Camdessus: "I Trust the Good Sense of Suharto"
At the international monetary fund's luxurious washington headquarters, where he is known simply as "the M.D.," for managing director, Michel Camdessus sat down with Time senior correspondent Bruce van Voorst. Excerpts from the interview:
TIME: What happens if Suharto refuses to cooperate? Does he have the IMF over a barrel?
Camdessus: No. It will be business as usual. We have never hesitated to interrupt our financing when a country doesn't fulfill its commitment. We did that with Russia in 1996, a presidential election year. And of course we will have to do that with Suharto if-but I hope this will not be the case-he ignores his signature and his pledges. I have no leeway on this. There are conditions established by an executive board representing the entire world. I cannot, whatever my good heart or sympathies might call for, do anything else.
TIME: But you could trigger a larger crisis.
Camdessus: By not disbursing? I think I would take more risks for the world if I were to ignore an agreement signed with a country. The world needs to trust us-the faithful guardian, the trustee of international pledges.
TIME: How serious would an Indonesian default be?
Camdessus: It would be extremely serious, not only for the world but the country itself. After all, what we have agreed with Indonesia was not a kind of IMF dictate to this country out of some theoretical vision of the world. It was the well-thought-out program that we agreed was in the best interests of Indonesians to carry out. We've been discussing this with them for a long time, and we know there are many people in Indonesia who are convinced it must be done. So to renounce this program now would be to renounce the cause of an undertaking seen by the entire world as the best course for the country.
TIME: Are you willing to take the instability that might follow?
Camdessus: We are dealing with a sovereign country. A country can decide to go it alone and to renounce agreements they made with us. But I trust the good sense of President Suharto and his people. They won't do that. They know the programs are good. And Suharto wants to go to an "IMF-plus."
TIME: But Suharto has been critical of the initial program for not being effective.
Camdessus: The program has not delivered all its potential because it has been either not implemented fully or circumvented in several of its clauses. I am not enthusiastic about a currency board. Nobody in the world, including the Asian countries, supports the currency board. All of them see it as a much too dangerous prescription for this country at this moment. Prescriptions can be good for a healthy body; but the same prescription applied to a patient with major illnesses could be a killer. We don't want to take this risk. But I've told him, let's create the conditions to make it work.
TIME: What lessons have you learned from the Asian crisis?
Camdessus: We learned how inadequate the information is. We need more information on liabilities attached to reserves of the country-future operations, forward positions of the central bank. Korea, for instance, at first denied this information to us. We also need to know of short-term, private sector indebtedness. And we need standardized accounting procedures. We need to know, for instance, about the non-performing loans of the banking system. Of equal importance, we need to establish procedures for involving the private sector. Many international banks are schizophrenic. They want IMF support in a crisis but are reluctant to make the necessary commitments to help.
TIME: How can you cope with the moral hazard problem, the sense that the financial community takes risks expecting that, if things go wrong, there will be an IMF bailout?
Camdessus: Look at the facts. Moral hazard in these last few cases is not a factor. Those who bought shares, those who made loans, the owners of the banks we have closed-these people have paid a high cost for their imprudence. When we agree to contribute to the restructuring of the banking sector, we always insist that the capital be canceled and management fired. So the imprudent investors are punished.
TIME: What does the Asian crisis reveal about the IMF's operations?
Camdessus: The central focus of the institution must remain the same: strong in surveillance; quick and effective in support. This is the raison d'etre of the institution. On surveillance we must do a much better job through more transparency. More data must be collected and disseminated.
TIME: Can't transparency also risk provoking a crisis?
Camdessus: We were close to this in Thailand. For a long time we'd urged them to make changes. I personally visited there four times, a couple of them secretly. The Thais were telling us they couldn't change. They were doing too little, too late. In this case, to achieve more leverage on the country we could go public, saying this is our opinion on Thailand-and Thailand won't follow our advice. The danger is that we would be a pyromaniac, creating the fire we are there to extinguish, to take the risk of provoking a crisis. It's a very tricky issue. At this stage I would caution against that. Especially because I must confess we are not always right. Surprise! There are crises we thought would happen earlier, and they didn't. And the countries have been able to muddle through almost miraculously. If we had denounced these countries publicly we would have provoked a crisis which didn't have to happen.
TIME: What about charges that your programs bail out the banks but create depression and unemployment?
Camdessus: It simply isn't factual. We are not for devaluation. We are trying to be professional and help countries to find exchange-rate levels which serve the economy. It is true that our programs require adjustments, and during this time there is social and human cost. We are trying to shelter the poor and push the countries to renounce unproductive spending, white elephant proposals, to have more money for social and educational programs. But ultimately even if there is human pain, the process is worth the effort. Take inflation. Nobody suffers more from inflation than the poor.
TIME: Is the IMF focused too narrowly on fiscal issues?
Camdessus: That was true in the past. But now we are going far beyond fiscal issues, to governance, banking structure, dissemination of information to the market. We must go in this direction. But this is only feasible if we have the appropriate human and financial means. The IMF is a small institution. We have a fine staff, but we must retrain staff to absorb the new disciplines.
TIME: And they have to learn to write intelligible English. Your annual report is, well, dense.
Camdessus: And boring. The report is the result of negotiations among 182 countries. The world can't imagine the intricacies of putting this together.
Photograph by DAVID PETERSON for Time
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