PRESS BRIEFING ON IMF ANNUAL REPORT

Press Briefing

PRESS BRIEFING ON IMF ANNUAL REPORT

International Monetary Fund (IMF) lending dropped very sharply in fiscal year 2000 as a result of calmer conditions in emerging markets and rapid improvements in several crisis countries, David Cheney, Chief of the Editorial Division, External Relations Department, IMF, told correspondents this morning at a Headquarters press briefing.

Discussing the Fund’s Annual Report, which covered the period ending on 30 April, he said that the Fund had loaned about 6.3 billion special drawing rights (SDRs) last year in regular loans, which was less than one third of what was done in the previous fiscal year. [Special drawing right was the special currency of the Fund, which at 30 April was worth about $1.30.] At the same time, repayment of its loans doubled to 23 billion SDRs in fiscal 2000. Thus, the Fund took in a lot more than it paid out. Joining Mr. Cheney at the briefing was Axel R. Palmason, Senior Economist at the Fund’s New York Office.

Mr. Cheney’s presentation of the Report, officially released last Friday, coincided with the annual meeting of the Fund and the World Bank, being held in Prague, he explained. The Report was unique among the Fund’s reports in that it was the publication of the 24-member Executive Board, and not the staff. Hence, it reflected the Board’s views and opinions on policy issues that arose during the year.

He said that, of the 4.8 billion SDRs taken in during the last four months alone, almost half came in the form of an early repayment of a loan to Mexico. In terms of its low-interest concessional loans to its poorest member countries, under the Poverty Reduction and Growth Facility, the Fund lent about half a billion SDRs in the last fiscal year, which was down from 800 million SDRs in the previous fiscal year. Since April, lending and repayments under that Facility had amounted to about 200 million SDRs.

The net result of all that, he continued, was to reduce the amount of the Fund’s outstanding credit. The total amount of outstanding loans was 50.4 billion SDRs at the end of the fiscal year, which was down by about 17 billion from the level of outstanding credit at the end of the previous fiscal year. Therefore, the Fund’s critical liquidity ratio -– the amount the Fund actually had available to lend -- rose to 153 per cent at the end of the fiscal year. The financial position of the Fund was much stronger than it was two years ago, a year ago and even just a few months ago.

The first main theme of the Report, he said, was what the Fund was doing to help strengthen the international financial architecture, together with other international organizations and groups. Last year, the Fund paid a lot of attention to better crisis prevention and management. Much of that related to the transparency of the global economy and of the Fund itself.

IMF Press Briefing - 2 - 22 September 2000

Among the issues it focused on under that theme was surveillance -- the Fund’s oversight of the policies of its member countries, he said. The Fund had strengthened its scrutiny of economic and financial policies in member countries and international capital markets. Transparency, both within the Fund and within its member countries (the amount of information they published and released to the world), was also a factor. Members were agreeing to release far more of the results of the Fund’s surveillance than ever before. About 80 per cent of its 182 member countries had agreed to release “public information notices” -- summaries of their consultations with member countries.

The Fund had also made tremendous progress in implementing and monitoring the observance of international standards and of codes of good practice by its member countries, he said. Another area where the Fund was working to improve the international financial architecture was through its financial sector assessment programme -- a joint pilot project between the IMF and the World Bank to comprehensively assess the financial sectors of its member countries. It was also working to assess vulnerabilities and risks affecting countries. It did that in part by helping countries improve the timeliness and quality of data, and by using a variety of indicators to assess the vulnerability of countries to external shocks.

Private sector involvement, he said, was also a major issue in connection with strengthening the architecture of the international financial system. There had been considerable progress in understanding how to involve the private sector in preventing and resolving financial crises when they occurred. Review of the global architecture was also the motivation behind the review of the Fund’s lending facilities, which it had just completed, and behind making contingent credit lines much more flexible and usable, in part by lowering interest charges on them. Those contingent credit lines were meant to assist countries which were following good policies, but, for various reasons, were thrown off course.

The second main theme of the Report was the IMF’s work in helping its poorest member countries, he said. Last year, the Fund sharpened its focus on poverty reduction with the introduction of its Poverty Reduction and Growth Facility, which replaced the Enhanced Structural Adjustment Facility (ESAF). By the end of the last financial year, the Fund had committed about 3.5 billion SDRs to about 30 low-income countries under the Poverty Reduction and Growth Facility, and that figure is now up to 3.7 billion.

Under the Heavily Indebted Poor Countries (HIPC) Debt Initiative, he said that the IMF had committed 762 million SDRs to 12 countries by the end of August. It was now trying to help about 20 countries to qualify for debt relief. It was also making progress in getting financing for the Facility and the HIPC Initiative. By the end of April, about 60 per cent of the contributions pledged by member countries were either in hand or in process. In addition, the Fund was providing much more technical assistance, which now accounted for about 20 per cent of its administrative budget.

IMF Press Briefing - 3 - 22 September 2000

Asked if the Fund had any plans to make itself more democratic, Mr. Cheney said that a study of the quota shares in the Fund had been initiated during the year. The Quota Committee had produced a report. It was an issue that would be examined more closely in the future. The Fund was different from the United Nations, in that there was weighted voting and contributions were determined according to the size of a country in the global economy.

Replying to a question on whether globalization was going to leave a bunch of countries behind, Mr. Palmason said that there was concern in the Fund about the downside of globalization. The Fund had been trying to address that situation all along, with the ESAF and now with the Poverty Reduction and Growth Facility and the HIPC Initiative.

Mr. Cheney added that making globalization work for all was a theme that the IMF’s Managing Director, Horst Kohler, had long stressed. The whole point of the Fund’s assistance to the poorest countries was to enable them to participate in and enjoy the benefits of globalization.

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