank.

You have seen the press communiqué issued last night at the end of the regional surveillance meeting of finance ministers and central bank governors of 11 countries in the Western Hemisphere. In addition to the representatives of these 11 countries, the meeting was attended by the IBRD and the Inter American Development Bank.

I would now ask Mr. Camdessus if he would like to make some remarks at the beginning.

MR. CAMDESSUS: This has been, in some way, a premiere, as you would say in the theater. This meeting on regional surveillance provides continuity with earlier meetings of hemispheric ministers of finance and, indeed, the Interim Committee called for strengthening regional surveillance. It appeared to several of the ministers and governors, and also to us at the IMF, that at a time of such severe strains in the international financial markets and such unexpected developments in many parts of the world, it was good for the American countries with the greatest interaction with international financial markets to sit together to try to understand better what was going on in the international markets; to assess properly the impact of these developments on the Western Hemisphere and, indeed, the strategy each country is implementing, or is intending, to strengthen to face the more difficult external environment.

I will not read you the communiqué, which tells you what was done today. Let me only give you my personal impressions, and my colleagues will possibly want to introduce any nuance to this assessment. I was personally very impressed by the sense of realism but, at the same time, the sense of purpose and togetherness these ministers and governors were demonstrating on this occasion. These are difficult times, and times when the temptation is strong to go it alone, and to try to escape from the constraints or to go to any kind of policy. Indeed, they did not think of that.

To illustrate this point, you will be interested to know that nobody was coming here to ask for money either from the World Bank, the Inter-American Development Bank, or the IMF; not because they believe that we wouldn't have enough to face the problem, but because they believe that they have already done the right things; that they are on the right track; and that by continuing together to implement these kinds of strategies, they have the proper responses to the situation. Even if, at times, particularly now, one has the impression that the markets don't differentiate properly among the good players and those who are a little less convincing in their actions, they know that the moment of differentiation will come and that they can properly resist these difficult times.

This has been a very lively meeting. We have been discussing each individual country's situation, the problem of each, and all the others were there cross-examining each other and suggesting things, and listening to the responses. We even had an extra meeting this morning to see if there are extra miles to go in strengthening the policies. This confirms to us in the IMF that these countries are on the right track; that we were right to support them and to continue supporting them; and that we stand ready to do more if it is necessary, but I insist that they are not coming here to ask for money but to discuss what should be the contribution of the rest of the world.

There is an allusion in the communiqué toward the end about the call for the international financial institutions to continue to look at possible ways to respond to the present volatility of the market and to report on possible strategies and mechanisms. We welcome this call, of course, and, during this month of September, we will be preparing very actively for the meetings we will have at the beginning of October on the occasion of the Annual Meetings of the World Bank and the IMF. We will continue interacting with these countries to see if there are new instruments to put in place new methods to be more effective in conveying to the markets the correct appreciation we have of the situation; we will also try to see collectively, together with the rest of the membership, if there are--and probably there are--initiatives to take, as we are certainly not in a business-as-usual condition.

So, this is what we have been doing. I must tell you that I feel personally very encouraged by the tone of this meeting; by the strength of the attitude of ministers and governors. President Iglesias was observing, in passing, that it is quite impressive to see a new generation of leaders in Latin America with a high degree of professionalism and a good sense of pragmatism and efficiency in their way of reacting, all of them backed by democratically elected presidents, totally committed to reform with a view to higher quality growth in their countries.

My two colleagues may wish to add their own views on all of this.

MR. WOLFENSOHN: I endorse the sentiments that the Managing Director has expressed. I would add only one thing, and that is that as I look back on the former crisis that perhaps originated in this hemisphere, this is a time when we met with a group of finance ministers and governors who have, for several years, been engaged in reform programs in their countries.

This was not a group that we took by surprise. This was a group that had already faced issues of financial restructuring and of regulatory reform, and had it not been for the waves of international concern arising in Asia and more recently in Russia, I think we would have given an extremely good report card on the efforts of this very group of ministers that were with us. We shouldn't forget that.

This is a group that many of you will have seen in Santiago when we talked of the Santiago consensus, when there was a move beyond the financial to the social, to dealing withthe issues of people, to dealing with the issues of social equity, when there was a very strong consensus expressed. So, this is a group that really has been doing a remarkable job in a broad sense and who are now being hit by the winds of problems around the world; I think it's a time in which it is important to differentiate. That is not easy in the markets, to talk logically, because you have the winds of change, and you have reactions, as we have seen in the markets.

