Speech

The IMF We Need -- Remarks by Michel Camdessus

February 2, 2000

Thank you Ambassador Kampelman for your kind words of introduction. I am very pleased that my last few days as head of the IMF should bring me--for a second time--to the Institute for the Study of Diplomacy in the School of Foreign Service here at Georgetown University. I came a first time, in 1992, at the invitation of the then Dean Peter Krogh and, I must say, was particularly excited to have an occasion to visit this place at the moment the Fund was embarking on its challenging mandate in the former Soviet Union.

Today, circumstances have changed. After many ups and downs, particularly in the former Soviet Union--and with a still unfinished agenda there--a crisis past in Asia and Brazil, too much excitement perhaps about the solid prospects for world expansion, the moment has come for me to ask to be discharged of my IMF responsibilities, for new blood, new ideas, new energy to be injected to that superb institution. This decision to bring my mission to an end has opened for me, since--significantly enough--mid-November, a prolonged period of thanksgiving for what has been an extraordinary experience of service to the world in the ranks of a dream team. I refer of course to my friends and colleagues of the Board, management and staff of the IMF, my friends and colleagues of the UN family--and it is for me a singular honor to receive this award the year after you honored my elder brother in this family, Kofi Annan--and my friends and colleagues of the World Bank and of the regional development banks, Jim Wolfensohn and Enrique Iglesias, kindly represented here today. To all of them, I will have, I hope, other occasions to express my gratitude.

But, with your permission Mr. Chairman, as you are presenting me with this totally undeserved Jit Trainor Award, I see in this occasion a wonderful opportunity to express my gratitude to all those religious leaders, many of them from the "Societates Jesus," to whom I owe so much of my intellectual and spiritual education, very prominent among them, Pierre Teilhard de Chardin. You have read a few words from him on the wall of this multicultural center. When I started reading his books they were still--I am sorry to say--unauthorized for publication. This added to the excitement of course and didn't prevent him from revealing to me that it is "God himself who attracts people and reaches them through the unifying process of the Universe." Let me put it as simply as possible: I cannot imagine what might have become of my professional life, particularly these last thirteen years in the International Monetary Fund, without the Christian social teaching and spiritual support of these men who, at the crucial moments of my life, told me the words they, themselves had once been told "go, do not be afraid." I can repeat here word for word what Father Thomas King, S.J. once said ¹ "I am here because the words of Teilhard enabled me to see that my own hesitant steps are not mine alone, but part of the immense journey of life itself pressing forward through the ages."

But how can Christian social teaching, how can the legacy of these modest men, be relevant in our globalizing world, in such a technical, religiously neutral organization as the IMF? Let me first answer this question briefly. This will lead us to my central theme for today: what kind of IMF does the world need now?

How can Christian social teaching be relevant now? Well, first of all, it warmly embraces the intercultural and spiritual understanding that is essential to underpin the world's integrating economic and social system. From this teaching I received a call to action with all people of every creed ready to mobilize themselves to make the world a better place, and to do that now. Today. Today, "Don't be afraid," are key words in the legacy I received. And here, when I was in my early twenties, came for me the wonderful words of Teilhard in The Divine Milieu ² on the Christian perfection of the human effort, of the effort of all people striving to improve the human condition and to advance together the unity of the world. And Teilhard has prompted me to see globalization as one of these "signs of the times" we are invited to interpret discerningly and to use to good advantage in our efforts to humanize the world. Seen from that perspective, globalization acquires, of course, a very positive dimension. Globalization never has been as some have portrayed it, a blind, potentially malevolent force that needs to be tamed. It should be seen as the best chance we have of improving the human condition throughout the world.

This view of globalization is one that goes beyond trade, beyond capital mobility and the wonders of instantaneous electronic communication and business, beyond even the freedom of people and ideas to move around the world. It is a concept that can be embraced, of course, from the perspective of enlightened self-interest by individuals and nations. But in this university, I know that I will be understood clearly when I say that it must be seen also as an invitation to enhance our sense of international responsibility and solidarity, our sense of world citizenship to make the best for humankind out of this "unifying process of the Universe."

Here we touch what is of the essence, the basis for your action when you, who are students now, will serve in a global multilateral institution.

The basis for action, then, will be for you, to identify those universal values on which all people of the world could "coincide" and "join forces" to face together the challenges of our time. I have just mentioned three of them:

• A universal sense of responsibility.

• A renewed sense of solidarity to answer, with effectiveness, the eternal question to Cain--a question for us today of course--"what did you do to your brother?"

• And, third a value to be invented by your generation: citizenship in a globalizing world.

These are the values which must, I think, guide the international community in its inescapable task today of humanizing globalization!

But, when the institution you have been elected to lead is of a technical nature, when it specializes in such abstract issues as monetary affairs, and has, furthermore--and this is a God-given gift--a twin sister specializing specifically in human development and fighting poverty, a mission you would not want to duplicate, where does my central question for today lead--how to define the IMF we need? Well, precisely to those very same three --and of course a few others. You will be able to perceive it, I trust, as I describe, our ongoing efforts to adapt the IMF to the new world emerging from the crisis of the end of the 20th century.

