Mr Stals reviews the 1998 IMF and World Bank annual meetings  (Central Bank Articles and Speeches, 4 Feb 99)
Central bank: sarb | Type: speech | Date: 1999-02-04

## Mr Stals reviews the 1998 IMF and World Bank annual meetingsPresentation by the Govenor of the South African Resrve Bank, Mr Chris Stals, to the P Committee on Finance in Cape Town, South Africa on 04/02/99

## South Africa's position in the FundSouth Africa is one of the more than 180 member countries of the IMF and the World Bank G At this stage, South Africa holds a quota in the IMF equal to SDR 1,365 million (R9.3 bill Fund is now in the process of raising all quotas by approximately 45 per cent.

South Afri will increase to SDR 1,868 million (R12.7 billion).

The total new quotas for all members SDR 212 billion.

South Africa therefore holds about 0.87 per cent of the total voting ri Fund.Under

certain

conditions,

South

Africa

can

borrow

its

total

quota

(R12.7

billion)

from under

normal

Fund

policies,

but,

of

course,

subject

to

the

implementation

of

certain

p macroeconomic policies.

The Fund also provides a number of other specific credit facilitie Supplemental Reserve Facility, the Compensatory Financing Facility, and the Enhanced Stru Adjustment Facility, that members can make use of under certain conditions.

At this stag Africa has no borrowings outstanding from the Fund.The

size

of

a

country's

quota

also

determines

its

participation

in

the

Special

Drawi Scheme.

Up to now, South Africa has been allocated a total of SDR 220 million.

Under the t a decision of last year, there will be a further allocation of SDRs later this year, when will receive a further amount of SDR 180 million (R1.2 billion).As a member of the IMF, South Africa has the right to be represented on the Executive Boar Fund

(24

Executive

Directors

represent

all

members).

South

Africa

joined

the

English

Sp Group of African countries for this purpose (20 countries), and is given an opportunity on basis amongst the members of this Group to appoint an Executive Director to the Fund. (Thi is now represented by Mr Jose Pedro de Morais of Angola, with Mr C.D.R.

Rustomjee from So Africa as the Alternative Executive Director for the Group.

Two years from now, i.e. in S 2000, South Africa will provide the Executive Director for the Group for a two-year period.The

main

controlling

body

of

the

IMF

is

the

Board

of

Governors

(Ministers

of

Financ Governors of Central Banks of all participating countries).

The Board meets once a year (t General Meeting).The Interim Committee of the Board of Governors is an advisory board and has 24 members (on each

constituency).

This

Committee

meets

twice

a

year

and

advises

the

Board

of

Governo major policy issues.

South Africa's Minister of Finance was elected in October 1998 to rep English Speaking Group of African countries on the Interim Committee for the next two yearsThere is also a Development Committee, constituted on the same basis as the Interim Comm but with the task of advising the Fund and the World Bank on developmental issues.South Africa is also a contributing member to the capital of the World Bank and its affi World

Bank

has

a

similar

institutional

structure

to

the

IMF.

Our

constituency

is

at represented on the Board of Executive Directors of the World Bank by Namibia.

Loans fro World Bank are, however, granted to countries on a completely different basis and are n project linked.

The Annual Meetings of the Board of Governors of the World Bank and of th take place at the same time (Joint Annual General Meetings).At the Annual Meetings, the South African delegation participates actively in:- the plenary sessions (three days);- the Interim Committee Meeting;- the Africa Constituency Meeting;- many bilaterally arranged private meetings, and- a series of social functions and receptions.Other meetings at the time of the Annual MeetingsThe confusion for any new participant in this annual event is substantially increased by other conferences and meetings that take place at the same time.

Of great importance are of:- the Group of Seven, and- the Group of Ten.South Africa obviously does not participate in these meetings.In addition, there is also a Group of Twenty-four, representing mainly developing countr Africa, South America and Asia.

This group is officially known as The Intergovernmental Gr Twenty-four on International Monetary Affairs.

