[stop-imf] important: Camdessus: An Agenda for the IMF at the start of the 21st
Century
Robert Weissman
rob@essential.org
Fri, 4 Feb 2000 05:30:59 -0500 (EST)
There's too much useful information in here to pull out highlights. This
is part of the IMF's effort to define its role, as it faces criticism and
attack not only from debt cancellation campaigners by Larry Summers.
Robert Weissman
Essential Information | Internet: rob@essential.org
An Agenda for the IMF at the start of the 21st Century
Remarks by Michel Camdessus
Managing Director of the International Monetary Fund
At the Council on Foreign Relations
New York, February 1, 2000
As prepared for delivery
Thank you, Mr. Chairman, Ladies and Gentlemen. During
my 13 years at the IMF, I have been
privileged to meet with the Council on Foreign
Relations on four previous occasions. On each of
these encounters I have been impressed by your
openness and by the attention that you have paid to
the IMF. Your forbearance toward me personally makes
me feel that I received much more than I
gave. Today I come to thank you for all this, for your
understanding, your encouragement, the
public support that many of you individually have
given us, and the intellectual contribution that
you have generated, prominent among which has been the
recent report of your Independent Task
Force.1 So I feel it appropriate, with an audience
that always encourages candor and openness, to
share with you a few thoughts on the role of the IMF
at the start of a new century.
Let me immediately state that the hallmarks I have
most admired in the IMF are its universality and
its adaptability. It is a perennially "self-reforming"
institution, very mindful of its obligation to its
entire membership. Consider what this has meant over
recent years when the world was facing
three major challenges: the gathering pace--and
expanding opportunities and risks--of globalization;
the transition from plan to market in many countries;
and the realization that we were lagging far
behind in responding to the plight of the world's
poorest people and poorest countries. Looking to
the future, we can anticipate a continuation and
deepening of the trends toward integration of
markets and of massive global private capital flows,
but also the presence of tough challenges: old
ones--like poverty--and new ones, such as the aging of
populations in many countries, and the
potential for a surge in extremism and violence if we
are not able to reverse the trend toward greater
inequalities between the poorest and affluent
countries. To play its appropriate role, in such a
context, what kind of a Fund do we need?
Let us start by considering the IMF that exists today.
I see five well demonstrated strengths that the
Fund offers its membership:
One, universality and the responsibility it
bears to interact cooperatively with each of its
members on their economic policies;
Two, a clearly defined, tried-and-tested
mandate as set out in its original purposes, which
continue to ring remarkably true today;
Three, its flexibility, its capacity to adapt
rapidly its activities to the new demands of a
continually evolving global economy;
Four, the fact that it was conceived as "the
machinery," as it is put in the Articles, for
promoting multilateral cooperation in
addressing international economic issues;
And finally, a staff well-known for its
professionalism and its unique experience in
performing its tasks of surveillance, technical
assistance, and crisis management.
How can these strengths be most effectively deployed
and developed in the midst of today's rapid
innovation in a world where we must always be prepared
for the unexpected? Well, to put it in a
sentence: by striving to be responsible to each member
whatever their size or condition; and
simultaneously, and by keeping a global perspective,
discharging the Fund's responsibility with
respect to the whole international monetary and
financial system.
These are the two domains on which our reform effort
must be focussed.
* * * * *
I. Responding to the needs of each of our members
Yes, all countries must always be able to rely on the
Fund to be helpful in pursuing their objectives
of stability and high-quality growth and so
contributing--I quote the Articles of Agreement--"to the
promotion and maintenance of high levels of employment
and real income...."
All this points to an active and wide-ranging agenda.
Let me concentrate on three areas of work
with countries where our activities are changing:
economic management in normal times (the other
name of crisis prevention), the specific problems of
the poorest and most heavily indebted, and
crisis management.
