PRESS BRIEFING ON IMF ANNUAL REPORT

Press Briefing

PRESS BRIEFING ON IMF ANNUAL REPORT

The worst of the economic crisis seemed past, correspondents were told this morning in an International Monetary Fund (IMF) briefing on the Fund's annual report.

Most of the Asian countries involved in the crisis were recovering quickly, largely in the context of programs supported by the IMF, said David Cheney, Chief of the IMF's Editorial Division. Brazil's IMF- supported program succeeding with growth more rapid than had been expected. Even the Russian economy was doing better than expected, also in the context of an IMF supported program. However, he added, there were still important signs of fragility in several individual countries, most obviously in Indonesia. Also, the cost of borrowing for those emerging market economies had recently risen again.

Mr. Cheney was introduced by Reinhard Munzberg, the Fund's Special Representative in New York. Mr. Munzberg noted that the annual report, with the theme, "Financial crises prompt consideration of proposals to strengthen the global financial system." covered the IMF fiscal period of May 1998 through April 1999. The report described IMF Executive Board activities, including surveillance, lending activities and technical assistance. The press conference was part of a series of IMF briefings on issues. In the aftermath of the financial crises, the IMF and the international community had directed considerable effort towards developing and beginning to implement a set of wide- ranging proposals for reform of the international financial system.

The report had three major themes, Mr. Cheney said: the financial crisis and IMF response; strengthening the financial architecture; and debt relief for the heavily indebted poor countries. On the first issue, the IMF had held several meetings to review the lessons from the Asian crisis, particularly from the experience of such crisis countries as Indonesia, Korea and Thailand. The Fund had also looked at the Philippines and Malaysia.

Among the lessons drawn from the crisis were the need for regular analysis of, the appropriateness of exchange rates and the exchange rate regime of a country, and the need to provide to the markets and the public full, accurate and clear financial information-- not only on the public sector but also on the private sector, he said. Another important lesson was that the IMF had to help countries strengthen their social safety nets to cushion the adverse impact of crises and adjustments on the poor.

Concerning proposals on the architecture of the financial system, he said there was broad support among the international community for: the promotion of transparency and accountability; strengthening financial systems; paying more attention to how capital markets were liberalized; involving the private sector more fully in forestalling and resolving crises; ensuring an appropriate exchange rate regime for each country; ensuring the adequacy of the IMF's financial resources; and providing a Contingent Credit Line from the IMF and the private sector as a precautionary line of defence against financial contagion.

Mr. Cheney said that over the past few years, the IMF had come a long way in terms of improving the transparency of its activities. It maintained a website that included information on the Fund's liquidity and member's financial accounts, and released regular public information notices on Board discussions.

He also said discussions were underway to improve a joint IMF- World Bank initiative on debt-servicing relief to the heavily indebted poor countries. So far, seven countries had qualified for such relief; approval of another three was expected to follow. Debt-relief of $6 billion had been committed to those seven countries; assistance for Uganda and Bolivia had been released. He added that, in response to criticism, the IMF had sought feedback on ways to strengthen the initiative. Decisions on the matter were expected to be taken at the upcoming fall 1999 annual meetings.

Asked to elaborate on the liberalization of capital flows, Mr. Cheney said the IMF was involved in that issue in the context of determining how its member countries could gradually open up and institute systems that might render them more open to such capital flows, both inward and outward. The Fund continually emphasized that member countries should proceed in an orderly and sequenced fashion towards liberalization.

Asked about the fairness of the Tobin tax (on international financial transactions), Mr. Munzberg replied that as far as he knew the Fund had not taken a specific position on the matter, and considered the matter part of the ongoing debate.

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