The IMF in the Process of Change, Remarks by Horst Köhler, Managing Director, IMF

IMF News, July 4, 2002

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The IMF in the Process of Change, Remarks by Horst Köhler, Managing Director, IMF

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Bibliographic details

• Published: July 4, 2002

Context and purpose

• Remarks delivered before the Treasury Select Committee, House of Commons, London, July 4, 2002.
• Presentation frames ongoing fundamental changes at the IMF following lessons from the Great Depression, the Second World War, and the Asian crisis of 1998.
• Emphasis on making globalization more inclusive and better balancing risks and benefits through international cooperation.

Institutional reforms, transparency, and surveillance

• Near revolution in the transparency of the IMF and in the release of economic and financial data by member countries, a change long championed by the United Kingdom.
• Strengthening of:
  • IMF surveillance and technical assistance as vehicles for crisis prevention.
  • Lending facilities’ roles in crisis prevention and management.
  • Streamlining of IMF conditionality to allow national ownership of reform programs.
  • Cooperation with the World Bank to achieve a good division of labor.
• Development of a comprehensive concept to establish “rules of the game” via universally accepted standards and codes for monetary and fiscal policy, financial supervision, and corporate governance.
• Systematic assessment (with the World Bank) of banking and finance sectors, including supervisory systems and mechanisms for risk assessment and management.
• Implementation of a program for better surveillance of offshore banking centers and active IMF contribution to combating money laundering and the financing of terrorism.

Global economic outlook and risks

• Observation that a global economic recovery appears to be underway (as of July 4, 2002), but with lingering uncertainties and risks:
  • Strength and durability of the upswing in the United States.
  • Financial market volatility.
  • Political tensions in the Middle East and South Asia.
• Call for shifting focus from short-term considerations to tackling underlying economic and financial imbalances.
• Leadership expectations for advanced industrial countries to strengthen prospects for sustained growth and to lead by example.

Advanced economies: policy recommendations

• For the United States:
  • Concern about widening current account deficit and sustainability of capital inflows and dollar asset valuations.
  • Recommendation that the US ensure the budget remains balanced over the medium term to increase national savings.
• For Europe:
  • Potential to raise potential growth rates to 3 percent a year or even more with stronger structural reforms.
• For Japan:
  • Need for accelerated action to dispose of nonperforming loans, deregulate key industries, and restructure banking and corporate sectors despite recent improvement in business activity.

Emerging markets and developing countries: policy guidance

• Recommendation that emerging markets and developing countries stay the course of sound fiscal and monetary policies and structural reform to weather ongoing storms.
• Trade emphasized as crucial for growth; no example of a developing country experiencing rapid growth without strong integration through trade into the world economy.
• Warning against protectionism; Doha Round cited as an opportunity to duplicate growth in trade following the Uruguay Round.

Crisis prevention, crisis resolution, and sovereign debt

• Strengthening IMF surveillance and crisis prevention stated as the first line of defense against external shocks and vulnerabilities.
• Argentina’s crisis highlighted limits of prevention and the need for better sovereign debt restructuring:
  • IMF Management proposed a new Sovereign Debt Restructuring Mechanism as part of the crisis resolution work program.
• Recognition that some degree of overshooting and correction is inherent to market economies, but objective is fewer and less severe crises.

Governance, corporate accountability, and financial sector risks

• Enron collapse and WorldCom scandal underline the need to address risks and vulnerabilities in advanced countries as well as in emerging markets.
• Support for broad discussion and legislative activities in the United States following corporate scandals.
• Call for international review of accounting, disclosure, and corporate governance issues; Financial Stability Forum identified as having an important role.

Poverty reduction, debt relief, and development assistance

• Foremost global challenge identified as poverty.
• Positive appraisal of the Financing for Development Conference in Monterrey for creating common understanding about overcoming world poverty.
• Support for country-led Poverty Reduction Strategy Paper (PRSP) process as a practical approach to combine social realities with hard economic choices and to coordinate external donors.
• Recognition that slow reform progress often reflects limited administrative capacity rather than lack of political will.
  • IMF plans to establish five African Regional Technical Assistance Centers (AFRITACs); agreements signed to establish the first centers in Tanzania and Cote d'Ivoire later this year (2002).
• Debt relief under HIPC:
  • Today 26 countries are receiving debt relief under this initiative, with a total value of over $40 billion.
  • Resulting reduction in debt service payments permitting recipient countries to raise poverty related expenditure, on average, from about 6 percent to 9 percent of GDP.
  • Possibility of topping up HIPC relief where exogenous factors have caused fundamental changes in a country's circumstances (example cited: Burkina Faso).
• Official development assistance:
  • Call for increased official development assistance; target of 0.7 percent of GDP remains an important benchmark.
  • Caution that innovative financing discussions should not obscure the importance of clear, transparent, and accountable official development assistance.
• Trade as the best form of help for self-help:
  • Welcome for EU’s "Everything But Arms" initiative and the African Growth and Opportunity Act (AGOA) in the United States, but assertion that much more is needed.
  • Call for phasing out billions of dollars spent on agricultural subsidies in advanced economies and reducing tariffs for processed goods as benchmarks for a successful Doha Round.
  • Encouragement for developing nations to demonstrate ambition to reduce barriers to trade among themselves.

Outreach, partnership, and implementation

• Praise for African leaders’ commitments under NEPAD to good governance, sound policies, and increased trade and investment.
• IMF and World Bank engagement in practical support:
  • Assistance to African countries (beginning with Ghana) to establish Investment Advisory Councils to improve investment climate.
• Appeal for donors and civil society to support PRSPs and help realize their potential.
• Conviction that citizens in advanced countries will support increased aid if shown evidence that recipient countries are using assistance effectively.

The IMF in the Process of Change, Remarks by Horst Köhler, Managing Director, International Monetary Fund, before the Treasury Select Committee, House of Commons, London, July 4, 2002.

References

• United States and the IMF
• United Kingdom and the IMF
• The IMF and Good Governance -- A Factsheet
• Heavily Indebted Poor Countries -- A Factsheet
• Poverty Reduction Strategy Papers -- A Factsheet
• IMF Policy Advice -- A Factsheet
• Speeches
• PRESS CENTER
• https://www.imf.org/en/home