Transcript

Press Conference by Michel Camdessus, Managing Director

September 18, 1997

THE MANAGING DIRECTOR - Thank you very much. First of all, welcome to this press conference and welcome to Hong Kong, this city which offers us so many exciting glimpses of the 21st century. This being said, we did not come here for dreaming but for working and working hard, so I will start as usual by giving you the menu of our work, in the form of the agenda of the Interim Committee. After that, I will tell you briefly what are the elements there which seem particularly relevant and important to me and my management colleagues.

Ministers and Governors attending the meeting of the Interim Committee will start by commenting on the world economic outlook, with particular emphasis this year on the issues of the globalization of financial markets and their implications for macroeconomic and exchange rate policies--all of that in the context created by the recent experiences in Asian markets. Also on this item, they will probably comment on European Economic and Monetary Union (EMU) perspectives and what EMU could change for the world economy.

Ministers and Governors also have on their agenda something which, to my judgment, is particularly timely and important, namely, the analysis of our proposals concerning the liberalization of capital movements and our need for political guidance to amend, as needed, the Articles of Agreement of the IMF to give us a mandate and jurisdiction for promoting such liberalization.

Then we have a few more "parochial" issues for the IMF, namely the Eleventh General Review of Quotas, an amendment to the Articles to provide for an equity allocation of Special Drawing Rights, the report that Mr. Wolfensohn and I will make on the implementation of our initiative for the highly indebted poor countries (the HIPC initiative), and also continuing the Enhanced Structural Adjustment Facility (ESAF).

This is the agenda of the Ministers and Governors of the Interim Committee. Behind this agenda, behind each item there, you have the intensive work which has been accomplished by the Executive Board during the last few months. Also, the request for guidance, support, and, as needed, the mandate to continue this work in the next few months.

But behind all of that you have even more; you have the shared convictions that the members of the Executive Board would like to convey to the membership about what the world situation is and what we can foresee and expect provided we work hard in the next few years. Here, I would like to draw your attention to seven reasons to be confident. And when I say "confident" I mean if we are active and work hard to try to realize what is possible to realize.

First, we have a message of confidence for this part of the world. As we see all countries now responding in the right way to the challenges of this crisis, we are confident that with a lot of responsibility, a lot of solidarity among all members of this community, this crisis can be transformed into an opportunity for higher growth and higher quality growth in this part of the world. Of course, you will have your doubts about that and you will tell me the markets still do not believe that. Okay. But I am ready, in the subsequent part of this meeting, to tell you why we are confident.

Second, we are confident that in spite of the southeast Asia crisis, the world is heading toward several years of satisfactory growth. The comments of Mr. Mussa yesterday provided you with a lot of reasons for this confidence.

Third, we are confident that the European Monetary Union not only can start on time, but has all the potential to be a very positive development for Europe and for the international monetary system.

Fourth, we are confident that the International Monetary Fund can help in the near future to promote an orderly liberalization of capital movements and prevent a chaotic liberalization. This is, indeed, as I mentioned earlier, a major item on our agenda--prevent chaotic liberalization, achieve an orderly one.

Fifth, we are confident that a second generation of reforms--beyond macroeconomic stabilization in the initial opening of the developing economies--can be successful not only in avoiding the marginalization of the poorest countries in the context of globalization, but rather in allowing many of them to benefit from their full integration in a globalized world.

Sixth, we are confident that countries in transition are now truly and actively completing the process of transformation of their economies and are heading toward sustainable growth. I am particularly happy to tell you today that we are now in the first year when, on average, these economies will have positive growth for the first time in seven years.

Seventh, we are confident that Hong Kong SAR and China, under the wise regime of one country, two systems, can benefit greatly from their complementarity.

