Speech

Farewell Remarks to the IMF Executive Board by Anne O Krueger, First Deputy Managing Director

August 31, 2006

Thank you Rodrigo for those kind words: working with you over the past couple of years has been a stimulating experience—and a personally enjoyable one. I have been fortunate in my colleagues during my time here: first Horst Kohler and now Rodrigo: and, of course my other Management colleagues, Agustin Carstens and Taka Kato; and before them Shigei Sugisaki and Eduardo Aninat. I have greatly appreciated the collegial atmosphere in which we have worked.

Let me also thank Abbas Mirakhor for the very kind remarks he made on behalf of his colleagues on the Executive Board. Your statistics, Rodrigo, certainly put the duties of chairing the Board in a new light, when looked at cumulatively. But as I look around today and see some of the faces that were there on my first day in this Boardroom along with those who have joined the Board since, I realize how much I shall miss this part of my job. The Board is, as it has been for the past 60 years, the heart of the Fund. Discussions are lively here because everyone takes the issues seriously. There are sometimes moments of tension, it's true—again because everyone around the table is fully seized of their responsibilities, and takes them to heart. I want, in a moment, to say a little more about the Board. But I am deeply grateful for the warmth and collegiality which I've enjoyed during the many—alright, more than one thousand hours I have spent in this room. As you know, so often over the past five years I have been the one saying goodbye to a valued colleague returning home. It feels strange to be on the receiving end of the goodbyes.

Strange and sad. I am, of course, leaving with mixed feelings. My time at the Fund has been immensely rewarding on a personal level. This is an institution which I have always strongly believed in and to which I have long been passionately committed. It has been a great privilege to serve here. And although I am leaving the Fund today, I will continue to follow the issues which have so preoccupied us all over the past five years with great interest. As an outside observer, of course, I will have more time to focus on them than my duties here have allowed.

It is hard to believe that five years have passed since I first arrived at the Fund. So much has happened; so much has been accomplished; and so much remains to be done.

Let me reflect briefly on where we have got to—and what the challenges are for the next five years.

The importance of multilateralism

When I came to the Fund in 2001, there was a widespread belief that the Fund—and the Bank—were the best examples of well-functioning multilateralism. I think this remains the case today.

But in the past five years there has been a growing recognition of the impact of globalization—and increasing discussion about its implications. This was recognized in the Fund's Medium Term Strategy. It is surely right that the Fund needs to ensure that it remains at the centre of the international economic system and that it needs to adapt in order to keep pace with the changing global environment. That, of course, is nothing new. A recurring theme of many of my speeches while at the Fund has been this institution's ability and readiness to adapt to change. Adaptability has been a cornerstone of the Fund's ability to survive and remain a central part of the international system.

Yet I think we are in danger of overlooking something important in all the discussions of globalization: that there is an increased need for well-functioning multilateral institutions. Globalization makes multilateralism more important, not less. As the world economy becomes more integrated, more rapidly, it is vital that we all understand the gains to be had from acting on a multilateral basis.

The founders of the Bretton Woods system understood this—both instinctively, I believe, but also because of their experience of the 1930s—when the absence of a multilateral approach had calamitous consequences for individual countries and for the world economy as a whole. Competitive devaluations and trade restrictions benefited no one, and penalized everyone. A multilateral system forces individual countries to look beyond their own narrow short-term interests and in so doing enables all participants in the international economy to gain. Erecting trade barriers to protect domestic industry, or engineering currency depreciation to benefit exporters might seem like good sense: but the returns that such policies bring are short-lived and have painful consequences for the country involved—and damage the international system in the process.

The facts are indisputable: the economic miracle of the period following World War Two—six decades of unprecedented growth in the world economy—was underpinned by the Bretton Woods system, the Fund and the Bank, and by GATT and, in turn, the WTO. In one sense I'm simply stating the obvious: we need the multilateral framework to survive if we are to continue to prosper.