But I would endorse what the Managing Director has said, which is that this is a group of people who, I believe, have very clear objectives, and I came away with the same view that both Michel [Camdessus] and Enrique [Iglesias] did, that this is a fine team, and were it not for this international wind, we would have been giving it a very good report card. And I hope that that will come through so that, in fact, as we take more mature judgments about where we should support and where we should invest, this hemisphere will come out very close to the top.

MR. ANJARIA: President Iglesias?

MR. IGLESIAS: I think there is very little I can add to what you said and Jim [Wolfensohn] just said. I was also very impressed with this meeting. As Jim mentioned, it's another one in the series of meetings of dialogue between Latin America and the United States and Canada. I think it was very timely because of the situation with the international markets, which is something that worries everybody.

There is no doubt that Latin America has been suffering from the implications of this international situation in different ways, but what came clear from the meeting is something that I personally appreciate very much: the commitment of the countries, and particularly of their political leaders, and their excellent professionals in charge of economic policies, to continue in the process of reform; to honor their commitments; to go ahead with these policies of other types of reforms, and particularly, the strong commitment to try to weigh the consequences of this international situation. Latin America is also suffering from these implications, but there is no question that the past crises and the way the region in the past faced the issues and the reforms that took place in recent years are making the region better prepared to confront this international situation.

That does not mean that we are not going to have implications, but I think the major message of this meeting is that the countries are in charge of their problems. They know what they are doing. They are ready to do even more than what they are doing now, and this is, in itself, very reassuring. It's a very important message to all of us. Our institutions are close to them, and we are trying to examine in whatever possible way we can continue supporting them as we did in the past. In that sense, it's a very healthy experience in this moment, and I want to congratulate the managing director for this initiative, which is adding another way of cooperation in the hemisphere that is very opportune in this moment.

MR. ANJARIA: Thank you. We are ready for your questions.

QUESTION: Mr. Camdessus, you said that these nine countries are on the right path and that they also need new methods. Can you tell us what these new methods consist of, and in so doing, can you also tell us whether this meeting will have an impact on the people, on the inhabitants of these nine countries? I have to tell you that when people in Latin America hear about new methods or new conditions from the IMF or the World Bank or the IDB, they get the chills, because they know that they are going to have to make some more sacrifices. Is this the case?

MR. CAMDESSUS: Well, I'm not sure that I am as pessimistic as you are about the impact of, or the image of, the IMF in these countries, because we have worked with them for a long time, as you know, and even if, at times, we had to suggest harsh measures in view of the tremendous effort of adjustment they required, they now generally recognize the policies we have recommended, namely, to have governments putting their house in order, governments that attract for themselves their countries’ savings; leaving governments that agree to open their doors to international competition and who accept privatization as a good way of giving more scope to the private sector; governments who agree to obey the proper rules for good governance, et cetera--all of that has served these countries well, and they know that. We all know that if Latin America, in 1997, grew by around 5 percent with just around 10 percent inflation instead of being where the hemisphere was not long ago, this is due to the proper policies that not only the IMF, but its sister institutions have been supporting there.

We have been able to do that because there was a basic consensus of the society in these countries. Indeed, I am certain that if we, today, witness such a mature reaction from the leadership of these countries when confronted with such severe strains in the financial markets, this is due precisely to the quality of this consensus.

QUESTION: So, they will get a little more of the same of what they have been receiving in terms of advice and support.

MR. CAMDESSUS: I don't say exactly that. We will not change our philosophy, and they are not ready to change their philosophies. Another feature of this meeting, quite a remarkable one, as a matter of fact, when you see how difficult the international environment is, is that I didn't hear a single word for recommending any relaxation of the effort toward more openness, toward more liberalization of trade or capital controls, et cetera; no indication at all of temptations toward protectionism; no relaxation of the effort at regional integration to which the Inter-American Development Bank attached so much importance. No, all of that will be there, and if anything reinforced, on our side. What we will try to do is check if our instruments fit the difficulties of this time and, if there are new initiatives to take, to be ready to take them with no delays.

MR. ANJARIA: Mr. Sotero.

QUESTION: The markets are treating Latin America in an unfair way because they are not differentiating among emerging economies. Yesterday, Mr. Malan, Mr. Gurria, Mr. Rubin all amplified on this theme and said that the economies of Latin America are on the right course, as you just reiterated.

