Transcript of a Press Briefing by IMF Managing Director Horst Köhler
May 25, 2000
Thursday, May 25, 2000
Mr. Köhler and Mr. Dawson
THOMAS DAWSON, DIRECTOR OF IMF EXTERNAL RELATIONS DEPARTMENT: With us this morning is the Managing Director of the IMF, Mr. Horst Köhler. As is our normal practice, we will embargo the press conference until 15 minutes after conclusion. Mr. Köhler will have some introductory comments and reflections, and then we will take questions. Thank you.
MR. KÖHLER: Good morning, ladies and gentlemen. I thought I should meet with you, not in a very prepared manner or with a statement, but really reporting a bit out from the workshop of the IMF. The IMF has a lot of construction sites, and I am meeting you within this process. So for three weeks now I have been in the Fund. I am very impressed with--or more impressed than ever with the quality and commitment of staff, my management colleagues, and the Board.
Yesterday we had a full day's discussion about the work program of the IMF, and I think this will also be published if it's finalized. We agreed in the Board that we will organize our work for the next weeks and month, in what I call a double track process. And one track is that we will work on the homework which was given to us at the spring meetings. And you know all these items: there is the review of facilities, standards and codes, transparency, the HIPC Initiative.
On the other hand, I want also to put these work items into a broader picture -- what I call a vision about the future of the Fund. And for this purpose, this second track, we have organized a special working group which is concentrating on that.
My personal priority in these first weeks is, as you know, listening and getting input, because I have not come here telling people I know everything and everything better. I have some ideas, I have my ideas, but I do think it is very important, in order to get a better understanding for the reform discussion, and not to miss important things, to listen very carefully, to have talks, and build up a dialogue.
And the first element of this listening, building up input process, is that I talk very intensively with staff. I have been meeting individually with every executive director of our member states. And as you know, I came back from a tour to Latin America just last week, where I met with the leaders and economic teams of Mexico, Brazil, Argentina, and Honduras. I also took the opportunity there to meet with the private sector business people. I had, for instance, a lunch meeting in Honduras with representatives of all parts of society-- farmers, women, NGOs, and so on. So that is the listening to Latin America.
I will, next week on Tuesday, start my tour in Asia. In Asia I will meet with leaders and people from the financial sector of Thailand, Korea, Indonesia, India, and China. And coming back from this tour I will have a meeting in New York with--and that is the second element of my listening tour and taking input--I will meet with representatives of private capital markets.
And we will, hopefully, timely enough before the Annual Meetings in Prague, organize here in the Fund a meeting, as part of an already ongoing discussion, with representatives of civil society in order to show that we are prepared to have a dialogue with civil society and the NGOs. These are my personal priorities in these first weeks.
Now then I would like to give you a short report on what I have heard, what impressed me, in Latin America. First, it impressed me most how clearly and how dedicated the leaders, presidents, the ministers of finance, central bank governors, and also business people--and I include in this even the trade unions, whom I met in Argentina--are committed to continue on a process of being democratic, and to organize their economies on a market-oriented basis. I was really impressed how clearly this came out of these talks, how far these major countries in Latin America have gone toward democracy and the market economy.
I was even impressed by the leaders, that they mentioned and made me aware, for instance, of the dialogue with the civil society. They encouraged me to build up this dialogue, but they also told me that they have some concern that this dialogue should not undermine the legitimacy of democratically elected and established institutions. So one very good result of this, at least what impressed me, is the clear firmness of these leaders to stick to democracy and market-oriented economic policies.
Secondly, based on that, I was also very much impressed with how prepared they are to continue with a clear agenda for reform policies. The sequence was Brazil, Argentina - then I met shortly with the Central Bank governor of Chile in Santiago, Chile - and then Honduras and Mexico. This was the sequence of the visits. All of them told me they will stay on track with their economic policies which they have been pursuing the last years.
