A Letter from the IMF to Ambassador Oscar de Rojas


J.B. Zulu, Director of the Fund Office at the United Nations
and Special Representative to the United Nations

May 13, 1998

Dear Mr. Ambassador:

I am aware of your efforts to include a senior staff representative from the International Monetary Fund as a participant in the discussions on development finance issues in an increasingly integrated world economy, as requested by the members of the Second Committee. I have spent considerable time while in Washington, in addition to calls made from New York but at the moment it is almost impossible for any of the key players to come through New York to brief the delegates in the coming weeks. The Managing Director and the Deputy Managing Directors, including Mr. Fischer, are deeply involved in the economic progress of Indonesia, Korea, and Thailand and other key countries in the region, not only explaining the policies and actions to the authorities, but to the public at large, including in the United States. I want to assure you and the members of the Second Committee that the Fund is making every effort to reach a wide audience.

Other senior staff are similarly involved with the technical aspects of monitoring the economic crisis in Southeast Asia. This applies to the department which is directly responsible for the Asian region, but also senior staff from the functional and special services departments, including the Policy Department and Review Department, the Fiscal Affairs Department, and Exchange Affairs Department, which cover specialties such as surveillance and the use of Fund resources, fiscal matters, and banking and financial, accounting and payments settlement structures. Ten days ago, the IMF asked a senior staff member to return early from home leave in order to participate in the two-day of Working Group IV of the Committee on Development Planning at the UN. My office in New York and senior management and staff in Washington are committed to advancing the growing policy dialogue between ECOSOC, the General Assembly and the IMF. In this context, I have enclosed several recent policy statements on Southeast Asia and related issues, In addition, I would like to take the liberty of commenting on some of more controversial issues covered in the series of briefings you have organized.

At present, the IMF is not only attending to the economic and financial crisis in South east Asia, but it is also examining the need to develop an architecture of a new international monetary and financial system to enhance the management of financial crises, and to strengthen preventative structures and mechanisms. During the April 18, 1998 Special Session of ECOSOC, 600 copies of the communiqué of the April 16, 1998 meeting of the IMF's Interim Committee were distributed. The objective of this extensive and detailed document was to inform the public at large of the challenges and opportunities implicit in managing the financial crisis in all its manifestations, and to outline the preliminary thinking on further steps contemplated for a greatly strengthened monitoring of the international monetary and financial system. Even of the member states are now encouraging the IMF to move rapidly in new areas of the financial sector and other new monitoring responsibilities, but they are also cautious not to grant the IMF a blank check for more involvement and responsibility before these tasks are by the collective judgment of its membership and the dynamics of the situation. For reasons of transparency, but also the desire to seek feedback from the UN, we have been reaching out extensively.

Based on efficiency considerations, it is difficult to justify the need for additional global organizations in the economic and financial fields. Organizations already exist which have a track record of proven experience and sizable administrative, organizational, and intellectual capacity which, with a few prudent adjustments, including additional financial resources and political commitment, can be harnessed to handle a great deal more. As you are aware, IMF policies are driven by a Board of 24 Executive Directors, themselves appointees of their political constituencies who arrive at decisions on lending programs and general policies in close consultation with, and taking instruction from their respective authorities. The wide-ranging praise and criticism of the IMF's involvement in Southeast Asia are welcomed; they underscore its accountability to its membership. Indeed, there must be opportunities for the public to debate all the complex issues in order to arrive at a broad consensus on what organizational framework would offer the best chance of designing comprehensive if effective, monitoring of the global economic and financial system.

The prospect of wading into the vast area of uncharted waters of the conduct of business by private creditors and investors, seeking for burden-sharing in the cost of adjustment, weighing the need to minimize the moral hazard, and sharing critical economic and financial information to moderate market volatility, is a daunting one. But the overarching objective for intervening is to restore market confidence, restore the strong basic balance enjoyed before the crises, minimize economic and social disruption, raise the quality of corporate governance and restore the buoyancy in the functioning of international financial markets. These considerations, in my view, outweigh the short-term risks of moral hazard. Moral hazard is, however, only one of the many new challenges which the IMF decision-makers and, indeed, member states, have to grapple with.

In an effort to invest high quality time in reaching out to all segments of the membership and interest groups, I am attaching for your information, which you may wish to share with the delegations, selected public addresses by the Managing Director and the other senior mangers engaging both our critics and supporters. The addresses I have attached are self-explanatory but cover a wide range of complex issues including many which the IMF and the international community have not fully considered all the options and implications. In general, the IMF has counseled timely response to major macroeconomic signals such as overheating, large current account deficits, excess credit expansion, and large flagging exports, in addition to emphasizing strong domestic financial systems, including banking supervision, liberalizing the IMF proposes to strengthen consultations with market participants, to seek a deeper understanding of the dynamics of market forces to enrich policy analysis, addressing structural issues more forcefully, but prudently, and instituting greater exchange of economic and financial data with both the public and markets.

I wish you all the success in your able leadership in guiding the deliberations.

Very truly yours,

J.B. Zulu, Director of the Fund Office at the United Nations and Special Representative to the United Nations

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