FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. Let me just say how glad I am to receive this award and to be here to discuss the United States role in shaping global financial markets at this critical time.

If ever we needed a reminder of the critical importance of the IMF in helping the United States seize the opportunities afforded by the emergence of a global financial market, and manage the risks, we have received it these past few months in Asia. With these events -- and the United States response to them -- now in the forefront of people's minds, I would like to focus my remarks today on this subject.

Let me speak briefly about why the IMF is an indispensable safeguard of the stability of the international financial system, the progress we have made in adapting the IMF to the demands of a changing world; and the long-term reform challenges for the IMF and the international community going forward.

I. The IMF's Contribution

There are those who suggest that the world would somehow be better without the IMF. Think of where we would be in this crisis if there was no collective capacity for international financial response: there would be no multilateral vehicle to produce conditioned reform, none of the conditionality, which has achieved more trade liberalization in Asia in the past few months than many years of trade negotiations in the region. there would be more, not less, austerity and economic pain in the region as the supply of finance available to troubled countries would be diminished -- diminished once by the absence of the policies the IMF is supporting, diminished twice by the absence of the direct finance that it has been successful in providing there would be far greater pressure on the United States and other countries to provide direct support from our own taxpayers' resources. there would be no internationally recognized source of apolitical advice and judgment on the response to this crisis there would be no internationally recognized authority providing support to the vast majority of the countries in the world that have not been plagued by crisis, on the kinds of steps that they need to take to ensure that they continue to avoid such problems .

Countries cannot be helped by the IMF if they are not willing to help themselves. But without the IMF, even those countries that are committed to reform might face default, either at a government level or through the failure of the financial system as a whole, which could have a devastating effect on their own economies and significantly raise the risks of contagion in other markets.

This is not just hypothesis. The world has had ample experience with international financial problems that are not addressed collectively, that do not call forth a cooperative response. A recent column in the Washington Post talked about what was for 50 years called America's Great Depression: the events that began in the 1870s. And of course, an even clearer example of what happened when the United States was not prepared to lead with respect to international financial problems was provided by events in Europe in the early 1930s, when devaluation -- competitive devaluation, deflation, contraction, and depression -- laid the groundwork for what was as great a conflict as human history has yet seen.

There is, I would suggest to you, an enormously strong case for, and it is very much in America's national interest to have, a capacity to respond to these kinds of crises. And that is a critical part of what the IMF does. But think about what else the IMF has done in the last decade.

It was the primary national security challenge of the post-Cold War period to support economic reform and the maintenance of order in the former Soviet Union, particularly in Russia. In early 1993, hyperinflation in Russia was widely predicted. Hunger in the major cities was frequently forecast. Secession of major parts of Russia and civil war were on some people's radar screen, and the lack of confidence in Russia's currency was seen as at the center of all of those concerns. The international community, beginning with President Clinton's meeting with President Yeltsin in Vancouver in 1993, made a strong response. And the IMF, the financial innovation of the IMF, was at the center of that response.

Today a new wind is blowing through Africa, as economic growth rates have nearly doubled in the last four years. And if you look at where that growth is coming from, those increases in growth are all coming in countries that have embraced programs of economic reform, of openness, of liberalization, and have done so with IMF support.

The IMF has also played a crucial role in the 1990s in helping Argentina to break free of a century-long tradition of stop-go economics and vulnerability to outside shocks. After 30 years when Argentina was adding a zero to the value of its currency every three years, it has seen several years now of nearly zero inflation.

And these crises are the crises the world knows about. Equally important are the successes of surveillance that are not talked about: the occasions on which a country was facing very serious problems, and a quiet message was sent, a trip was taken, a warning was given, an opposition leader was notified, a friendly country was involved, a policy correction was made, and a crisis that would have taken place was averted. That's perhaps even the more important role, even if it is, by its nature, the less widely heralded role.

I would suggest to you that the IMF is absolutely essential to a successful new economic world as we enter the 21st century. And success of the IMF is dependent on the strong support of its largest shareholder, the United States of America. That is an issue on which we will be crucially tested during this year, as we make a national decision on whether to ratify the quota increase that has been approved by the IMF and the expansion of the new arrangements to borrow.

Let me be very clear: given the case that I have just made, I would suggest to you that even if a substantial cost to our taxpayers was involved, it would be in America's national interest to support the IMF. But the reality is that there is no -- repeat no -- cost to American taxpayers whatsoever.

The IMF functions very much like a credit union. You do not spend money when you make a deposit in a credit union; you simply exchange assets. And the IMF is a very safe credit union, because most other credit unions do not have gold backing for nearly two-thirds of their outstanding loans. It is a credit union, we should also remember, with which we have transacted in both directions, borrowing as recently as 1978. And it is a credit union that going forward will be operated on an even more economic basic, following the recent decision, in the case of certain large programs, to charge premium interest rates to cover any risks that are involved and to encourage countries to move back to the market as rapidly as possible. In short, the IMF would be a tremendous bargain for the United States at even a far larger price than it costs.

II. Reform of the IMF

It is one thing to say that we absolutely need an IMF. It is another thing to say that we are completely satisfied with the IMF that we have.

Recent events do point up the continuing need for evolution and change at the IMF. We in the United States have been working to support that kind of change in a number of areas over the last three years, including policies to adapt to a world that is much more dominated by capital accounts than any we have had before; a new emergency financing mechanism; for the first time, IMF transparency policies oriented toward promoting transparency through the world, through the special data dissemination standard; and much closer involvement by the IMF in monitoring supervisory practices in the financial sector.

