Indonesia and the IMF
Republic of Korea and the IMF
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Russian Federation and the IMF
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Transcript of a Question and Answer Session|
Following an Address by IMF Managing Director Horst Köhler
The IMF in a Changing World
National Press Club
Washington, D.C. August 7, 2000
QUESTIONER: If you will rejoin us here, we have a substantial number of questions for you. As you look toward reform and restructuring, are there changes in the division of labor between the IMF and the World Bank that might be in order? You have talked at length about working together with the World Bank, but can the roles be fine-tuned or redefined?
MR. KÖHLER: First, it's important to underline the necessity that these two institutions work closely together. It would be foolish if these two institutions of the Bretton Woods idea would not cooperate fully. That is my basic direction. And they should also have a basic understanding, common ground, how best to serve the needs of their countries; and how to define a cross-strategy, how to have common ground to judge trade and debt issues. That is important.
Based on that, I think the experience is that no institution knows everything, and therefore, I do think there is, based on good cooperation, a good opportunity to have a division of labor. The World Bank should concentrate directly on poverty reduction. It should have the lead here, it should have the lead in structural reforms. This should fit together with the macroeconomic approach of the Fund and with the new focus of the Fund to do more so that global financial markets become more stable and, after some time, also get more interested and engaged in poor and emerging market countries.
QUESTIONER: In your last position you had extensive dealings, of course, with Eastern Europe and continue to do so in your current post. This is directed more at Russia itself. What kind of program and how large do you think Russia needs currently?
MR. KÖHLER: Well, I have all of the experience you can have with Russia. As a German official, I negotiated some issues in the bilateral relationship between Germany and the Soviet Union, then German unification, withdrawal of the troops. Then I was one of the G-7 deputies, who had been in charge at the beginning of the '90s of the issues of the global economy and Russia, then with the EBRD in London.
My judgment is stick to the assessment that this is a great country, so don't humiliate this country. On the other hand, don't be euphoric. Part of the mistakes we made was mostly because we had been too euphoric, relying on rhetoric about reform programs. We need to see more implementation of the good ideas. And based on that, I do think that we have a good start with President Putin. But my recommendation is to look carefully at what is implemented.
I will also give you information to put things in a better perspective on Russia. During the crisis situation, we, the IMF, had an exposure to Russia of—I think—more than US$20 billion. This exposure meanwhile has gone down to around US$12 billion. That demonstrates that the exaggeration about Russia and lost money was not really the right and balanced judgment. On the other hand, it also demonstrates that we should stick to clear requests what they have to do. The IMF is in talks with them. The mission will go back to Russia I think in September and discuss what has been done, what should further be done, and on this basis I hope that we make further progress with them.
QUESTIONER: You mentioned your role as a G-7 Deputy. Currently, the G-7 is pushing the IMF to charge higher interest rates for long-term borrowers, specifically in regard to relations of borrowers to private-sector lenders. Do you think this is necessary and how would this happen? Will it happen?
MR. KÖHLER: Well, I don't think it should have been necessary that the G-7 had gone on the market with their ideas. I would have preferred the G-7 would have presented their ideas in the IMF within the normal working process of the Fund.
The direction the G-7 had set up with this—making the pricing more discouraging for borrowers—I think is right and should be considered carefully. But it's now a problem because a big group of countries within the Fund feels itself lectured by the presentation of these ideas. It does not make things easier.
QUESTIONER: Well, that begs our next question. In the past, this questioner says, the G-7 has quite often used the IMF for rather questionable political objectives. How can this be avoided? You can look at it from both sides.
MR. KÖHLER: Yes, I think, all in all, if you take a balanced judgment, the G-7 have not been so bad in their advice and in their dealings with issues of global interest. I do think that, but having looked at the past, it is really important to put concrete content to the idea to cooperate in the Fund, so that, at least in the beginning of a discussion, all members can present their ideas, their objectives on an equal basis.
On this basis, I think that of course the G-7, as major shareholders, will be able to present and make clear their ideas. And in the end, I think we'll work together. We need some leadership from the G-7 that is helpful. But if it's better balanced with this cooperative nature and with a discussion process, where every member has a chance, a better chance to get involved and be represented, I think the outcome could be even better.
QUESTIONER: You spoke of the clear need for the IMF and the world community to stay engaged in poor countries of the world and the LDCs. You spoke of the ongoing debt relief efforts along with the World Bank. Some people have judged already the debt forgiveness initiative as a failure. Some of the countries who would fund this effort have not been forthcoming with fully-expected contributions. What kind of a grade would you give it at this point, and how do you raise that score?
MR. KÖHLER: First, debt relief is an important element. And I think that the promises which have been made, not least at the Cologne Summit of the G-7, and now reconfirmed at the Okinawa Summit, should be delivered. But there is a serious program and process of delivering.