First, in the aftermath of the Asian crisis much
emphasis has been placed on crisis
prevention--rightly so. Yet I find that emphasis too
limiting. The world needs an institution, of
course, to help in crisis prevention! But this is the
very minimum: we are in a unique position to
help each country to generate higher and higher
quality growth for itself and in so doing to help
generate high, better-balanced growth for the entire
world. We cannot aim for anything less! We
must place the emphasis on the ultimate objectives of
national policymakers: stability and
high-quality growth through sound policy. The Fund's
proper role in normal times is analysis and
policy dialogue--surveillance--for all its members,
from the United States to the smallest Pacific
island nations. The primary focus, of course, will be
on the core areas of the Fund's
mandate--macroeconomic policy and management. But we
have learned that effective, credible
policy implementation hinges on the broader issues of
sound institutions, transparency, and good
governance with all this implies for financial
soundness, structural reform, the implementation of
standards, and social and labor policies. This is why
our surveillance is rapidly changing:
emphasizing more strongly the international
implications of domestic economic policy;
developing its regional dimensions;
integrating within surveillance technical
assessments of vulnerabilities and risks in the
financial sectors; and
disseminating internationally recognized
standards and codes. 2
Second, we must try to draw the logical conclusions
from the recognition that, the plight of the
poorest countries--and the poorest people within
them--is the "ultimate systemic threat." 3 Despite
all the efforts of the past 50 years, including a new
emphasis on structural adjustment programs
during the 1980s, the gains have been too slow, per
capita income in many of the poorest countries
has declined, debt has increased, and poverty remains
widespread. For these reasons, the
international community has recently decided to launch
a renewed effort simultaneously to address
poverty and the debt overhang. We have put in place
the revised HIPC initiative, which will
provide large-scale debt relief to countries whose
pro-growth policies include an explicit and
targeted anti-poverty strategy, reached by a process
involving widespread participation of civil
society. The new approach is based on the closest
possible collaboration between the IMF and the
World Bank, with the World Bank taking the lead in
lending for anti-poverty purposes.
As part of its contribution to the global anti-poverty
effort, the IMF has replaced its concessional
facility, the ESAF, with the better focussed Poverty
Reduction and Growth Facility (PRGF). Why
should the IMF be involved in this new approach?
Because now, at last, there is a widespread
conviction that there is a mutually reinforcing
relationship between macroeconomic stability and
structural reform on one hand, and growth and the
reduction of poverty and inequality on the other.
Stability and strong institutions are clearly
essential for growth, and hence for poverty alleviation.
But the converse is also true: popular support for
stabilization and reform will not be there unless
the whole population, including the poorest, is able
to participate in the benefits of a comprehensive
set of policies which also aims to unlock all its
productive potential, prioritize human development
spending, and provide sufficient safety nets for the
most vulnerable.
However, articulating poverty reduction as an explicit
objective of our programs does not mean that
the IMF will be heading off in a major new direction
in its operational focus. Rather, we will have
to rely on our partners in the World Bank and the
regional development banks to undertake the
lending operations that will support the direct
anti-poverty policies included in the economic
programs we support. For the Fund, the objective is to
ensure that poverty reduction is an integral
and explicit objective when designing policies, and to
verify that the machinery and support are
available to pursue these policies.
Third, crisis management: this is the IMF's most
publicized work, it must of course continue to
be essential. But, to respond adequately to the range
of country circumstances, the Fund needs a
variety of approaches.
At one end of the spectrum, we find the
headline-grabbing situations where domestic crises
have systemic implications in countries
suddenly hit by urgent large-scale liquidity crises.
The Fund is better equipped to extend such
support. At its disposal it now has the
Supplemental Reserve Facility (SRF), designed
to respond rapidly to major crises, and the
Contingent Credit Lines (CCL), aimed at
averting the effects of contagion on countries that
are otherwise implementing sound policies.
At the other end of the spectrum, we find a
substantial number of the poorest countries,
facing the deep-seated crisis of declining
incomes and poverty. These cases will need
policy advice, technical cooperation and
extensive financial support (albeit small in global
terms), typically over a period of years rather
than months or weeks.
