April 16, 2000
As the International Monetary Fund finished its first day of meetings, the top officials gathered to discuss the day's work with reporters. The following is the full text of their briefing.
Gordon Brown, Chancellor of the Exchequer (United Kingdom) and
Chairman, International Monetary and Financial Committee
MR. BROWN: Thank you very much for being with us through the course of this afternoon. I am here with Stanley Fischer, the Acting Managing Director of the IMF, and our discussions today have been set against the background of continuing reform in the international financial system as we make decisions for a rapidly changing economic environment, and are determined to ensure that the benefits of globalization reach all countries and, in particular, the peoples and the places that have too often been left behind.
This was the first meeting of the new International Monetary and Financial Committee, which succeeded the Interim Committee last year, and as we started we reaffirmed the high ideals and public purpose that gave birth to the World Bank and the International Monetary Fund more than 50 years ago: the belief that prosperity ran the world was indivisible; our belief that prosperity, to be sustained, has to be shared; and our belief that the way forward is not to turn the clock back on globalization or to retreat from global economic cooperation, but to strengthen international economic coordination with one aim--that coordination and cooperation involving all can achieve prosperity for all.
In this context, we discussed, first of all, strengthening the IMF's role in the new global economy. We noted that the IMF had undergone continuous change to equip itself better to assist its members countries. We pledged to continue to work to make the IMF more effective, transparent and accountable, strengthening its unique role as the cornerstone of the international monetary and financial system.
We agreed that the Fund's financial operations should continue to adapt to the changing nature of the global economy, including the rapid growth and integration of international capital markets. We set out a number of principles that should underpin this, including the need to preserve the Fund's ability to provide financial support to all member countries, the need to encourage countries to adopt strong ex ante measures to prevent crises, the importance of helping countries respond quickly and effectively to problems, and, where balance of payments difficulties are expected to be of a longer-term nature, supporting reforms that deal with structural problems.
In this light, we welcomed the progress which has been made to streamline and simplify the Fund's facilities. We also agreed that progress is being made in developing greater transparency through codes of conduct and new standards, and in extending surveillance to the changing global realities and to strengthening it in key areas. We agreed that the Fund's focus on financial vulnerabilities must be strengthened further, and we supported vulnerability analyses in IMF's surveillance.
We recognized the importance of adherence to international standards and codes of good practice in reducing economic and financial vulnerabilities. We agreed that the IMF's Article IV surveillance provides the appropriate framework within which to organize and discuss these issues. We also recognized the possible need for technical assistance for countries to meet these relevant standards. Because we believe that greater transparency and surveillance is the key to preventing crises, we welcomed the work of the IMF and the World Bank in preparing reports on the observance of standards and codes and encouraging their adoption by a growing number of countries. We encouraged the Fund to continue its work in this area. We agreed that greater transparency and policymaking has an important part to play in improving the functioning of national economies. We welcomed the progress that has been made in publicizing the results of surveillance, the Article IV Public Information Notices, which have been widely publicized.
We agreed on the importance of prevention as the first line of defense against economic crises, and noted that countries participating in international capital markets should seek to establish a strong and continuous dialogue with their private creditors, and we agreed the IMF has an important part to play in crisis resolution, and we discussed the importance of involving the private sector in that process.
The Committee discussed this afternoon the HIPC Initiative for helping the heavily indebted poor countries. We welcomed the recent progress that has been made in implementing the enhanced HIPC Initiative, which is aimed at faster, deeper, and broader debt relief. We urged all those with a stake in the debt initiative to work for faster and effective implementation, and for HIPC to be given the highest priority to ensure that as many countries as possible can reach decision points by the end of this year.
We welcomed the establishment of a joint World Bank-IMF Committee to facilitate implementation of the initiative and the poverty reduction strategies for the poorest countries. We urged all countries involved to move ahead as quickly as possible with the preparation of their poverty reduction strategies. In this way, the richest countries to whom much has been given have joined with the poorest countries whose needs are the greatest in this alliance to free millions of people from poverty.
The Committee thanked the authorities for their action today in Washington. The Committee also went on to record appreciation for the work of Michel Camdessus, who retired as Managing Director a few weeks ago. We welcomed the appointment of Horst Köhler, who will take over on May . We thanked Stanley Fischer, who is with me today, for the work he has done as Acting Managing Director, for which we are all grateful.
I am very happy to answer, with Stanley Fischer--questions that you have about our work today.
QUESTION: Mr. Fischer, can you describe the progress made today to try to forgive the $28 billion of debt relief from some of the nations' poorest countries; can you be specific, and, in particular, Uganda?
