Journal Issue
IMF Survey Vol.29, No.8 April 2000

IMFC press conference: Brown, Fischer respond to questions on IMF role, discuss progress on debt relief efforts

International Monetary Fund. External Relations Dept.
Published Date:
January 2000
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Brown: 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 IMF more than 50 years ago: the belief that prosperity around 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, 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 member 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 IMF’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 IMF’s ability to provide financial support to all member countries, the need to encourage countries to adopt strong 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 that has been made to streamline and simplify the IMF’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 strengthening it in key areas. We agreed that the IMF’s focus on financial vulnerabilities must be strengthened further, and we supported vulnerability analyses in IMF 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 are 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 IMF to continue its work in this area. We agreed that greater transparency in 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.

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 discussed the importance of involving the private sector in that process.

The Committee discussed this afternoon the Initiative to help the heavily indebted poor countries [HIPC Initiative]. 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 that the HIPC Initiative 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. 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 1. 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.

Question:Mr. Fischer, can you describe the progress made today to try to forgive the $28 billion of debt relief of some of the poorest countries?

Fischer: We had a very good discussion this afternoon on the Poverty Reduction and Growth Facility, and progress on the HIPC Initiative. The ministers reaffirmed their desire to move as rapidly as we can on debt forgiveness, while recognizing that antipoverty strategies must be in place before the debt relief happens, so that debt relief is well used for the purposes intended. They reaffirmed the need to ensure full financing of this strategy; as you know, the IMF still needs permission to use 5 million ounces of its gold to finance its contribution to the poverty reduction strategy.

Question:Is there anything the IMF can do to ensure full participation in this initiative?

Brown: The communiqué makes it 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.

In the past few weeks, all Group of Seven countries agreed that, on a bilateral basis, they will go to 100 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 as late as 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 come forward since October to offer their help. To ensure that more countries get through the process, Stanley Fischer and World Bank President Jim Wolfensohn have also set up the Joint Implementation Committee.

Question:You mentioned a focus on financial vulnerability and the importance of preventing future crises. What means can you employ?

Fischer: The prevention discussion had two strands. One was surveillance and measures to help countries strengthen their economies—particularly their financial sectors, debt management, and macroeconomic policies and exchange rate policies. A lot can be done in the preventive mode, which we have begun and we will need to do more of, using objective indicators of vulnerability, for instance.

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. The IMFC has asked the IMF’s Executive Board to take another look at the Contingent Credit Lines to see if they can be made more usable as a crisis prevention device.

Question:The IMFC communiqué says that the IMF should take appropriate steps to involve the private sector in forestalling and resolving crises. Can you say more?

Brown: It is recognized that the IMF, working with the private sector, has an important role to play in crisis resolution. We discussed the approach adopted by the international community and agreed it should provide for flexibility to address diverse cases.

But there should be a framework of principles and tools to 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 IMF programs. We are very much a part of the discussion about engaging private and public sectors in a world of very big private financial flows and about looking at how best we can deal with problems as they arise.

Question:How did the protest outside affect the meeting today?

Brown: The meeting went on as normal. It started on time and was completed in the normal way. Our message to those who have been demonstrating is that the way forward for those who want to reduce poverty and see greater stability in the world and the diffusion of prosperity around the world is not to advocate turning our backs on the global economy and retreating from international economic cooperation. The way forward is through the strengthened international economic cooperation that we are now proposing with reforms in the international financial architecture. This is the best way to tackle poverty and injustices.

We are determined to move our poverty reduction strategies forward; we are determined to get as fast and as effective action as we can on debt relief. 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.

We came forward with 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. It makes us determined to move ahead with the reform agenda for the international financial institutions, while ensuring that we are in a position to provide greater prosperity for all countries, particularly those people who have too often been left behind.

Question:The South Summit in Havana called for an end to debt slavery, the establishment of fair trade practices, and restructuring of the work relationship between the IMF and the Bank. Can you comment? And, Mr. Fischer, whose permission is needed to sell the 5 million ounces of gold?

Brown: We do want to see progress on the trade discussions, and we say that. We realize that that is important for the poorest countries. On the debt initiatives, the Group of Seven countries have now moved to bilateral relief of a full 100 percent. Many other countries are considering that; some have already announced it. But where we reduce debt and provide relief from debt interest payments, the money should relieve poverty. It should go to health, education, and antipoverty programs. That is why the poverty reduction strategy papers are so important.

Over the course of the next few months, the IMF and the World Bank and individual governments working together will try to remove all obstacles to debt relief and poverty reduction. That is a task we have set for ourselves as a result of these meetings today.

Fischer: On the 5 million ounces of gold, we need permission from the U.S. Congress to sell it.

Question:Mr. Fischer, I understand the IMF will have a future role in the better surveillance of offshore centers. Will there be a blacklist of offshore centers, and who would issue it?

Fischer: The Financial Stability Forum has proposed that the IMF undertake surveillance of the offshore centers, possibly through some sort of financial sector assessment. The IMF’s Executive Board has not yet discussed this proposal. There would be complex issues in deciding whether to publish a blacklist before or after doing an assessment. There is a good case for not preparing blacklists before you have looked into the situation, but the IMF’s Board will have to make that decision when it discusses the proposal.

Question:Does the IMF now think that it could have handled the recent financial crises better? Looking forward, can we be sure that the new surveillance unit will be any better at predicting financial crises?

Fischer: We published a reasonably full examination of the handling of the Asian crisis almost a year ago and have discussed it at great length with the member countries involved and with outside critics and advisors. The overall judgment is that the crisis was handled pretty well. The IMF now believes 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.

On whether interest rates should have been used to defend currencies, the consensus is that they should have been. Collapsing currencies leading to hyperinflation would have been far more destructive than what actually happened. The extraordinary recoveries in Asia—strongest in countries that actually followed IMF advice—are strong evidence that those strategies worked and worked well. One also needs to look at other crises, like the rapid recovery and turnaround in Brazil in 1999, which is under an IMF program.

I don’t doubt that surveillance will be significantly better now, because of the much greater focus on the sources of vulnerability, like the financial sector, the composition of external debt, and 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 warnings are not listened to. We should not delude ourselves that crises are over. There should be fewer of them. But one reason we are strengthening our crisis response mode, as well as our crisis prevention mode, is that at some point we will have to deal with another crisis.

Question:Do you feel the IMF and the World Bank are unfairly carrying the can for a lot that is unfair in the world economic system? I refer specifically to the very high subsidies given to European farmers and the extremely high tariff barriers behind which European, U.S., and Japanese agriculture operates. Many of the poorest are farmers who would benefit directly if those barriers eased.

Brown: We are doing what we can to 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.

Fischer: Mr. Camdessus used to use the phrase “coherence in global economic plans.” It would be more coherent at the time you are giving debt relief to also allow expanded access for the developing countries into industrial country markets, particularly for the very poorest countries. The IMF and others have recognized that this would help, with debt relief, to get growth going in the poorest countries.

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