Between these two extremes, are the many
countries, each relatively small in global terms,
that will continue to demand the Fund's
attention and support. Ineligible for concessional
support, not yet able to attract sizable
private capital flows, and yet at times faced with the
challenges of deep structural reform, some of
these countries will continue to need
recourse to official sources of support from
time to time. These countries should have the
assurance of drawing, when necessary, on the
IMF's existing facilities--ranging from the
classic 12-month stand-by arrangement to the
well-established 3-year extended
arrangement. It goes almost without saying that
we keep these facilities under frequent
review adapting them as needed. It is with them
that the IMF reveals its nature as a kind of
world "credit union": as D. Rockefeller put it
so well in a recent article 4. Contributing in
ordinary times to the financing of the
cooperative institution at market rates, countries are
entitled to benefit from its contribution in
times of adversity provided they undertake the
needed reforms.
II. Responding to the systemic needs of a globalized world
Let me now turn to the global dimension of the Fund's
responsibilities. This brings us to the
reform of the global financial architecture, to the
question of how the Fund might be even better
equipped to respond to a major global meltdown, and
finally to the broader question of the
operation and governance of the international monetary
and financial system.
A year ago, in virtually every international
conference the central theme was reform of the
international financial architecture. A great deal has
been achieved in the past year in advancing
transparency--that golden rule--together with
financial sector stability, and internationally
recognized standards. Now we are in the midst of the
long process of implementation and it is vital
that the world maintains its enthusiasm for change
even when we are no longer in the midst of
emergency.
But there are also three important areas where the
debate is still open.
First, given the rapidly growing role of private
capital flows, and the long-term potential for further
expansion, a key issue is the role of the private
sector in financial markets. Unfortunately, the
debate on "involving the private sector," has
developed into a highly technical discussion that too
often has focussed on the role of the private sector
in situations of crisis. Important though that is,
we must keep sight of the broader principles involved:
promoting open capital markets in which
foreign and domestic private investors are able to
compete in an environment marked by stability
and transparent relationships between public and
private partners. This is clearly not a goal that will
be achieved overnight: volatility in private sector
flows is likely to persist in crises, and the Fund
may well have to step in from time to time.
Therefore, it seems particularly productive to place
the emphasis on how to expand the
opportunities for and contribution of the private
sector, on promoting investors' ability to undertake
adequate risk assessment and generally on ensuring
that the IMF is well adapted to interacting with
the private sector. Developing a stable private sector
presence is, to my mind, the most productive
way to prevent crises and to keep the Fund to its
intended role in the international economy. This
doesn't mean that I am ready to accept as satisfactory
the present regime of our intervention in times
of crisis. Far from it. I urge the membership to
consider more actively our role in times of crisis,
including those extreme situations in which, even
after good faith efforts, default cannot be
avoided. In this situation, I continue to hold the
view, that the international community needs the
right to impose a temporary stay on legal action by
creditors while the debt is resolved. One option
is to agree on amending or interpreting the Fund's
Articles to enable it to perform this role.
Creating optimal conditions for the private sector
leads logically to the second issue, a key
contribution to creating the condition for a
constructive role for the private sector. It is the question
of promoting the liberalization of capital movements.
The founders of the Bretton Woods
Institutions were motivated by their clear perception
that free trade was the key to unlocking the
world's economic potential. How amply their foresight
has been rewarded in the past 50 years!
Capital liberalization is the analogous issue of
today. Few would now dispute the potential benefits
that can flow from liberal capital movements supported
by the appropriate economic policies,
institutions, and financial sector stability. However,
the wide variety of country situations means
that each country needs to prepare its own path to
liberalization, under carefully tailored conditions.