Well, the markets decided to listen not to you and to them but to Moody's, and because of an action that Mr. Gurria and Mr. Malan described to us as the reflection of reckless professionals that are trying to compensate in Latin America for their failure to evaluate risks in Asia last year, two questions: I'd like to know if you share this view of Ministers Malan and Gurria about this rating agency or the quality of its work. Second, if you are right about the unfairness with which the market is treating Latin America, if the ministers are being honest with us about the quality of the policies, wouldn't it be time for the IMF to reconsider its recently adopted policy of advising countries to open totally their capital accounts, to refrain from short-term controls on capital flows, and to maybe listen to Mr. [Joseph] Stiglitz from the World Bank and debate this question again?

Because if you are right about your assessment, if the ministers are right, countries that are doing the right thing, as you say, in a democratic environment, don't they have some right of self-defense against unfair markets?

MR. CAMDESSUS: I think you should read more carefully the authors you are quoting. Let us start with Moody's. I have read very quickly what Moody's said. It's interesting to see that Moody's is praising Latin American countries: Mexico, at least, and also Argentina, I think, for what they have been doing recently.

The reason they advance for downgrading them was only the fact that they are facing difficult circumstances because of developments on the other side of the world. I see there a confirmation of what I'm telling you, that Latin America is suffering from this lack of differentiation, and the opinion of the market is that even Moody's, you are posing to us, is recognizing that.

I say in passing that this is not the first occasion where actions by a rating agency do not reflect a change in the medium- and long-term prospects of a country but rather a recognition, after the fact, that the country, or the countries, are currently suffering deterioration of their external environment. The medium- and long-term outlook for the countries of Latin America, in our common judgment, remains strong, and I believe that as the countries continue their effort for adjustment, for structural change, for better governance to a more equitable social system, they will certainly see their situation improve. And as the situation in the financial markets improves, I am certain that the recent decisions with respect to credit ratings for these countries will be promptly reversed.

This is how I see the Moody's statement. Of course, I had no time to read what Mr. Malan or Mr. Gurria said about that, but I suspect it must be more or less the same thing. I must tell you that the colleagues of these two gentlemen were quite appreciative of their efforts to strengthen the economic situation of these two key countries.

Now, you told me about the strategies of the IMF in the domain of capital account liberalization, and you seem to oppose it to the views of an economist of the World Bank. Here, also, you should read a little bit better what the economists of the two institutions say or are writing in this domain. As far as the Fund philosophy, I must tell you that we have no intention to change it nor were the 11 ministers of finance or the 11 central bank governors who were represented here suggesting for us to change it.

Why? Because it is a fairly nuanced one. We share the objective, of going to capital account liberalization, but, as is constantly repeated, at a proper pace and taking into due account local circumstances. By proper pace, we mean after having properly strengthened the macroeconomic framework and after making sure that the banking and financial institutions are in the proper shape to withstand that. Even then, there is a problem of the proper sequencing of the liberalization measures, and here we go on repeating that countries' liberalization of their capital accounts must start by liberalizing foreign direct investment and by being increasingly careful as they go to more volatile instruments and particularly to short-term instruments, which are most dangerous for them.

What we recommend is not always what countries do, but I can tell you that on this basic philosophy, I suspect that my two colleagues here have no major difficulties, and the Latin American countries, in general, have benefited from it.

MR. ANJARIA: Mr. Palofsky.

QUESTION: There has been further deterioration in the Mexican peso today. It's down to 10.2 and further, another record. What can stave off a further devaluation beyond the differentiation? You've come out and said that on numerous occasions, but there is mounting pressure for these currencies to expand and lose their value, deteriorate. What more, really, can be done from your end as well as by the governments?

MR. CAMDESSUS: Well, we are in a situation which is, indeed, a dangerous one--by far, not fully rational. There is a degree of panic going on. There is a kind of flight to quality; a phenomenon of contagion, and this is clearly exerting an excessive and an unfair pressure on a large number of countries.

It's true that if these conditions persist, several emerging market countries will need to further tighten their policies to live within the new reality of much tighter terms and conditions for external financing. And indeed, if this persists, the cutbacks will have adverse and very unfortunate implications for growth.