But my fear is that we have come to take multilateralism for granted. Instead of recognizing its importance, and working to ensure that multilateralism continues to be at the very heart of the international economic system, I worry that familiarity has finally bred contempt. We are less cognizant of the crucial importance of the foundations on which the postwar system rests. And that is dangerous. Complacency, diminished understanding—call it what you will: without positive action to preserve the multilateral framework the very idea of multilateralism could fade. It would be more than a pity if we only recognized multilateralism's virtues when it was too late.

The Fund's contribution to the global economy

And there would be consequences for the Fund, of course, which has nurtured the multilateral approach. The two are inextricably intertwined, with the Fund both a creature of multilateralism and its servant.

The Fund's contributions to what has been a truly remarkable era for the world economy have been many and significant. Let me identify those I believe have been most important.

First, the Fund has always been a learning institution, and this is one of its greatest strengths. As I noted, it is an institution that has proved itself ready and able to adapt as it learns from experience. But this ability to learn from experience has far wider implications. The Fund is uniquely placed to take a cross-country perspective. This, in turn, has enabled a much more rapid learning process among member countries, the policy community and academics: it makes it possible for members to learn from the experience and to avoid mistakes. We human beings are, of course, notoriously bad at learning from anyone else's mistakes but out own. Yet the Fund's work, and the collegiate atmosphere here in the Board, makes it possible to overcome some of those obstacles.

Another important contribution has been the Fund's role as confidential advisor. Objective economic analysis, coupled with the Fund's understanding of the experience of a wide range of economies, enables Fund staff, and Management, to offer advice to national policymakers that, when provided in confidence, can enable mistakes to be avoided, and head off potential trouble at an early stage. And even one crisis averted already represents a significant addition to global economic growth.

The Fund's work has, over the years, made a significant contribution to our understanding of the importance of macroeconomic stability. It is now widely accepted that macro stability is a prerequisite of sustained and rapid growth which, in turn, is essential for lasting poverty reduction. But the Fund has played an important role in ensuring that policymakers recognize this as well as economists. And the results, especially in recent years, are clear.

Finally, I believe the Fund has made a major contribution to the economics profession by its research—the Research Department is widely recognized as a world leader—and by the dissemination of best practice, through the Institute and Fund staff in general. The World Economic Outlook is highly respected. The Fund's standing in the world reflects, in part, the fact that the Research Department is a world leader.

And in this context it is important, too, to recognize the contribution the Statistics Department has made to best practice in the collection and analysis of data.

Fund staff

In all this work, the role of Fund staff has been crucial. I noted that before I came here, the Fund was widely regarded as well-functioning and it still is. The Fund sets high standards for its staff: and they meet those standards every day. It is easy to forget that the expatriate staff who work at the Fund face unusual problems: because of their G-4 status they are subject to restrictions; they are largely cut off from their home markets. Yet the staff at the Fund are able, dedicated, hard-working—and the envy of many other institutions as a result.

Concerns

It is important to recognize the Fund's achievements. But it is also important to ensure that the Fund is equipped to deal with the challenges going forward. This means adaptation, and the Medium Term Strategy recognizes this. Indeed, the coming months will involve major, and important, changes in the fund's structure, governance and activities. Some of these changes are already in train.

That said, I would like to share some concerns with you, concerns that I believe need to be addressed if the Fund is to emerge from this period of change better-equipped than ever to fulfill its duties in the modern global economy.

One concern is the focus on diversity. Let me be clear: I strongly favor a diverse staff. The more representative the Fund's staff is of its membership as a whole, the better. This strengthens the Fund's credibility and thus its effectiveness. But I am absolutely convinced that progress towards diversity can only be made in the context of a genuine meritocracy. Appointments and promotions must be made on merit. Any other criteria risk undermining morale, damaging the Fund's reputation and, ultimately, making it's a less effective institution. At a time of such rapid global change, the Fund cannot afford to undermine its reputation as a centre of excellence based on merit.

