Let me tell you the things that are foremost in my mind as we come to the end of the Annual Meetings. First are the heartening comments we have heard about our actions during the past year and the encouraging suggestions about what remains to be done.
An important contribution of these Annual Meetings to the architecture discussion was to find the proper rationale or foundation for the social pillar we wanted to add to the new architecture. Angel Gurría [Secretary of Finance and Public Credit for Mexico] formulated this rationale particularly well when he said that “poverty is the ultimate systemic threat.” The architecture of the new globalized economic and financial world will not be solid if we are not able to better integrate poverty-reduction concerns into the heart of our strategies. We have had this concern in mind for a long time, but never has it been so strongly put to us, and never, at least in the IMF, have we had such unanimous support for putting poverty reduction at the heart of our actions, of our surveillance, of our facilities.
For us, an extremely encouraging vote of confidence has come from people “putting their money where their mouth is.” More than 90 countries have contributed money—in addition to our own contributions through our off-market transactions of gold—to complete the financing of our facilities, making the successor to the Enhanced Structural Adjustment Facility a permanent instrument and the Heavily Indebted Poor Countries Initiative, as far as the IMF is concerned, fully financed. Of the 91 countries, 58 are developing countries, several of which had benefited from ESAF in the past and consider it a great thing to help countries poorer than themselves benefit from this kind of IMF support.
This leads me to think that we must be on the right track. The so-called bitter IMF medicine has been tried on people, but these people found it good and are ready to find money to help other people in the world benefit from this kind of medicine.
We enter here into a new phase of our working together with the World Bank—an exciting time indeed. The next stage is the need to complement aid efficiently with trade.
Question:What is the status of the discussion on amending the Articles of Agreement with regard to the capital account, which was a theme of the Hong Kong SAR Annual Meetings in October 1997?
Camdessus: I am a bit impatient at the slow progress in this area since the inspiring pledges made in Hong Kong SAR. Of course, the Asian crisis has somewhat reduced the enthusiasm of many and has led to a desire to define what is “good” capital account liberalization. The Asian experience has shown that you can have extremely bad liberalization—freezing short-term movements and multiplying the administrative impediments, for instance, to foreign direct investment. The experience of Korea is a very inspiring one; the president of Korea, on the occasion of our first conversation after his election, told me: “Don’t be intimidated; go for capital account liberalization, but the right one, not the one we had in Korea that contributed to the crisis.”
At the IMF, we are trying to see where the consensus is among our members. We have been analyzing the recent experiences with capital controls to draw the proper lessons from them and have put on the table a proposal, which we call the “third way.” This is a middle point between, on the one hand, extreme, indiscriminate liberalization and, on the other, an exceedingly cautious approach that would deprive the world of the benefits of the freedom of capital movements.
Question:Considering the new architecture and the concept that poverty reduction and financial stability go hand in hand, do you see the IMF changing its programs—for example with Brazil—to permit more allocations in the social area? Also, is the IMF considering including social targets in its regular Stand-By programs?
Camdessus: We don’t like to multiply the elements of conditionality. Many countries have already taken the seven pledges for human development [see page 310]. Of course, it is proper for us to engage in a dialogue with countries to see if they are making progress in this direction, particularly since we have come to recognize that the relation between growth and poverty reduction is a two-way street—growth is needed to reduce poverty, but poverty-reduction efforts have a strong positive impact on maximizing growth.
So, more and more, this relationship between poverty reduction and growth will be on our agenda, but this is not a reason for us to change our programs. When a program is in place, there is no reason to change it unless the country itself takes the initiative of changing it. The program in Brazil, for example, contains a significant and perfectly compatible effort directed toward education and health, for this year and next year. We look forward to more powerful development and growth in Brazil to create even more room for helping the poorest—it being understood that only efforts to promote the poorest can significantly reduce one of Brazil’s most terrible problems—the very unequal distribution of incomes.