But as happened only one year ago--remember the end of last October--we had also a kind of panic development of this kind, but this panic at that time subsided relatively quickly, especially as selling pressures from some investors who faced margin calls arising from their own losses on some positions begin to subside. These are difficult times. We shouldn't react only in a very short-term perspective. The purpose of the meeting today was precisely to see how to maintain and strengthen the medium-term course of policies. We know pretty well that greater differentiation of risk assessment across emerging markets will certainly take place soon and that the countries will demonstrate, as has this group of countries, that they are taking action in the right direction and will certainly be reasonably soon in a better situation. This is where the commitment to strengthening policies that all of these countries are taking--in a differentiated way, according to their different situation--could certainly help them.

I would like to say that it is important that markets don't overreact to this short-term development and take account of the reform effort that is going on. But on top of that, markets must know that in this situation, our institutions are there and stand ready to extend them our support to shorten for them the time of pain.

QUESTION: (Interpreted from Spanish) Mr. Camdessus, according to your explanation at the beginning of the meeting and according to the statements of many of the economic ministers, we have the impression that we should really give decorations for heroism to all of the ministers in the different countries. I should like to know whether this performance of the countries is such. Most particularly, taking into account the situation of Brazil, we don't know what is the real amount of international reserves of Brazil; if this statement has anything to do with the situation in Colombia, where there is a devaluation; whether it has something to do with the situation in Venezuela, where you have a political candidate that is saying everything that goes against what the IMF required or whether this has something to do with the situation in Argentina, where, in Congress, something was approved that would increase labor costs and goes against what the Fund--are these the countries that have the support of the Fund?

MR. CAMDESSUS: (Interpreted from Spanish) First, I should tell you one thing, that unfortunately, the Fund does not grant any decorations to anybody; it's a pity, because I have served the government of my country during many years, and I saw how, by giving someone a square centimeter of red tape or blue or red, you can obtain fantastic contributions to the welfare of the nation. But we do not have that at the IMF, unfortunately.

I would then tell you that with the ministers and governors, we have decided that at this particular press conference, we will not talk about the individual cases of each and every country, because they will have their own press conferences.

The other thing I should like to do, because there is obviously, here, a misunderstanding, I would like to say something about the Colombian situation, because I heard rumors, according to which the IMF yesterday expressed its misgivings with the decisions taken in Colombia two days ago. I have to tell you that this is not true. The IMF has not criticized the measures adopted by the Colombian authorities to make adjustments on the fluctuation band of the exchange rate. I should state that we welcome enthusiastically the package of measures that have been introduced to strengthen Colombia’s economic performance. I should add that these issues were also discussed by the other ministers, who have very much in mind the difficulties faced by Colombia to get rid of inflation, which was over 100 percent when the objective for 1999 was 15 percent. All of the ministers were very much impressed by the commitment of the authorities to the package of measures that they intended to enact.

QUESTION: President Clinton, when he was in Moscow, implied that no emerging market will be able to recover to stability without recovery in Japan. I wonder if that subject came up. What, President Iglesias, do you think about the impact of the Japanese economy on emerging markets, including those in Latin America. And separately, to Mr. Camdessus, what do you think about the idea of a currency board for Russia, which got into the news wires today.

MR. IGLESIAS: I think we would all like to see the Japanese economy coming back strongly, in the first place, because it is a big player in the world economy but also because it will be a major instrument in pushing ahead the recovery of all of the Asian countries. So, there is no question about it. That is my first statement.

Secondly, I think Japan is a very strong economy, and I think they have all the means and instruments to get out of their present problems. I think they can make it.

Thirdly, I think I understand the authorities are trying to put in place a package that will permit a recovery. They have some political problems in getting it through the Diet, but I think eventually, they will. And, as I said, I believe that they are taking their time. Maybe we would like to see this done much more speedily, but I am sure that Japan, in the final analysis, will make it, and this is, of course, very important for all of us.

In the case of Latin America, Japan has still not a very strong percentage of our trade, but in certain countries, it is a very important and relevant partner, and particularly, the recovery of the Japanese economy will imply also very important effects on the commodity sector. So, we would like very much to see the Japanese economy come up again, and I am sure they will.

MR. CAMDESSUS: Let me tell you that I cannot but agree with Enrique on the Japanese case. I believe that the president is absolutely right in this assessment, particularly as it applies to Asian countries. Japan is the second most powerful economy in the world. The world cannot work well if such a huge economy, which has been for so long the locomotive of the world, does not work properly. I must tell you that this is part of our--I will use the word frustration--in Asia.

