Thank you Governors, Excellencies, Ladies and Gentlemen. Your invitation
to share this occasion
with you today comes as a great honor, and it gives me special pleasure,
since your meeting this
year takes place in an atmosphere of renewed hope and vitality in the region,
and in a country
whose efforts at addressing the challenges of crisis have been exemplary.
Asia is now emerging from the crisis that engulfed the region just under
two years ago, surprising
most governments, citizens, investors, and institutions by how rapidly
it spread, and how severely
it affected a number of countries. Much has been said and written about
the causes of the crisis, of
its human costs, of the policy decisions that were made by governments,
of the support and advice
that was offered by the international community, and of the painful process
of reform.
But today I would like to pay tribute to those who withstood this crisis:
to Korea and the other
countries of the region, to their people—especially the most vulnerable,
to the corporations and
financial institutions, and to the governments and the policymakers; all
of them have taken and are
implementing courageous and difficult measures, confident in the long-term
potential of your
countries.
We in the IMF are proud to have stood with you in this time of severe economic
imbalance, to
have joined you in seeking solutions to a new virulent strain of crises,
and to assist as you continue
the testing, complex process of reform—a formidable task indeed.
* * * * *
Economic prospects for Asia and the world economy
What are the prospects for Asia now? The countries at the heart of the
crisis are close to or even
past the turning point. Most clearly in Korea, the Philippines, and increasingly
in Thailand and
Malaysia, we see signs of an upturn in activity. In Indonesia, where it
took rather longer for
financial stabilization to take hold, economic activity is expected to
pick up also in the second half
of the year. What has made this possible? Once the countries had resolved
firmly to strive for
financial stabilization, supported by the external financing packages put
together by the IMF,
prospects improved dramatically. Stability in foreign exchange markets
was restored and allowed
monetary policy to be eased appreciably. Fiscal policy was relaxed both
to stimulate economic
growth and, simultaneously to allow for a major expansion in social spending,
especially on the
social safety net. Now tangible evidence of reviving domestic and international
confidence is seen
in the sharp rebounds in equity markets throughout the region in the early
months of 1999. But, as
we all know, much remains to be done in strengthening the structures of
these economies, before
we can be confident that a truly sustained recovery has begun.
And what of the global outlook? In the near-term, the worst of the current
emerging markets crisis
may well be behind us: beyond Asia, Brazil is also emerging, and the policy
dialogue in Russia has
moved forward and we hope that the new government will steadfastly implement
the program
undertaken by its predecessor. For the time being, the recent buoyant mood
of financial markets
contrasts sharply with the situation just a few months ago in late 1998
when contagion seemed to
be spreading inexorably around the globe. But, inevitably, challenges remain.
Can the United
States, the powerhouse of the global economy for the past several years,
achieve the soft landing it
needs? How soon can Japan expect to see the long-awaited and expected recovery?
Can Europe
breathe new vigor into its flagging economic expansion? And will the emerging
markets be able to
revive growth and sustain sound macroeconomic policies while undertaking
the structural reforms
that many need? More generally, can the tentative recovery now beginning
be extended into a new
era of high-quality global growth, in which Asia once again will play a
dynamic, leading role? That
will depend not just on skillful macroeconomic management but also on whether
the international
community can advance quickly enough with the challenge, on which it has
embarked, to overhaul
the architecture of the international financial and monetary system.
During recent months, the international community has reached agreement
on some specific
policies, and it has been implementing a number of initiatives. The recent
Interim Committee
meeting was instrumental in reaching this stage, and it is important to
maintain the momentum. Last
week’s APEC Finance Ministers meeting was very helpful in carrying forward
a number of issues.
Let me mention just a few points on which we see progress:
In the areas of transparency, standards, and Fund surveillance, new standards
are
being defined.
On the critical issue of financial sector strengthening, the policy dialogue
with our
members, with you, is being enhanced by the application of the Basle Core
Principles—which are also being updated—and by a new framework for financial
sector
assessment agreed between the Fund and the World Bank.
An important innovation came in April when the IMF set up the new Contingent
Credit
Lines to provide precautionary financing to countries with basically sound
economies but
which are threatened by the potential effects of contagion.
In dealing with highly leveraged institutions (in particular, hedge funds)
more concrete
and workable proposals are emerging.
In the most complex area of the debate, how to involve the private sector
in forestalling
and resolving crises, greater clarity is emerging on some issues but the
debate is far from
over.
This long list of tasks completed or work-in-progress is very encouraging;
but it is not enough.
What should be done next? A few weeks ago I presented to the Executive
Board the tasks that I
thought should occupy the global financial community in the next few months:
it ran to some 30
substantive items, far too many to review with you today. In very broad
terms, I see two key
directions uppermost in our work: one is to go ahead implementing what
has been agreed, a
time-consuming and technically complex task; the other is to pursue with
even greater vigor the
mission that we were embarked upon before this crisis, namely to integrate
a larger number of
developing countries into the global financial system. Governors, going
in these directions we will
be faced with several more specific issues that we must address in the
coming months and we will
greatly value your contributions.
First, a key systemic implication of the recent crises needs to be studied
in more
depth—exchange rate arrangements. It is striking that each of the crisis
countries was
operating some form of peg at the time crisis struck. We must consider
carefully whether such
arrangements are appropriate to certain stages of development, at certain
times, under certain
conditions; or whether they simply suffered from technical shortcomings.
Second, we need to, focus on the trend toward integration of international
financial markets.
Countries must be able to tap the benefits of the capital flows that are
available by liberalizing their
capital accounts through an orderly process, but also guard against the
risks.
Third, social policy has come to the forefront of the international debate
on the architecture in the
last few months. It must be kept in the forefront. Asia’s experience with
crisis reminds us that
countries need strong social policies.
