Thank you Ladies and gentlemen. As one of the fundamental purposes of the IMF is "To promote
           international monetary cooperation through a permanent institution that provides the machinery for
           consultation and collaboration on international monetary problems," I believe that it is particularly
           appropriate that the Fund should sponsor this conference, with its extremely wide range of
           participants from around the world, on Key Issues in Reform of the International Monetary and
           Financial System. Also, as a manifestation of our increasingly close cooperation with our sister
           Bretton Woods institution, I can't help noting the symbolic appropriateness of the location of
           today's dinner--thank you Jim. My concern tonight is that I cannot pretend, in my intellectual input,
           to match the outstanding--by Washington standards--culinary contribution you have made to this
           occasion!

           Let me start with the proposition that the international monetary and financial system may be seen
           as a global public good. It is essentially the same system for everyone. If it works well, all
           countries have the opportunity to benefit; if it works badly, all are likely to suffer. Hence, all have
           an interest in reforms that will improve the system for the global public benefit. And, as is so
           frequently true for public goods, not many people care for, and even fewer are prepared to pay
           for, its improvement even if many comment about it. But let us set aside such jaundiced comments
           and let me touch on three issues that reflect on the international monetary system as a public good
           might suggest.

           The first key area where we have important issues concerning international public goods lies at the
           very heart of the international monetary system and of the IMF's responsibilities. There is no world
           money controlled by a world monetary authority which performs the essential functions of medium
           of exchange, store of value, and unit of account at the global level. Rather, the monies of the
           largest industrial countries, most importantly the U.S. dollar, the Euro, and the Japanese yen do
           double duty as the monies for their respective countries and as the monies used by most other
           countries for conducting their international trade and financial transactions.

           Inevitably, there is an important public goods aspect to monetary policy at the national level--there
           is only one monetary policy that affects everyone. When non-residents use a national money, as is
           extensively the case for the world's major national monies, national monetary policies acquire
           aspects of global public goods. Exchange rates always, to some extent, involve issues of
           international public goods as an exchange rate is the relative price of two national monies and is
           affected by the corresponding national monetary policies. This international public goods aspect
           rises to global significance for exchange rates among the world's major currencies as use of these
           currencies is global and movements in their exchange rates have widespread effects.

           Quite understandably, the monetary policies of the major currency countries (including the Euro
           area) are directed at domestic economic objectives, which may be broadly described as
           promoting domestic economic and financial stability. Reasonable stability of the domestic price
           level is increasingly recognized as the most basic objective of monetary policy. Given this
           objective, monetary policy also typically seeks to support maximum sustainable growth and to
           promote general stability in financial markets. The behavior of exchange rates may sometimes
           influence the monetary policies of the major currency areas, but usually only to the extent that
           exchange rates affect the more basic objectives of monetary policy.

           From the global perspective, this domestic orientation of monetary policies in the major currency
           areas is generally desirable. As experience has unfortunately taught us on several occasions,
           economic and financial instability in the dominant economies of the world is bad for them and for
           the rest of the world as well. Thus economic policies that promote domestic economic and
           financial stability in the largest economic areas of the world are not only desirable--they are
           essential--for economic stability and prosperity elsewhere.

           That said, it may still be asked whether it might be desirable for economic policies in the largest
           currency areas to pay somewhat more attention to their international consequences, particularly in
           the area of promoting greater exchange rate stability? My answer, I suspect, will not entirely
           surprise you. I am, after all, the Managing Director of the International Monetary Fund. I have a
           job to do. I try to do it with enthusiasm.

           Beyond that, I believe that recent experience suggests--suggests rather pointedly--that somewhat
           more attention can be paid to international consequences and specifically to exchange rates in the
           management of economic policies in the largest economies with beneficial results for these
           economies as well as for the rest of the world. In early 1995, the U.S. dollar plunged below 80
           yen and below 1.35 deutsche marks. This sharp weakening of the dollar tended to undermine
           recovery in the weak Japanese economy and, arguably, was a factor in the slowing of growth in
           Europe. Also, the instability of the dollar/yen exchange rate that began in early 1995 contributed to
           the problems that led up to the Asian crisis.

           Consistent with advice given by the IMF, in 1995, official actions did seek to forestall and reverse
           the excessive weakness of the dollar. In the late winter and spring, official interest rates were cut in
           both continental Europe and Japan and were cut further in Japan during the summer. Coordinated
           intervention by Japan and the United States was used to send signals to the market. These official
           actions were, in my judgment, both successful and important in helping to reverse the dollar's
           unwarranted weakness; and they provide an example that shows the potential usefulness of official
           efforts to counteract excessive and unwarranted movements of exchange rates among the major
           currencies.