I will come back to that on other occasions but will take the first countries that were in crisis in Asia. Let's take Thailand and Korea. Look at their results. Already, interest rates, market interest rates, in Thailand and Korea are below where they were at the beginning of the crisis. They are around 8.5 percent; a very, very normal level of interest rate in countries where inflation is still between 5 and 10 percent. Exchange reserves have been reconstituted. Exchange rates have appreciated considerably. In Korea, the Koreans have the impression that they are appreciating pretty well; possibly a little bit too much, they would say.

So, the financial parameters of the crisis are already in order, and the countries are back to normality as far as financial indicators, current accounts, et cetera. The problem is that there is something missing: a powerful locomotive for growth in the environment. These countries know pretty well that as long as Japan is lagging behind and has not settled its banking problems, they will be in a very difficult situation to expand again. Nevertheless, I share the guarded optimism of Enrique. I do believe that the Japanese Government's efforts, both in the banking sector and in putting in place their stimulus package, will have their impact. Then you will see the Asian crisis countries getting out of their crisis.

Now, as to a currency board in Russia. Several of you were here one week ago when I gave you a complete report of my conversation with Mr. Chernomyrdin on the nights of Wednesday and Thursday in Crimea, and what I told you about several scenarios. He was confronted with one of them, having a few variants, the first being a return to a command economy and hyperinflation, and the other, doing more and more actively and speedily than they had been doing before, in terms of budget balance and in terms of monetary policy--in particular, stop printing money for the sake of saving banks who no longer deserve this name.

I told you on that occasion that in the family of sound policies, a currency board was one of the instrumentalities we wouldn't rule out, provided the proper conditions for its working were there. Now they know pretty well in Russia, not only due to our conversation but also to the advisors they have listened to such as Domingo Cavallo, that a currency board requires the integration of the strong policies we are recommending plus a few conditions, namely, a level of reserves matching the monetary base plus a banking system strong enough to fit with such an automatic system of monetary creation.

At this very moment, Russia has not, by far, all that is needed for that. What is true is that the policies Russia must implement anyway are those that would allow, sometime down the road, the working of a currency board. So, it's an instrumentality among others we have favored in other circumstances, in Estonia, Bulgaria, Argentina, and in Hong Kong. The day when Russia has all of these conditions together, will be the day they consider a currency board. The sooner, the better.

In the meantime, they have a very urgent agenda, which is to stop printing money for the wrong purposes and to put the budget in order.

QUESTION: Mr. Camdessus, you have described the times we live in as difficult, and I think you are being very considerate with the word. Does the IMF have enough money for all of the problems that now exist and the new ones that can arise, and how important is it for the U.S. Government to bring additional funds to the IMF, which is a difficult thing, because there is a lot of opposition in Congress?

MR. CAMDESSUS: (Interpreted from Spanish) First of all, let me tell you that from what I have been hearing of discussions that are ongoing in the Congress, I think there is reason for optimism and to feel that pretty soon, the U.S. will bring its work on this issue to a close. I felt very gratified when I heard that the Senate voted 90 to 3, 90 in favor, 3 against, 90 in favor of the increase in the IMF capital; this was a vote taken just a few days ago.

So, there is no doubt in my mind that that vote not only is a testimony to plain common sense, but it also, it seems to me, points out the awareness of the Senate of the very difficult juncture that we're all in. I can only hope that the House--despite its well-known political turmoil and, indeed, the complexity of the issue from a political standpoint--I can only hope, I say, that the House will come to the same conclusion: that conclusion being that to give the IMF the resources necessary for it to carry out its mandate is probably one of the few truly positive measures that this country can take to strengthen its own defenses, its own American defenses, against the onslaught of the economic crisis from abroad.

QUESTION: (Interpreted from Spanish) But what about right now?.

MR. CAMDESSUS: (Interpreted from Spanish) Well, I said this just last week in this very place. I have no intention whatsoever of cutting financing of any program before us whatsoever, or alleging that there wouldn't be enough money in our reserves or in our coffers. The money is there, and we will continue working on the basis of the modus operandi we have set down. We will not underfund.

If it were to come to pass that at some point resources were to become depleted or exhausted, well, what can I say? At that point, I'm sure that the leadership of the international community would step up to the mark and assume its responsibilities and make sure that the resources are made available.

[Edited transcript]


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