- Michel Camdessus
- Published Date:
- October 1998
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After many years of extraordinary sustained growth, economic crisis spread rapidly through several Asian countries starting in the second half of 1997. Other countries throughout the world were affected in varying degrees by the initial aftershocks. New crises developed, the most severe of which was in Russia. Contagion again affected economies throughout the world, including Latin America, even though many countries there had taken decisive policy measures in the wake of the earlier Mexican crisis. Even the financial markets in the industrial countries were not immune from volatility, despite the underlying strength of activity in these economies.
So the IMF, as well as its membership, is now in stormy, uncharted waters. The events of the past year not only have highlighted the challenges posed by the new “global economy,” but also have compelled policymakers around the world to reconsider their agenda for action. The urgent tasks of restoring stability to crisis-ridden countries have been accompanied by other more far-reaching questions. What has gone wrong? Can such crises be anticipated and, even better, averted? If crisis strikes, how can the adverse impact on the people, especially the poorest, be mitigated? What steps need to be taken to ensure that the benefits of globalization can be realized without suffering from periodic crises in vulnerable countries? How can a more robust international economy be built?
The five speeches included in this collection cover a broad range of our activities and thinking over the past year. The themes range from immediate crisis management to the broad questions of a new architecture for the global economy; and from the specific concerns of individual countries and regions to the conditions for a strong and equitable world economy.
The first, most recent speech, delivered in September 1998, steps back from prevailing worldwide market turbulence, seeking lessons from the crises, and stressing that conditions vary extensively among emerging economies. Clear, calm analysis is essential by market participants to differentiate among economies. While crisis has developed in or threatens other regions, in several countries in Asia it is possible to detect the first signs of recovery, however tentative or incomplete. Although the loss of output and social costs have been more pronounced than was expected, their external financial situation has improved, a first sign that renewed sustainable economic growth may be in prospect.
The second speech sets out initial thoughts not just on the key elements of a new financial architecture, but also on the role that can be played by each constituency in the world economy. It has three themes. First, all countries should recognize the universal benefits of an integrated global economy and increasingly open, liberal capital flows. Second, to minimize the risks, governments and private participants in the market need to subscribe to some basic rules: transparency, good governance, and standards or codes of best practices in a wide range of economic and financial activity. Third, the international organizations themselves, including the IMF, should be adapted and supported to enable them to fulfill their part in managing the global economy.
The remaining speeches elaborate some of these themes. Good governance, a crucial feature of the new architecture, was the theme of an address in Paris in January 1998. Broad institutional, indeed political, issues are raised that illustrate just how far the IMF has come from its traditional focus on short-term macroeconomic stabilization.
Remarks in Kuala Lumpur, delivered in the earlier stages of the crisis in Asia, considered the immediate causes of the turbulence, the responses available to governments, and the steps needed to restore confidence. Already, the ideas of a new financial architecture were taking shape, and they were to assume increasing importance in the thinking of policymakers around the world in subsequent months.
Although inevitably affected by developments in the rest of the world, many countries in Africa continue a quiet resurgence. In an address to the Heads of State of the Organization of African Unity, I reflected on the determined action needed to keep this growth alive: by the countries themselves, by bilateral donors, and by multilateral institutions. For the IMF, the past year provided an opportunity to evaluate our concessional lending window, the Enhanced Structural Adjustment Facility (ESAF), and to observe early results from our joint initiative with the World Bank for the highly indebted poor countries.
The events of the past year did more than reveal the risks that come with globalization. More importantly, they pointed to the need for solutions based on a concerted effort by the international community. Policies, practices, and institutions must be adapted if we are to achieve quality growth in a sound and stable financial environment. These will be the cornerstones of a new financial architecture to face the challenges of the new millennium.