Fischer exits

["Ian Murray" <seamus2001@xxxxxxxx>]

[gotta sustain those debt levels....FT]
The bail-out champion bales out
As he leaves the IMF, Stanley Fischer defends its ad hoc policy in
emerging markets to Alan Beattie
Published: August 29 2001 18:47GMT | Last Updated: August 29 2001
20:23GMT



Stanley Fischer leaves the International Monetary Fund in defiant
mood. Not only does he defend the fund's record, but he suggests it
will struggle to react differently to financial crises in future.

Mr Fischer, as much as anyone, is associated with IMF's policy of
organising billion-dollar bail-outs of emerging markets. In his last
days as first deputy managing director, he has devised a package to
rescue Argentina. Six years ago, when he left the Massachusetts
Institute of Technology to join the fund, he arrived just in time for
the Mexican, Asian and Russian financial crises. More recently,
currency crises in Brazil and Turkey have tested to the limit his
legendary work rate - one IMF official describes him as a "whirling
dervish".

But the fund he leaves is quite different from the one he joined. The
bail-outs with which he and former US Treasury secretaries Robert
Rubin and Lawrence Summers became synonymous are under attack. Paul
O'Neill, the present US Treasury secretary, came to office declaring
an end to the era of massive aid packages.

Argentina, which conquered inflation but also crippled its economy by
pegging its currency to the dollar in accordance with IMF advice, has
been a particular source of controversy. But Mr Fischer's defends his
belief in sticking by troubled countries and supporting the courses
they and the IMF have chosen.

"The currency peg is very, very hard, institutionally as well as
politically," he says. "I have not detected anybody who wants to move
away from it."

Mr Fischer describes Argentina as an "old-fashioned crisis" - one
involving a pegged exchange rate. He admits this is an issue where his
own approach has changed, seeing a greater need for countries to get
off fixed currency regimes quickly to avoid messy forced exits. In the
future, he says, "the sort of crises we will have will be more related
to debt sustainability".

But while the nature of challenges may alter, Mr Fischer seems to hold
out little hope of a change from the IMF's ad hoc approach to
resolving them.

Mr Fischer has aroused some irritation from IMF officials and
industrialised countries for his willingness to reach for the
chequebook when crisis threatens, particularly since the IMF has
failed to find a way systematically to compel private investors to
share the pain of debt restructuring.

"I have sat in meetings with Stan Fischer and his first question has
always been: 'how much money can we push at this country?'," says a
senior central banker.

But Mr Fischer says: "What it will take to help a country stabilise
has to be judged on each occasion."

As for the vexed question of forcing private investors to reschedule
debt, he clearly has his doubts. "As of now, we don't have the legal
mechanisms for making that work. We need to sit down now and look at
what a standstill mechanism would look like . . . rather than keep the
debate at this very general level where we seem to be getting nowhere.
Maybe it is impossible."

In the absence of an over-arching new system, he says, it is difficult
to turn down pleas from countries such as Turkey and Argentina
promising tough reform in return for emergency loans. "This is a
co-operative institution," he says. "It has a responsibility when its
members ask for help."

As for those who fret about "moral hazard" - encouraging reckless
lending by private investors who know they will be bailed out - he
says: "Moral hazard is a feature of every insurance arrangement. Those
who emphasise that IMF lending should be smaller and less frequent are
implicitly saying there should be much less international lending and
reliance on international capital markets."

The IMF in recent years has also come under fire from a more
fundamental set of critics: anti-globalisation protesters, some of who
m want the fund to close. They have made a start by successfully
cutting next month's annual meetings in half. Mr Fischer is
refreshingly candid about the faults of globalisation.

"Some of the criticisms about the debt of the poorest countries were
valid," he says, in a reference to the heavily indebted poor countries
debt relief initiative. This may surprise some debt relief
campaigners, who found Mr Fischer characteristically courteous but not
particularly sympathetic to their aims. He says: "You need to get
countries into the habit of servicing their debt but it doesn't mean
that in extremis you shouldn't do something."

Similarly, he accepts that economic globalisation has its downside.
"Things do need to be fixed with globalisation," he says, and calls
for more transparency about what investors in emerging markets are up
to. "Health issues and the transfer of technology in developing
countries are also valid concerns. There will be dislocations in the
process of integrating into the global economy and we need to find
better ways to compensate the losers."

But, like all applied economists, he gets frustrated with abstract
debates. "I have concluded that as long as we keep the debate at the
level of: 'Globalisation: are you for it or against it?', we will get
nowhere."

Following a farewell dinner - the invitation list included Mr Rubin
and Mr Summers as well as Domingo Cavallo, the Argentine finance
minister - Mr Fischer is now considering what to do next. Some
combination of academia, policy advising and working in the private
sector seems likely. One rumour in Washington is that Goldman Sachs
may secure his services.

But given his evident love of being at the centre of the policy debate
and his great popularity with developing countries - 20 of which
unsuccessfully nominated him to be managing director of the IMF last
year - one natural berth for Mr Fischer might be the World Bank.

As a former chief economist at the bank and having been born in what
is now Zambia - though a naturalised American - Mr Fischer could
easily turn up in some role at the institution. Nor would it involve
much dislocation for him, being just across 19th Street in Washington
DC from the IMF.

Is that his intention? "As I said when I was first asked about the
World Bank, I will cross that street when I come to it," he beams.