These are the seven reasons for being confident. I was tempted to stop there, as seven is a good biblical number, but I have been told this morning that in China eight is even better than seven. Therefore, I will add one further element of confidence. This further element concerns what you may think of as the more parochial business of the IMF, namely the SDR allocation, the quota increase, the ratification of legislative action needed for the New Arrangements to Borrow, the strengthening of the ESAF-HIPC instruments. I am confident that here in Hong Kong we will make major progress on these matters toward equipping the Fund better for its demanding job in the future.

Now, one last word. I have mentioned eight times the word "confidence." All of that has nothing to do with wishful thinking. We well appreciate the many risks around, and I could mention a few of them. We in the IMF know perfectly well that we must not overlook the risk in all parts of the world that inflation may pick up again, particularly in economies where output is pressing upon capacity. We know also the risk deriving in Europe from the malfunctioning of labor markets; and the risk, in parts of Asia and Latin America, but not exclusively there, related to fragile banking systems and persistent inequalities in economic opportunities. We know that in all too many countries in the world poor governance and inefficient use of public resources perpetuate widespread poverty and impede the development of human capital. We know all of that, and we know that our task is precisely to fight all these risks.

We know also that the future of the world is in the hands of human beings who are not always ready to draw the lessons, even of the most immediate experiences. We know all of that. This is why you will see us insisting a lot during the next few days about what we call the key requirements of globalization, namely a stronger sense of responsibility and solidarity from all those who are in charge. On this basis, yes, we will be able to prevent crises and to join forces in building a better world.

Ladies and gentlemen, here you have the menu; you have the context of this ambitious agenda. Now I would be very happy to answer your questions.

QUESTION: Mr. Managing Director, you have mentioned your confidence in the conclusion or the successful launch of the European Monetary Union. You have also mentioned one of the risks in the World Economic Outlook, where it is underlined that many countries in Europe seemed to be reluctant to undertake sounder structural reforms that are needed not only to launch EMU but also to maintain it successfully. Are you worried that this may mean that if countries that are not ready are admitted to the European Union, there may be a collapse later of the system? What sort of leverage does the IMF have to try and convince these countries to undertake these reforms?

THE MANAGING DIRECTOR: When one sees what has taken place in Europe during the last few years, one is tremendously impressed by the deep convergence of these economies. Of course, the cyclical difficulties in which many of these economies find themselves hide a little the magnitude of this progress; but the convergence is there. Indeed, I see also that all these countries in Europe consider that this progress, particularly in the consolidation of their fiscal positions, must be continued, not only because Maastricht requires it, not only because they have subscribed to the stability and growth pact, but also because they know pretty well that this is a precondition for them to establish themselves on a higher, better path of growth. All of this makes us confident that they are prepared to meet the challenges of EMU. And as far as the quantitative criteria set out at Maastricht are concerned, we believe that they will be very close, if not on target.

So, I do not see the risk of unprepared countries being admitted. What we in the IMF are concerned about is something which is not among the performance criteria of Maastricht, namely, the needed flexibility in these economies, the needed reform of labor markets in particular. Here, many of them still have an enormous agenda to fulfill if they are to take full advantage of this Monetary Union. We see it as extremely important for the future of EMU that member countries be flexible enough and have the ability to adapt to the new opportunities; that they alleviate the burden on their budgets of regimes of unemployment benefits or social security which are no longer suited to the present world and which are of a very high cost. Accordingly, if I had a suggestion to make to the European countries now, it would be to give at least as much attention to this second problem as to the very last decimals of their compliance with the other quantitative criteria of the treaty.

QUESTION [interpreted]: You mentioned the word "confidence" eight times. You did not ever mention Latin America, however. Could you add a number nine for Latin America, because this is the number of months ladies remain pregnant? This is also linked to the serious problems we have--including unemployment--where solutions have not yet been found. What view does the IMF have on the evolution of Latin America in general, and of Colombia in particular.

THE MANAGING DIRECTOR [interpreted] - Well, the International Monetary Fund can do many things, but it cannot reduce or extend the number of months of pregnancy. This will remain a fixed figure even in the world of globalization.

