PRESS BRIEFING ON INTERNATIONAL MONETARY FUND

Press Briefing

PRESS BRIEFING ON INTERNATIONAL MONETARY FUND

The Asian financial crisis and its global reverberations had dominated the work of the International Monetary Fund (IMF) over the last year and led to record lending, David Cheney, Chief of the Fund's Editorial Division, this morning told a Headquarters press briefing, as he introduced the IMF's Annual Report 1998.

During the past fiscal year (May 1997 to April 1998), member countries had drawn approximately $26 billion from the IMF's General Resources Account -- nearly four times the level of the previous fiscal year. A further $11 billion had been disbursed since the end of April through August. Those outputs and other demands on IMF's resources during the 1997-1998 fiscal year had depleted the Fund's stock of resources, available for lending to members, to near $30 billion, down from $60 billion a year before.

At the current stage, the Fund could only contemplate additional lending if it were assured that additional resources would soon be made available, he said. In January, the IMF Board voted to increase resources provided by member countries by 45 per cent, which would increase "quota resources" from $200 to $290 billion. While it had also been decided that 75 per cent of the increase would be distributed in proportion to present quotas, the increase had not yet gone into effect. The situation underscored the need to strengthen the Fund's financial resources through the approval of the quota increase and the new borrowing arrangements. The IMF hoped that both measures would become effective relatively soon.

The IMF Annual Report contained a broad description of the IMF's response to the Asian financial crisis, including a chronology of developments in the three crisis countries -- Indonesia, Thailand and the Republic of Korea -- updated through July 1998. The IMF Executive Board had drawn several lessons from the Asian crisis, including: that effective surveillance depended on timely and accurate information on reserves, central banks transactions and the banking sector; that closer attention must be paid to policy interdependence and the risks of contagion; and that effective surveillance depended on the willingness of members to follow IMF advice.

The Asian crisis had triggered consideration of ways to strengthen the international monetary system, he said. Those included helping members strengthen their financial systems and further strengthen IMF surveillance. Information should be more widely available on the economic situation and policies of member countries. The IMF's role in crisis management must be reinforced, and it should not be expected to finance every balance of payments deficit. Private sector involvement must be increased to forestall or prevent financial crises.

A correspondent asked how the Asian and the Russian Federation crises had affected Latin American countries and how much they had borrowed in the

IMF Press Briefing - - 28 September 1998

last year. Mr. Cheney said that Latin American countries had been doing well until the contagion spread. He said he did not know the amount lent to Latin America.

Another correspondent asked for comment on criticism that the IMF, in dealing with the Asian crisis, had prescribed a Western solution for an Eastern problem. Mr. Cheney said the IMF did not adopt one rigid formula or policy. It took into account the individual circumstances and the culture of each member country. However, there were core policies which worked when implemented fully with dedication and perseverance.

During the current General Assembly general debate, several countries had called for reform of the IMF and the World Bank, a correspondent said. What reforms did the IMF have planned? he asked. Mr. Cheney said restructuring would presumably increase the effectiveness of IMF surveillance. Means were also being considered to involve the private sector more in the resolution and prevention of crises.

Responding to a question of how the IMF planned to rectify the impression that political rather than economic factors played a role in its programmes, Mr. Cheney said that the Fund approved adjustment programmes that were strong and economically credible.

In reply to a question about how the IMF dealt with the impact of falling oil prices on producer countries, Mr. Cheney said the Fund took account of the impact of oil prices in its negotiations with member countries. While there must be fiscal restraint when adjusting to declining revenues, a country in great distress could approach the IMF, which would consider its case.

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