To define the IMF we need and we must respond to two questions:

• How can we be responsible to each of our 182 member countries, whatever their size and condition?

• How should we discharge our responsibility as "the machinery" in charge of overseeing the international monetary and financial system?

I. Responding to the needs of each of our members

You know certainly that all countries have the right-and an obligation-to maintain a permanent dialogue with us, with a view to finding optimal solutions in their search for stability and high-quality growth. This has a name (not so attractive, but originally French!): surveillance. They can also count on our technical assistance, and, in times of crisis, our catalytic financing.

All of this points to an active and wide-ranging agenda. Let me concentrate on three areas where our activities are changing fast: surveillance, facing the problems of the poorest countries, and crisis management.

You can easily imagine that, in a post-Asian crisis context, our statutory responsibilities for surveillance have acquired an added dimension. Now we know that whether a country is large or small, any crisis has the potential to become systemic through contagion on the globalized markets. Domestic economic policy therefore must, now more than ever, take into account its potential worldwide impact; a duty of universal responsibility is incumbent upon all. Every country, large or small, is responsible for the stability and quality of world growth.

Yes, this adds a new dimension to the duty of excellence that is required of every government in managing its economy. I use the word "excellence;" I could also say "absolute rectitude." Globalization is, in fact, a potent force in accelerating and spreading the international repercussions of domestic policies-for better or for worse. Countries have become increasingly aware of these interlinkages between the domestic and global domains. Each country is responsible for the advancement of all. Our surveillance must aim to help them face this responsibility. This means that if surveillance is the key to preventing crisis, it is also much more. It must contribute to creating the conditions for an active private sector to flourish. It must promote basic stability and rapid sustainable, high-quality growth for each country.

We are in a unique position to help each country generate such growth for itself and in so doing to help generate high, better-balanced growth for the entire world. We cannot, we should not aim for anything less! 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 economic institutions, transparency, and good governance with all this implies for social and labor policies, as well as for financial soundness, structural reform, and the implementation of international standards. And surveillance is one of those activities continually being adapted--making sure that we have the tools to offer our members. That is why our surveillance has extended in recent years to cover a wider range of issues: financial sector stability analysis, stronger emphasis on regional surveillance, and the dissemination and promotion of internationally recognized standards and codes.

The Fund we need is also an institution which must draw the logical conclusions from the recognition that at the start of the 21st century, the plight of the poorest countries--and particularly of the poorest people within them--is "the ultimate systemic threat." ³ Addressing for the last time, in October, the Assembly of all the Ministers of Finance and Central Bank Governors of the world, I saw it as my duty to state the following:

"It is the hard, the demanding, task--it is the honor--of the IMF, even if it is not a development institution, to try continuously to help governments, to be responsive to the cries of the poor. The cries of the poor! I believe that we must keep in our minds the heartbreaking message of the two teenagers from Guinea, found dead in the landing gear bay of a an airliner, a message to--I quote--"the excellencies and officials of Europe." They said, "we suffer enormously in Africa. Help us. We have problems in Africa. We lack rights as children. We have war and illness, we lack food…We want to study, and we ask you to help us to study so we can be like you, in Africa." This message is for all of us. It is a message from those in absolute poverty. It tells us that the extent of poverty still present at the end of a century of affluence is intolerable."

For this reason--in the last few months--the IMF has replaced its concessional facility, the ESAF, with a better-focussed Poverty Reduction and Growth Facility (PRGF) establishing poverty reduction as a core objective of the programs it supports in the poorest countries. Why should the IMF take such an explicit stand? Because 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 productive potential of the population, including the poorest, is unlocked through better health, education, and nutrition…starting by effectively fulfilling all the pledges of the wonderful international conferences of the 1990s for human development. As my friend Eduardo Aninat, at that time Minister of Finance of Chile and Chairman of our Annual Meetings of 1996 and now one of my three deputies in the Fund, put it admirably: "It is the crucial link of economic and social development with the effort of the dignification of mankind, that makes our work a truly meaningful task." This is typically the domain where a universal sense of responsibility and a renewed sense of solidarity must reinforce each other.

However, articulating poverty reduction as an explicit objective of Fund-supported programs does not imply that the IMF has all the answers. Far from it. What we are offering is a contribution to country-owned strategies for poverty reduction prepared in consultation with civil society and all development partners; and a new high level of collaboration between the World Bank and the Fund in reaching a joint, coherent position on which to advise governments. For the Fund, the point is to ensure that poverty reduction is an integral and explicit objective when designing policies, and equally important, to be confident that adequate institutions and resources are available to implement the policies. This explains what we are doing at the moment by significantly strengthening the Highly Indebted Poor Countries (HIPC) Initiative--begun with Jim Wolfenshohn three years ago--reducing by half the debt of 35 to 40 among the poorest countries, and ensuring that in the framework of the IMF's new Poverty Reduction and Growth Facility, these resources are applied to human development expenditures.