Question:The governor of the Bank of Japan, Masaru Hayami, has repeatedly expressed his willingness to exercise flexibility in the conduct of monetary policy in Japan, especially in responding to new developments in the foreign exchange markets. Do you welcome his statement, especially given the shared concern of the Group of Seven about the impact of a yen appreciation on the Japanese economy, as well as on the global economy?
Camdessus: I support the statements of the Central Bank Governor of Japan, pledging flexibility. And I note the agreement that the Group of Seven and the Interim Committee have endorsed to provide ample liquidity to the Japanese economy, which, together with the maintenance of a strong fiscal stimulus, will help the recovery to continue, in spite of the possibly too rapid strengthening of the yen. We believe that, on that basis, and provided this injection of liquidity materializes, the situation could normalize without going to what I have called in some instances the last-resort instrument—intervention in the exchange markets. My position on coordinated, unsterilized interventions, which has not changed, is that they must occur infrequently and only in very specific circumstances.
Question:Why have you chosen to be so assertive about the IMF’s relations with Russia—that the program works, that it is indefensible to turn one’s back on Russia, and that there is no evidence of theft of IMF money?
Camdessus: I was assertive for a very simple reason. This throwing out of allegations, suggestions, and rumors of all kinds has blurred perceptions of the reality. The facts are, first, that what is at the heart of our mission in Russia—namely, supporting its difficult transition to a market economy—is working; and second, that there is no evidence of theft of IMF money in Russia.
This being said, our work in Russia is extremely difficult. We know we are working in a universe where there is capital flight, corruption, and instances of bad governance, and in a country where it is absolutely essential to establish the unquestionable integrity of its financial institutions.
Question:What are your thoughts when you hear that Group of 10 members, particularly the non-Group of Seven members, are worried that the recent proliferation of groups, including the new Group of 20, will lessen the input from the European countries, which are traditional capital donors of the IMF and the World Bank? How do you see all this working out in relation to the IMF?
Camdessus: What you are alluding to is to the sense of frustration of those of the 10, who are not among the 7, who have the impression that things are being done outside their control. I must tell you that those of the 24—namely, the members of the IMF Executive Board, who are not members of the 10—are frustrated not to be among the 7 or the 10. This is an element of international life we must live with—namely, to work efficiently, you tend to restrict the size of the group; but if you want consensus, if you want to reach out to the world, you need enough people at the table.
What I see at this moment is a proliferation of groupings, mushrooming, for the best possible purposes. This makes the life of the institutions a little difficult, because an institution such as the IMF must provide intellectual food to all these groups, and our staff are running around the world trying to attend meetings of all these groups. There is a degree of disorder in all of this, and I look forward to the establishment of the new architecture and to obtaining the support of the Group of 7, 10, 24, and this new group to start rationalizing it.
We have an element of lessening of this problem, provided it works—namely, the strengthening of the old Interim Committee into a new committee that has many merits, including its new name, the International Monetary and Financial Committee. We hope that this reinforced committee will help reconcile all these misunderstandings and proliferation of initiatives into a solid, strong central body.
Question:At these meetings, the IMF has been stressing poverty alleviation more than ever before. Do we, under these circumstances, still need a World Bank?
Camdessus: A need for a World Bank? Absolutely, provided you don’t ask the IMF to take control of the World Bank and provided you only encourage us to work together hand in hand, putting our brains and hearts and our money, of course, in serving these twin purposes of poverty reduction and growth.
Long-time IMF-watchers will note that for many years now, whenever we talk about growth, we qualify it with the words “high-quality.” And if you refer back to the initial definitions of high-quality growth, you will see it was growth that contributes in a sustainable way to improving the condition of the poorest while respecting the environment and national cultures.
So, the concern for poverty was there, although it was a long-term effort to have this concern not only permeate the institution in all its dimensions but also be widely accepted by the membership. Now this concern is universally recognized; we are encouraged to go in that direction.
Photo credits: Denio Zara, Padraic Hughes, and Pedro Marquez for the IMF.