As we remarked several years ago, it is time that IMF stop standing, as some suggest, for "It's mostly fiscal," and expand its activities to work to support strong and effective regulation of financial systems around the world. That is not a task it can carry out alone. It is a task in which the Bank of International Settlements, in which the Basle group and the World Bank have a crucial role. But surely there is a major role as well for IMF surveillance.

Second, we have worked to ensure the IMF is keenly focused on its primary goal of promoting growth and prosperity in all its member countries. By paying closer attention to the needs of the poor in designing adjustment programs and encouraging governments to cut unproductive expenditures, such as military spending, and by encouraging the allocation of more resources to primary education, health care and essential capital investment, the IMF has made, and can continue to make, a very important contribution.

Going forward, it is not just the quantity of budget deficit reduction that matters; it is the quality of budget deficit reduction that matters as well. And I take some satisfaction from the fact that since 1990, military spending in program countries has declined from 5.5 percent of GNP to 2.2 percent of GNP.

The IMF has played a crucial role in supporting, with very strong American support, the multilateral debt initiative for highly-indebted poorer countries to remove debt overhangs that in Uganda alone has taken $300 million that otherwise would have gone to support debt service and put that into clean water and better schools.

And as part of that continuing effort to ensure that all benefit, we have strongly supported the ongoing, but only recently ongoing, policy dialogue between the IMF and the International Labor Organization on undertaking a pilot program of in-country consultations on labor market issues and worker rights. These efforts took another step forward in Korea, where Michel Camdessus met with Korean labor leaders and the IMF strongly encouraged the government to involve labor unions directly in its plans for restructuring the chaebol.

Third, we've made progress in bringing about some of the same values that the IMF stresses to its clients -- the values of transparency and accountability -- at the IMF itself. As Michel Camdessus has recognized, this is progress that needs to continue. We need much wider publication of IMF internal data. We need much more scope, as we have seen recently, for external evaluations of key IMF policies, the first of which is expected to be published this spring. And we need to build on the very important precedent set in the three most recent Asian programs by the publication of letters of intent detailing IMF agreements wherever possible.

III. The Long-Term Challenge: Building the Right International Architecture

There are other, larger questions that we will have to face in the months ahead as we learn and distill the lessons from the Asian crisis. They include stronger and enhanced efforts at improving the regulation of capital flows and financial institutions globally. They include learning the lessons of the recent experience on crucial questions, such as how you respond to this new kind of crisis that is a crisis of confidence and a crisis of capital withdrawal, rather than a crisis of excess demand and overheating.

This past weekend in London the G-7 Finance Ministers and Central Bank Governors made clear their commitment to continuing the major international effort a safeguard the global financial system against crises which began, at President Clinton's initiative, some years ago at a G-7 meeting in Naples and later developed at the Halifax Summit. That initiative has already brought concrete results -- the Basel Principles and the new IMF data dissemination standards being just two examples. But the Asian crises have underscored that plenty more needs to be done. As we recognized in London, there are five crucial imperatives in this agenda:

• first, promoting measures to make global markets function more efficiently, for example through increased surveillance and enhanced national supervision and regulation. The important contagion effects we have seen in Asia and other emerging markets well illustrate the importance of this kind of ongoing prevention;
• second, increasing transparency and disclosure, for example by strengthening the SDDS to include net reserves, short-term debt accumulation and data on the financial sector;
• third, strengthening financial systems, both globally and at the level of individual countries, through improved prudential standards and the promotion of effective financial infrastructure;.
• fourth, strengthening the role of the international financial institutions in financial crises to ensure that the international community can respond quickly and appropriately to problems and act to prevent their recurrence;
• fifth, ensuring appropriate burden-sharing by the private sector in the resolution of crises.

Let there be no doubt, as Secretary Rubin has said, that it is not our objective or our desire in responding to any of these situations to provide one nickel for the benefit of bailing out private creditors who have made bad loans, or to prevent them from accepting the pain associated with restructuring, renegotiating or stretching out those loans. But support for nations, support for economic growth, support for stability, inevitably will have a by-product on occasion of benefiting private creditors. And it is in that way that there have been benefits to private creditors in these support programs.

Given the tremendous and very fast growing quantities of money that are involved we will have to find institutions that will enable us to work through these crises with less external finance and more creditor stretch-out. But we will have to do so in a way that is safe and in a way that is stable and in a way that does not promote contagion. That is an awesomely difficult analytical challenge. It involves bankruptcy laws at the micro level with respect to particular countries. It involves the way we regulate international capital flows to banks. And it involves national economic practices in time of crisis.

I don't think any of us have the answers, but I think all of us are committed to asking the questions and moving vigorously forward.

IV. Concluding Remarks

I have tried to make two basic points here today. There are fires burning. The IMF is the fire department that is helping the international community respond to this crisis. It is essential that we continue to support it. At the same time, we need to look, going forward, very hard at how that fire department operates and make sure that as this crisis, as this phase is brought to a close, whenever that happens, we have the best possible apparatus in place to prevent it from happening again, and to respond to any problems that may arise.

In 1944 Franklin D. Roosevelt acted on a recognition that United States involvement would be critical to facing the immediate challenges of rebuilding a new international economy on the ashes of the old. And he recognized the enormous benefits that would flow from that engagement for the United States. Our commitment at that time as been rewarded many, many times over in the years since. Today, at the dawn of another new and challenging era, we have to learn from that legacy and build on it. And that means supporting the IMF to be up to the challenges today and the challenges to come. Thank you very much.