           Last September and October, in the wake of Russia's default and the near failure of the hedge
           fund, LTCM, a liquidity crisis gripped a wide range of financial markets. The markets most
           affected were the second tier markets for lower rated and unrated credits of both industrial and
           developing country issuers. Indeed, yields on the highest rated U.S. Treasury and German
           government bonds fell sharply, while spreads widened dramatically and new issue activity dried up
           for virtually all emerging market issuers. Although adverse effects on the U.S. economy were not
           apparent, recognizing the danger posed by this crisis, the U.S. Federal Reserve took the lead
           among major currency area central banks in easing monetary conditions. In this instance, forward
           looking monetary policy action, in the United States, the Euro area, and Japan, which took
           account of conditions in global financial markets beyond those of immediate domestic concern,
           clearly helped to forestall important risks of a deeper global economic downturn and,
           correspondingly, has helped to create the more favorable prospects for global growth that we see
           today.

           We must not, of course, overplay our hand. When domestic considerations relevant for monetary
           policy in the major countries run counter to external considerations, it will often be a mistake,
           domestically and internationally, to give much weight to external considerations. With respect to
           efforts to limit exchange rate instability, it must be recognized that sometimes substantial
           movements of major currency exchange rates are economically appropriate and can be helpful
           from a macroeconomic policy perspective. For example, the relatively strong U.S. dollar at
           present is consistent with the strong cyclical position of the U.S. economy and is helping to
           forestall possible inflationary pressures in the U.S. and is usefully deflecting some of the rapid
           demand growth in the U.S. to countries with large margins of slack.

           Moreover, even when exchange rates may seem to have moved too far, it is not always wise to
           adjust macroeconomic policies even marginally to try to affect exchange rates. For example, when
           the yen fell to 145 to the U.S. dollar in mid 1998 many would have thought that this was a bit too
           far, especially in terms of the pressures placed on some Asian emerging market economies. But, in
           view of the economic conditions prevailing in Japan and in the United States neither a tightening of
           Japanese monetary policy nor an easing of U.S. monetary policy appeared appropriate in any
           effort to resist further depreciation of the yen. On the other hand, (sterilized) official intervention
           could have been used more actively and on a coordinated basis to send a signal that markets were
           taking the exchange value of the yen too low.

           Concerning intervention, we know from as far back as the Jurgensen report, that this is not a very
           powerful tool for influencing markets, especially when it is not supported by other policies.
           However, markets do not always get exchange rates right. Under the influence of bandwagon
           effects, manias, panics, and other anomalies, markets sometimes take exchange rates a
           considerable distance away from levels consistent with economic fundamentals in circumstances
           where this is detrimental to global economic performance. With due modesty about our ability to
           diagnose such developments and appropriate caution in implementing countervailing policies, I
           believe that the official sector can and should press further to resist unwarranted movements in
           major currency exchange rates. The successes that have been achieved in the relatively limited
           actions undertaken in recent years surely suggest that further efforts, within reason, would produce
           international public goods. Excessive ambition for the success of such efforts would be a mistake;
           but too much timidity is a mistake as well.

           A second vital area of IMF responsibilities where international public goods are at issue is in
           assisting countries facing difficulties with their external payments. The purposes of the Fund's
           activities in this area are clearly defined in its Articles of Agreement, and I like very much the
           paragraph of Article 1, that enjoins us: "To give confidence to members by making the general
           resources of the Fund temporarily available to them under adequate safeguards, thus providing
           them with the opportunity to correct maladjustments in their balance of payments without resorting
           to measures destructive of national or international prosperity."

           The objective of "giving confidence to members" applies not only to times of difficulty. More
           generally, because open policies toward international trade bring public goods benefits to the
           global economy, it is desirable to persuade members to adopt such policies by offering some
           assurance of assistance in the event that they encounter external payments difficulties. I would
           assert that this argument applies as well to open and prudent policies toward international capital
           movements, and that it is high time for the Fund's Articles to be amended to reflect this.

           The constraint that use of the Fund's general resources should be "temporary," subject to
           "adequate safeguards" and used to "correct maladjustments" without resorting to "destructive
           measures" reflects the policy of the international community to be prepared to provide
           interest-bearing loans, but not grants, to assist countries that are themselves acting constructively,
           from an international as well as a domestic perspective, to address their own problems. Thus,
           promotion of the global public good, not merely the correction of disequilibrium in the assisted
           country, is the clear purpose of the Fund's financial assistance.

           I should add that these constraints on how and when the Fund provides assistance to its members
           show the prescient concern of the framers of the Articles for what is now referred to as the
           problem of "moral hazard" potentially arising from international financial support. Because the
           Fund provides loans with firm expectations of repayment, it is not absorbing losses that should be
           borne by members or their creditors and is thus not contributing directly to problems of moral
           hazard. Furthermore, through the safeguards built into the Fund's conditionality, members receiving
           Fund assistance are pressed to reform their policies not only to correct current problems but also
           to reduce the risk of future payments difficulties. Such reforms, including particularly the financial
           sector reforms that have been central to many recent Fund programs, work to correct problems of
           moral hazard that tend to be generated by national economic policies. With these reforms, and the
           continuing efforts to improve the architecture of the international monetary system and involve
           constructively the private sector in both lessening the risks and ameliorating the effects of financial
           crises, I am convinced that, the problem of moral hazard can be adequately contained, though of
           course it cannot be completely eliminated.