As I said in my introductory remarks, the IMF and the World Bank are expediting this process. But I repeat in this context, just to write-off debts is not the right way. If debt relief would go again in the pockets of corrupt people, politicians, then I ask what's the purpose of that? Therefore, there has, and there should be, a link between debt relief, debt cancellation and good policies. If you would give that up, it would serve us maybe for 1, 2, even 3 years, but then the effect would be lost, and it would not have a sustained effect.
Therefore, debt relief is an important element. It should be combined with improvement in policies. We should work to be not overbureaucratic. We should not ask from the debtor countries the impossible on statistics and all of this. So here we should be helpful. But in the end, we also want to see some response in better policies. And what is, of course, also clear, armed conflicts in the debtor countries are detrimental to all of this which is good. So the countries themselves have to work for debt relief, creating better ground to support the people.
QUESTIONER: Is the principle "lender of last resort" history now?
MR. KÖHLER: This is not so easy to answer because I am not precisely sure what my predecessors understood on the lender of last resort. From my position, it is clearly that the IMF is no lender of last resort, because it does not have the right and should not have the right to print money.
QUESTIONER: Another buzz word in international finance and economics, "burden sharing." The IMF's experience in Ecuador, this questioner suggests, makes one think that burden sharing might be dead. How should bond holders share in the pain when the IMF gets involved?
MR. KÖHLER: Burden sharing and fair burden sharing is and should be, today and in the future, the direction. But I think it's not so difficult to organize that. The private sector knows that if they make a decision, the decision is going to fail in terms of economic development. They have to bear the risk. They know it, they accept it. Therefore, we should not create a kind of artificial contradiction between, on the one side, the public sector, taxpayers' money, and on the other side, the bad private sector and private profits. The private-sector people know that they have to be part of the process. It's now a question how to organize the process for a timely and orderly resolution of these kind of crises. This is not so easy. It's complicated because we have to be aware of the possibilities to pass solutions. So an overly-structured approach to this might not be the best way. But it's also clear that bond holders are part of this process of being involved in crisis resolution. I am in favor, for instance, of collective action clauses to be better prepared to solve crises if and when public money is involved—if bonds are involved.
QUESTIONER: There are countries which need IMF assistance and advice, which have been identified internationally as supporters of terrorism—in fact sanctioned by some countries and/or international groups. Should the IMF make loans to countries so identified?
MR. KÖHLER: Certainly not, but the IMF is not—how should I say—the Lord who knows everything. And the Fund cannot square the circle. We have an assessment. We go to the countries with all of the best experts we have in order to assess the situation. We are often in a situation to recite with risk, not knowing exactly all details of the situation.
But the direction is clear. We should be even more careful, particularly in the field of corruption, of undemocratic regimes, not to work together with them. But this is then, also, an issue of our shareholders, to come more clearly out how they see this country and the cooperation with this country.
QUESTIONER: You have traveled extensively since you were nominated for this position in March, and this summer completed an Asian tour. We have many questions directed toward the economic situation in specific countries. Let me run through a couple of them quickly and let you respond as we go through them.
How are the IMF-aided countries of South Korea, Indonesia and Thailand doing in the recovery process?
Another questioner asks, how would you evaluate the restructuring of Korea's financial institutions and companies, especially the Hyundai group—
MR. KÖHLER: —which is really good news. Thailand and particularly Korea are doing well.
Also, in terms of growth, Indonesia has improved. And this gives us some ground, some window of opportunity, to work further with structural reforms. I think in Thailand and in Korea the leaders who I talked with know that they cannot assume that their job of restructuring the financial sector is already finished. They have to continue, strongly continue this. But we also should not panic. There are improvements, there are lessons learned. We have to keep up momentum of structural reforms, particularly in the financial sector, and on this basis I think we will see further improvements.
Indonesia is, of course, a bit more difficult. It is a tragedy how this country had come into a crisis, and it is very difficult how it will come out of the crisis. The intentions of President Wahid are undoubtedly right intentions. But it's obviously very difficult to organize a government so that they are performing on a well-considered, agreed basis. So this will be a process of some difficulties in the future. The IMF stands ready to give further advice.
But the main issue is that the government itself, headed by the President, should organize itself in a way that the country and the economy, the domestic and the international economy, knows clearly the direction and the commitment of the government.
QUESTIONER: And still in that region: The recovery in Malaysia, in your assessment, is that sustainable or is the Malaysian government merely postponing another crisis with its control measures? And should the country review its currency rate?
MR. KÖHLER: I think that Malaysia, on the one hand, can say, and the Prime Minister is doing this, that capital controls are not so bad. That's a matter of fact. I mean, they imposed capital controls, and it was not a disaster for the economy. But I stick to the assessment they should not be complacent. The longer the capital controls for Malaysia area kept up, I think the more they will see the disadvantage of this.