MR. FISCHER: We had a very good discussion this afternoon on the Poverty Reduction and Growth Facility, and progress on the HIPC Initiative. The representatives on the Board, the Ministers present reaffirmed their desire that we move as rapidly as we can on debt forgiveness, while recognizing that it is necessary to ensure that anti-poverty strategies are in place before the debt relief happens so that we make sure that the debt relief is well used for the purposes intended.
There is a reaffirmation of support for some discussion of the need to ensure full financing of this; as you know, the IMF still needs to get permission to use 5 million ounces of its gold to finance its contribution to the poverty reduction strategy.
On Uganda, that is an issue which will taken up by the Board of the IMF and then later, I expect, by the Board of the World Bank--probably within a few days.
A QUESTIONER: I understand not all countries are willing to support the initiative. Is there anything the Fund can do to ensure full participation of all its members?
MR. BROWN: I think that is not strictly correct. In the communiqué, which is just being issued, it is absolutely clear that we reaffirmed the importance of the principle of full participation by all creditors. Indeed, we were unanimous in calling for faster and more effective implementation of the initiative to secure debt relief.
Can I just say what has happened in the last few weeks. All G-7 countries have agreed that, on a bilateral basis, they will go to a hundred percent debt relief. Other countries have indicated that they are going to act in a similar way. This is indeed progress from where we were even in December last year. At the same time, we had information that $2.4 billion has been pledged to the World Bank Trust Fund. Obviously, we want more money to make the initiative possible, but a large number of countries have now since October--when a special request was made for individual offers of assistance to that fund--have come forward to offer their help.
We are concerned to ensure that more countries get through the process. That is why Stanley Fischer and Jim Wolfensohn have set up the Joint Implementation Committee, because we want to remove all obstacles that exist to getting the debt relief, but at the same time ensuring that that debt relief must go to the relief of poverty.
A QUESTIONER: Mr. Summers spoke earlier in the week about the need to reform the selection process of the IMF Managing Director. In particular, he wanted to set up an external committee to scrutinize the candidates. Did the Committee talk about this, and what was the view?
Mr. BROWN: No, there was no discussion or decision on this today. Obviously, these matters will be reviewed over time.
A QUESTIONER: You mentioned that there was a focus on financial vulnerability and the importance of prevention of future crises. Could you elaborate on that? I mean, what means do you think you can employ to do that?
Mr. FISCHER: On the focus on prevention, that is a twofold discussion. There is the discussion of surveillance and measures to help countries strengthen their economies, particularly their financial sectors, their debt management, and their macroeconomic policies and exchange rate policies. So, there is a lot that can be done in preventive mode, which we have begun to do and we need to do more of, using objective indicators of vulnerability, for instance. That was one strand of the discussion.
The other strand was a lengthy discussion of how to change our facilities so that we can use our financial resources to encourage prevention, particularly through the contingent credit lines. You will find in the communiqué, the IMFC has asked the Executive Board to take another look at the CCL to see if they can make it more usable, more usable that is as a preventive crisis prevention device.
A QUESTIONER: Mr. Brown, was there any discussion among the Ministers today about the possible effect of the decline in stock market prices on the world economic outlook?
MR. BROWN: I think it has been recognized in every meeting that we have had that there is the need for continued vigilance, the need to be absolutely sure that the macroeconomic foundations, the stability of the economies is assured. That is why so much focus has been on strengthening the transparency in reporting information and improving the surveillance that is done by the International Monetary Fund. So, it has been a feature of all our meetings that we examine, as the last questioner asked, vulnerabilities in the system. That is why we have been looking at the lessons we can learn from Asia; but at the same time, in every instance, continued vigilance is the policy that I think the IMFC would like to apply to examination of events.
A QUESTIONER: In the communiqué, you are saying that the IMF should take appropriate steps to involve the private sector in forestalling and resolving crises. Can you be a little more specific as to how that would work? Also, there was some mention in Secretary Summers' comments today, and I believe somewhere in the G-7 communiqué, that there should be variable interest rates, depending on how long a country borrows from the IMF, and how often.
MR. BROWN: I think on the last point, it is simply there is to be an examination of the pricing system used by the IMF. But, as far as private sector involvement, it is recognized that the IMF, working with the private sector, has an important role to play in crisis resolution.
We discussed today the approach adopted by the international community, and I think we agreed it should provide obviously for flexibility to address diverse cases. But there should be a framework of principles and tools by which we deal with these issues. We agreed that in some cases a combination of official finance and policy adjustment should allow countries to regain full market access, whereas in other cases a broader spectrum of action by private creditors may be warranted to provide for adequately financed Fund programs. So, we are very much a part of the discussion about engaging private and public sectors together in a world of very big private financial flows, and in looking at how best we can deal with problems as they arise.
A QUESTIONER: I have a question on the new standards and financial codes. Did you decide whether those standards should be voluntary or compulsory, and whether the results of the audits are going to be made public?