And as you know, this has already paid off for Mexico, which has very strong growth performance. It seems clearly to be paying off for Brazil, which shows that the recovery is gaining strength. It also demonstrates success in Argentina, but the Argentina economy is not recovering so strongly. Honduras, as you know, was very much damaged by Hurricane Mitch. There is, I think, a good chance that in this very poor, very small country, there is a spirit, a new spirit--that they have detected that the community, say, the self-effort of the country, of the people, is the most important thing to get out of the mess. So they stay on track.
I discussed very carefully the situation in Argentina. As you know, there have been demonstrations, particularly in the north. I had a very good talk, a very serious talk with the trade unions, the leaders of the trade unions. And of course, the main focus in the discussion with the trade unions was the social problems, the social tensions in Argentina. And I made clear that the market economy needs to be based also on social consent--on a consensus about the social dimension of development. There cannot be blindness to poverty and social problems. And that was also the understanding of the president and the government. So I hope that despite the difficulties and the sacrifices, there will be an ongoing process to stay on track, particularly also in Argentina.
What was also important, and that is the next element of this listening tour, is that these countries didn't ask so much for particular favors from the IMF. They said, "We do our job, and based on that, we want to get the support of the international community." So that was a very strong point. They rely on themselves.
But what came out of this is that they complained strongly about an understanding or a possible understanding in the developed countries, that reform and structural change is a kind of one-way route, that only the emerging countries have to do reforms or have to change. I agreed with them that in order to make growth in the world economies stronger and steadier, there has to be a strong reform process and structural change, particularly also in the developed or industrial countries, the mature or rich countries. For instance, the euro, the weak euro was a point of concern, in Argentina particularly, but also in Brazil and in Mexico. And the request to open markets more rapidly for these countries was a constant, permanent, repeated demand of these leaders.
And I do think that in the dialogue in fora like the IMF and other fora, there is an understanding that to gain stronger and steadier world economic growth means that structural change and reform policy are not just in the emerging countries or the transition countries, but that there be a parallel process in the developed countries. This has to get more attention in the political debate in order to fight poverty and to reduce the frequency and the severity of crisis.
Thank you very much.
MR. DAWSON: Now, we'll take questions. Please identify yourself and your organization. Thank you.
QUESTIONER: You mentioned that you heard concerns about the weak euro. What kind of structural changes are needed in order to rescue the euro?
MR. KÖHLER: Well, this has first to be defined country by country in Europe, but the main direction is quite clear. There is a need particularly for the big countries in Europe to reform their social security systems, their tax systems, and particularly also their labor markets, which must have more flexibility. This is the core direction of reform needs in Europe. And of course, I have just reported that in the Latin American countries I visited, in the big countries, there was a question about the sustainability of the agricultural policy in the EU.
QUESTIONER: I'm sorry. Those kind of changes obviously would take a long time. Is there something you really think needs to be done sooner in order to help out with the euro?
MR. KÖHLER: Reforms take time, and often I do think we should have this also in mind when we are going to give advice to transition countries or to emerging countries. But this is not in contradiction to short-term effects of the policy. This means that if the direction is clear, if the commitment is clearly demonstrated, I do think that will also have a short-term impact on the euro.
QUESTIONER: I understand your concern about the social explosions and manifestations that were in Argentina. My question is how can Argentina, at the same time that it adjusts and reduces the deficit - which are needed to comply with the IMF - face those broad social problems? Apparently there is not enough room to pay that, and at the same time to pay what they call the social debt.
MR. KÖHLER: First, I would like to answer that I was quite impressed that the President of Argentina strongly told me that it is his government's program and not an imposition of the IMF. So I took note of that and of course I was pleased with that because it is my own understanding. And I will look how it is implemented, that whatever we do, from here, from the IMF, the ownership of programs and reforms is very, very important. That there is ownership is more important than a short-term effect of maybe a number, a specific number, in a program of the IMF.
