In the spotlight - Michel Camdessus

20/10/2007 | Taimur Ahmad

The last Frenchman to lead IMF sounds the warning of the next one

The last Frenchman to lead IMF sounds the warning of the next one
What troubles you most about the Fund today?

There is something I must tell you that makes me angry  – and that is, exactly what we are living through now: the crisis we have with the sub-prime issue is exactly a crisis that should not have occurred. If we – the IMF membership – had implemented what we had discussed and agreed at the end of the 90s concerning transparency – the so-called golden rule of transparency, about an enhanced surveillance, about the instruments of the market, about the transmission mechanisms between national and international phenomena; if we had paid closer attention to the social risks entailed by financial sophistication and more, then this crisis wouldn’t have occurred. 

But here we are, confronted by the unbearable lightness of being of the financial institutions and people. And I hope that we will draw once again the lesson of this crisis – a useless crisis unless it finally brings leaders and countries and our financial institutions around to being more mindful of the risks of our actions.

In light of what you’re saying, should the IMF be given a greater new role in monitoring the global financial system – precisely so that crises like sub-prime or distortions like the yen carry trade can be spotted before they become crises?
I believe this is an agenda for the IMF today as it was before, and I’m sure that the new leadership of the IMF will focus on that. I would repeat today what I said in my Per Jacobsson lecture two years ago:  the world can trust the IMF and World Bank to respond to the problems of today as it was able to respond to the problems of the 90s, but the institutions cannot do anything real if they are not working in a team manner with the membership and in particular the G7.

How useful do you think the multilateral economic surveillance initiatives being pushed by Rodrigo de Rato are? 

I believe Rodrigo has been very well inspired in doing that, but I am anxious to see that initiative developing its effects. It’s important that the concerted effort which has begun, continues – the ability given to the IMF to follow up with each of the interested countries, the way they implement their pledges, the programmes they have adopted together are of a crucial importance. It’s only that way that progressively we will see the global imbalances controlled and reduced. Only then will the world be reassured that it no longer has this Damocles’ sword above its head.

The 2007 surveillance decision has proved bitterly divisive for the Fund itself. The board is completely split on this.
Possibly, possibly. But you know, when you have debates of this kind, you must act and persevere acting and then you’ll see the problems being more progressively addressed, using intensity and consensus to appear. But we have stopped and debated for too long – now it’s time for action.

Coming to another issue – what advice would you give the next managing director of the Fund. What should the priorities be for the incoming managing director?

Well, the priorities are those I made in my speech at Per Jacobsson: trust and work with your magnificent staff. 

Is this a message you have advised Mr. Strauss-Kahn?

Well, he does not need my advice, but in my conversation with him, I will certainly tell him that, if he attaches any importance to what I think.

Concerns have been raised about the prospect of another high-flying politician at the helm of the Fund. De Rato has come under fire for not being sufficiently engaged with the institution. There’s concern this may also apply to Mr Strauss-Kahn – coming as he does from the world of politics, as opposed to sober technocracy. What’s your sense? 

I wouldn’t comment on what you say about Rodrigo de Rato, but what I can tell you is that I trust very much that Mr Strauss-Kahn will not correspond to the kind of dichotomous vision that you convey between the cold technocrat or the flamboyant politician. When I was at the IMF, I observed all of the ministers around the table of the interim committee and of the G7, and I saw that Strauss-Kahn was a remarkable economist – he is primarily an academic, don’t forget – and that he has a vision of the international problems that none of his colleagues had and, indeed, an interest in these issues that is constant. So I believe he can be not only a very good managing director but something which is even more important: an MD happy to do that job – a wonderful job, as a matter of fact – of devoting his intelligence, his thoughts and his energy to addressing these issues.

With the benefit of hindsight, how do you assess your tenure at the Fund? 

It was a time of huge challenges for the entire membership. It was a time of globalization, a time of transition in Europe, a time of emerging countries starting an extraordinary process, which has brought them to where they are today. 

For the international financial institutions at that time, possibly too much burden was put on their shoulders. Leading one of them was indeed a challenge for me, but I was fortunate enough to lead a really extraordinary institution with the fabulous support of what people now call a “golden team”. 

Many people have asked for my reflections on my achievements and my mistakes. Of course, now I see these challenges clearly, but at that time we only identified them partially. An obvious one was how dependent the action of the IMF was on the international culture of the 1990s – and the constraints this imposed on its actions. 

What was the culture of the 1990s? It was the belief that this was the time for establishing a new international order rooted on market economy and democracy, which would make the world a much better place. Market economy has prevailed on state economies, and democracy, of course, was a dream for so many of our countries. We thought that this was the way to go – and, of course, it was right. But what we didn’t see was that you don’t change the world that rapidly. The expectations of the countries on which we were called to work were not exactly those we had in mind. 

I spent over a decade to establish this vision of market economy, where market economy was not simply a function of the invisible hand of the market. The invisible hand can only perform its marvels if you have two other hands working with that hand, namely, the hand of good governance – the hand of state – which we might also call the hand of justice. The other is the hand of solidarity.

We were dealing with countries where you had ethnic tensions, where you had crooks, where the cultural consequences of decades of poor governance had had tremendously deleterious effects on their ability to change rapidly. 

Many in the [IMF] membership, including the US, had this vision that simply by throwing money, by showing up with armies of technical assistance, the job could be done in a few years. All these illusions were there and made our job very difficult. Finally, we were able to provide them only with a truncated version of the market economy and of democracy.

Looking back, I have no regrets. I believe we were right to do what we tried to do; we were able in many circumstances to prevent major crises, and I hope that the world and the new management of the IMF will continue adapting themselves to the crises of the 21st century.

Do you accept that, under your leadership, the IMF moved too far in the direction of quasi-development issues and allowed itself to be sidelined from economic surveillance?

When I arrived at the IMF, a few of my colleagues and members of the board said I had a kind of hidden agenda. It was not hidden at all. Six weeks after my arrival, I made a big speech on the mission I saw for the IMF. I explained very clearly that we had to bring the IMF from a culture too narrowly concentrated on monetary stability and current account positions to what I called at that time “high-quality growth” – what we call now “sustainable development”.
I wanted to place emphasis on a longer-term perspective and to develop that through the high-quality growth concept – in particular, a stronger effort for poverty reduction in the world. This is not to say I wanted the Fund to invade the field of development – this was not our task. But my belief is that you don’t achieve solid and sustainable monetary stability if you are not strongly active in the field of poverty reduction. I believe this was right. I still believe that there is no other way for us to achieve stability in this world. 

This led me to undertake several major initiatives: the creation of a zero interest rate window for the poorest countries in the IMF, debt reduction and the poverty and growth facility. All of that was clearly an agenda whose validity has been confirmed by the present. The problem was that the culture of the central banks around – which were the major shareholders of the IMF – and the culture of a great number of the members of the staff of the IMF – was not that one. It was difficult to bring them to share it at the time, and there were many hesitations certainly. But at the end of the day, I’m happy that the Fund’s culture has been progressively changed in that direction, and I believe this can serve well the world today and tomorrow.

How would you evaluate the Fund’s success in implementing your vision of the Fund’s work in poor countries? 

We did what we could with enthusiasm, with commitment, with all the human resources we had, in a world whose culture was the one I have described. And here we are. But when I see that the Asian crisis has been solved in a matter of very few years – if not months – when I see the progress among many of the poorest countries, when I see the progress universally in a better macroeconomic management – I believe we didn’t waste our time.

—Interview by Taimur Ahmad

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