Another concern I have might strike some old hands as rather surprising. I worry that the Fund is too quick to shoulder blame. Yes, the Fund has made mistakes but that is inevitable in economic policymaking. We need to learn from those mistakes, and from experience more generally. But I believe we do—indeed, in my view the Fund is much better at learning from experience than many other institutions, economists and policymakers. Our rigorous, evidence-based approach perhaps accounts for this. The Fund has taught the world more than the world has taught the Fund.

For all that, though, there remains a tendency to offer mea culpas too readily. Of course, we all know the origins of this habit: the crises of the 1990s had a profound impact on this institution and radical changes were implemented, not least in the way the Fund has become a more transparent institution. We have rid ourselves of the image of a secretive, high-handed institution that our critics charged us with a decade or so ago—though some of those criticisms were overdone, and the Fund assumed too much blame.

But as I noted earlier, we have driven the learning process in many ways. We didn't get everything right in the 1990s. But nor did anyone else. It wasn't as if the Fund's advice had flown in the face of conventional wisdom. We gave advice based on our best understanding at the time, and by and large that advice wasn't challenged by economists who were able to put forward a more convincing analysis. The Fund has been largely responsible for shifting the focus of macroeconomic analysis—concentrating on debt sustainability, on the role of the financial sector and the significance of private international capital flows. That is not a bad record.

We need to recognize this and to stop being so ready to assume blame.

Last but not least I return to a concern I hinted at earlier: the danger of taking this institution—and with it the postwar multilateral framework, for granted. And this is an issue on which I believe the Board must lead. I know the difficult pressures Board members face—Directors from single country constituencies must reflect the concerns and interests of their capitals, while Directors with multi-member constituencies must pay heed to the concerns of all their members in an even-handed way.

But focusing on the narrow, short-term interests of any one member country or group is fraught with risks. By distracting attention from the Fund's multilateral role, emphasizing national pre-occupations can undermine the institution instead of strengthening it. Preservation for its own sake is obviously not desirable. But if we believe that the Fund is integral to the functioning of the global economy and of the international financial system, then it is our duty to do all we can to preserve it. And that means focusing on the multilateral aspects of our work—which is, without doubt, in the interests of all of our members, both large and small.

After today, my efforts to preserve and strengthen the multilateral framework that has served us so well for so many years will, of necessity, follow a different path. Rest assured I shall be watching and cajoling as a more than usually interested observer.

But the main challenges going forward will fall to Rodrigo and to my successor, John Lipsky. I know that John will be a distinguished FDMD. He has a deep understanding of the issues involved; and he is also committed to the Fund.

I've already mentioned the Fund staff and their many virtues. There will be an opportunity to thank them properly at the farewell reception that will take place after the Annual Meetings. But there is a small group of staff to whom I owe a particular debt of gratitude, and I want to mention them today.

As anyone who has had contact with my office knows, I could not function without the hard work and dedication of Ernest Parham and Cindy Riggle. No matter what I need, no matter when I call, Ernie is there and Cindy has been equally supportive, as was Keila Moses when I first arrived at the Fund. Likewise, David Naismith has been a tremendous help. I am more grateful to them than they can ever know.

I have also been fortunate in my advisors over the years: first, Reza Moghadam, then Adnan Mazerai and now Odd Per Brekk: I am grateful to them all, as well as to my speechwriters, Robert Chote and, for the past three years, Graham Ingham.

Today is my last day as FDMD: but I am not leaving the Fund altogether, just yet. I will be keeping an office here for a few months. People have, naturally been asking what my plans are. I have one main plan: to plan what to do next. There hasn't been time in the past few months to focus on this. One thing at a time.

So I hope it is au revoir rather than adieu. Thank you for your friendship over the past five years. Let me offer my best wishes to all of you as you discharge your duties and help the Fund face the challenges of the future.

Thank you.