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French Minister of the Economy, Finance and Industry
International Monetary and Financial Committee
of the IMF Board of Governors
Sunday, April 16, 2000
Dear Colleagues, on this occasion, as I take up my responsibilities as Governor for France of the IMF and the World Bank, I would like first to express my warm respect for each one of you, and to say how deeply attached I am to these institutions. They are instruments of solidarity in global development. They are central to the creation of an international financial system which must be made more stable and more just. And, while they must clearly adapt their missions to the new challenges confronting us, indispensable reform must not be used as a pretext to weaken them. On the contrary, France, while promoting greater transparency and close partnership with civil society, intends to strengthen their role, for these institutions are indispensable to the spread of global good governance.
I want also to pay tribute to the preeminent role which Michel Camdessus has played at the helm of the IMF. He dedicated his talent and energy to working for the financial stability and development of poor countries. May he be thanked once more, even as we wish every success to Mr. Köhler.
I. Fight against poverty and assure consistent support for Developing countries
Ladies and Gentlemen, one of the central messages which I want to convey today is that the IMF must help all countries, in particular the poorest, to have access to lasting, sustainable development. This is more than ever the priority mission for the international financial institutions. This support must be universal, which is to say, available to all member countries.
We have long been fighters for development. And though this fight remains unfinished, particularly in Africa, I am proud that France's commitment to development has never wavered, as is proved by its contribution to ODA, which is the highest share in percentage of GDP among the G7 countries.
I am well aware that some are tempted to use the pretext of rationalization to little by little sap the substance from the IMF's action in support of the poor. This is not and can never be France's position. It is out of the question to have on the one hand a pro-poor rhetoric and on the other a different reality. The greatest systemic risk of all is that of poverty. All member countries must have access to financing. We must seek maximum effectiveness in the specific actions of the Bank and Fund. For all that, pragmatically, we will not be able to avoid a certain overlap between the activities of the Bank and the Fund. But, in any case, I do not think we can accept that the Fund statutes be altered. This is also a question of the Fund's legitimate identity as a cooperative venture. In this context, I propose that we fix two main priorities:
In this regard, I regret that financing for the initiative has not been definitively secured. Progress has been made within the multilateral institutions and in terms of bilateral contributions. The European Union has done its share, with a contribution of more than a billion euros, of which 680 million are earmarked for the African Development Bank through the HIPC Trust Fund. But all commitments made must be implemented because it is essential that sufficient financing be assured at the time when the IMF and the World Bank decide on the eligibility of each country to the initiative. We cannot commit for the future without being sure that the multilateral institutions' need for HIPC Initiative financing can be well and truly met. Equity is also at issue. It would be neither just nor defensible for certain creditors to exonerate themselves from their fair share of the financing effort. The determined commitment of the Paris Club member countries is well known. It seems to me absolutely crucial that the other bilateral creditors participate equitably as well.
I even think that it is possible to go further, in committing to the principle that the debt reduction effort is truly additional, and will not become a replacement for ODA. France has done so, in committing to the cancellation of the totality of its bilateral development debt at the completion point and the totality of its commercial debt eligible for Paris Club treatment. We will thus cancel nearly 8 billion euros of debt in the framework of the enhanced HIPC Initiative.
For all that, everyone is aware that debt cancellation is not enough to give countries the means to develop. The rich are ever richer: aren't the poor still as poor? I regret, for example, that in another forum we were unable to eliminate customs duties for exports from the poorest countries, depriving them of means necessary to development. We must concentrate ODA on the poor countries which don't have access to private funds to develop basic infrastructures, to invest in education and health and to create conditions favorable to the development of private investment.
II- Continue reforming the international financial architecture
For nearly two years, reform of the international financial system has been at the top our the agenda. You know that the French Government has long been among those who advocate and act for this reform. Today, I am happy to be able to say that real progress has been made.
The IMF has been given increased financial resources, permitting it to assure the financial markets of our capacity to intervene when necessary. Financial instruments better adapted to the globalization of capital markets have been created, with emphasis on crisis prevention.
Our basic principle must be transparency-- a transparency all the more necessary when one measures the costs of corruption --both in financial and aid effectiveness terms. The time is long past when secrecy could be the rule, and so much the better. Transparency must be respected in all institutions, and in all its forms.
For example, the recent recommendations of the Financial Stability Forum (FSF), created a year ago to draw the lessons from the violent financial crises in Asia and Russia, clearly reflect a heightened collective awareness of the need to strengthen international financial regulation if markets are to work more effectively. I am delighted that consensus has henceforth been attained. I hope that our Committee will agree to call for the rapid implementation of the Forum's recommendations, with the aim notably to require sufficient transparency in large "hedge funds" and, thus, to modify their behavior. We must also cast full light on the "black holes" which so often characterize off-shore centers, which destabilize, by their very existence, the whole international financial system and its regulation.
These dossiers are urgent. We must listen to the demands of civil society. In a way, we are going forward in this area on pure good faith. But, it only takes a few countries in non-cooperation with these standards to create critical gaps in the framework we are trying to build. This is something that modern society cannot accept and we must take heed. There is much discussion of the Tobin tax -- a proposal born on this side of the Atlantic and on which opinion is varied. But, whatever mechanism or regulation we adopt will be ineffective if gaps for offshore centers persist. As a politician, I accept and even insist on pragmatism, but I refuse resignation and powerlessness.