MR. BROWN: The codes are voluntary; that has always been the case. Many of the countries that have adopted the codes have been involved in an experiment by which more public information is made available. I think the general trend is toward more publicity of information, and I think that is widely supported. But it is for individual countries to decide whether they have the codes of conduct, and that has very much been part of the approach from the beginning.
MR. FISCHER: Can I just add that on the financial sector assessments-there is a pilot project going on in the [IMF Executive] Board. I believe that until the pilot is done, a decision will not be taken on publication and they will not be published until that decision is made.
A QUESTIONER: How did the protest outside impact on the meeting today? After all, some of your participants were late or could not reach the meeting. Could you hear the protests and the chanting, and what comment would you make about the protest?
MR. BROWN: Well, we didn't hear the protestors, and the meeting went on as normal; it started on time, and it was completed in the normal way. I think our message to those people who have been demonstrating is this, that the way forward for those people who want to reduce poverty and want to see greater stability in the world, and want to see the diffusion of prosperity around the world, is not to advocate turning our back on the global economy and not to advocate a retreat from international economic cooperation. Our message is that the way forward is by the strengthened international economic cooperation that we are now proposing with reforms in the international financial architecture, and that this is the best way forward to tackle poverty and to tackle injustices that exist.
We are determined to move forward our poverty reduction strategies; we are determined to get fast and effective action as we can on debt relief. Of course, we are determined to reduce the risks from financial crises that are borne by the poor in so many cases, by creating a stronger system of crisis prevention and crisis resolution for the financial system.
So, we went about our work. We came forward with a number of further proposals for the reform of the international financial system. Almost the whole of our afternoon discussion was about poverty reduction strategies and the HIPC Initiative. I think it makes us determined to move ahead with the agenda that we have agreed, which is a reform agenda for the international financial institutions, but ensuring that we are in a position to provide greater prosperity for all countries, and particularly to benefit those people in places that have too often been left behind.
A QUESTIONER: At the conclusion of the South Summit meeting in Havana, it was reported that President Castro, along with African leaders, called for an end to debt slavery, meaning the relief of trade embargoes, the establishing of fair trade practices, and restructuring of the work relationship between the Fund and the Bank. One, I would like to get a comment from any of you here on that call; and secondly, to Mr. Fischer, regarding the permission that is needed for the selling of the 5 ounces of gold, is that permission necessary from the Paris Club?
MR. BROWN: On your first point--and I will ask Stanley to answer your second point--we do want to see progress on the trade discussions, and we say that. We realize that that is important for the poorest countries. At the same time, on the debt initiatives, the seven G-7 countries have now moved to bilateral relief of a full hundred percent. I know that many other countries are considering that; some have already announced that. So, we are making the contribution we can to reducing debt.
But we are insistent that, where we reduce debt and where we provide relief from debt interest payments, that that money should go to the relief of poverty; that that money should not be wasted and that money should not be abused. It should go to health, education, and to anti-poverty programs. That is why the poverty reduction strategy papers are so important.
We will try, over the course of the next few months--the IMF and the World Bank and individual governments working together--to remove each obstacle that exists in the way of securing that debt relief for countries that are able to put the money to the reduction of poverty, and that is a task we have set ourselves as a result of these meetings today.
MR. FISCHER: On the 5 million ounces of gold, we need permission from [the U.S.] Congress to sell that.
A QUESTIONER: My question is very, very small and technical to Mr. Fischer.
Mr. Fischer, on the offshore center sort of control or efforts to have better Surveillance, I understand the IMF has a future role to play. We are all waiting for a blacklist of offshore centers. The issue is when we will get it and will it come from the IMF; will it come from other sources; will it come from bilateral governments; or how is this blacklisting operation involving?
MR. FISCHER: Unfortunately, I cannot answer the question you want answered. The proposal from the Financial Stability Forum is that the Fund undertake surveillance of the offshore centers, possibly through some sort of financial sector assessment, and we have not yet discussed that with the Board. There would be complex issues in deciding whether to publish a blacklist before or after doing an assessment. There is a good case not prepare blacklists before you have actually looked into the situation. But the Board will have to make that decision as soon as the proposal is discussed by them.
MR. BROWN: I may say we have received three reports from the Financial Stability Forum, one on hedge funds, one on offshore centers, and one on capital flows. We also had a report from Mr. Johnston of the OECD about the new action proposed in the OECD document published only last week on tax evasion and the problems that exist from tax havens, and that was part of our discussion today.
A QUESTIONER: Now that the dust has started to settle on the financial crises of 1997 and 1998, does the Fund think in retrospect that it could have handled any of those situations better than it actually did and, if so, how? That is looking back. Looking forward, can we be sure that the new surveillance unit will be any better at predicting financial crises in the future than it was in 1997 and 1998 and, if so, how?
