Transcript

October 4, 1998, 8:10 P.M.
IMF Meeting Hall
Washington, D.C.

MR. ANJARIA: Good evening, ladies and gentlemen. I would like to welcome you to the press conference of the Chairman of the Interim Committee, the Minister of the Treasury of Italy, Mr. Carlo Azeglio Ciampi, who is the new Chairman of the Interim Committee, and the Managing Director of the International Monetary Fund, Mr. Michel Camdessus.

Mr. Chairman, I would like to ask you if you would like to say a few words to start off the proceedings.

MR. CIAMPI: I have attended all the meetings of the Interim Committee since its creation in 1974, but this is my first experience as Chairman, and I have to say that it is a very positive one.

You have had the opportunity to read the communiqué, and I will limit my introductory remarks to highlighting only some salient points. As you see, the press communiqué is composed of three parts: Developments in the World Economy, first; second, Strengthening the Architecture of the International Monetary System; and the last one is Reports on Other Fund Policies and Operations.

What I want to stress is that the scenario and the interpretation of the scenario of the world economic policy is unanimously considered as a scenario in which the world economy has worsened since the Committee's April meeting. As it is written in the communiqué, the downside risks to the current outlook have increased significantly. But the Committee noted some positive features, including continuing generally solid growth in the industrial countries of North America and Western Europe, the maintenance of growth in China and India, the strengthening in recent years of economic fundamentals and underlying growth performance in several developing and transition countries, and the fact that protectionist pressures have so far been kept in check. It is a unanimous view that forceful actions are required on the part of member countries over a broad range of policies which have the aim of restoring market confidence and growth where needed.

There is then a paragraph devoted to the policy responses to the recent crisis, and there is consensus on the importance of a strong, cooperative effort. After some observations devoted to the Asian crisis, the communiqué addresses the Russian financial crisis, with the encouragement of the Committee to the new government to take immediate measures to re-establish confidence in the ruble, restore the payment mechanism, work with its creditors to develop a cooperative solution to Russia's debts, and the reaffirmation that the international community, including the international financial institutions, stands ready to support convincing and effective measures to stabilize and reform the Russian economy.

Another important point I want to stress is the reaffirmation of China's commitment not to devalue its currency, which has provided an important anchor to the region.

The press communiqué stresses the importance of the role that industrial countries have to play in sustaining global growth. There is a paragraph devoted to Japan and the indication that Japan has to take prompt and resolute action to strengthen its banking system and to provide sufficient sustained fiscal stimulus to revive domestic demand and to restore confidence until the recovery is well established. I think these are the most important points as far as the international economic scenario is concerned.

The second chapter is about strengthening the architecture of the international monetary system. I want to stress the importance of the early point that the roles of the various institutional components of the system, including the possibility for strengthening or transforming the Interim Committee, also need a thorough review. These are common conclusions which we have reached.

Afterwards, the press communiqué takes consideration of several relevant points. First, standards; second, transparency; third, private sector contribution; and, fourth, capital movements, which in my opinion is a very important paragraph.

Paragraph 4 reports on other Fund policies and operations. To quote the opening section: "The Committee expressed serious concern over the Fund's tight liquidity position. It stressed the critical importance in current conditions of augmenting the Fund's resources and urged all members to accelerate the process leading to the implementation of the agreed quota increase. The Committee also called for the completion of countries' adherence to the New Arrangements to Borrow and for the early acceptance of the Fourth Amendment of the Articles of Agreement allowing for the special one-time allocation of SDRs. These were viewed as indispensable actions in present circumstances."

I will stop here. What I wanted to stress is our unanimous view that we have to afford the Fund with all the means necessary to support the efforts of the countries which are following sound economic policies. These are the very relevant points which we agreed upon.

MR. CAMDESSUS: I have nothing to add to what the Chairman said.

QUESTION: On page 3, the reference to a possible new contingent financing facility. Could you say with what sense of urgency the Fund is exploring this idea and something about the possible modalities of operation of this contingent financing facility?

On page 5, does the language imply that the Fund is moving toward endorsing capital controls under certain circumstances?

MR. CIAMPI: [interpreted]: Here and in relation to decisions which were taken yesterday in the G-7 meeting, we were invited to explore, to study, to examine further the possibility of providing further facilities which may become necessary. As I said previously, the Fund must be in a position to be able to support efforts being made by countries which are pursuing sound economic policies; all countries were of this view. The scope of the assistance would of course be limited to those countries which are pursuing sound economic policies to put their economies on a better basis.

QUESTION: If I could just follow up. Pursuant to the request which has just been raised by my colleague, I would like to understand this further. What is meant by "explore"? Are we postponing the question? Are we postponing the whole matter of this possible contingent finance facility or arrangement?