No matter how attentive our surveillance, it is inevitable that crises--which are disasters for the poor--will occur occasionally and the IMF has the highly visible task of crisis management, working with the countries to reduce the length and severity of crises when they occur. And of course, we are very encouraged in this mission by the strong recovery of Asian countries and others. No country is completely immune, and the Fund needs to maintain a variety of approaches and instruments to respond adequately to the unexpected.

• The most highly publicized situations are likely to occur in emerging market economies that may from time to time experience urgent, if temporary, large-scale liquidity crises. The Fund is now better equipped to extend such support, having introduced two new mechanisms within the past three years: the Supplemental Reserve Facility (SRF) and the Contingent Credit Lines (CCL), the first to assist with crisis management, the second with crisis prevention. And, most important, we, together with the rest of the world, have learned valuable lessons from the experience of the Asian crisis.

• Less dramatic, but no less important, are the many countries 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 for 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 three-year extended arrangement. It goes almost without saying that we keep these facilities under frequent review adapting them as needed.

But what if--and we were not that far from it in the Fall of 1998--the entire global financial system appeared suddenly to be on the verge of a major global meltdown? To be ready for such occurrence is part, indeed, of our responsibilities toward the system. Let's turn to them.

II. Responding to the problems of the world financial system

Here also, reforms are needed: to respond effectively to the need for some kind of lender of last resort for the world; to adapt the world financial architecture more thoroughly; and to be able to address problems of world economic governance as they emerge. Let us start by imagining the 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?

This raises the question of the 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 harm 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. But when we talk about "unlimited amount of liquidity," the problems of resources emerge.

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.

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.

But coming back again to the financial crisis of the late 1990s, all responsibility for it could by no means be ascribed solely to countries' mismanagement. The crisis revealed the existence of major systemic weaknesses that had to be corrected. This is what our work on a new architecture of the international financial system is aimed at. It responds to five basic principles: transparency, sound banking and financial systems, private sector participation, the orderly liberalization of capital flows, and modernization of the international markets on the basis of universally accepted standards with the necessary means to ensure that they are respected. The work is well advanced in several respects. It needs to be further developed in several others, particularly the question of promoting the orderly liberalization of capital movements. 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 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, to define their own timetable, and for the Fund to help them.

Finally let me turn to the question of the international monetary system and of the governance of the IMF, itself one aspect of the governance of the entire international economy. Over the years, the stability of the international monetary and financial system increasingly 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 nonetheless monumental.

The post-World War generations are the first in history to find themselves 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 ensure international financial stability but that offer solutions to problems which now transcend the boundaries of the nation-state. A tall order indeed! Within the time at my disposal, I would like to mention just two problems: first, coherence in international economic decision-making, and second, political responsibility.

The 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. Where is the incoherence? On one hand, we have the far-reaching 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. On the other hand, these same governments have failed--in the framework of WTO--to launch a trade round, which could at least promptly eliminate trade barriers to the exports of these countries. But it is the latter that has the greater long-term potential for lifting the poor out of poverty through export-led growth. This failure, unless quickly reversed, will 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 including the IMF. 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--I am proud to say--the unanimous support of our membership, that is to say, of each member government.

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. I am very 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, and here having in mind the issue of coherence, 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 be more thoroughly representative of the entire membership of 182 countries. As it would be attended by the heads of the two Bretton Woods organizations, the ILO, the WTO, and the Secretary General of the United Nations, it would offer a way of establishing a clear and strong link between the multinational 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.

Well, as you can see, under this heading of world economic governance, I could only report modest changes and timid reform ideas. No surprise in that, as the basic value, which should help to bring about such changes--a new sense of world citizenship has not yet emerged among the commonly held values in our world. But this will be necessary if humanity is to become better aware of and to assume responsibility for the global aspect of its destiny, by providing the world with the necessary institutions. This will be necessary also if we are sensitive to the so frequently expressed fear outside America that the treasures of local cultures and traditions are at risk of being overwhelmed by the strongest. One of the most pressing responsibilities of the international community will be to make sure that just the opposite occurs, and that local cultures are given a new stronger chance to contribute their uniqueness to a unifying world. A major challenge indeed for which Teilhard prophetically anticipated a response by his observation on unity and differentiation. ⁴

The great hopes we have for the 21st century--to see human development truly served by the process that is unifying the world--will not come to full fruition if new generations of opinion makers do not deliberately accept this responsibility of endowing public opinion with a global consciousness. A new kind of citizenship must be created, not simply a vague cosmopolitanism, but a genuine citizenship at all levels: local, regional, national, and global. How can it be achieved? By making global solidarity more than just an adjunct of national policies. The global solidarity required does not simply mean offering something superfluous; it means dealing with vested interests, certain lifestyles and models of consumption, and the entrenched power structures in countries. This is what we are trying to do in adapting the IMF, and all our organizations to this new world. You can count on the men and women of these organizations to continue striving to adapt them. But they need to have world public opinion behind them. And for that each individual must be helped by education, not least by the teaching of churches, to broaden their perspectives and become prudent stewards of all creation. Quite a task for you Mr. Chairman, quite a task for your University.

Thank you very much.