MR. FISCHER: We published a pretty full examination of the handling of the Asian crisis possibly almost a year ago now. There have also been presentations by Fund staff at various academic conferences on this issue. We have discussed it at great length with the member countries involved and with outside critics and advisors.
I think the overall judgment is the crisis was handed pretty well. There were controversial issues, and the Fund now believes that the slight fiscal tightening in the early stages of the crisis should have been avoided, and we should have gone to fiscal expansion pretty early, but we did do that after three or four months.
Aside from that, on the controversial issues, particularly of whether interest rates should have been used to defend currencies, the consensus is that they should have been, that collapsing currencies leading to hyperinflation would have been far more destructive than what actually happened. I think this is a case where the evidence is now coming in, and the extraordinary recoveries in Asia, strongest in the cases of countries that actually followed the advice of the Fund, is strong evidence that those strategies worked and worked well. I think one needs to look also at other crises, like the rapid recovery and turnaround in Brazil in 1999, which is also under an IMF program.
Whether surveillance will be better, I don't doubt that surveillance will be significantly better now, because of much greater focus on the sources of vulnerability, like the financial sector, like the composition of external debt, like what is happening to exchange rates. But I also know that you never know enough to prevent all crises, either because something unexpected happens or because you can issue warnings that are not listened to, and either of those two things could happen.
So, we should not a delude ourselves that crises are over. There should be fewer of them. But one of the reasons we are strengthening our crisis response mode, as well as our crisis prevention mode, is that we will at some point have to deal with another crisis.
A QUESTIONER: How much did the protestors influence the agenda of the meetings today?
MR. BROWN: The protestors did not affect the agenda of the meeting; the meeting went ahead as normal, as I have said. We continued with our program, which is one of reform and strengthening of the international economic system. I just repeat that our way of tackling the problems of poverty and tackling the injustices that exist in the global economic system is not to walk away from the global economy and not to say that international economic cooperation can never work; it is actually to strengthen that international economic cooperation and make it work effectively, most of all for those who have been traditionally the victims of economic crises, those people who are the poorest.
That is why so much of our discussion--as we planned it to be--was about improving the poverty reduction strategies that will meet the international development target of halving poverty by 2015 and tackling problems that exist and making sure the debt relief process moves forward as fast as possible.
Now, these were what we planned to discuss; this is what we did discuss. I think when people understand that these are the measures that we are both debating and taking forward, they will understand that we are moving forward with our program to make for greater economic stability and to tackle the problems of poverty that exist.
A QUESTIONER: I am wondering if you consider that the Fund and the World Bank are unfairly carrying the can for a lot that is unfair in the world economic system. I specifically refer to the very high subsidies given to European farmers and the extremely high tariff barriers behind which European, U.S. and Japanese agriculture operates, and the fact that very many of the poorest people in the world are farmers who would benefit very directly if those barriers eased. Is the Fund and the World Bank sort of getting sick of being blamed for stuff that really they cannot do much about?
MR. BROWN: I think the answer is that we will continue, and Stan may wish to add to this, we will continue doing the job that we think is the job that is best in tackling the problems of poverty and the job that we can do. Of course, we want to see progress in the trade talks; we say this in our communiqué Of course, we want to strengthen the international economic system so that the vulnerability of particularly the poorest people to crises is mitigated and removed.
We are doing what we can contribute to the process of reducing poverty throughout the world, as well as making it possible for people to see economic development. We look for a virtuous circle of debt relief, poverty reduction, and economic development. We must continue to put the case for global economic cooperation against those who would fail to have that cooperation and, therefore, fail to have a solution to the crises that people face.
MR. FISCHER: Can I just come in on that one? Mr. Camdessus used to use the phrase "coherence in global economic plans", and it would be more coherent at the time you are giving debt relief to also allow expanded access for the developing countries into industrialized country markets, particularly for the very poorest countries. That has been recognized by the Fund, by the management of the Fund and by others. It is something that I think would help, along with debt relief, to get growth going in the poorest countries.
A QUESTIONER: Would you say that the reason why G-77 countries have to go to Havana to severely criticize the IMF and the World Bank is precisely because within the IMF-World Bank structure they are being [margined??] in decision making about their own destinies?
MR. BROWN: I don't think that is the case. I think the degree of dialogue that is now entered into, not only with governments but with nongovernmental organizations, with the churches who are concerned about these issues of poverty and debt reduction, is far greater than it has been before. The whole point of the poverty reduction strategies is that individual countries have ownership of their own programs. It is not simply the governments of these countries; it is civil society itself.
That was the thinking behind the poverty reduction strategies. They were initiated in October; they involved joint action between the IMF and the World Bank; they linked economic objectives with social justice objectives as well; and they are about community and civil ownership of the programs. That is a major advance that I think will be welcomed by the countries you are talking about.