PRESS BRIEFING BY INTERNATIONAL MONETARY FUND

Press Briefing

PRESS BRIEFING BY INTERNATIONAL MONETARY FUND

At a Headquarters press briefing this morning, correspondents were told by a representative of the International Monetary Fund (IMF) that 1996 was a good year for the world economy because of the successful reforms many countries had adopted, a number of them with the Fund's support. He was introducing the Fund's annual report which covers its operations in 1996-1997. The report also discusses the world economy, progress towards an increase in the quotas of Fund member countries, new allocation of special drawing rights (SDRs), and reports on international reserves developments.

The IMF official said that growth had been well sustained, and inflation generally subdued. Most noteworthy was that growth in the developing countries on the average amounted to 6 per cent last year. Even more encouraging, he went on, was that perhaps growth in Africa as a whole increased at the rate of 5 per cent. After two years of very subdued conditions in Africa, it was a very encouraging sign, indicating that the situation was improving.

The official said that because of successful reforms carried out by countries, actual lending by the IMF, to a large extent, had dropped to levels lower than the previous two years. Nonetheless, Fund-supported programmes were in place in 60 of the Fund's 181 member countries. Even though, in many cases, new commitments were not made, the official said that in a number of cases, such as the Russian Federation, existing programmes were continuing. "So, overall, there is a very high level of support", he added.

During the year under review, the Fund had paid particular attention to the challenges of globalization -- the increasing integration of markets and economic growth worldwide. He highlighted aspects on which new or renewed attention was paid by the Fund in the past year, including its analytical work conducted on issues relating to the soundness of banking systems worldwide and work on policies affecting the freedom of international capital flows. Attention had also been focused on problems faced by low-income countries striving to avoid being marginalized in an increasingly globalized world economy.

The official said the IMF recognized its unique role within its surveillance activities, working with other institutions and bodies such as the World Bank to alert countries about the weaknesses in their banking systems or regulatory regimes. The recent banking crises only confirmed how well-placed that emphasis had been or continued to be. A new report entitled "Towards a Framework for Financial Responsibility" addressing those issues would soon be released, he said.

A way had been paved for the acceptance of the idea that the Fund had a central role to play in promoting the orderly liberalization of capital movements, the official stated. The Fund's articles of incorporation would

soon be amended to reflect that role. He noted that the Fund's charter had, from the beginning, concentrated on currency convertibility.

The official also said that initiatives had been taken to continue the Fund's Enhanced Structural Adjustment Facility beyond the year 2000, when the present facility was due to expire. Currently, available financing would be fully committed. A series of actions had been taken to implement the IMF's participation in the joint initiative with the World Bank to reduce the debt burden of the 31 most highly indebted countries.

Another important area the Fund was working on, which the official described as "ground-breaking", dealt with issues relating to governance. He said the Fund's Executive Board had developed a strong consensus on the vital importance of good governance -- both economic efficiency and growth, and had followed it recently with the issuance of operational guidelines. The guidelines concentrated on good governance, fight against corruption and arbitrary decision-making. The introduction of the guidelines showed the seriousness with which the international financial community, speaking through the Executive Board, viewed the matter, he asserted.

Another area of the Fund's work was openness in its consultations with member countries. He said the Fund's Executive Board had last April approved the release, on a voluntary basis, of press information notices on details of consultations with member countries under the Fund's article 4 consultation programme. The Fund had already issued some 25 such notices, covering a review of the economic situation in those countries, a table of some leading economic indicators and a report of the Board's discussions of the economic policies and prospects of the countries concerned.

Responding to a question about the recent economic crisis in Thailand, he said that the international community, by moving quickly to extend a total of some $16 billion in assistance to that country, had helped prevent the spread of the crisis throughout the region. As far as could be determined, he said it looked as if the situation had been well contained. The forthcoming IMF publication, World Economic Outlook, would focus on the economic developments in South-East Asia, the official said.

Answering a question about the Secretary-General's reference in his reform proposals to the need to tap into private capital for the development of developing countries, the official said the Fund's main emphasis was to help its members build their economies, and to work towards restoring growth that would enhance prospects for future private investments. In doing so, it helped build up their economies, and laid the groundwork for conditions that would lead to the Fund's formal stamp of approval on their efforts.

Another Fund official, in his comments, said that where the policy environment was conducive, capital inflows could play an important part in attracting know-how and technology. In the African region, he said Uganda had

IMF Briefing - 3 - 9 September 1997

made major strides in improving its economic climate. The most important condition was political and economic stability and clear indication of where policies were heading.

Asked whether there was any reason to believe that recent changes in Central Africa were likely to contribute to economic development in countries in the subregion, the official said the Uganda experience could have a demonstrable effect and raise a level of confidence. Governments adopting good policies could create the climate for infusion of capital and know-how. The rate of economic growth in Africa in the past years, compared to 1995, showed a positive trend, and there were possibilities of further growth. Looking to the future, he said he saw some impact of the influence of South Africa in the region.

Adding to the comment, the other Fund official said Uganda was the first country to qualify for assistance under the IMF-World Bank joint initiative on debt relief. He said that in April 1998, Uganda might receive the equivalent of $340 million in assistance from the international community as a whole that would enable it to reduce its debt by some 20 per cent. That, however, would depend on Uganda continuing its present strong performance. Preliminary discussions under the debt-relief initiative had also been held with other African countries such as Burkina Faso and Côte d'Ivoire, as well as with Bolivia in Latin America. Uganda's experience was a significant one for many countries in Africa.

How could the IMF and the World Bank combat corruption in their member countries? a correspondent asked. The IMF official said the issue was raised in confidential discussions with member countries. What was significant, he said, was the new focus on governance as a whole, particularly its economic aspects. Excessive corruption did affect a country's economic performance, he said, adding that one country that had been identified was Kenya, where it had been estimated that corruption had the effect of reducing gross domestic product (GDP) by 6 per cent. Another country was Albania with the collapse of the pyramid schemes. "I think what is noteworthy now is not so much that the IMF is willing to focus on corruption and to identify this publicly as a problem, but, more importantly, the countries themselves are willing to recognize that this problem exist, willing to raise the question and to discuss it in public", he said.

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