Work is under way in the Fund on proposals that would
allow countries to identify the steps that
individually they need to take, and to define their
own timetable. Here also the reform efforts
should be intensified. 5
Third, the debate on exchange regimes still has a long
way to run. Certainly some preference is
emerging for exchange regimes at one end or the other
of the spectrum--firm pegs or currency
boards at one extreme and free floats at the other. In
practice, today's regimes are not so sharply
polarized and a mixture of regimes will no doubt be
with us for some time. In the long run, I would
suggest that we are gradually evolving toward a world
of fewer currencies. However, the
outstanding example of the birth of the euro, the
culmination of a long journey toward regional
monetary union, suggests that this is a process that
is likely to be measured in decades rather than
months or years. But in the final analysis, the
success of any exchange regime is the reflection of
the success of domestic economic policy. A chain is
only as strong as its weakest link, and any
exchange regime is only as strong as the weakest
element of domestic policy.
* * * * *
These then are a few of the issues currently on the
agenda in the search for a more stable global
economy. But let us imagine a hypothetical situation
in which a meltdown worse than we observed
in 1997 and 1998 were to occur. Would the world be in
a position to respond? And what would the
role of the IMF be? 6
This raises the question of a need for an
international lender of last resort, and whether the IMF can
fulfil that role. Using Walter Bagehot's classic
criteria, a domestic lender of last resort, in the event
of a national systemic crisis, would provide the
system with unlimited amounts of liquidity,
unconditionally, at penalty interest rates, to
borrowers who have good collateral. Of course there
are not convincing reasons to try to establish a
simplistic parallel between the national and
international levels. Nonetheless, the IMF is the
closest that the international financial system has to
a lender of last resort. It is a function that we have
been performing, and adapting, for over 50
years, and it wouldn't hurt to recognize it, to
confirm the Fund in this role and to invite it to
continue to offer the international community this
vital guarantee with enough of a judgmental basis
to avoid any risk of moral hazard.
Our newest lending mechanism, the CCL, a major
departure from traditional IMF lending in several
important respects, is an experimental new step in
that direction, still to be put to its first real test.
In some ways, it loosely approximates three of
Bagehot's four criteria: lending at above-normal
interest rates to countries that have otherwise sound
policies, and with appropriate but limited
conditionality given that countries would prequalify
for the use of resources. But there is clearly a
limit to the fourth criterion. In the crises of
1997-98, when several systemically important countries
simultaneously needed large support, the resources of
the IMF were stretched to the limit. In a
more widespread conflagration, a truly systemic
crisis, what would happen? The IMF's resources,
substantial though they are, could be completely
inadequate. This is not a plea for a massive
increase in the IMF's resources, which I do not
believe to be necessary or desirable.7
Instead there is a role for being able to create
additional liquidity on a temporary basis. How? I
don't see any better way than by making an innovative
use of the SDR, the IMF's reserve
currency. It is not unreasonable to expect that in a
grave crisis the leading countries would
collaborate to inject a proper amount of international
liquidity through a very simple mechanism
which could decisively underpin confidence in the
international system. To this end, the IMF might
be authorized to inject international liquidity--and
to withdraw it when the need had passed--in a
manner analogous to that of a national central bank,
through the creation and selective allocation of
SDRs. The international community has been cautious in
authorizing use of the SDR in the
quarter-century of its existence, in part because of
concerns about its inflationary potential, but the
experience of the past two years reinforces the case
for considering the tremendous potential that
this instrument could have for the stability of the
global economy. It would be sufficient to decide
to put in place a contingency system of allocation, to
be activated only in the event of a systemic
credit crunch. It would be understood that in such
cases all countries would receive allocations, but
that countries not significantly affected by the
crisis, would put their allocation at the disposal of an
administrative account in the Fund to be lent
conditionally to countries facing a severe liquidity
squeeze.