But for me this, for instance, also means, as one of the lessons learned for the IMF, we have to reconsider, review, our position on, for instance, the process of liberalizing capital accounts. I think it goes, of course, beyond Malaysia. In the past we had been partly too rapid with opening capital accounts. We need to see that the opening of capital accounts should be combined or there should be a parallel process of building up internal sound structures. If a financial sector—if banks are not prepared for an inflow of huge amounts of capital from outside, then there will be a problem, and therefore the opening of capital accounts should be a very well considered sequenced process.
QUESTIONER: Let us turn, for a moment, to the continent of Africa. We have one questioner who asserts that the economic state of most African nations is abysmal and another who, in that same frame, asks your opinion of the situation in Kenya and the future of its country, and another wants you to defend the conditions put on lending for Kenya and Nigeria.
MR. KÖHLER: Well, I was in Africa. I visited six countries—Nigeria, Cameroon, Senegal, Mozambique, Botswana, and South Africa. I came back from this particular visit very encouraged. On the one hand, I was of course deeply, if you want so, even depressed about the magnitude of poverty. On the other hand, I was even more impressed about the fact that I found people, leaders, but more important, civil society people, women, heading associations who said we have to help ourselves. So there is a commitment, that they don't just ask for outside help. They know that they have to concentrate on their own responsibility. That is, for me, the most encouraging and most important impression I took with me from Africa.
Secondly, there are leaders—take Mr. Mbeki in South Africa, take Mr. Wade in Senegal, take Mr. Obasanjo, the President of Nigeria—these leaders clearly want and are committed to go in the right direction. They need to get support, not unconditionally, but they need to get support also in a personal approach, with a personal element, to strengthen their confidence to be able to lead their countries. So this is an important thing.
Therefore, I do think the leaders of the Western world should reflect a bit more on how they can exercise an approach to Africa or define an approach to Africa which goes a bit beyond what we have seen up to now. And the elements of this more proactive approach should give them trust.
Secondly, be very selective because, of course, the country, the continent, the African continent, is a very differentiated continent. Alone in Cameroon there are more than 200 tribes of this country. It is very difficult to have a policy accepted which is approved or accepted by all of these tribes. But the leaders are committed to try this, and there are, if you want, pockets/regions, where the degree of reasonable policy is already advanced; for instance, in West Africa, with the West African economic and monetary region, in South Africa.
If we would combine debt relief, market opening and a very targeted approach to these regions or countries who are clearly committed to go in the right direction and who are accepting conditionality, I think this will be a new start, and it will be a successful one.
QUESTIONER: This is a question of which I am going to ask you to wax philosophical somewhat. And the question was framed in a very pessimistic way. But you already have acknowledged the difficulty in some countries, particularly those in which armed conflict is present and the like.
Many developing countries, this questioner says, have been developing since the end of World War II. Political and institutional instability seem to make growth hopeless in many of these countries. Is there truly any hope for such countries as Zimbabwe, Cambodia, and so forth—countries of that class?
MR. KÖHLER: Well, I stick to my notion that we are living in one world. And if we stick to that, I think we should not afford ourselves to forget or drop certain countries, despite all difficulties. But we have to be very targeted or selective.
With Zimbabwe it's clear that we cannot do business as usual when we look at what has happened and what is continuing. But on the other hand, again, also in Zimbabwe there are people, Zimbabwean people, who want to be good neighbors, who want to be part of the international community. So we have to try. There is no quick fix. But my advice is don't drop countries, don't drop people. We don't have to be naive. We don't have to forget about our responsibility to safeguard our taxpayers' money. But in the end, we are really working in one world, and we should define an approach to work also with the poorest examples of behavior or cooperation.
QUESTIONER: Thank you. We have time for one more question. But, first, I would like to ask you to come forward to receive this certification of appreciation from the National Press Club and the coveted National Press Club mug.
MR. KÖHLER: Thank you. Thank you very much.
QUESTIONER: For your final question, I am tempted to ask, from your involvement in its creation, when will the euro begin to go up again.
QUESTIONER: But since—
MR. KÖHLER: Someone told me the last question is a nice question. This would not be a nice question.
QUESTIONER: But since that is one that no one can truly answer, let me ask you your personal reaction to the disturbances at the IMF and World Bank meetings. Bankers are not accustomed to being picketed by protestors. How do you feel about this personally?
MR. KÖHLER: Well, I feel there is a problem. I cannot ignore that young people are critical with the IMF. And I was confronted with civil society people. They had serious questions. They have a kind of fresh look. So I do think I should take this part serious. On the other hand, we should also be firm. In the end, we have a membership, governments, which are accountable. So we cannot accept that responsibility is "transferred" from these institutions to NGOs. We should have a dialogue, we should listen, and we should not only listen, but also hear and try to take these comments, and dialogue and discussions into account to improve the IMF, the World Bank and the global policy for the people. But on the other hand, we have also to stand to our responsibility.
QUESTIONER: Thank you, Horst Köhler, Managing Director of the International Monetary Fund. Thank you and good day.
IMF EXTERNAL RELATIONS DEPARTMENT