I cannot overlook that Argentina has to take very tough choices, because indeed, you cannot spend a dollar or a peso or a deutsche mark, at the same time for everything. You have to decide to spend it for investment or consumption, and there is a need in these emerging countries to have a priority for investment. But when I met with the trade unions, I had the feeling that this basic principle is understood, or that there is a chance that it can be explained and at the end will be understood. And therefore, I am not pessimistic that these tough choices at the end will be taking the right direction and will pay off for the people, because the people will see if we spend more for investment, we cannot spend more for consumption.
The debt issue is a difficult thing, particularly for the poorest countries, and therefore, the international community has to tackle this issue. There is the issue of the HIPC Initiative, which I too think is right, which has to be made a success.
The most important way to deal with debt with regard to countries like Argentina, which is not one of the poorest--it's an emerging country--is to strengthen growth. On this basis the country should be able to find a solution for its debt.
QUESTIONER: You gave a fairly comprehensive agenda of who you were going to talk to. You didn't mention anyone in the US Congress. Are you planning to go up to Capitol Hill to present yourself, and to go into the lions den?
MR. KÖHLER: Well, of course, but before I come to the US Congress, I should tell you that I met with members of the congress, for instance, in Honduras, at this already-mentioned luncheon. And we had a very interesting discussion. As you know, Honduras is a HIPC country. They are in the process of getting to the so-called decision point, and in order to get to the decision point, in order to get the debt relief, they have to take prior actions. And one of the items the IMF had suggested in order to take prior actions, is reform of the social security system. A second thing is to approve a framework law for the energy sector, particularly for the electricity sector. The reform of the social security is well under way, but the law for the energy and electricity sector is a bit stalled because--and that is the point--the people from congress told me time is too short to understand the full impact of this law. And I said that certainly the IMF will not press for approval by congress in two weeks times. It is too important that congress, which is the most important institution in a democracy, have the full understanding of what the law means, what it requests, what the impact of the law will be.
And therefore we agreed--or I agreed on a personal basis, because the HIPC Initiative it not something which is just decided by the IMF. As you know, it's a common effort of the World Bank, the IMF, of bilateral donors. I said on a personal basis I would agree that the IMF is not requesting that this law be decided now by congress in two weeks time. We are flexible in process, but we are firm in substance, so that the issue of, for instance, raising tariffs, electricity tariffs, in the medium term is not forgotten. And based on that, I do think that we will get a good conclusion in Honduras.
Now to the US Congress, but you will have realized that it was important for me to elaborate first on the congress of a small and poor country before I come to the congress of a big and rich country. But, of course, I do think I will take up a dialogue with the US Congress. And I am in the process of organizing appointments, and I am quite confident that it will be a very constructive dialogue.
QUESTIONER: You, no doubt, have heard of the Meltzer Commission report on reforming the IMF. Professor Meltzer testified before the Senate Foreign Relations Committee the day before yesterday, and one of the senators asked him whether the IMF had formally responded to the Commission's report, and he said, "No." So my first question is: will the IMF formally respond to the Meltzer Commission report? And my second question is: do you have any intention to meet with Professor Meltzer or other members of the commission as part of your listening process?
MR. KÖHLER: That is absolutely clear, I will meet with Professor Meltzer. I have already told him so in a letter when I answered him, because he congratulated me on my appointment as Managing Director. So this is in process.
But as far as I know, the Acting Managing Director, Stan Fischer, has testified to the Congress Committee in the debate about the Meltzer report.
MR. DAWSON: And I might add, Mr. Fischer has appeared with Professor Meltzer as recently as last week, and the actual formality of the commission is that the US Treasury, to whom it was in part directed, is preparing a response. So this is a process that's going on.
