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The Managing Director of the IMF
Wednesday, September 20, 2000
Prague Horst Köhler, Managing Director
Stanley Fischer, First Deputy Managing Director
Thomas C. Dawson, Director, the External Relations Department
David Hawley, Chief, Media Relations Division
Mr. Dawson: Good morning, ladies and gentlemen. I am Tom Dawson, Director of External Relations at the International Monetary Fund. We would like to thank you for coming to the Prague Congress Center Press Conference of the Managing Director, Horst Köhler. Before I introduce the Managing Director and the others seated with him, let me note that this press conference is live and is being webcast. To our viewers, welcome also.
Let me introduce the IMF Managing Director, Horst Köhler, who is seated to my right; First Deputy Managing Director, Stanley Fischer who is seated to his right; to my immediate left is David Hawley, Chief of the Media Relations Division. The Managing Director will have some brief remarks and then take your questions.
Mr. Köhler: Ladies and gentlemen, welcome to Prague. I hope you are being well looked after here in this great city. The Annual Meeting in Prague, in my view, is certainly a special one, first, because it is the first Annual Meeting in a transition country after the fall of the Berlin Wall in 1989. Second, Prague played an important role in the breakdown of Communism. It is the place of the Velvet Revolution in 1989, and, by the way, the place where thousands of East Germans enjoyed release to freedom. It is also very fortunate that this is the 10th anniversary of the Czech Republic rejoining the IMF (with, at that time, its former partner, the Slovak Republic, in the Federation) and, of course, the last point of this special meeting here is that it is the first meeting in the new millennium and it is my first meeting as Managing Director of the IMF.
This Annual Meeting combines a lot of history with, hopefully, even more looking forward to the future. I want to express my thanks to the people of the city of Prague, the government and, not least, to President Havel. Everything is well prepared in terms of logistics and I am well aware of the hard work and impositions and it is with great gratitude that we see the hospitality of this great city.
The Annual Meetings will have three main themes. First, of course, is the World Economic Outlook. Second is the work to strengthen the international financial system, and in this context I will outline my understanding of the future role of the IMF to the International Monetary and Financial Committee (the IMFC) and to the Board of Governors and the Annual Meetings as a whole. Third is the work to fight poverty where the World Bank and my colleague, Jim Wolfensohn, will particularly set the stage.
We will certainly here in Prague talk about globalization, its meaning, its opportunities, but also its downside elements. Here, the IMF’s, and my personal, commitment is clear. As you know, the theme of the IMF Annual Report released a few days ago is, and I am quoting, “Making the global economy work for all.” This theme could, and should, be a leitmotiv for all discussions in Prague, of officials, NGOs, the private financial community, and the citizens of Prague, and I particularly also welcome the forthcoming event at Prague Castle, which had been initiated and organized by President Havel himself.
Oil price rises, ladies and gentlemen, certainly cast a new shadow on the economic outlook. It serves as a good reminder that complacency is a powerful enemy of good policies. The balance of risks for the world economy has clearly become a bit less favorable now, but there is no need to dramatize or panic. I do think that the world economy will stay on track, with strong growth.
We also can not be complacent about the stability of the international financial system. There are still vulnerabilities and risks, but there is also good progress in strengthening the international financial architecture. This work on greater transparency, standards and codes, financial sector assessment has borne fruit, but the Annual Meetings should promote, in my view, a sense of urgency to implement these initiatives with even more energy and to set priorities in this work.
My vision of the IMF is founded on two major challenges: first, to adjust the Fund to the changes in global financial markets and focus on its core responsibilities in this context and, second, to make the Fund an active and efficient part of the team to make globalization work for the benefit of all.
I understand the Fund is an open institution learning from experience and dialogue, and this Prague meeting, hopefully, is a major milestone in this dialogue and open discussion with respect to the future role of the Fund.