           Indeed, with its new facility, the Contingent Credit Line (CCL), the Fund has a new tool to
           promote desirable reforms for countries that are not yet in difficulty but fear contagion. The
           additional incentive for reform comes from limiting access to this, essentially precautionary, facility
           to countries that are judged to already have a sound framework of economic policies_ a new
           approach that provides a reward in advance for good policies, rather than assistance conditional
           on reform when bad things are already happening.

           For the Fund's traditional approach of conditional support for members in difficulty, a good deal of
           controversy has recently arisen about the size of financial support packages and about their
           conditionality. Some argue that, to better contain possible moral hazard, support packages should
           have been much smaller and conditionality should have been tougher. Others, who focus on the
           very large costs of recent crises, argue the contrary, for larger support packages with easier
           conditionality. I believe that, if traditional Fund programs are to serve best their intended function
           to promote the global public good by reducing the likelihood of and damage from external
           payments crises, then both adequate financing and firm conditionality are required. And I am
           delighted to affirm that this has been the firmly held line of the Executive Board all through this
           demanding time.

           On the scale of some recent support packages, I would emphasize that the Fund has not been
           alone; important additional support has come from the World Bank, the Asian Development
           Bank, the Inter-American Development Bank, and bilaterally from national governments and
           central banks. Clearly, in these cases, the responsible judgment of the international community was
           that financial support beyond the substantial amounts provided by the Fund was necessary and
           appropriate. Recent initiatives to increase support, notably that of the Japanese government for
           several Asian countries, confirm this judgment.

           On conditionality, initial economic assumptions in several recent programs proved substantially too
           optimistic, and it was appropriate to exploit the flexibility of program revisions to better adapt
           economic policies to unforeseen circumstances_in some cases leading from a prescribed initial
           tightening to a subsequent substantial easing of fiscal policies. For monetary policies, initial
           tightenings were, in my view, not only the right policies, but the absolutely essential policies to
           resist what were already excessive exchange rate depreciations with threatening domestic and
           international implications.

           More generally, I believe that it is a grave mistake to think that there is an easy way out when a
           country and its government have lost the confidence of financial markets. Countries that tried for
           an easy way out, that backed away from their programs, have not fared well. Those that have
           pressed vigorously ahead are beginning to see the fruits of their efforts even earlier than expected.
           Going forward, the main worry is not that too rapid reform may impair recovery, but rather that
           recovery may blunt the impetus for reform. To generate the greatest possible global public good
           out of the difficulties of the past two years, it is essential to keep the reform process moving
           forward. I was happy when visiting Asia last week to see that this is a view firmly held by the
           authorities.

           A third area where provision of international public goods is an important concern for IMF
           activities may not seem so immediately relevant to the main issues discussed at this conference.
           Nonetheless, I believe it is crucial if the benefits of reform of the international monetary and
           financial system are to be truly global. I refer to efforts by the international community to assist its
           poorest members, which increasingly are becoming marginalized and are not sharing fully in the
           benefits of global economic and financial integration.

           This concern is partly symmetric, better integration of the poorest countries into the international
           system will produce public goods benefits for other countries through increased trade and
           expanded opportunities for investment. However, the public goods issue is broader than the
           potential for symmetric benefits. At the national level, we all recognize the public responsibility to
           assist the less fortunate to become more productive members of our societies. A similar ethic
           applied at the global level suggests that the public good requires meaningful efforts to reduce
           disparities of income, resources, and opportunities that are substantially greater than typically exist
           within our national societies. In the face of widening divergences between the richest and the
           poorest countries, and with generally declining amounts of assistance forthcoming from the richer
           countries, it seems clear that more needs to be done to redeem this aspect of the international
           public good.

           At the IMF, we are working on several fronts, in cooperation with others. This includes the
           provision of policy advice through our deepening process of surveillance, an extensive program of
           technical assistance and training to help develop skills in our areas of expertise, and concessional
           financial assistance to eligible members through ESAF. In addition a variety of proposals have
           been made to strengthen the HIPC Initiative for providing debt relief to the worlds poorest and
           relatively most heavily indebted countries. We are working closely with the World Bank to refine a
           set of principles that would provide a basis for moving forward with this initiative. Next months
           G-7 summit in Cologne will mark an important step in this process.

           However, policy advice, technical assistance, new concessional financing, and debt relief, although
           crucial, will not alone provide many of these countries with the ability to grow their way out of
           poverty. In addition our policies on aid and debt relief need to be better coordinated with and
           supported by policies on trade and investment. Ample evidence from the experience of countries
           that have successfully moved up the development ladder demonstrates the importance of trade
           linkages and of direct investment flows in fostering sustainable economic growth. It is for this
           reason that I have argued for across-the-board, duty free access to advanced country markets for
           the least developed countries as a way of promoting growth and reducing poverty in these
           countries. Elimination of misguided protectionist policies that also impair growth in the poorest
           countries should also be undertaken, although not as a prerequisite for action by the advanced
           countries.

           An increasingly open system of world trade, and an increasingly and prudently liberalized system
           of world finance are the two great global public goods that have been produced by the
           international community in the postwar era. The effort to reform the system is fundamentally the
           effort to sustain and enhance these public goods.