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

_IMF News, July 4, 2002_

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## Bibliographic details
- Published: July 4, 2002

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### 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.*

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## References

- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)
- [The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)
- [Heavily Indebted Poor Countries -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/debt-relief-under-the-heavily-indebted-poor-countries-initiative-hipc)
- [Poverty Reduction Strategy Papers -- A Factsheet](https://www.imf.org/en/about)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp070402_