As you know, and this is my last point on this short introduction, Jim Wolfensohn and I have defined and initiated an enhanced partnership between the IMF and the World Bank, based on a clear sense of our respective foci and of the complementarities of our two institutions. No area of cooperation in the coming month will be more critical than the Enhanced Heavily Indebted Poor Countries’ (HIPC) initiative. We are determined to bring the benefits of debt relief to as many countries as possible, as rapidly as possible, and I do think it should be possible to bring 20 countries up to what we call the decision point by the end of this year. The ultimate test of the success of this initiative is how effectively debt relief contributes to poverty reduction. And, ladies and gentlemen, we should also be clear about one thing. Debt relief is an important element to fight poverty, but it is no quick fix to solve this issue. To make poverty reduction happen in a substantive way, we need to pursue a more comprehensive approach, and I see four main elements for that. First is strong noninflationary growth. Growth is not everything, but without growth everything is much more difficult. Secondly, in this comprehensive approach, we should be more energetic in opening markets for products and services from the developing countries to the developed countries. Third, there is also a need not to forget about official development aid. This should be increased. Fourth, and last but not least, good policies are crucial: an aggressive fight against corruption, bad governance, and armed conflicts in the countries themselves is indispensable to solve this issue of poverty, which is a major threat for peace and welfare in the future. Thank you very much.
Questioner: A question about debt relief and standstills. When granting debt relief, or when agreeing to standstills, how do you safeguard creditors’ rights? And how do you guard against moral hazard?
Mr. Köhler: I think that whatever we do we should have an approach where we understand that the rule of law and the safety of property rights is indispensable to create an environment and a world economy, which at the end is successful, and therefore the question of how we deal with official exposure to poor countries and private exposure to poor countries is a matter in which we should not be inattentive to risks. One of the most important things in order to solve it and at the end have a balanced and sustainable solution is to have a dialogue that also includes private creditors, to talk with them, to know about their positions, and at the end to try to find a solution for solving the problem on a sustained basis.
Questioner: How do you see the world economy from the IMF standpoint in the representation of the European Central Bank (ECB)? Is there room for dialogue, or is it a question for more dialogue in the future?
Mr. Köhler: The European Central Bank has a permanent representative, we call him observer, in the IMF. He is attending our discussions and his contributions to the discussions are valuable.
Questioner: Mr. Köhler, in my country and other developing countries that have been successful in achieving adjustment, adjustment has been based a lot on taxation. In Western Europe now, the oil price increase is feeding a full blown tax revolt. From the developing countries, we always look to what is going on in industrialized countries to see trends. Do you see what’s going on in Western Europe, with protests in cities, et cetera, against taxation as a new trend that could make economic policies more difficult to manage, and what would be, in this scenario, its impact in developing countries?
Mr. Köhler: I do think that your mentioning of the strengths and hardships, as I understand your question, of the adjustment programs in countries like Brazil should be a reminder in the rich countries, in industrial countries, to get to know more about, and to be more aware of, what people in countries undergoing adjustment are seeing imposed on them to a certain degree, but at the end embrace it. This is a point where I particularly also do think that in the industrial countries, the developed countries, there should be more awareness that these countries have embraced change and that, on the other hand, based on this, change in the developing world should not be understood as a one-way street. It should be better understood in the industrial countries as a two-way street, which means that structural change has to be accelerated, particularly also in the developed countries, in order to foster and promote growth, which at the end is deserved in all parts of the world.
Questioner: Mr. Köhler, a two-part question. You mentioned the downside of globalization. Could you tell us what you mean by that, and what your message to the protesters here in Prague will be? Secondly, could you or Mr. Fischer just explain where you are on proposals to change voting rules inside the IMF? Mr. Fischer has proposed some changes and there seems to be some discussion under way. Is there an aim there to make the U.S. less dominant?
