Jack Boorman

English

Research Papers in Economics

AV IEW FROM THE INTERNATIONAL
MONETARY FUND
Jack Boorman*
I guess I am the bureaucrat from the International Monetary Fund
that Barry Eichengreen mentioned. As you can imagine, I have been
tempted at any number of moments to jump up and give “a view from
the Fund” on various comments that were being made. But I have learned
over the years that if you wait long enough at conferences like this, sooner
or later every view of the Fund surfaces, and this conference has not
disappointed my expectations.
I will not talk about the Asian crisis. We have already discussed our
views on that at length, and I think our positions are pretty clear. We will
see how events continue to unfold and what history will begin to say
about the way in which different aspects of those crises were handled.
Mistakes were made; that is quite clear. But I think that the way the
countries are now coming back is testament to the validity of the basic
approach that was taken.
There has been a great deal of discussion about capital controls and
about exchange rate regimes. I do not want to say much more about
those, but two comments, perhaps. On exchange rate regimes, I am in the
camp of those who think the announcement of the death of the interme-
diate solutions between the polar extremes is probably premature. I
might cite a line that I believe comes from Stanley Fischer, that the
academic community will probably decide on exactly the optimal ex-
change rate regime the day before the world adopts a single currency!
On capital controls, I would refer to the principles contained in
Michel Camdessus’ remarks, which have been favorably cited. I think
they contain a pragmatic set of principles. Some of the remarks here
*Director, Policy Development and Review Department, International Monetary Fund.yesterday made me begin to think that perhaps even those principles are
subject to some question. But I believe there is common agreement on
them. A massive amount of work remains to be done, however, in the
context of each individual country, to get these principles applied,
whether it is the proper sequencing for liberalization, or the nature of the
controls that may be put in place, or the timing of those controls, and
other relevant issues.
Let me spend my time on three other points: the ﬁrst, on Fund
surveillance, especially as it relates to certain elements of the new
architecture; the second, on the new Contingent Credit Line (CCL) facility
and its connection (or not) to the question of lender of last resort. Then
some points on involving the private sector. I want to concentrate on
these three issues because I think, in fact, that more “building” is
probably going on, to use a phrase from an earlier session today, than
meets the eye. A lot of changes are on the way, and a lot is happening at
the Fund—for instance, in connection with surveillance.
In fact, a sea change is taking place in both the content and the use
of surveillance. You may call it mission creep, or mandate creep, or
whatever you want. But the fact is that the international community is
asking the IMF to do a number of things under the surveillance mandate
that we have not done before, or have not done to the extent that we will
be doing them. A few examples have already been mentioned. Transpar-
ency and standards obviously ﬁt in here. In terms of broadening
surveillance, at the request of the G-22 and the IMF’s board, we have
begun to prepare transparency reports for each of the member countries.
This is a very experimental process. We have done reports for the United
Kingdom, for Australia, and for Argentina. They are different in format
and in content. We are trying to ﬁnd a process whereby we can do some
of the things that Barry Eichengreen suggested, and we have involved the
private sector and other institutions.
Some of the standards fall to us directly: the data dissemination
standards, the codes of practice on ﬁscal policy and on monetary and
ﬁnancial policy, and a connection with the Basle core principles. The
purpose, of course, is to bring these standards to countries and encourage
them to implement them, but also to be able to report on their compli-
ance. Frankly, I am not sure what the best format for that kind of
reporting will be. I think we are a long way from what Eichengreen is
looking for, in terms of a rating from the Fund in the context of these
reports. But the experimentation is going on.
What will be important here is the way the private sector reacts to
this. If the private sector begins to reward countries for having good
standards, for being tough on their institutions and on their banks, and
for implementing internationally accepted standards, and if this begins to
show up in the spreads the countries pay, then surveillance will be given
256 Jack Boormana great push forward, much more than we could do simply through the
review process itself.
The other area where a lot of additional new work is going on is in
surveillance of the ﬁnancial sector. This effort seeks to bring Basle core
principles to countries, but also to assess the extent to which vulnerability
may be found in the banking system and in the ﬁnancial system more
generally. This is another area where we need to reach out for lots of
assistance. One of the countries that has volunteered to be a ﬁrst
candidate for one of these ﬁnancial sector surveillance exercises is
Canada. More will be coming forward very quickly. We are also doing a
good deal more in encouraging regional surveillance processes, the kind
of thing that Toyoo Gyohten was talking about yesterday.
So much for the content of surveillance; but here I would add two
quick points on its use, because I think this idea really is key. What comes
out of the surveillance process will be much more public in the future
than it has been in the past. Transparency reports, it has already been
decided, will be published. In fact the three reports that I mentioned are
now on the IMF web site, and we are asking the private sector to tell us
if they think these are useful. We also have a pilot project under way now
to release Article IV staff reports. This policy change will go a long way,
I think, to meeting Henry Kaufman’s suggestion that a better ﬂow of
information would greatly assist prevention. It is not just data and facts
that can help, but views and judgments as well. It has been a tough slog
with the Fund membership to get as far as we have. But I think we now
have a solid consensus to press forward, and to press forward aggres-
sively, in all of these areas.
Second, let me talk a bit about the Contingent Credit Line. As you
know, it is meant to be a preventive mechanism, involving a commitment