Secondly, I do not think we got an answer from Mr. Ciampi in regard to the capital controls question that was raised. The IMF and this Committee last year clearly said that they wanted liberalization of the capital markets, where here, on page 5, I see that there is quite a difference. It is not really a subtle difference; it is fairly explicit in asking the Board "to review the experience with the use of controls on capital movements." This is different from what the IMF Interim Committee has said in the past. A year ago, six months ago, the IMF Interim Committee talked about liberalizing capital accounts. Here we are talking about an examination of the use of controls. In the following paragraph, there is a sentence that says, "The opening of the capital account must be carried out in an orderly, gradual, and well sequenced manner." These are different policy positions from what this Committee has done in the past, or seem to be. They look like a contradiction. So, Mr. Ciampi, what has changed and why?

Mr. Ciampi: [interpreted] The first point is that these words do have their own significance. "Explore" means take into consideration, study, further review. It is difficult to add anything to that. It seems to me that those words are clear enough. This is an indication of a proposal which should be explored. I think the words themselves are quite explicit.

Let me try to be as clear as possible in regard to capital movements. The position has not changed at all. We are in favor of the freedom of all capital movements, but the freedom in capital markets and the freedom of movements also means that there should be a discipline. There must be order in freeing capital movements. Freedom of capital movements, but compliance with a discipline, and with rules that enhance transparency. In regard to the emerging countries, may I add, which are moving toward liberalized capital markets, we think it is only right and proper that this move toward liberalization be gradual, be sequenced, and be associated with the capability of those countries to provide themselves with the proper financial structures which are solid, appropriate, well-based, and particularly appropriate to their circumstances.

QUESTION: [interpreted] Could I ask Mr. Camdessus to comment upon this? In Hong Kong, Mr. Camdessus last year talked a lot about the necessity of liberalizing capital markets.

MR. CAMDESSUS: It is a very singular question to ask me to comment on the commentary of the Chairman. You can imagine that we see the things exactly in the same way.

QUESTION: To elaborate, not to comment.

MR. CAMDESSUS: The facts are extremely simple. In Hong Kong, we adopted an important declaration which has established the doctrine of this institution. You remember possibly the key words of this declaration, which were "bold in vision; cautious in the implementation." I believe that everybody today, as before in the Interim Committee, endorsed this stance. It happens that we have had a very turbulent year. This turbulent year has not led us to change this fundamental vision. Simply, as we are continuing with our work--and you see that we are invited to continue with our work--we are also invited to take into consideration all the experience accumulated recently, and to review, in particular, what was the experience with the use of controls over capital movements.

What is interesting is that, if you read the whole paragraph, you see that the paragraph tells you that introducing or tightening capital controls is not appropriate to deal effectively with fundamental economic imbalances. But quite naturally it suggests that we go as deep as possible in the analysis to make sure that when legislating on this matter, when we will adopt the change of the Articles, we have taken stock of all the experience. But what you read here is, as a matter of fact, a confirmation of the mandate we have and the invitation to take stock of the rich experience we also have.

QUESTION: The communiqué made special mention of India and China as doing particularly well. I was wondering whether the MD or the Chairman, or both, have anything to say on what lessons we can learn from the success of these two countries for application on a wider front.

MR. CAMDESSUS: It is interesting to observe India and China put together here. Why are they quoted together? Because they are developing countries with very large populations, with major geoeconomic importance, and proceeding at their own pace in their evolution toward a more open market economy--proceeding at their own pace with the dismantling of regulations and administrative controls which are recognized by the two countries as impediments to growth. This is basically the bottom line.

I noted that the members of the Committee were very interested by the remarks of the Minister of Finance of India, talking from his experience, having resisted the contagion and maintained growth in his country. They were equally interested by the remarks of the Governor for China, who reaffirmed the orientation of his country’s economic policy and--something that was also welcomed by the Committee--reiterated his government’s determination to keep the stability of the renminbi, which has served China well and has served as an anchor of stability for the region.

QUESTION: I have a question about the Japanese economy. The World Economic Outlook drew a pretty bleak picture of the future of the Japanese economy, expecting 2.5 percent negative growth this year and 0.5 percent growth next year, which nobody can characterize as strong and sustained growth. After meetings yesterday and today, including this Committee, how confident are you about the possibility of Japan taking additional steps to achieve economic growth which is faster than you predict in the World Economic Outlook and which will enable Japan to become an engine of the Asian economy in the reasonably near future?

MR. CIAMPI [interpreted]: Let me simply say that the Interim Committee believes that an upswing in the Japanese economy is absolutely of fundamental importance in regard to the situation in many of the countries in Asia. What we believe is that an upswing in Japanese business activity requires, above all, a strengthening of internal demand, of domestic demand. That is the fundamental point: improved domestic demand which depends upon certain fiscal stimuli. An improvement in the Japanese position will also require an improvement in the Japanese banking system. But the key to the whole process for an improved Japanese economy is an upswing in domestic demand.

QUESTION: On Russia, you say that you have encouraged the Russian government to basically get back to its reform program. Have you had any indication from the Russian government that they are interested or willing to do this?

MR. CIAMPI [interpreted]: The representative of Russia confirmed his government’s intention to pursue the reform process. The authorities there have to deal with tremendous problems at the present moment, problems which involve the reconstruction of their whole tax system, which is fundamental to the country's performance. They know that they are facing a very difficult period, in regard particularly to the capacity to hold down inflation. But they have given clear confirmation that they are not going to return to the economic practices of the past.

