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Transcript of a Press Briefing at the Japan Press Club
by Michel Camdessus, Managing Director
International Monetary Fund

Tokyo, Tuesday, May 18, 1999

MODERATOR: Mr. Camdessus has visited Japan many, many times already, so there is no need for me to introduce him again, but I would like to announce that the text of a speech given by the Managing Director at a seminar this afternoon is outside the door, so please take a copy as you go out. The time is limited, so I would like to invite Mr. Camdessus to start with his remarks.

MR. CAMDESSUS: Thank you. As time is limited, as I understand, my speech is somewhere available to the members of the press, I will shorten it to the extreme and possibly make a different speech from the one which is there. Let me tell me first how delighted I am to be here, and how much, together with my wife, who is my best spokesperson as a matter of fact. I appreciate your hospitality, and the pleasure to be once more your guest in the Japanese Press Club. I don’t say that out of courtesy but out of my genes. It happens that I am the son of a journalist, and each time I am with a group of journalists I have the dangerous illusion that I am at home. So I come to you, ladies and gentlemen, totally defenseless, as if I was at home, and I urge you to be indulgent and not to abuse this power you have over me, as I feel at home with you.

This being said, it’s difficult to say in such a short time how one sees the world we are in, but I can say that I now have a greater degree of confidence, a confidence that I didn’t have last October, when the world was in the middle of a severe credit crunch, which could have made a reality of all the talk about deflation and a deep recession for the world. We are no longer in that situation. Many factors justify the climate of guarded optimism which we feel today. And of course, here in the heart of Asia, I can point out the remarkable way in which the Asian economies have implemented their programs of adjustment and reform with the IMF, which underpins our renewed optimism. All of them now have more positive prospects and this is good for them, good indeed for Japan, and this is for me a very good occasion to pay tribute to Mr. Hubert Neiss here, who has been the architect of all these programs which have been severely criticized from time to time by people who don’t know that success in economics takes a few weeks or a few months to bear fruit and is not an overnight phenomenon.

But countries which have implemented these programs are now emerging from the crisis, and I am certain that they will emerge stronger and much fitter to address the challenges of the next century than they were before the crisis. This will create for Japan a stimulative environment and I hope that this recovery around the region will help you on your recovery. On Japan, we are becoming more confident in the IMF; you will tell me that there is a paradox between the confidence we are expressing here today here and the numbers we, the IMF, publish. You are more pessimistic in the numbers for growth in 1999 than our government, you might say, then why do you tell us that you are more confident? Well, I have an answer to this question, but possibly I will give you that later because I am certain that you will put me the question. What makes me a little bit more optimistic about the future of the world is that I see the international community becoming much more serious, entering much more in depth in this debate about the new financial architecture, and not contenting itself with overarching principles, great statements of intentions and commitment. No, they are helping us to adopt measures which have the potential in the future to reduce the chances of a crisis of this magnitude and, if they should occur, to help us to address them more efficiently. We also have much to say about architecture, and you will have that in my speech. I am ready to come back to that later on to give you in more detail what are the elements I see there as particularly positive for the future. But let me also, before opening myself to your questions, tell you of my gratitude and admiration for the way in which all along in this crisis Japan has been able not to forget the countries in trouble but, in spite of its own severe difficulties, has been able to find the instruments to help these countries out of their problems.

This has been the case with the first Miyazawa initiative. I was in Langkawi with Mr. Miyazawa two days ago, three days ago, when he launched a new program which dovetailed with his first initiative, now with the objective of speeding up the full recovery of the countries and making easier the return to the international market. I think this was a well inspired and timely initiative. By doing that Japan demonstrates the role of leadership it must have in this part of the world and in the world in the future. I wanted to say that, seen from the point of view of the IMF with the responsibilities we have to speed up the recovery of all these countries, these initiatives are extremely welcome and this is an occasion for me to express my gratitude to Japan for its permanent support in all our labors to try to make the world economy a more prosperous one and one which offers to the poorest real chances of development. With that I stop and let me tell you that I’m delighted to have this opportunity to have a dialogue with you.

QUESTION: Thank you very much, Mr. Camdessus. We would like to start with a question regarding the Japanese economy. You say that you have confidence in the Japanese economy; what are the grounds for your saying this? As the Japanese government says, in FY 1999 the economic growth rate of half a percent, 0.5 percent. Do you think it is possible for Japan to achieve 0.5 percent growth? And also, in order to achieve that, do you think that there should be additional measures such as to formulate a supplementary budget?