Finally let me turn to the perennial question of the
international monetary system and of the
governance of the IMF, as part of the governance of
the entire international economy. I am
sorry that circumstances have been such that, except
for the remarkable start of the euro, no
significant progress has taken place during the last
20 years in these fields. Of course, I was happy
to contribute to, and placed great hope in, the
attempts in the Plaza and Louvre accords to contribute
to greater stability of the International Monetary
System. History will tell us why these attempts
were only a flash in the pan, even if the G-7, through
the careful phrasing of its communiqus has
since then tried to avoid excessive volatility in the
markets. But this remains a suboptimal solution.
I hope that as soon as the euro has acquired the full
standing and prerogatives of a major reserve
currency, effective cooperation will be established
among major players to provide the world with
the instruments of monetary stabilization it needs, on
the basis of strengthened cooperation to
harmonize macroeconomic policies.
Increasingly, during this period, the issue of
stability of the international monetary and financial
system has been viewed in the context of the broader
issue of world economic governance. This is
not a reference to some kind of world economic
government, but instead to the more limited
ambition of finding a global response to inescapable
global problems. The task is monumental.
Ours is the first generation in history to find itself
in the position of being called upon to influence
global affairs, not from a position of military
conquest or imperial power, but through voluntary
international cooperation. The challenge is to find
mechanisms for managing the international
economy that do not compromise the sovereignty of
national governments, that help the smooth
and effective working of markets that increase
opportunities for the poorest, that ensure
international financial stability but that, also,
offer solutions to problems which now transcend the
boundaries of the nation state. A tall order indeed!
As time is too short for me to elaborate, I would
like to mention just two problems: first, coherence in
international economic decision-making, and
second, political responsibility.
The problem created by a lack of coherence in
decision-making at the world level is exemplified by
the failure, in Seattle, to launch the 2000 round of
trade negotiations. If not corrected promptly
such a situation could lead to major setbacks.
Consider the incoherence between, on one hand, the
bold decision by governments--in the framework of the
Bretton Woods institutions--to reduce by
about one-half the debt of 35 or 40 heavily indebted
poor countries; and, on the other hand, the
failure of those same governments--in the framework of
WTO--to promptly eliminate trade barriers
to the export of these countries. Such a failure would
make a mockery of a decision on debt that is,
otherwise, of historic dimensions.
Equally urgent--with little progress so far--is the
issue of the "political responsibility" of
international institutions. Too often they are
portrayed as unaccountable technocracies. The truth is
that the IMF is responsible and accountable to its
member governments, and that all decisions have
to be approved by the Executive Board of 24 members,
representing 182 countries. Every single
loan--including of course the controversial loans in
Asia and to Russia--has had the support of our
membership, that is to say, of our member governments.
No, the problem is not that we are not accountable,
but that we are not seen to be accountable, and
that some member governments from time to time find it
convenient not to express their public
support for actions they have supported in the
Executive Board. Part of the problem is that member
governments have until recently been reluctant to
publish their agreements with the Fund, and our
Article IV reports on their economies, heightening the
perception that we are not accountable. As
you know, I have strongly supported much greater
transparency for the Fund, and I am extremely
happy as I leave the institution to see how much more
open we have become. Greater openness will
help ensure our legitimacy as well as our
effectiveness in improving the quality of policy debate and
democratic participation in member countries, and at
the same time it will help the international
capital markets become more efficient.
But it is also important to ensure that the IMF is
seen far more visibly to have the legitimate political
support of our shareholders. One reform that I have
recently supported would respond to this
problem. It would entail transforming the IMF's
advisory ministerial committee--until recently
called the Interim Committee, renamed in September
1999 the International Monetary and Financial
Committee--into a decision-making council for the
major strategic orientations of the world
economy. Far from leading to an undue politicization
of the IMF, this would simply in the eyes of
the public, place responsibility squarely where it
already rests. This would help. But governments
remain to be convinced.