of resources to a country before it gets into difﬁculty. It is intended to
protect countries from contagion and from the spillover effects from
problems arising elsewhere in global markets. Let me describe the
eligibility criteria, if I may, just to give you a feel for the kinds of countries
that could qualify for assistance under the CCL.
They are the countries whose policies have been strongly endorsed in
the Article IV surveillance process, that do not need Fund resources
under current circumstances or prospects, and that are making good
progress in adhering to international standards and codes of conduct.
Application to the CCL will involve the presentation of a ﬁnancial and
economic program to the Fund. Last, let me read this one criterion: A
country “that is maintaining constructive relations with its private
creditors with a view to facilitating appropriate involvement of the
private sector and has made satisfactory progress in limiting external
vulnerability through the management of the level and the structure of its
external debt and international reserves.”
I read this out because it contains a good many elements of the new
A VIEW FROM THE INTERNATIONAL MONETARY FUND 257architecture: transparency, standards, private sector involvement, codes
of good practice, all of which are beginning to come together in a fairly
constructive way in the context of the CCL. It is interesting to note that in
1994 we had discussions about something called the short-term ﬁnancing
facility, which would have been a credit line triggered in part by
judgments made by the Executive Board in the context of Article IV
consultations. The proposal did not go anywhere. It got blown off the
tracks, partly by Mexico but also by an inability to come to grips with the
kind of conditionality that would provide the comfort that the Board
requires.
I think the architecture discussion explains why we have been able to
construct something like the CCL in 1999, when we could not come to
agreement on a short-term ﬁnancing facility in 1994. In the context of
these architecture discussions, Fund members have begun to clarify the
characteristics that they want to see in the management of an economy
before they are willing to pre-commit resources under less than usual
conditionality.
This development also goes some way toward establishing the kinds
of criteria that Charles Calomiris has suggested in his ideas for lender of
last resort. But by no means does it go all the way. The standards and
codes are nowhere near developed, let alone implemented, let alone
assessed to the extent that would be necessary to allow judging a
member’s eligibility for access to these kinds of resources. Nor, of course,
are the Fund’s resources unlimited, nor is there a mechanism for
collateral. The Fund will seek the same kind of collateral in the context of
CCL, after it is activated, as it does under its other facilities; that is, by
policy conditionality. But I think the CCL does hold promise for a really
dramatic change in the way the Fund does business, if it takes hold. So
far, we do not have any takers, but that is partly because the idea is still
skeletal. What we want to see is some really good countries, with really
good policies, come in and begin to set precedents under this facility.
Finally, let me say a few words about involving the private sector.
Much of this effort must focus on prevention. Much of the discussion
yesterday and this morning went to describe the kind of preventive
mechanisms that are being put in place to reduce country vulnerability
and, simultaneously, to bring in the private sector. Private contingent
credit lines, structured notes, various kinds of instruments and mecha-
nisms have surfaced to help this process. The other element is crisis
resolution. There is no consensus on most of the ideas Barry Eichengreen
has enumerated, such as modiﬁcation of bond contracts, the possibility of
eliminating calls in short-term instruments, and possible authority for the
Fund to endorse a stay on debtor payments to private creditors. There is
board agreement only on the Fund lending into arrears to private
creditors. All of the other items are under discussion, however.
There are two camps here. One seems to want to put into place a
258 Jack Boormanfairly speciﬁc framework to convey the rules to the private sector, so that
the private sector will know how the Fund will react in the context of a
crisis. The other camp seems to say, let us build the instruments, develop
the mechanisms, have the kind of tools that the community needs to be
able to deal with these situations, but let us keep some constructive
ambiguity in the process. I confess I ﬁnd myself in the latter camp, partly
because I think there is still a case for doing business the old-fashioned
way. By the old-fashioned way, I mean fostering a situation where some
ofﬁcial ﬁnancing and adjustment by the country can result in a sponta-
neous recovery of conﬁdence by the private markets. If you get the
private markets to come into most countries through a spontaneous
recovery of conﬁdence, it should be only in the extreme case where we
have to go for the other kind of measures.
Where this will go, I am not quite sure. We have seen Korea, we have
seen Indonesia, and we have seen other cases in the past couple of years.
Sebastian Edwards said that the architecture discussion would result only
in a ﬁddling around the edges. I am not sure of that. Let me ask a couple
of questions that will illustrate why I am not sure. Will private CCLs
work? And will they work without the offset that dynamic hedging can
create? Second, will short-term borrowing be more limited? Third, will
puts and medium- and long-term debt continue to be problems? Fourth,
will the private sector cooperate in ﬁnding voluntary solutions when they
are needed? This is key. We are dealing now with a number of cases:
Pakistan, Ecuador, Ukraine, and again, Romania.
The private sector has been passed the ball. They have said, “Bring
the problem cases to us, we will help the countries through.” They now
have these problem cases. Let us see if they help the countries through. If
they do not, my sense is that ofﬁcial community will become more
impatient and pressure and support will grow for some other mecha-
nisms that are now under discussion; but we will have to wait to see. I
think that the test is unfolding, in fact, even as we speak.
A VIEW FROM THE INTERNATIONAL MONETARY FUND 259

View from the International Monetary Fund

http://www.bostonfed.org/economic/conf/conf43/255p.pdf

View from the International Monetary Fund

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics