A conversation with William B. Dale, Deputy Managing Director of the Fund
F&D The Fund has been much in the news for the past 18 months, largely because of its role in assisting countries with their debt problems. Has the Fund been “bailing out” commercial banks?
Dale The short answer is “No.” In fact, we’ve “bailed the banks in.” We have indeed encouraged greater commitments from banks to countries with Fund-supported programs than probably ever before. We have been insisting that, in order for programs to be fully financed, additional bank commitments would be necessary. So, depending on how one wants to calculate it, resources made available by banks have been a multiple of the resources provided by the Fund; the ratio has ranged from 3 to 1 to as high as 10 or even 20 to 1, depending on the country. If you take simply the new exposure of banks to program countries you get one ratio; if in addition you include the rescheduled debts you get a very much higher multiple.
F&D In the case of some major debtors, the Fund has taken the initiative in helping resolve debt problems by bringing together various parties and by coordinating actions, which is a departure. Is the Fund going to adopt a similar leadership role regarding all major debt questions in the future?
Dale I wouldn’t like to put it at either end of the spectrum—that the Fund would be guiding or coordinating all the time in the future, or that it’s just an ad hoc thing, not to be repeated. It is being repeated. We’re into the second year of the operation for Mexico. We have gone back and supported Brazil for a second time. We’ve done it several times now in the case of Yugoslavia, for example. The Fund stepped into a coordinating role on a pragmatic case-by-case basis, and we’ll have to continue to do that in the future if we see the need for action on our part. I wouldn’t want to say that the need would extend indefinitely into the future, but I think that there will be clearly such a role for the Fund in these matters for some time, although no one would want a return to the market situation more than we do.
F&D The Fund has also been in the news because of the difficulties it has had in supplementing its resources through the Eighth Review of Quotas. Is it simply that Fund quota increases have become embroiled in the legislative complexities of the U.S. Congress, or has generalized support for international organizations diminished in the United States?
Dale All of the above, and perhaps more besides. Yes, I think the spirit of internationalism, not only in the United States but also in many other countries, is less marked than it was at earlier stages in the postwar period. Countries are having greater difficulty because of their domestic budgetary pressures.
The situation, as far as Fund financing is concerned, is clearly more difficult than in earlier periods. One of the problems is that the Fund is much more in the news and therefore much more visible to people. The knowledge and perception of how the Fund’s financial mechanism works has become important. In view of actions just taken—to move the remuneration rate (that is, the rate of interest, loosely put) to contributors of resources to the Fund closer to the market rate—it is now much more possible to say that the cost of the Fund to the taxpayer is minimal, almost nothing. Therefore, the net cost to the contributing governments will be very small compared with what it was in earlier periods. I think that should help the process of understanding. But, of course, it won’t erase these difficulties. They are inherent to the epoch we live in, I’m afraid.
F&D Is it, then, simply a question of public relations?
Dale I think it’s a matter of several things, but not public relations in some sort of fluffy sense. It is very much a matter of public education. Many of us, myself included, who have had occasion to speak to different groups in the United States and outside, have found a genuine lack of information, and in many cases a hunger for information, about how the Fund actually operates.
F&D Do you think that there is now, as compared with, say, three years ago, a greater realization among countries that major adjustments must be made to restore the balance of payments situation? If so, what do you think has brought this about?
Dale Yes, I certainly do think there is a greater realization. What has brought it about? Well, the most obvious and immediate point is that the debt crisis per se has brought the need to the fore in many countries that earlier had been able quite easily to borrow enough to take care of their payments problems. But, I think it goes rather deeper than that. I think the appreciation of the adjustment problem has been growing for the past four or five years. When the second oil price increase occurred in the late seventies, we came to the realization that higher energy prices were here to stay, and therefore, instead of financing with a light emphasis on adjustment (as was the case after the first oil price increase), we needed to reverse what had been the response in the mid-seventies. It was from that time that the heavier emphasis came on adjustment with relatively less emphasis on financing. That doesn’t mean that financing is no longer a problem—as we’ve just been discussing, it is a problem insofar as official financing through the Fund and in association with the Fund is concerned.
F&D And how is the Fund assisting in this adjustment process?
Dale I think it is little recognized that currently the Fund has about 45 programs in operation that it is supporting financially. That is a very large increase over what it had in force during the seventies and an even larger increase over earlier epochs. But apart from that, the Fund has actually been advancing its “technology,” as I would call it, of programs and, in particular, the monitoring and the evaluation of programs. For example, the Fund has assisted countries in developing mechanisms that, at an earlier stage, provide evidence of whether a country is on track or may be veering off track in regard to fiscal operations in particular, but also in the conduct of monetary policy.
We have also been placing much more emphasis, as we have had to with the evolution of major debt problems, on putting programs in a medium-term framework. We are constantly looking ahead to see what kind of debt-servicing situation countries will be faced with, not merely at the end of a one-to-three-year program, but toward the end of the decade. We want to see exactly what the whole concept of “a sustainable balance of payments adjustment” means, as one looks ahead, to try to avoid debt problems in the future.
There are a number of other areas also where we have made a lot of progress. One is the monitoring of debt itself. With the development of the international banking statistics project in the Bureau of Statistics, we are achieving a much better and more current statistical picture of debt among countries. In particular, we have become much more conscious of the need to have information so that we can see when the debt of a country starts moving toward the short end of the maturity spectrum, because that usually is a signal that there may be trouble ahead. In all these ways we have developed, what I like to call the technology of designing and monitoring programs.