Fourth, it is high time to bring the debate on debt relief to closure,
lifting the burden of
unsustainable debt on the poorer countries. I have little doubt that an
important step forward will
be taken soon.
Fifth, we need to press ahead with adapting international institutions,
including the IMF, to the
new challenges posed by globalization. The more responsibilities are entrusted
to us, the more the
IMF needs to be able to count on the strongest possible support and close
involvement of all
national authorities in decisions that affect the global community.
* * * * *
Governors, I have spoken about the key elements of our agenda to build
a more secure future for
the world economy. But many of these principles are not new for you as
they have been at the
heart of your ambitious programs of reform. Increasingly the question arises,
nevertheless, as to
what would be the result. Well, few observers doubt Asia’s potential to
return to rapid growth.
But I would suggest that what is in the making is not just a return to
the successful trends of the
past but a new model of higher quality growth solidly rooted on the amazing
strength of
your Asian traditions and values.
Let me elaborate and tell you why I refer to such a concept of growth,
one that is of higher quality
and that draws its strength from your traditional values.
Growth of higher quality? For many reasons! Because, first of all, it will
be rooted in an
environment of fair and transparent competition on an even playing field,
and because it will be
based on sound economic and financial institutions and a strong sense of
social justice.
Yes, your reforms are promoting an independent, competitive private sector.
Weak
corporate governance was a serious flaw in many Asian economies. In the
near term, a priority is
to press ahead with corporate debt work-outs to establish viable corporations
on a sound financial
footing.
Simultaneously, you are adopting high standards of public governance and
transparency.
"Arm’s length" relationships among governments, corporations and banks,
are essential as a
starting point for good corporate governance. The international standards
for transparent policy
formulation and data dissemination now under preparation will enhance public
sector credibility.
Your reforms are also addressing the problems of your financial systems
whose weakness was
one of the central flaws in the emerging markets crisis. A good start has
been made. Now
authorities throughout the region need to give the highest priority to
complete this task by ensuring
that sound regulatory and supervisory structures are in place. Certainly
it will mean continuing bold
measures to strengthen the banking system, including the closure, restructuring,
or recapitalization
of troubled banks. It will also mean looking at the present supervisory
arrangements themselves.
One of the key issues for this region is to establish supervisory agencies
that have a high degree of
independence from the banks, the private sector, and other official agencies.
The precise
institutional arrangements will vary from one country to another—whether
it be an independent
agency, a part of the monetary authority, or affiliated with a government
ministry—but the
execution of its mandate should be without external influence.
Such strengthening of the financial system will be an essential precondition
for your continuous
progress toward open capital markets. Everybody now, I presume, has clearly
understood
that to liberalize successfully their capital accounts, countries should
do so under two broad
conditions: first, liberalization should proceed in a properly sequenced
fashion with the
strengthening of their domestic financial systems. Second, they should
not allow the easing of
controls on longer-term flows, especially of direct investment, to lag
behind the liberalization of
short-term flows. This is one of the key lessons of this crisis.
Another such lesson suggests making the concern for social justice truly
central to the design of
national policies. This calls for enhanced social welfare and protection.
As recession
deepened, many descended into poverty as formal social safety nets were
missing, placing too
heavy a burden on the protection provided by the extended family. In the
context of the
Fund-supported programs, major steps have been taken to develop such social
systems in
collaboration with the World Bank. Social safety nets are essential to
protect those affected by the
dislocation—such as unemployment—that remains a risk in even fast-growing
economies. And for
long-term development, stronger education systems will be needed, a point
that I hardly need to
stress in a country such as Korea, which has been able in 30 years to bring
the literacy rate to 98
percent.
Already this emphasis on social objectives brings us to the heart of what
I see as the contribution
of your strong traditional values to high-quality growth. But let me add
three more examples.
First, your clear acceptance of open competition as a condition for progress.
It is impressive
that, even when faced with such a severe recession, most countries in the
region have eschewed
protectionist policies. You have recognized, correctly, that the strong
growth of the past was
promoted by the progress toward open trade, investment, and payments regimes.
This necessary,
if not sufficient, condition will need to remain at the heart of your economic
thinking and lay the
groundwork for further progress.
Second, your genuine consensus in seeing sound macroeconomic policies as
key for success.
The sound macroeconomic policies that were long perceived to be one of
the hallmarks of the
high-growth era in Asia are now being reinforced with robust institutions
and market-based policy
instruments that will permit a flexible implementation of policies. For
the time being a relaxed
stance of fiscal and monetary policy remains appropriate until the recovery
is well underway. I
have little doubt that eventually, if the time comes for a tighter policy
stance, your governments,
who have an instinctive preference for fiscal prudence, will rise to the
challenge.
Third, the remarkable importance you attach to saving in private and public
finances. The high
rates of domestic saving that were observed in the past were indispensable
for financing
development. As recovery resumes, strong macroeconomic conditions and institutional
requirements will foster continued strong saving, and this will be all
the more desirable as it is likely
that foreign resources may be more constrained and more expensive than
in the past.
* * * * *
Governors, the traditional mission of the IMF has brought us closer to
you at a time of the most
severe economic crisis of the last fifty years. This has been a dramatic
experience that you and
your countries have faced with admirable lucidity and determination. Today
I see it as a distinct
privilege to have been able to share with you a message of confidence for
the future.
Yes, I believe that your countries are now or will soon be on a solid track of recovery.
Yes, I believe that your perseverance in implementing your programs and
your contributions to
laying the foundation of the new world financial architecture have all
the potential for establishing
your economies on a new promising track of high-quality growth.
Yes, I believe that these new features of your development will give new
chances to a better
shared prosperity, to a social cohesion and promotion of your cultures,
all the more as this new
pattern of development will be solidly rooted in the richness of your traditional
values.