Mr. Köhler: First, I should say that when we talk about globalization, we should not forget that it is not a totally new phenomenon. We had a globalized world at the beginning of the last century under the gold standard and, therefore, it is not in principle a totally new thing. In every phase of history globalization, or the interdependencies between countries, peoples and regions has offered opportunities and risks, so also, this is not new. But what we have here at the beginning of this millennium is a new awareness that, indeed, the unprecedented growth in productivity and income after the Second World War left out a huge part of the world — too large a part of the world — and the huge income inequalities in the world are, in my view, a major problem for a good future for this new millennium.
The second point in this remark is that the global economy has, of course, dramatically changed, particularly in the last 10 to 20 years, because of the development of global financial markets in terms of volume, but also in terms of sophistication. We have seen that these global financial markets and capital markets are a strong source of growth, but they are also a source of turbulence and crisis. To promote the former, the potential for growth and productivity, and to contain the risk of crisis and turbulence, that is the issue at stake.
On the voting rules, Stan Fischer has not made any official suggestions, but he can explain.
Mr. Fischer: Actually, a committee was appointed to do a study of the quota formulas for the consideration of the IMF Executive Board. That study has been presented and discussed at a Board seminar, but it did not actually lead to any very concrete proposals and the Board has agreed now to start a work program looking at the implications of that study. It is a very long way from getting to conclusions at this point.
Questioner: Mr. Köhler, what do you expect from the Group of Seven? When you listen to the G-7 these days, you hear that they are dissatisfied with you bringing up the quota discussion in terms of reducing the quota and the votes of the Europeans. Then there is this issue on the interest increase for the lending there. The signals are that there has been progress. Is there real progress? Are you satisfied from the IMF management point of view?
The other issue is on reducing the role of the IMF in terms of a development institution to a more monetary character. There are criticisms that maybe, after you went to Africa and to the poverty stricken areas, you are going too far as a fighter of poverty in the world .
Mr. Köhler: I am listening to everybody, in the sense that I feel myself in charge of an institution which has 182 member countries, and I feel myself obliged to listen to every one of these members. I also would add to this, I owe my duty to the Fund and to no other authority. To listen to the G-7 is of course also helpful, because I do think that they have proven in the past positive leadership and it would be a mistake not therefore to have this good working relationship.
When I took over the job as new Managing Director, I specifically decided to embark on what I call the listening tour. This meant that I traveled to the developing countries and emerging market countries. I traveled to 16 countries in Latin America, Asia, and Africa. I talked with officials; I talked with the business community; I talked with civil society in all these countries. I, of course, also talked to Europeans and to members of the U.S. Congress. I explained my first conclusions out of this to the International Monetary and Financial Committee (IMFC) deputies’ preparatory meeting in London last week. So, all in all, I have gotten a good overview about the issues at stake. In this context, I do think that the direction in which we are to reform the Fund is clearly to be a focused one. This means also to strengthen its monetary character. But, on the other hand, the Fund would miss its obligations if it did not define its role in the context of this major challenge of a global economy not working, up to now, for the benefit of all. We have to find the right balance.
The quota discussion, I think, gets a bit too much nervous excitement in some circles. As Stan Fischer has indicated, this is a process launched by my predecessor, Michel Camdessus, and in this context I would not like to miss the opportunity to thank Michel Camdessus for his leadership over a long period of time, in very difficult times. I personally have not come to the Fund to turn it upside down, but to build on his and the IMFC’s and Stan Fischer’s accomplishments, while being clear that there is a further need for change, and even accelerated change.
The quota issue is now, as we have said, in process. We have the study of the so-called Cooper Group about the quota formula. It will take time, and my advice to our membership and to our Board of Directors is that we should take time. There is no rush, but it is an issue we have to tackle. We should also not only concentrate on voting rights. When I listened to the countries particularly in Africa, I understood, for instance, in very concrete form how difficult it is for an Executive Director for an African constituency to make the countries he represents truly present in the IMF, because the two Executive Directors who hold African Chairs each have to represent 20-some countries. It could be a very practical idea to give these chairs a bit more staff in order to be better prepared and supported in better bringing to the discussions in the IMF the interests and voices of their many countries.