QUESTIONER: Going back to the question of Argentina, you mentioned that growth is the answer to this problem of debt. The problem in Argentina in terms of the debt is that you have basically $10 billion in interest service--on service every year. And you have the problem of growth and trying to answer to the social problems that my colleague mentioned. Some people on Wall Street told me that the IMF is partly responsible in Argentina, because [inaudible]. So the only way for Argentina to really come back to growth is to have an important restructuring of the debt. What is your view on this?
MR. KÖHLER: I will not go into details about restructuring, rescheduling, or otherwise of the Argentine debt. That is Argentina and the debtors' issue. But I want to be clear that I do think a major point for dealing with this issue is to keep the confidence Argentina has built up in the last years with regard to private capital markets, to the international community. And the Fund is prepared to play a role in this ongoing confidence-building process. That's my answer to this, because I don't want to go into details. I am sure that this country has the potential to prove that it is a reliable partner, and also that it --even more importantly--has the potential and the commitment to achieve a very strong growth path.
QUESTIONER: Mr. KÖHLER, you just mentioned this working group that supposedly is working on the vision thing. Could you elaborate on this working group? Who is it actually made up of? Are they only people from the Fund or external experts as well?
MR. KÖHLER: When I came here, I discussed a bit with Tom how far I should go with information at this stage of the discussion, and I said, "When we are going to say exactly who is a member of this group and what's the process, then we are raising expectations, and a variety of questions."
We are in mid-process of organizing that. The core of this group is some heads of departments here at the Fund. And of course, we will also try to get some external advice, but give us a bit more time to organize it more carefully.
MR. DAWSON: And you are personally chairing it.
MR. KÖHLER: Yes, I am chairing it, but it involves the full management team. Let me answer this way. It should be big enough to have the full range and expertise that are necessary, but small enough to be practical.
QUESTIONER: Going back to Mexico, sir, as you know, the Mexican economy--well, had a really great performance in the first months of this year, growing at more than 7 percent. Beside that good performance, there are some people in Mexico that say that maybe by the end of the year the Mexican economy will have some sort of over-heating. I was wondering, now that you have been in Mexico, did you see any signal of this risk? What would be your assessment after your visit to Mexico?
MR. KÖHLER: Well, I think that the Central Bank of Mexico was right when it took the decision to raise its interest rates. But I personally would also not like to comment on whether it is now overheated or is it just strong growth. It is very, very strong growth, and it seems to me it's better, -- a bit of kidding or a joke--it's better to talk about over-heating, than to talk about recession.
I think the fundamentals of the Mexican economy have improved remarkably, and therefore, there is the potential for steady growth. With some vigilance, which has been demonstrated by the decision of the Central Bank, it should be possible to hold up strong growth for some period of time in Mexico.
MR. DAWSON: Two more questions.
QUESTIONER: Mr. Köhler, what has been the greatest surprise to you of your first three weeks at the IMF?
MR. KÖHLER: Greatest surprise? Not a surprise, but something where I realized it's really clear. The menu card of the IMF is totally French.
MR. DAWSON: I wish that had been the last question, but I promised one more.
MR. KÖHLER: But I like really, the--I like it really.
QUESTIONER: So when are you going to Africa, and to what countries will you go?
MR. KÖHLER: It's in the planning, it's in the process. I would have liked --to be quite honest-- after Latin America to go to Africa, rather than to Asia, because I had been in Asia before I came to the Fund, but it takes a bit longer to organize the Africa trip. So I will come back, I think, from Asia on the 7th of June or so. And it's now in the planning that I will go to Africa the 10th of July for one week. And I certainly will meet with--it's my idea and it's not yet totally decided--to go to South Africa and Nigeria. I am in the process of seeing which francophone country I should visit, the francophone countries in Africa for this meeting. So I will go to four or five countries, but please, it is not yet decided. And you should also know why. I mean, it's difficult for the moment --a lot of crises and even war. I want to have the best effect for this trip.
MR. DAWSON: Thank you very much. The embargo will be lifted at 20 minutes after 10:00. Thank you.
[End of press briefing.]