Financial Times - February 2, 2000
Camdessus urges wider role for IMF By Stephen Fidler in New York
The outgoing head of the International Monetary Fund said on Tuesday the institution should be explicitly recognised as the lender of last resort to the international financial system - and should be given the tools to perform the role.
In one of his last public appearances before stepping down this month, Mr Camdessus described what he saw as an extensive future role for the fund. His speech will be seen in part as the IMF's rebuttal of calls by Lawrence Summers, US treasury secretary, for the fund to play a narrower role. Mr Summers had said that, apart from helping the poorest countries lower their debt burdens, the IMF should focus on its role in preventing and dealing with crisis.
This would mean it pulling out of the job of being a regular provider of medium and long-term finance to developing countries.
But in a speech to the Council on Foreign Relations and in an interview beforehand, Mr Camdessus disputed this proposal. He said the emphasis on crisis prevention was "too limiting".
He said there were many countries - those not poor enough to attract concessional financing yet unable to attract private capital flows - that would continue to require IMF support.
It was not feasible, he said, to help only those countries whose crises posed a threat to the international financial system. "It's just impossible to divide the world today according to which countries have systemic significance and which have not. Who would have told us in July 1997 that Thailand was systemic?" he said.
Mr Camdessus's views about developing the role of the IMF as an explicit lender of last resort are also likely to be controversial among some central bankers. He said a new contingency credit line, developed during the Asian crisis to provide sizeable financing to help significant countries, was already an experimental step toward performing the lender of last resort function.
The limitation was that the IMF's resources would be completely inadequate in the face of a true crisis.
This, he suggested, could be countered by making an innovative use of the special drawing right (SDR), the IMF's reserve currency. In a crisis, governments could authorise a new issue of SDRs that could then be redistributed to those countries facing liquidity crises.
Mr Camdessus declined to be drawn on slow process of choosing his successor, saying he did not want to add to "present difficulties".
But he pushed again his proposal to change the fund's articles so it could impose a temporary stay of legal action by creditors against governments which, though acting in good faith, were forced to default on their debts.
He also called for more effective co-ordination of policies among leading economies "as soon as the euro has acquired the full standing and prerogatives of a major reserve currency".
He said the annual Group of Seven summit should be replaced every two years by a summit of the roughly 30 countries with executive directors at the IMF and World Bank to add coherence to overlapping policies.
Mr Camdessus described last year's World Trade Organisation gathering in Seattle as a disaster. Failing to eliminate the barriers to the exports of the poorest countries threatened to make a "mockery" of the decision by governments to cut by about a half the debts of the 35 to 40 poorest countries, he said.