QUESTION: My question is to the quota and the NAB. Given the obstacles in the US Congress, how great is the risk that there will be a long time before this can be realized?

MR. CIAMPI [interpreted]: The American government has confirmed that it will make every effort to secure Congressional approval for the quota increase as quickly as possible. This is a matter of considerable importance in regard of the International Monetary Fund's liquidity position. All countries participating in the Interim Committee's work are sure that this will take place, but clearly it is not up to us.

QUESTION: If I could just get you to turn back to Japan for a second. Everyone seems to agree that Japan needs to get back on track with a strong domestic demand-led growth. They have outlined proposals to do that this week. I was wondering whether you could evaluate those proposals maybe on a scale of 1 to 10. How close are they to what you were hoping for? And how do you evaluate the political will in Japan to get back on track?

MR. CIAMPI [interpreted]: I do not think it would be appropriate for me to give subjective evaluations on this subject. I do have some knowledge of the present Minister of Finance and this provides me with confidence that the Japanese government is well capable of implementing what it has said it intends to do. But quite clearly here we cannot express opinions on behalf of any other country. My opinion cannot but be subjective.

QUESTION: I wanted to know what do you actually expect to have changed as far as creating a new financial architecture is concerned. Then did the Interim Committee say anything to the Malaysian representatives about the political situation there and what is going on?

MR. CIAMPI [interpreted]: Regarding the Interim Committee itself, there was a long discussion over lunch about strengthening the Committee, about possibly converting it into a body of somewhat different format, something different from the format it had at its origin. The Interim Committee, as you recall, started in the middle of 1974, after long work undertaken by the Group of Twenty. The idea was to set up a new reality within the Fund in the form of a body which could provide guidance in regard of the economic policies which were placed for discussion before the Board of Executive Directors. The Interim Committee therefore came into being as a temporary instrument. Its temporary status has now lasted for 24 years. Today, there was unanimous agreement to give greater strength to this body and to examine proposals that may lead to its transformation into a permanent body of the Fund. I want to stress that, particularly the unanimous opinion that it is important to strengthen the Committee.

As to Malaysia, I have no particular information to provide you upon the situation in Malaysia. It was, in fact, not the subject of discussion during today’s meeting.

QUESTION: My question is for Mr. Camdessus and it is about Brazil. IMF Chief Economist Michael Mussa said today that the International Monetary Fund already has a package to help Brazil. He says that it is important that the package be announced very soon, and also that Brazil needs to speed up the crawling peg to 1 percent a month from 3/4 of a percentage point a month at the present time. I wanted to know if this is your position also, and if you confirm that the package for Brazil is already assembled.

MR. CAMDESSUS: Thank you very much for your question. It provides me with an opportunity to possibly introduce some nuances to what has been reported of the words of my friend and Chief Economist Advisor. It is true that we discussed with Brazil what could be a package of measures we could support to help Brazil to reinforce its defenses in a moment when Latin American countries are suffering the effects of contagion and of the crisis.

We have been working with Brazil, examining a whole spectrum of measures which could be part of a package--working, as a matter of fact, on the basis of the medium-term policy stance defined by President Cardoso in one of his recent speeches. But, we are just there. We have not yet received a formal request from Brazil. We continue our work until the moment this formal request is given to us. I could imagine that this could be done soon. I share the views of Mr. Mussa that it is certainly in the interest of Brazil to confirm rapidly its views and to allow the international community to finalize its own commitment.

As far as the exchange rate is concerned, I must tell you that I am absolutely certain that, if anything, a program will confirm the present exchange rate regime, which has been successful in the context of the real program. Of course, there is the possibility of adapting the crawl and certainly the possibility you have mentioned is one, among others. But no decision at all exists in this domain and we do not know if, at the end of the day, it will be seen as necessary to act in this domain. So, I believe that you must be a little bit patient and be careful in not reading too much into what we say or seem to suggest here. This being said, I hope that we will very soon be in a position to clarify the state of our relations with Brazil.

QUESTION: Mr. Camdessus and Mr. Ciampi, will you favor HIPC and ESAF countries, such as Bolivia, to adjust their agreed macroeconomic targets with the IMF to account for a continued worsening of the international economic situation? The President of the central bank of Bolivia, as well as the Vice President of the country, announced that there are intentions on the part of the Bolivian government to review their agreed-to performance targets with the IMF.

MR. CAMDESSUS: Contrary to some opinion, the IMF is a very flexible institution and very keen to adapt, when needed, its program to the circumstances of the country, particularly at a time when there are so many turbulences around and when the most solid forecast can be frequently put in question by unexpected external shocks. We have just agreed on a program with Bolivia, which has allowed us to extend to this country extremely important support under the HIPC Initiative. I have no reasons to think that the program we have supported was miscalculated, but we are permanently ready to discuss whether the program needs adapting.

In adapting the program, nevertheless, we will make sure that the country continues on its track and that the strengthening of its financial credibility, of its creditworthiness, which is provided by this program, is, of course, maintained and, if possible, further strengthened.

[Edited transcript]