MR. CAMDESSUS: Well, Sir. I expected this question. It shows that we in the IMF are seeing numbers that are less positive for growth in 1999 than your Government. Your Government speaks about +0.5, nothing exciting in reality; we in the IMF and, I’m afraid, many economists in the so-called consensus say that it will be difficult to make more than percent. Then why are you optimistic? For the following reasons. First, let me say that the gap between what the Government says and what we say is in reality not that big. You know that all these kinds of numbers must always be taken with a grain of salt, particularly at a time the economies are approaching a turning point. Depending on the way and the moment, at the turning point, if you move a quarter in one direction or another, you have a significant difference. But more than that, if we in the IMF are a little bit more pessimistic, it is that we had to change recently our numbers to factor in the very negative result of the last quarter of last year, and this has an impact on our economic models for the full year 1999, as you can imagine. Second, we see an inordinate negative impact of the corporate restructuring which is going on now, even if this corporate restructuring that is impacting negatively in the short term is one of the best things which could happen in the Japanese economy. It is indispensable! It came too late, in my judgment, but it came. It will, of course, have a negative impact in the short term on unemployment, on household income, etc.; but out of that your industry, your corporate sector will become much more solid and better prepared for the next century. This is indeed an important factor. There is another factor which explains the difference between us and your government: the Government knows what it will do in order to stimulate the economy in the near future, while our staff calculates its numbers on the basis of measures which were known at the time our own forecasts were established. I understand after my conversations with the Japanese authorities that they are precisely in the business of trying to conceive what kind of measures could be needed in the next few months to help the economy to start again on an ascending plane, and every day you have new suggestions, new ideas about stimulating demand, actions on the supply side. All of this is welcomed and I believe it will be important for the Government in the next few weeks to conceive, to be prepared to put in place the measures which could be needed during the second part of this year to give an added boost to the recovery in a way that avoids any dilution of the present fiscal stimulus at the year end.

In this situation, if I had to suggest something to your Government, it would be to do very much, and if possible more, of what it is already committed to do. It is important that the fiscal measures be put in place as rapidly as possible in order that the fiscal stimulus be rapidly introduced in the economy, particularly in the investment sector. It is important that your bank restructuring measures be expeditiously implemented, including recapitalization and disposal of nonperforming loans. It is important that your central bank continues with its well designed monetary policy, maintaining interest rates at zero, or close to zero, and injecting the proper amount of liquidity into the economy to make sure that the recovery is not limited on the credit side. All of that is important. I believe that if all of that is put in place and the Government is quick in responding to any negative news with further measures, we will see the first indications that we have a return of confidence. You see in the stock market a change in the atmosphere. This would allow in the year 2000 much better numbers than we see now. It is difficult to say more at this stage, but I don’t see why the phenomenon of strong recovery and rapid recovery, once confidence is back as we have been able to observe in Korea, wouldn’t mutatis mutandis be reproduced in your country. At this stage this is still a wish. I hope actions by your bankers, your corporate sector, your government will make this a reality.

QUESTION: Is a weaker Japanese yen a positive factor for the Japanese economic recovery?

MR. CAMDESSUS: Well, it is difficult to say if the yen is weak or strong. You would say that all currencies in the world are weak when the dollar is as strong as it is, with strong fundamentals justifying its strength. I believe that the yen is at this moment more or less in the range where it should be. I believe that in the short-term, a relatively weak yen is a positive thing for your economy. I wouldn’t wish the yen to appreciate too rapidly, because this could be a factor which could derail the recovery of the economy. The exchange rate at this stage is not a problem for your economy. The central bank will certainly take care to avoid it becoming a problem by allowing it to appreciate too rapidly.

QUESTION: The next question, the economies of Japan and the United States. The massive current account deficit of the United States and the massive fiscal deficit of Japan. These two deficits are stimulating the world economy, according to some views. Do you think this situation is sustainable?