South Africa is not a member of this Group, been given observer status with an open invitation to participate in the activities of theMany other (regional) groups also make use of the occasion to hold meetings in Washingto year, the South African Minister of Finance invited all the SADC countries for a short dis Washington.A new grouping that is now in the making is the so-called Willard Group, called together e year by the American Secretary of the Treasury and the Chairman of the Board of Governors Federal Reserve System, for a special discussion on the world financial crisis.

The Group included 22 countries, being the major industrial countries and leading emerging market c including South Africa.

At a meeting in Washington on 5 October 1998, three more countrie Europe

were

also

invited

to

participate.

This

Group,

working

through

sub-committees

in South Africa also participates, produced three interesting documents with proposals for the international financial system in respect of:- Transparency and Accountability;- Strengthening of Financial Systems (Regulation and Supervision), and- Managing International Financial Crises.The nature of the current debateLast year's Annual Meetings took place against the background of:- the East Asian crisis and its contagion effect, first on other emerging markets, and world economy;- the serious eco-political situation in Russia;- the collapse of a major hedge fund in New York - Long Term Capital Management;- the growing threat of a collapse of the Brazilian economy; and- growing concern about a slow-down in world economic growth.At the Washington meetings, these economic problems were dissected from all angles; the ca the problems were linked to: bad macroeconomic management; ineffective financial regulati supervision;

the

current

non-system

of

international

exchange

rates;

excessive

gearin financial institutions; etc. Steps taken by countries and by the multinational institutio the problem and to find solutions were criticised, sometimes for good reason, but often a basis of illusory perceptions.

The search for measures to prevent the recurrence of a simi in future started in all earnest.It is not possible to summarise all the discussions in this short presentation of today. taking a cue from summaries published by the IMF itself (after the meetings) of some co reached in the discussions (from IMF Survey of 19 October 1998).Apart from stressing the need for sound macroeconomic policies at the national level, a pr was

agreed

to

for

further

studies

on

the

strengthening

of

the

international

financial 'architecture').

These further studies would be undertaken within the Executive Board of and would cover:- a possibility of strengthening or transforming the Interim Committee;- a code of conduct for fiscal policy, as well as the ongoing work on the code of mone financial policies (standards);- the need for greater transparency at all levels, beginning with the IMF itself.

The IM Data Dissemination Standard should be expanded; systems for reporting external debt sho improved;

the

operations

of

international

investors

should

be

disclosed

in

more

de Fund's surveillance operations should be expanded;- plans for an increase in private sector involvement in preventing and resolving financi- introducing

or

tightening

capital

controls

is

not

regarded

as

appropriate

in

dea fundamental

economic

imbalances.

The

IMF's

Executive

Board

was

nevertheless

asked review experience with the use of controls and the circumstances under which they m appropriate;- the Interim Committee expressed its serious concern over the IMF's tight liquidity po stressed the critical importance of augmenting IMF resources; and- there was general support for expanding the Enhanced Structural Adjustment Facility ( and the Highly Indebted Poor Countries (HIPC) Initiative.

South Africa does not qualify one

of

these

facilities,

although

we

have

a

vested

interest

in

the

proposal

becau sympathy for other countries in our constituency.It will be noted that none of these proposals are very revolutionary and are intended to through the existing framework of institutions and systems.

More radical proposals are nev also being thrown around in the global debate, e.g.:- for a major revision of the present floating exchange rate system and a return to a m system for the global structure;- for

a

merger

of

the

IMF

and

the

World

Bank

in

one

organisation

(a

merger

of

the

I Committee and the Development Committee);- for the conversion of the IMF into a world central bank with a lender-of-last-resort f even- for a close-down and termination of the role of the IMF.

## South Africa's role in the debateOver the past year the South African economy was severely affected by the adverse world f conditions.

Our

approach

has

been

to

manage

our

economy

as

best

as

we

could

in

this

a environment, and to work with the international community to seek for a global solution.

A the leading emerging market economies, South Africa has many opportunities to make a constr contribution to the ongoing debate on the reform of the international financial system.

Unf we do not have the resources to participate more actively in all the discussions that are place.