Nevertheless, I am still concerned about one issue: the slow pace of progress towards private sector involvement in the resolution of international crises. Its a question of simple consistency. We can ascertain the development of private financing in emerging economies. It is normal that the burden of economic adjustment not fall exclusively on the populations of countries affected by crisis especially when these crises were, at least in part, the result of error in private investor analyses. Finding the way for private creditors to take full responsibility for their investments will contribute to a market regulation which enhances crisis prevention. Consequently, this must be an essential mission for the IMF.
My Portuguese colleague, Joaquim Pina Moura, President of the Ecofin Council of the European Union, proposed clear principles which should guide our approach. He emphasized that private sector involvement must become the rule, not an exception. I fully agree.
Three principles, it seems to me, should guide IMF action in this field: (i) the private sector should be called upon to contribute as soon as the sustainability of a short or medium term program is at stake; (ii) the public and private sectors should be treated comparably, as should the different categories of private creditors; (iii) the roles of the IMF, the debtor countries and the creditors must be clearly delineated. The IMF should play here a more central role. What other institution can decide whether or not the private sector should contribute to a financing plan for a given country? It is within the IMF's purview to fix the amount taking account of the action expected from the Paris Club; and to verify that the implementation treats private creditors equitably.
Finally, it seems to me essential that the consequences of an inadequate involvement of the private sector be clearly communicated ex ante.
III - adapting the international financial institutions
Dear colleagues, since our new International Monetary and Financial Committee should guide the IMF's action in this area, I suggest that we come to agreement on several general principles, which could be the basis for the IMF's adaptation to the new conditions created by the rapid growth of development of the private international capital markets.
Because in reality, the IMF, through its financial support and the conditionality which accompanies it, is the only international institution capable of making a significant contribution to macrofinancial stability in many countries. It would be an illusion to believe that the structural reforms essential to establishing a market economy and abolishing poverty would be possible without this stability. This is why I am convinced that the IMF has a central role to play in development.
This brings up the question of a global governance aiming at globalization with a human face. Finance is globalized. Financial power must also be. And, to the extent possible, the democratization of the associated institutions. France has made several proposals toward this goal, thus far without much success, and we maintain them. It is the UNDP's position that it is "good governance" which will enable us to transform the fight against poverty into actual poverty reduction. The mandate of the institutions situated at the summit of the financial architecture must be universally recognized. This requires determined action on the part of the international community. For example, the fight against corruption and financial delinquency. France was one of the promoters of anti-corruption convention signed at the OECD. We launched the idea of the Financial Action Task Force (FATF) today underway in non-cooperative countries. It seems to me that we should concentrate more on the link between governance and the assistance offered by the Bretton Woods Institutions. This set of issues is emblematic. It is becoming essential that all countries with sizeable and open financial markets establish effective protections against money-laundering. We must recognize that up to now, IMF surveillance and its programs have not sufficiently internalized this issue. Thus, I am happy that the Financial Stability Forum (FSF) has proposed to consider as a priority standard the 40 recommendations of FATF. This should lead the IMF to integrate this issue fully into its activities. I hope that we can very rapidly establish a list of territories against which the international community will decide to act firmly to bring their destabilizing practices to a halt. We have the means: it is now a question of political will.
IV - Intensifying our cooperation for more balanced global growth
Dear Colleagues, the global economy is back to growth. The general situation of emerging countries is improving. The United States has had surprisingly strong growth. This growth should remain balanced - however unstable the financial markets may be - and in this regard I welcome the contribution which sound US fiscal policy is making to reducing the savings deficit. Japan, as we know, remains a subject of concern - and this as long as internal demand will not have clearly indicated its capacity to sustain recovery.
As concerns the European Union and the euro zone, I share the assessment of my Portuguese colleague: the European recovery is robust and durable. France is among the countries which have contributed the most to the recovery. Confidence has been key to our growth: business confidence--indeed investment is developing at a sustained and regular pace--household confidence, thanks notably to dynamic job creation. In the second semester of 1999, growth attained a steady rate of nearly 4% per year. Thanks to reforms in the labor market, growth has produced more jobs. This movement should be prolonged. It does not affect the total factor productivity, whose growth is maintained through investment efforts. The unemployment will fall to below 10% during the year 2000, for the first time in 10 years.
In Europe, we have a historic opportunity to enter a strong and durable growth cycle. To this end, we should continue our collective action to reform our economies.
These subjects have been addressed by our Heads of State and Government during their recent extraordinary European Council in Lisbon. They are the focus of our collective will to advance towards a society of full employment, growth, and knowledge, which will serve as an essential engine for the global economy.
The European economy is, thus, strong, and we believe that the natural corollary of a strong economy is a strong currency. In this time of vibrant growth, but where substantial risks remain, the stability of the international financial markets and a configuration of exchange rates adapted to economic fundamentals should remain at the heart of the international community's common concerns.
A few words in conclusion. We all have the feeling, here, that the IMF and the World Bank have been doing useful work. Yet they are little noticed, or badly thought of. Sometimes, and increasingly so, these institutions are judged responsible for the imbalances and poverty it is their task to fight. We have a responsibility in this situation: it is quite easy for us to make scapegoats of them, when, as we well know, they act based on unanimous agreement, and because we politicians want them to. Let us shoulder our responsibility. And, above all, let us spread the truth. For the poorest countries, very little of what has been done would have happened without the international financial institutions. Let us correct what must be corrected, but we must be accountable for what we do. And, above all, we shouldn't believe that we can take decisions out of general view and opinion. Let us apply the transparency which we demand of others to ourselves. Let us very openly listen, deliberate, discuss, act, supervise, and inform.