The Role of the Fund in Promoting Financial Stability: a Swiss Perspective

Jean-Pierre Roth, Chairman of the Governing Board

Meeting with directors of the most important Swiss firms in Argentina, Buenos Aires, 16 November 2004, 16.11.2004

Promoting and safeguarding international financial stability is a high priority for Switzerland because of its very open economy and the importance of its financial center. This is also the core mandate of the International Monetary Fund. Switzerland shares the IMF belief that the main efforts should focus on crisis prevention. Enhancing and refocusing surveillance are the main elements in this endeavour. Over the past years, we particularly supported the IMF’s various initiatives to foster transparency and disseminate high quality information. Fund surveillance is the backbone of crisis prevention. To be effective, however, it must not only be correct. It must also be implemented. The Fund can only help countries that are willing to help themselves. The implementation of the required measures is the primary responsibility of national authorities. The Fund’s role is limited to providing the best possible objective advice built upon the best possible analytical expertise.

However much effort goes into crisis prevention and however good this effort is crises cannot be completely ruled out in an open and dynamic global economy. Switzerland believes that there is an important role for the Fund to play in crisis resolution. The new crises have changed in nature (capital account versus current account crises), in size and in their capacity to rapidly spread across regions. In a rapidly changing world, it is key that the Fund remains flexible in its response and adapt rapidly to the changing circumstances. Financial support is also important. However, although it is arguably difficult to set limits in the context of confidence crises, Fund support cannot, and should not, be expected to always offset private capital outflows. On the one hand, fund resources may not be enough, on the other this would exacerbate moral hazard problems. A framework has been defined to help the Fund decide when and whether its financial support is justified. It is imperative that this framework be implemented consistently. It is the shareholders’ responsibility to safeguard the credibility of the institution as well as its financial soundness. This can best be done by ensuring that, to the extent possible, the game is played according to the rules.