The last part of the question was what about the review of Fund financial facilities and the changes in these facilities and the incentive structure. I am very happy that the review of Fund facilities can be concluded at this Annual Meeting, because the Board of Directors found a common understanding as to what should be changed. In substance, the outcome is very encouraging, because there is now a clear understanding among all members of the Fund and Executive Directors that the revolving character of the Fund’s resources should be strengthened and not weakened. That means that the people are not asking for ever more money from the Fund. They are aware that they have to be really very cautious and very responsible with the resources, and that these are taxpayers’ resources being given to the Fund. So there is now a clear understanding that we should make the best use of Fund resources and the solution for this is that there is a concept for early repurchases after lending and there is also an element of a surcharge, depending on particularly high degrees of access to IMF financing.
The review of the facilities demonstrates clearly that the cooperative character of the Fund is solidly rooted, and I feel that this is a key strength of this institution and its looking to the future.
Questioner: Do you feel that the process by which you were elected Managing Director of the Fund damaged the credibility of the Fund, and are you looking at ways of changing that process?
Mr. Köhler: I do not think that it is appropriate for the elected Managing Director in retrospect again to comment on the selection process. You may know that in my first presentation to the Washington press, I said I had no hesitation that this process should be reviewed, and it is up to the shareholders to do something about that, but I am not going to comment on that. But what I am doing is trying to do a good job and to prove that this Managing Director does his job.
Questioner: One question concerning Russia. What kind of new IMF policy toward Russia could there be, and do you think it is possible to sign a new IMF agreement with Russia by the end of this year?
Mr. Köhler: An IMF mission is in talks with Russia, and it is no secret that we feel that the start of the program that the government of President Putin has put on paper is good, is promising, and we would like to support this start and this program. We are paying more attention than ever to the deeds, and not just relying on the words.
So the implementation of good intentions is the issue and not just the words and paper. We are prepared with the best faith to discuss with the Russian authorities the economic policy and to give good advice, but also there should be a clear understanding that we want to see deeds and concrete progress.
Questioner: If I could ask Mr. Köhler and Mr. Fischer to address this question. You know the list of grievances that have been brought to the table here by people from the outside about NGOs by demonstrators, by members of public, questions about the lack of transparency, environmental degradation that sometimes accompanies projects and programs and funding, too little public participation in the decision-making. What are your plans for addressing those? What reforms will the IMF undertake and how will you go about actually forthrightly and fully addressing what appear to be growing concerns on the outside?
Mr. Köhler: I see here a quite logical link. The first is that it is the IMF’s policy to ask its members, including its program countries, for more transparency and for good governance, and therefore it is only logical that the Fund itself be more transparent and open in its policies. And in this, I hasten to add, a lot has changed since some years ago. I get even complaints that the Fund is now publishing too much and the people are not able to cope with all this information, though it is not an argument against transparency. It is my understanding that the Fund should go even further in opening itself. You may know that just awhile ago, the Executive Board decided, based on a pilot project of publishing Article IV reports, that we are encouraging our members to go public with these reports.
A second element is, as you know, that at the Annual Meetings the Governors will also get a report from the Board of Directors about the establishment of the external evaluation office for the Fund. That means that we are committed to get an evaluation process in the Fund which is independent from management and the staff and which is intended to be quite open, which should help the Fund be even more a learning institution and have a learning culture. The third element is that, wherever I have been in my listening tour, I met people from civil society and I do think that it is not just worthwhile to discuss and have this dialogue, but it really helps to define a better policy. In Africa particularly, I was absolutely encouraged from this kind of dialogue, which was cooperative, never aggressive, and very constructive. I met in London with NGOs. I was here in Prague in the summer and met with NGOs. So I am personally committed to this dialogue. Of course, ultimately the responsibility for decisions of the Board of Directors of the Fund is to its many shareholders.