Having said this, when I was discussing our confidence in countries undertaking the second generation of reforms, I was talking about Latin America in particular. Latin America has made enormous progress over the past decade toward stabilization and opening to the outside world, but we cannot be satisfied with the fact that this progress has not made it possible to raise the growth rate above an average of around 4.5 percent.

Your continent, with its population and youth, needs more. The key to rising from this plateau to growth of, say, 7 or 8 percent is more profound change--change in the institutions of the countries themselves; changes in their manner of being governed; changes to promote confidence of investors, reduce corruption, and establish a judicial system in which there is confidence; changes that will enable the private sector to take on a broader role; changes that will make it possible to generate resources for more investment. All these kinds of investments and reforms of the second generation are called for.

Colombia is now facing precisely the same problems and it needs to face them with courage. I have confidence that Colombia can do this. Colombia is suffering, in particular, from these problems of corruption, drug traffic, and all that. But I know as well that Colombians and the Colombian government wish to remove these scourges, and I have confidence that they can do this.

QUESTION [interpreted]: China is a member of the IMF and has been cooperating with the IMF for more than 10 years. Now that we are to move into the next century, what is the prospect of cooperation between the two? Also, China has just convened the 15th Party Plenary. There have been some changes proposed. What are your opinions on them?

THE MANAGING DIRECTOR: Thank you very much for providing me with the opportunity to express my admiration for the impressive economic performance of China over the period during which China has been associated with the IMF and has availed itself abundantly of the technical assistance of our institution.

Since the late 1970s, China has been able to grow on average by 9 percent a year, quadrupling per capita income and reducing by millions the number of people suffering poverty. You have had an extraordinary phenomenon where the dynamism of development and the effort to liberalize and open the economy, supported by a steady flow of foreign investment, has catapulted China to very high growth. It is impressive to see that China is absorbing more or less half of foreign direct investment in the world. At the same time, China has been able to avoid major macroeconomic instability and phases of deep recession of its economy, and to accumulate the second largest level of foreign exchange reserves in the world.

All of that is an impressive record, and the IMF has been happy to assist your country during this period in establishing a central bank and monetary policy according to the most modern standards and in developing its financial sector generally.

What I hear from the work of the 15th Party Congress is encouraging, because it puts the finger on what is one of the essential challenges of your country in the next few years, namely the transformation of state enterprises into efficient enterprises. Here, a lot is at stake, because these enterprises are less productive than those of the private sector and impose a very heavy burden on the financial sector. For China to continue growing steadily and to face all the formidable challenges which remain to be faced, it will need to address weaknesses in the enterprise and financial sectors. I therefore welcome very much the priority being given to this transformation of state enterprises.

Of course, there are other things which will be needed during the next few years. I have mentioned the reform of the financial sector. It will also be important for the government to continue strengthening state revenues, in order to be able to allocate more resources for human development. We also endorse very much the strong emphasis put by your government on fighting corruption and reducing disparities in the distribution of income. The latter is a problem many countries have found at China’s current stage of development. It is a problem which is bad, both because of its social and because of its economic consequences. It is important that during the next few years a more equitable distribution of income be achieved. In all these fields, the IMF will be happy and proud to continue its friendly association with China.

QUESTION [interpreted]: You spoke recently of the second generation of reforms and the need for Latin American countries to forge ahead in that type of initiative. Within that context, sir, I would like to know what the tenor is of the negotiations that are being carried out, what is the stage of negotiations that the IMF has reached with Argentina for a new Extended Fund Facility (EFF) arrangement; and within the basic tenets of a prospective agreement, what are the structural reforms that the IMF would ask Argentina to carry out? With regard to corruption and bad governance, issues which are dear to your heart and which you spoke about when you visited Argentina two or three months ago, to what extent are those two items included in that second generation of reforms for Argentina?