MR. CAMDESSUS: Well, you could broaden this question to the European situation also. We are at a very critical juncture at the level of the world economy. So far, the remarkable expansion of America, the fact that America is now in its ninth year of expansion, the fact that this expansion remains strong with low or nonexistent inflationary pressures, this has contributed to limit in a very positive way the impact of the so-called Asian crisis, which has become a worldwide crisis during last year. This has helped the world to continue to have positive growth, when it could have been in a recessive situation. But now we arrive at the moment when there are questions about the sustainability of the U.S. growth. You see that U.S. growth is accompanied by growing external imbalances, to a worrying level indeed, and you know that when current account imbalances go to that level, you can have at any time questions about the exchange rate and a sudden drop in confidence. an exchange rate fluctuation can be accompanied by developments in all the markets. Add to that external imbalances have started generating protectionist pressures, which are by themselves a very dangerous factor. So, in such a situation, the leaders of the world, and I presume that this should be a theme of their conversations in Cologne soon -- if the Kosovo problem doesn’t distract them from their economic concerns--, I believe that it’s time for the world leaders to put together a strategy directed at producing a soft landing of the world economy, maintaining at the global level enough growth in external demand to maintain the rate of growth of the world economy at as close as possible to its potential. This requires, indeed, that the Asian countries in crisis get rapidly out of the crisis and confirm their recovery. And of course, this could materialize. But there are two other conditions. One is that the European economies get out of their present kind of lethargy, this kind of sluggish level of activity which is bad for them and which doesn’t contribute to world growth. The last condition would be to have in Japan a robust recovery soon, before the American economy starts on a declining path. The problem is that the American economy could start slowing down at any time, while I couldn’t say that the European and Japanese economies will go to a path of a robust recovery at any time. And this is why vigilance is of the essence, and this is why both Japanese and European policy makers must be obsessed by this need of injecting growth in the system.

QUESTION: Earlier, regarding the Japanese economy, it was mentioned that, if the fiscal stimulus measures are to be taken, it should be done as promptly as possible. Looking at the situation in Japan, a supplementary budget will not be formulated until autumn at the earliest. Is this in compliance with your view of "as quickly as possible"? Is it soon enough?

MR. CAMDESSUS: Well, this is one of the problems with fiscal measures, that there is a rigidity in the parliamentary procedures which does not allow a flexible response to the movements of the economic conjuncture. Monetary policy lends itself to this kind of quick response. In the budget you must go through parliamentary proceedings, and it takes more time and after that you must implement the measures, and this also takes time. This is why we recommend always to the policy makers to try to have a kind of forward-looking vision, to try to see beyond the immediate horizon in order to be ready with contingency measures when these measures are required. I believe that this is what your authorities are doing now. If they are concentrating on this line of contingency responses, it is precisely because they want to be ready in time. Will it require a supplementary budget or not? This remains to be seen. They have not yet given their response. There are measures which can be taken which don’t require a formal budgetary deliberation, an which can be helpful. I’m sure that they will be very pragmatic and do everything they can not to arrive too late.

QUESTION: Thank you. Changing the topic a little bit and looking at Asian economies, with Japan’s $30 billion Miyazawa initiative, and now the bond guarantee program announced last weekend, do you worry that Japan will elbow the IMF out of role of helping Asian economies?

MR. CAMDESSUS: No, I don’t fear that at all. What I see is an extremely constructive contribution of Japan to the confirmation of the success of our programs. If you look at the design of the programs Mr. Neiss has negotiated with Korea, Thailand, Indonesia, or has maintained with the Philippines and others, you will always see that even if the IMF has been by far the most important contributor, there was always room for major contributions from bilateral donors. This was part of the strength, and also the weaknesses of the programs in as much as bilateral donors are not always as speedy as Japan in bringing about their contribution. But the Miyazawa initiative, the $30 billion, has come in a very timely way to complement these programs. You can hear that from all the countries which have benefitted from it and I believe that the scheme of bond guarantees announced in Langkawi last Saturday is contributing to the same purpose. We in the IMF would only wish that all the countries follow the good example of Japan in this domain. The IMF role will not be reduced at all, but on the contrary, the success of its programs will be accelerated.

QUESTION: During the Asian crisis the programs that the IMF has implemented were subjected to various criticisms. Japan recently provided a yen loan in the order of 20 billion yen to Vietnam. It was done before the IMF and the World Bank reached an agreement with the Vietnam government. In the background, this is a criticism by Japan of the IMF program. How do you look at the Japanese attitude in this domain?

