Axel A Weber: The IMF in a changing world (concluding remarks)
Concluding remarks by Professor Axel A Weber, President of the Deutsche Bundesbank, at the Joint
IMF-Bundesbank Symposium "The IMF in a changing world", Frankfurt, 8 June 2005.
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Ladies and Gentlemen
Delivering the concluding remarks at a symposium with such outstanding participants and lively
discussions is a challenging task.
George Bernhard Shaw once remarked ironically that "if all economists were laid end to end they
would not reach a conclusion". It is not too difficult to imagine that he would have acknowledged his
proposition as applying to policymakers, too.
In his opening remarks, Vice President Stark posed a list of questions for consideration at this
symposium. It was not to be expected, of course, that at the end of the day we could easily resolve all
of the issues at hand and provide universally accepted answers.
However, given the inherent difficulties of some of the issues discussed here today, symposiums like
today's are also valuable in shaping our understanding of the problems at hand and providing new
perspectives on feasible solutions.
Measured against this yardstick, the symposium has more than met my expectations.
1 The current global economic environment and the IMF
There has been widespread consensus about the driving forces behind the changes in the world
economy and the role of the IMF. The IMF was founded over 60 years ago to meet the needs of an
international monetary system with fixed exchange rates and restricted capital mobility.
The current environment, however, is a very different one. Its defining characteristics are large scale
capital mobility and a growing importance of more flexible exchange rate arrangements.
Some have therefore felt inclined to pose the provocative question of whether we still need the IMF at
all. One affirmative answer to these sceptics lies in the fact that the transformation of the global
economy into the current situation has been all but smooth and cannot safely be assumed to be
smooth in the future.
The 1980's witnessed the Latin American debt crisis, the 1990's were fraught with several severe
financial crises following abrupt reversals in capital flows to emerging markets.
In the aftermath of these experiences, fundamental questions arose concerning the appropriate role of
the IMF. The same questions which have played a distinct role in today's discussions, too.
Before I briefly touch on some of these issues, it is worth mentioning, however, that in certain aspects
the current global economy has been portrait as not being completely different from that in the days of
Bretton Woods. The debates on global imbalances are clear evidence that traditional issues of
misaligned fixed exchange rates and current account imbalances continue to be highly relevant.
In some camps it is even argued that the current macroeconomic imbalances are a kind of return of
Bretton Woods. Reserve accumulation in Asia can be interpreted as a hedge or "self-insurance"
against potential currency crises which are mirrored in the current account surpluses of these
countries.
But there is more to it than that: The extent to which the US deficit is being financed by Asian central
banks is larger than indicated by the surpluses of the creditor countries. This in fact implies that, de
facto, Asia is intermediating global savings.
However, there are several compelling reasons to be deeply sceptical about the Bretton Woods II
hypothesis. I do not want to delve into the various aspects of this issue, but I would like to say that the
current state of affairs merits special attention and warrants a stance to be articulated by an
international institution such as the IMF which from its experience also understands the domestic side
of international economic interaction.
2 Crisis prevention and crisis resolution
Bilateral and multilateral surveillance as well as policy advice on macroeconomic issues should be the
Fund's primary instruments more than ever. Both are also important vehicles for preventing crises.
Hence, the growing relevance of financial surveillance in the form of FSAP exercises is in my eyes a
highly welcome development.
There was also broad consensus about what contributions national policies should make: Sound fiscal
and monetary policies, a well-functioning legal system and stable domestic financial systems are
regarded as prerequisites for countries to prosper and to avoid economic turmoil.
It came as no surprise that the discussion regarding other aspects of crisis prevention and crisis
resolution was much more contentious. Please allow me to make a few brief remarks.
Pre-crisis liquidity support, contingent credit lines or precautionary exceptional excess arrangements
are all means which are thought to help prevent financial crises.
However appealing this kind of reasoning seems to be at first sight, such instruments could be
problematic for a variety of reasons. They could push the IMF into the role of a case-by case risk
assessor comparable to an insurance company assessing applications, which may be viewed as being
incompatible with the IMF's assignment of offering undiscriminating support to its global membership
on a revolving basis at intentionally not fully risk-equivalent terms. It could also lead to an unfair
tyingup of Fund resources at the expense of members who feel strong enough not to seek pro-active Fund
insurance, but would nevertheless prefer Fund resources to remain available for emergency situations.
With regard to crisis resolution and IMF lending, a recurring theme today was the growing relevance of
private sector participation in debt work-outs. The increased use of collective action clauses in bond
contracts is an indication of this development.
One does not need to go so far as to negate the potential future role of official assistance in the crisis
resolution process. But, as was also correctly stated, the Fund has considerable influence to
determine the outcome of debt negotiations, including lending-into-arrears decisions in a debt
restructuring situation. But it is also clear to me that the Fund's role has to respect the prerogative of
private solution schemes to safeguard the Fund's systemically important "diplomatic immunity".
Ex ante moral hazard can best be avoided on the basis of a rules-based lending policy. Defining
elements should be the consistent application of the regular access limits and a clear-cut framework
for exceptional access. Furthermore, it would certainly be helpful if IMF programmes were designed in
such a way that improvements in a country's capacity to repay would at a minimum be commensurate
with its repayment obligations vis-à-vis the Fund itself, without paralyzing the country in a "debt trap" in
which the country's repayment obligations to the Fund would need to be rolled-over repeatedly.
Of course, there is no perfect solution to the Fund's moral hazard or "roll-over" problem. But
rules-based lending focused on truly exceptional emergency cases and on balance of payments
problems would at least send a signal in the right direction.
The theme of one of today's sessions, "The IMF - panacea for every illness" brings me to my last
point, namely the role of the IMF in low-income countries and in development financing.
Focusing the IMF's objectives necessitates a clear distinction between its work and that of multilateral
development organisations. Undoubtedly, the IMF has an important role to play in developing
countries. Surveillance, policy advice, technical assistance and PRGF funding, which pursue the goal
of macroeconomic stability and sound policies, are important instruments to help improve the
perspectives for long-term growth in low-income countries.
The current debate on further debt relief, however, is a more controversial issue. Above all, one might
question if further debt relief rightly deserves such a prominent place on the international development
agenda as opposed to resetting incentives in accordance with recent historical experience. The IMF
itself seems to be quite sceptical about this. Net flows, not debt relief, matter. But that, of course, is a
political decision about which central banks have no a priori view as long as no monetary financing is
involved.
3 Conclusion
Ladies and gentlemen
This morning my colleague, Dr Jürgen Stark, ended his remarks by recognising the excellent job the
IMF has so far performed.
After a day of intense debate about the future role of the IMF in a changing world, there is the danger
that this key message will get buried somewhere under the weight of discussions on distinct aspects of
the Fund's work.
And for the rare instances where some criticism of the Fund was articulated today, it was certainly in
the spirit of the famous German poet, Heinrich Heine, who once remarked that only "he profits from
praise, who values criticism".
So let me clearly reiterate that the IMF in our view is an indispensable engine to improve the
functioning and stability of the international monetary system.
I have very much enjoyed listening and talking to you. And I would like to thank all of you. I wish to
particularly extend my thanks to the Managing Director of the IMF, Rodrigo de Rato, and to all the
panellists and moderators.
Special thanks go to our conference staff and to the Bundesbank's International Monetary Affairs
Division.