THE MANAGING DIRECTOR [interpreted]: As you well know, we are working very hard and on a continuing basis with the Argentine authorities with a view to obtaining crystal clarity on the issues that, to our mind, are essential. With that in mind, I traveled in March of this year to Argentina not only to meet with the President and the government, but also to take the opportunity to say publicly in Argentina what, in the view of the IMF, remained the basic obstacles that Argentina needed to overcome in order to achieve greater growth, achieve greater employment rights, and be able to fulfill its rightful role in the international community.

I do not think I need to reiterate at this time what I said then. But the fact is that in Argentina, as in many other countries, it is and remains important to keep fighting corruption, to keep fighting bad governance, to ensure that inequities are resolved and that confidence is clearly restored, so that investors are encouraged to put their money in the country and allow it to grow. It is within that framework, of course, that we are looking at a new EFF arrangement for Argentina. We are looking, for instance, at measures to promote greater flexibility in the labor market; at reforms to make the tax system more equitable and more efficient; at the question of financial market reform; and, of course, at all factors that are needed for a solid macroeconomic framework. These are the major planks of that framework. Negotiations, as you have said, are ongoing and we hope that before the end of the year we will be able to conclude those negotiations so that the new program can start up at that time and run through to the end of the century.

QUESTION: Since we are in Asia and we are at the IMF and there is, in the financial market, something of a crisis still out there in this region, I wanted to ask you a brief three-part question about Asia, two parts on Thailand and one part on Asia. The two parts on Thailand are very simple. Are you satisfied that the Thai authorities are doing everything that is consistent with the IMF rescue program and adjustment program, because there are reports daily out of Bangkok that you are threatening to withhold funds and that you are not happy with their performance. The second part of the Thai question is, since the government of Thailand could collapse--it is possible that the six-party coalition could collapse in the next few days or weeks--what would the IMF do and what would the consequences be for the rescue program and the adjustment program if the government of Thailand were to collapse. The last part of the question is more general. What is the IMF's advice to Asian governments that need to sell to their people lower living standards as a short-term sacrifice for dealing with domestic banking crises that may occur?

THE MANAGING DIRECTOR: I will take your second question on Thailand first. The stability of the government for the duration of the stand-by is not a performance criterion under the program. This is something which is in the hands of the parliament there. It is true that each time we make an agreement with a country led by a fragile coalition, we take a risk. But Thailand is a democracy. When a government falls, in general there is another coalition behind to take the helm. In the case of Thailand, and if this eventuality were to occur, we are confident that with the wise leadership of his Majesty, the King, a new government could take office soon enough to avoid any interruption of the program.

But this is an "if". My central hypothesis is that we continue working with the government which is in place and which had the courage to agree to a very comprehensive and strong program for the recovery of the economy. I salute its courage, because this is a tough program in many respects, particularly in the fact that it goes down to the very roots of the crisis, particularly in the weaknesses of the financial sector.

Are we satisfied with what they are doing? We are never satisfied. You know us. We are always impatient to see implemented what we have agreed with a country. It is our job to put pressure on countries; to remind them that time is running and markets are expecting measures, and that markets want to see not only a program but its implementation for confidence to recover. But I must tell you we are permanently in contact with the Thai authorities and that, so far, we see them complying pretty well with all the macroeconomic elements of the program: budget measures, monetary measures, exchange measures. We have been impatient to see the reform of the financial sector put in motion. But, while showing our impatience, we also understand the difficulty of the task. There is not a single government in the world that is that prepared to suddenly transform so radically such a huge part of its financial sector. And the fact is that in the past few days, we have seen a very distinct sense of urgency there and measures being actively prepared. The last assessment I have of their action in the financial sector seems positive. We are confident that this will continue and be accelerated in the next few weeks, and that the program being implemented has all the potential for re-positioning Thailand on a sustainable growth path.