I would like also to see the shareholders being more clear about this balance between public dialogue, dialogue with the NGOs, and the decisions taken by the Board of Directors, which are taken with the full consent of our member country shareholders.
Questioner: You talked about a comprehensive approach to fight poverty reduction, but despite over 10 years of structural adjustment programs, growth in the poorest countries is still very low and inequality is increasing. Can you tell us how the IMF is now going to achieve strong and sustained growth and how you are going to reform macroeconomic policy so that it has a pro-poor focus?
Mr. Köhler: I would like to join you in saying that strong, sustained noninflationary growth is indispensable for solving poverty. That is clear, and this is the focus of the Fund. I have already said in my introductory statement that I do think that it is an issue which should be also an agreed objective for the Fund’s activities. A more concrete element is that, therefore, I do think that the Poverty Reduction and Growth Facility (PRGF) is rightly an element in the instrument of the Fund and I personally was very impressed, particularly I must say from the visits and talks in Africa, that it seems to me that the concept and the direction of the Poverty Reduction and Growth Facility and the Poverty Reduction Strategy Papers (PRSP) process works because there is now a participatory process whereby official and civil society become aware about the links between economic policy and the social dimensions that you have to invest in in order to get growth. So this is where I feel it is promising.
Of course, after returning from my trips to developing countries, it seems to me that we also should be aware in the long run of the reality that reduced poverty will only happen if there is a process whereby the poor countries get access to the savings and investment capital of the international financial markets. Therefore we have to work patiently and steadily on a process to make not only domestic saving more attractive in the developing countries, but also define a concept where international savings are getting better channeled to the poor countries.
Questioner: You said that the IMF has to adapt to the changes of the world financial markets. Firstly, what changes do you mean? Secondly, should the Fund not be initiating these changes in the first place? Thank you.
Mr. Köhler: The change is that world capital markets, international capital markets, have extremely expanded in volume and sophistication and this is the expansion particularly of the private sector. We have learned that this expansion of private capital markets can do a great job to promote growth, productivity, job creation and income production, and therefore I want to see the Fund working with capital markets and not against capital markets. That means that capital markets should be clear about rules and criteria and that we expect them to make a contribution to the international common good. But on the other hand, I do not see my function, or the function of the IMF, as overregulating or containing the potential of the private capital markets, but better, helping the potential for the good of private capital markets to come to the fore, so that the risks in terms of turbulences and quick reversals of capital flows is contained.
Questioner: Mr. Köhler, yesterday your chief economist told us that he thought currency instability and the weak euro in particular posed a threat to global financial stability and, in essence, called on some concerted action from the G-7 on Saturday at the Ministerial meeting here to intervene on behalf of the currency. Do you share that view? Do you also think that a weak euro is a threat to global stability? Would you like to see some concerted action from the G-7 when they meet on Saturday? And a second question if I might. Since my colleague already asked you about Russia, I would like to ask about Ukraine. What is the chance that you will renew your agreement with them by the end of the year? Are you satisfied about the assurances in the investigation that the Fund’s funds were not horribly misused the last time you made them available to them?
Mr. Köhler: I think there is no doubt, and Michael Mussa expressed it clearly, that the euro is heavily undervalued. In my view, it is also clear that interventions cannot be a taboo, because it is part of the instruments that any central bank or government has available. But interventions, and this is our experience of the 1980s and 1990s, have to work, and this is the issue. Less talk and more coordination and preparation is the issue. But I also think this context gives me the opportunity to say that when I talk about reform of the IMF, I also do think definitely that the Fund has to pay more attention than ever to exchange rate regime arrangements and exchange rate policies and, therefore, no one should be surprised if the Fund speaks about these issues. When I was, for instance, in Latin America, I heard complaints about the weak euro in terms of trade issues, but I do think that Europeans themselves know what they have to do, because there is no doubt that the euro project is a good project. I do think that part of the discussion is a bit overdramatized. My advice is not to dramatize, but to work steadily so that the euro comes back to its external value, which should be based on economic fundamentals. Economic fundamentals in Europe have improved. The Europeans themselves should think very carefully and in depth as to what is behind the weakness of the euro.