F&D The technical assistance component of the Fund’s work has become more active and important recently. Do you see this aspect of the Fund’s operations expanding in years to come?
Dale Probably. It is difficult to make an informed quantitative projection on this because it depends on requests from member countries. It certainly is given very strong support by the Executive Board and the management, and from that point of view it could expand. We have gone into new fields, the most important of which is debt management assistance, a relatively new field for the Fund. But in other areas as well, such as fiscal management and central banking, we have been trying to tailor technical assistance somewhat more directly to the program needs of countries.
F&D There have obviously been changes in the global environment regarding trade; in the past few years there have been signs of increasing protectionism and other forms of restrictions. What can the Fund do to check this tendency before it takes hold?
Dale Not enough, but the Fund can do quite a bit. We have been emphasizing more and more in the Article IV consultations (that is, the annual consultations with member countries on their exchange rate arrangements,) a technical analysis of trade restrictions and a fuller provision of information to the Executive Board, so that it can take views when it discusses the country reports. This is especially so for the larger countries, which tend on the whole not to be users of Fund resources. Also, it is very important that the great majority of Fund financial programs put emphasis on the need for countries to stop the march of protectionism and often to roll it back, partly because that is the proper thing to do from an international point of view, but, much more important, because it supports a genuine competitive and sound development of their economies.
F&D We have seen considerable volatility in exchange rates in recent years, although the main problem currently seems to be the strength of the dollar, which in turn is related to high interest rates. How does all this affect the Fund’s surveillance responsibilities?
Dale Surveillance responsibilities are among the most important of the responsibilities of the Fund. The principal manner in which the Fund handles the responsibility is through the conduct of the Article IV consultations. Indeed the current Article IV is founded on the proposition that the underlying domestic economic situation in a country is the basis for the establishment of proper exchange rates.
I think there is no doubt that, first of all, there has been more volatility of exchange rates, especially among major countries, than can be explained by changes in the so-called fundamentals, and that there has been a problem from time to time of overshooting, either in the direction of overvaluation or undervaluation, of rates of exchange. First, these are extremely difficult to diagnose, because views, including those of competent, unemotional professionals can vary on these issues. Second, even where one can reach agreement among a variety of people that rates have overshot or undershot, getting from there to actual policy actions to correct the situation is often extremely difficult. Sometimes one can see the possibilities of changes in monetary policy that perhaps are not too fundamental or difficult. But, more often, as I think is the case now, it is something much more difficult, such as a change in the basic mix of fiscal or monetary policies that a country, or indeed a group of countries, is following. That is a much more difficult area in which to obtain concrete policy action. But it is something the Fund concerns itself with and pronounces on, for example in the Annual Report and, of course, in less visible communications with member countries.
F&D The operations of the Fund have expanded enormously in recent years, but the size of its staff has not. Can the Fund go on performing its increasingly important functions without a major expansion of its personnel resources?
Dale There is no doubt that productivity in the Fund has gone up substantially in recent years and also that the stresses and strains on staff resources have increased considerably during the same period. This is evident in the number of programs we have in operation, many of them requiring more frequent reviews. I have no doubt that the staff will have to expand; how much, we shall have to see. But we do have a particular constraint which cannot be solved quickly with just additional numbers, and that constraint is at the level of mission chiefs and those who may be in the process of becoming ready to lead missions. Those people simply must have the experience in the Fund and in the process of Fund negotiation and evaluation. Also, I think it remains important for the Fund to present not only the image but also the reality of being a lean and agile organization with a relatively simple and uncomplicated organizational structure.
F&D You have now been in the Fund for just over 21 years, first as the Executive Director for the United States and for the past ten years as Deputy Managing Director. What strikes you as having been the main changes in the nature of the Fund as an institution in these years?
Dale Well, obviously it has become much more busy, much more active, and much more complicated. Just to give a figure or two: during my first year in the Fund there were, I believe, about 50 meetings of the Executive Board. In contrast, in the last several years, the number of Board meetings has always been in excess of 200. While the number of Board meetings may not at first glance seem to be too good an indicator of activity, in fact it probably, grosso modo, is not a bad one. I mentioned earlier the large number of programs in place at present, far more than we ever had before.
When I came to the Fund in 1962, the Fund had only one financial window. I pride myself on having played an active part in the establishment of the Compensatory Financing Facility which came into effect in 1963—the second window. Now, depending on how one wants to do the counting, we have at least four, and as many as seven or eight, facilities.
So, the arrangements of the Fund are far more complex and, what is obviously more to the point, the world economy is a great deal more complicated. Many of the individual economies are a great deal more complex—both industrial and developing countries. The range of difference among developing countries, I think, is far greater now than it was 21 years ago. To end on a brighter note, I also see a very great increase, I would call it a dramatic increase, in the skills and capabilities of a great number of officials in the developing world.
F&D Finally, in this 21-year period, what is the one thing (if there is one) you would have liked to have happened differently?
Dale If I try to focus on what would have made the greatest historical difference, I’m torn between two things. First, if the fiscal deficit of the United States in the second half of the sixties had been smaller, and if, as a consequence, the rate of inflation in the United States had not begun to move up dramatically, then the events of the early seventies and the demise of the Bretton Woods exchange rate system might perhaps have been averted.
The second thing is a sequel to the first. If a way could have been found under which the major exchange rate realignment of 1971, and later the beginning of floating in 1973, could have been faced up to earlier, the history of the recent period in international monetary affairs might have been different.
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