Another suggestion, along the lines of an Economic
Security Council, would consist of replacing
the G7 Summit every two years by a meeting of the
heads of state and government of the
countries--approximately 30 at any one time--who have
Executive Directors on the Boards of either
the IMF or the World Bank. This would
provide--particularly after the present review of our quotas
is completed--a fair and legitimate representation of
the entire membership of 182 countries. As it
would be attended by the heads of the two
organizations, the Secretary General of the United
Nations, as well as the heads of the ILO and WTO, it
would offer a way of establishing a clear and
strong link between these institutions and a
representative grouping of world leaders with the
greatest possible legitimacy. Here again, apart from
some sympathetic murmurs of interest, I do not
see distinct signs of movement, but this could be a
useful item together with several other
suggestions for discussions in forthcoming G-7/G-8
summits.
* * * * *
Summing it all up Mr. Chairman,
Boldly adapting IMF surveillance, particularly
of the financial sector;
Actively using instruments for debt and poverty
reduction squarely to address poverty as
the "ultimate systemic threat";
Modernizing its facilities to better serve its
entire membership when acute balance of
payments crisis occur;
Completing our work on the architecture, and,
particularly allowing the Fund to facilitate a
stay in the most severe debt crises and to
avoid disorderly outcomes;
Adopting the needed changes in our articles of
Agreement to facilitate our work in
promoting full freedom of capital movements;
Designing, for contingency use, an appropriate
instrument for the use of the SDR in the
event of a global liquidity crunch;
Engaging in the study of how to maintain the
stability of the international monetary system,
once the euro reaches its full potential as a
major world reserve currency;
Adopting the needed institutional changes to
promote better exercise and perception of the
political accountability of the IMF;
Ensuring permanently that each country feels
properly associated to the decision making
process; and
Conceiving and experimenting with the
structures of coordination to ensure the proper
coherence of decision making at world level.
These ten items for reform must, in my judgement, be
part of any reform agenda of the IMF and
indeed our ongoing experience already suggests several
others. As you have seen these are not
particularly radical, yet they are still proceeding at
a very uneven pace: a few already under
experimentation, several others being heatedly
debated, while others are still regarded as rather
far-fetched or somewhat futuristic. May the world
leaders who once again expressed recently in
Tokyo their interest in reforming the IMF and the
other international financial institutions, may all
our 182 members, remember that the period of calm we
have bought for the world at a high price
may be only too short-lived, and so must also be a
period of intense work toward reform and
strengthening of our institutions. And may all of them
recognize that, in a world of accelerating
history, the future is already with us, calling for a
high sense of responsibility, for bold action, and
for more intense cooperation.
1Safeguarding Prosperity in a Global Financial System:
The Future International Financial Architecture, Report of
an Independent Task Force sponsored by the Council on
Foreign Relations, published by the Institute for
International Economics, New York, 1999.
2In collaboration with relevant national authorities
and the World Bank, the Fund staff has now completed two
rounds of experimental reports on the observance of
standards and codes. Also the Fund and the World Bank have
worked to coordinate support for strengthening
financial systems, and to bring vulnerability assessments more
centrally into the Fund's surveillance process, using
various instruments, including the joint Bank-Fund Financial
Sector Assessment Program.
3To quote Minister Gurria of Mexico.
4David Rockefeller: "Why we need the IMF," the Wall
Street Journal, May 1, 1998.
5The Fund has been considering proposals for a
two-phased approach to liberalizing capital flows. The first phase
envisages that countries would formally declare the
liberalization--subject to transitional arrangements--of payments
associated with capital movements that are already
authorized by a country's existing laws. In the second phase,
which would operate on a purely voluntary basis ,
countries would identify capital transactions that could be
liberalized according to their own timetable.
6This is not a purely theoretical case. I can say
today that we were very close to it in October 1998. Had it not been
for the positive reaction of the markets to the
significant move by the US Federal Reserve Board and other monetary
authorities, the reinforcement of IMF resources, and
the launching of the successful program with Brazil, almost
certainly, we would have been confronted with a major
credit crunch.
7 If quotas were today the same size relative to
global trade as they were in 1945, the resources of the Fund would be
roughly 15 times their present size. And we should
remember that capital flows have grown far more rapidly than
trade.
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