MR. CAMDESSUS: It’s news for me that in the background of this program there is a criticism of the IMF program, because I see that in a very different way. We have worked with the Vietnamese authorities for several years in helping them through our ESAF program, to which Japan contributes, to reform the economy and put it on a track of rapid growth with low inflation, opening itself to international trade, opening itself to foreign investment, and making room for private activity. This is the strategy the IMF had there. This is the strategy we pursue and now we see we are making progress in our negotiations of a new three-year program with Vietnam. To this end, we are delighted to see that the Japanese are on their own side as good neighbors of Vietnam, speedily negotiating their own 20 billion program with conditions which are in perfect harmony with the conditions of our own program, as they promote trade liberalization, tariff protection instead of non-tariff protection, more freedom for foreign investment, an audit of state-owned enterprises; all these measures are in perfect harmony with the IMF requirements. I suspect that, if Japan goes ahead speedily, it is because Japan is convinced that the Vietnamese will agree with the IMF on a macroeconomic program of sound budgetary and monetary prudence, which will be the ideal framework for their own program to succeed. You know well your Minister of Finance wouldn’t go for such a major contribution if a country had not established itself, with the monitoring of the IMF, a proper, prudent macroeconomic framework. The IMF negotiation is there to provide that, and I believe we will have here a new case where Japan and the IMF will work hand in hand in helping the development of an important country.

QUESTION: Regarding Russia, Prime Minister Primakov, with whom you held talks with in March has been dismissed. How do you look at the situation of Prime Minister Primakov being dismissed? How are you going to proceed with the loan of $4.5 billion in the future?

MR. CAMDESSUS: You are perfectly right, we had negotiated in March an important 18-month stand-by arrangement with Russia. I personally took part in the negotiation and I established the terms of the agreement with Prime Minister Primakov. Prime Minister Primakov is now being replaced by a new prime minister. I have no reason to change whatsoever the agreements we have concluded with Russia. I had excellent personal relations with Prime Minister Primakov, as I had with his several predecessors. I look forward to developing a similar working relationship with his successor, and I can tell you that if the new government implements the prior actions which are part of our agreement, the IMF will disburse its support in time, according to the agreement. There is a continuity of the State. The IMF does not negotiate with individuals, we don’t make deals with individuals, but with countries, and we trust a country as great as Russia to stick to its promises, and we hope that this program will help Russia to go through the period between now and the end of the year 2000, sticking to the right track.

QUESTION: At the heart of the Asian crisis was the bad management of the financial systems. It looks like the impetus for reform is slowing now. I’d like to have your comments on the remarkable announcement made yesterday in Singapore, where the government of the country is realizing finally that you need to have open financial markets to get your own banks to become competitive. This is, in my opinion, a very good lesson for other Asian countries, including this one. Do you agree?

MR. CAMDESSUS: Well, I am delighted that in its unique Singaporean fashion, the authorities there are going forward. As you said, they are well inspired in introducing more competition in their system. I wouldn’t push too far the comparison between this huge Japanese economy and the relatively smaller Singaporean economy. Mid-size economies in Asia are concerned by the risk they are exposed to due to the fact of their size, while international speculators, highly leveraged institutions could overwhelm them as long as the system is not better organized and regulated. In spite of these fears, they are taking measures in the right direction. I salute them and encourage them to go ahead. This being said, you made a very important point in saying that there is a risk that the impetus for reform could be disappearing as the crisis itself, or the worst of the crisis, is over. This is a risk, and we in the IMF are familiar with crises and dealing with crises. We know pretty well that there is a moment of great danger when the first evidence of success is there and when, of course, the temptation of policy makers is to forget the commitments they took for reform when they were at the heart of their difficulties. I hope that this time the lesson has been learned and that Asian countries, which are now emerging from their difficulties, will not forget that they have still a very important calendar for banking restructuring, for corporate restructuring, for further opening and deregulation of their economies. It is only if they complete these programs of reform that they will have the success they deserve.

QUESTION: Would you support the creation of an Asian Monetary Fund, if it is consistent with the IMF?

MR. CAMDESSUS: Thank you very much. The Asian Monetary Fund was an idea launched in September 1997. It did not have much support among the other major industrial countries, who were concerned about the risk of having a fund with softer conditionality which would not allow the IMF to do its indispensable job. Since that time, the Japanese authorities have preferred to take a less ambitious approach, but possibly a more effective one, through the successive Miyazawa initiatives, in close collaboration with the IMF. I believe that so far this more pragmatic approach, less institutional but certainly very efficient, has produced a very positive result. I believe that we must take a very pragmatic approach and learn by experience and see if the instruments that we are using now justify or not a more institutional approach. For the time being, when I see what we have done, when I see what the Asian Development Bank has done on its side, at what bilateral donors have done, I have the impression that finally we have been able to mobilize the financing that was necessary. This corresponds well with an impression I have had since the beginning of the Asian crisis, namely that it couldn’t be the liquidity, the financing, that was the problem. In Asia we could find this financing, but what was necessary was to have strong programs, well designed and quickly implemented. I am happy that, with or without an Asian Monetary Fund, we have been able finally to do the job.

[Edited transcript]


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