On Ukraine, here again, the IMF is also in talks. The misreporting is clearly unfortunate. We expressed it clearly to the officials, but we now also think that we should look forward in our work and should be convinced and assured that the government of the Ukraine is moving to the right policy. That is the crucial issue at the end, to decide whether we are moving back toward the policies of a Fund-supported program. It is not yet solved, but we are committed to solving it.
Questioner: I would like to ask my question in Spanish, please. Thank you, Mr. Köhler. I would like to know your impressions regarding your meetings with the Latin American Ministers and authorities. What is your outlook for Latin America and, in particular, for my country, Colombia? How do you see the follow up to very strict macro policy, and given the internal conflict which exists in my country, Colombia?
Mr. Köhler: Thank you. I traveled only to Mexico, Brazil, Argentina, Chile, and Honduras, so I apologize that I could not in these first four months also travel to Colombia, but this at least gave me a kind of overview. I must say that I was strongly impressed, particularly from the talks in Mexico and Brazil. There is no need in principle to lecture Mexican or Brazilian authorities and governments about what is needed to promote a market economy and democracy and sound policies. You do not need to tell them to be open to free markets, because they are committed to that. They know it and I sometimes had the feeling that we should get some of the spirit of these strong countries in other regions of the world who feel that they know everything about structural change and reforms. But this of course does not mean that the overall picture in Latin America is absolutely settled. You know better than I know that it is a mixture of difficult cases and less difficult cases. We have to continue to work towards a spirit to embrace structural strange, to be more aware also of the social dimension of these structural changes, but at the end this direction pays off. This is my advice to Colombia, but I would like to give Stan the floor to answer some specifics about Colombia.
Mr. Fischer: Thanks very much. There has been significant improvement in the Colombian economy since the start of the program, and we see that particularly in the growth of exports and in the beginning of the recovery of the growth of the economy itself. Obviously, it is not easy for the Colombian government in the current state of civil difficulties with the guerillas and so forth and there have been direct effects on the program, but what we see both with the central bank and with the new Finance Minister, and the old one, for that matter, is a great determination to do what they have agreed to, and it is beginning to work. No question, if the security situation internally would improve that the economy would strengthen, but they are doing pretty well under very difficult circumstances.
Mr. Dawson: There will be one more question after this.
Questioner: Mr. Köhler, you said, when answering a recent question, that the IMF expects more deeds than words in relation to the situation in Russia. Don’t you think that the same could be said about the expectations of civil society in general about the fight against poverty? On the part of the international institutions in general there are more words than deeds until now.
Mr. Köhler: I have no problem in saying yes and, therefore, Jim Wolfensohn and I myself have decided to be very active to accelerate the process of bringing more countries, as rapidly as possible, to the decision point under the HIPC initiative. I think that is very concrete.
Questioner: Mr. Köhler, what would the IMF do concretely to influence the developed countries to increase the market access for the least developed countries and are you sympathetic to the establishment of an Asian Monetary Fund?
Mr. Köhler: The IMF and I myself can speak up to promote trade, and particularly also to promote the opening of markets for products and services from the developing countries to the developed countries. But also, in this context, I would mention that opening of markets in the developing countries will also help, because we have evidence that opening of markets creates more growth and jobs. As to the Asian Monetary Fund, it was, I think, in Asia where I said that I am in favor of regional integration, because in my view regional integration is one of the political approaches to cope with globalization, and therefore I support regional integration. I support everything which helps to promote this integration, and if there are monetary instruments to promote this integration, I am, in principle, not against it. Whatever happens with regional integration, it should be in a complementary approach to the IMF and not in a competitive approach. That is my advice to the Asian colleagues .
Mr. Dawson: Thank you very much.
IMF EXTERNAL RELATIONS DEPARTMENT