Now, your last question is more fundamental. How--particularly in the context of southeast Asia, with this extraordinary background of sustained high growth during at least a decade--can we all of a sudden tell governments, well, wait a minute, now it is time to change; you are heading toward catastrophe; your current account is in a dangerous position; the maturity structure of your debt is too short; your financial sector is too weak; now it is time to put on the brakes and grow for a period at a lower rate in order to put your economy back on a stronger footing. Well, it is our job to say that, and we have been doing this job for some time. Everybody knows that all these messages have been expressed in nonambiguous terms by the IMF in this part of the world for quite some time. Somebody was asking me yesterday why I had visited Asia four times in the last 12 months. I can tell you that it was not for tourism, but precisely for the purpose of delivering such messages.

Even if it is difficult, even if it takes time to convince governments that these kinds of shifts are needed, it is feasible. Many of the governments recognize that this is the only way to establish their economies on a sounder path. It is then their task to tell their citizens that if they want more growth, more sustainable growth, higher quality growth, this has a price--be it greater budgetary discipline, be it slower growth. This is the responsibility of the politicians. I have mentioned the importance of responsibility in this new world. You will hear me insisting on that in my Annual Meetings address. I do that because I strongly believe that in this globalized world, there is no longer room to make mistakes. When governments operated behind various controls, they could from time to time take a pause or be content with aiming to perform at the average of the level of others. This is no longer possible. All governments must compete for excellence. No government can allow a vulnerability to develop in its macroeconomic situation, even if the overall picture is bright.

Take Thailand. The performance of Thailand was strong in terms of growth, in terms of exports, in many domains. But it had a vulnerability. The current account deficit was too high and short-term indebtedness too large, and there were weaknesses in the financial sector. These had to be corrected. Governments must explain to their people that now the competition is for excellence, and that that is the price if countries are to avail themselves of all the wonderful possibilities offered by globalization.

QUESTION: I wonder, in the wake of the Thai crisis, whether you now think that all IMF member authorities ought to publish details of their net foreign exchange positions.

THE MANAGING DIRECTOR: One of the lessons of the Thai crisis is certainly that countries need to be more transparent and to inform the markets better. We are now assessing what next steps to make in this domain of promotion of transparency. Here, you have a variety of attitudes if you take the whole membership. You have those countries which already disclose this kind of information. You have those who do not want to do it or who are not yet familiar with the costs and benefits of transparency. We in the IMF are reassessing all of that in order to see what the next steps should be. Personally, I would like to go as far as possible in this direction, because I believe that, in the final analysis, transparency is the best protection for countries against sudden changes of perception by the market--changes that can be disruptive, as we have seen on so many occasions.

QUESTION: In your seven reasons to be confident, Mr. Camdessus, I noticed that you did not seem to mention debt forgiveness. Where does the Fund stand on the use of its gold reserves, and how confident are you that there is going to be a more realistic approach toward the debt situation?

THE MANAGING DIRECTOR: I had this in mind when mentioning--in the eighth point of confidence in my opening remarks--that I thought the membership would allow us to avail ourselves of the necessary resources to play our full role in the HIPC initiative and to continue the ESAF.

Where are we in this domain? The complex machinery of HIPC has been put in motion. As you know, three countries--Uganda, Bolivia, Burkina Faso--have passed the so-called decision point. They stand to receive--from all their creditors--assistance in net present value terms of $338 million in the case of Uganda, $448 million for Bolivia, and something around $110 million in the case of Burkina Faso. These are important amounts, indeed.

Behind them, three other countries will be considered for a decision in the next few months--Guyana, Mozambique, and Côte d'Ivoire--provided, of course, they continue with their necessary reform policy with particular emphasis on the macro framework and on the second generation of reform. Behind them, you will have in 1998 Ethiopia, Guinea Bissau, and Mauritania.

As you see, the machinery is working, gains momentum, and I personally wish to be able to accelerate as much as possible the implementation of this new facility. But here we need to have the countries responding and accepting to comply with very good programs for adjustment and reform.