## Transcript of a Briefing by Horst Köhler, Managing Director of the International Monetary Fund at the Council of Foreign Relations, Washington, D.C.

_IMF News, September 19, 2002_

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## Bibliographic details
- Published: September 19, 2002

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### Overview
- Event: Briefing by IMF Managing Director Horst Köhler at the Council on Foreign Relations, Washington, D.C.
- Date: September 19, 2002
- Theme: "Investing In Better Globalization"
- Moderator: Richard Fisher, Managing Partner, Kissinger McLarty Associates
- Context: Remarks and audience Q&A touching on IMF strategy, conditionality, transparency, social safety nets, capital account policy, country cases, and institutional roles.

### IMF role in a changing global environment
- Key observations:
  - Bretton Woods institutions remain important "formidable piers in a turbulent sea."
  - The IMF prepares for its 57th Annual Meeting to address international solvency procedures and financial stability.
  - Global environment described as turbulent with many long-standing assumptions altered.
- Manager’s stance:
  - IMF "has a lot to learn" (cited from Horst Köhler’s article in the Financial Times, September 11).
  - The IMF should provide rules, regulation, and guidance to markets, not merely rely on market outcomes.

### Social safety nets and fiscal discipline
- Main points:
  - Social safety nets should be established early—before crises occur.
  - In crises, tough choices are unavoidable; objective is to restore sustained growth which eases financing of social safety nets.
  - Policy: do not cut well-established social safety nets; they should be the last resort when regaining fiscal solidity.
- Practical implications:
  - Argentina example: lack of prior consistent social safety-net building made fiscal adjustment appear as cutting social protection.
  - Early and consistent reforms are emphasized.

### Capital account openness and sequencing
- Assessment:
  - The rapid opening of capital accounts in parts of Asia contributed to the Asian financial crisis when domestic financial infrastructure was weak.
  - Lesson: do not rush capital account liberalization; use a sequenced approach tied to domestic regulatory, supervisory, and local capital market development.
- Policy implication:
  - Build local financial markets and strengthen domestic financial institutions before full capital account convertibility.

### Transparency and disclosure
- Observations:
  - IMF increasing transparency; progress is work in progress.
  - Two driving forces for transparency:
    - Market demand for reliable, transparent data.
    - Domestic political demand (parliaments, publics) for openness.
- Tensions and balances:
  - Need to balance disclosure of market-sensitive information against potential damage to countries’ reputations and market stability.
  - Preference for voluntary approaches to advance transparency (example: China joined the IMF's Special Data Dissemination System).

### IMF relationship with industrial countries
- Leverage and influence:
  - IMF has more leverage when members seek its financial support; less leverage over industrial countries that do not need IMF borrowing.
- Role emphasized:
  - Create awareness of inter-connectiveness of policy issues (financial markets, environment, migration).
  - Engage in dialogue with major shareholders on fiscal deficits, current account deficits, and structural reforms (examples mentioned: U.S., Europe, Japan).
  - Persuasion and cooperation rather than coercion are the practical approach.

### Financial inclusion, technical assistance, and investor engagement
- Initiatives:
  - Poverty Reduction Strategy Paper/Process: IMF focuses on macroeconomic stability while the World Bank leads institution building.
  - Private Investor Advisory Councils initiated by Köhler and set up in Tanzania and Ghana to connect business leaders with high officials about investment climate.
  - Regional Technical Assistance Centers established in IMF core expertise areas to address capacity constraints in administrations.
- Rationale:
  - Access to private capital markets is essential; official development aid alone is insufficient.

### Conditionality, sequencing, and program design
- Critiques acknowledged:
  - IMF labeled by some as "SAD" (Secretive, Arrogant, and Dominant).
  - Conditionality has at times been too ambitious or poorly sequenced.
- Reforms in approach:
  - Reduce and better tailor conditionality to areas where IMF has expertise.
  - Sequence structural reform demands to align with countries’ political processes and implementation capacity.
  - Where conditionality is indispensable, maintain clarity on implementation requirements.

### Governance, political dimensions, and institutional capacity
- Framing:
  - Many development challenges (governance, civil society, transparency, poverty) are as much political as economic.
- IMF capacity:
  - IMF focuses on macroeconomic, financial-sector, exchange rate, and monetary-policy expertise.
  - Institutional collaboration is necessary: IMF to coordinate with World Bank and United Nations on complementary roles.
- African perspective:
  - Recognition of African-led agenda NEPAD (New Economic Partnership for Africa's Development).
  - Emphasis on self-responsibility (good governance, rule of law, conflict resolution, anti-corruption) as preconditions for external support.

### Country examples and outcomes
- Turkey:
  - IMF highly exposed but Turkey has implemented an ambitious reform program: fiscal consolidation, banking-sector cleanup, decoupling politics from economics.
  - Results noted: inflation falling more than expected under the program, exchange rate stability, lower interest rates, growth recovering.
  - Upcoming parliamentary elections expected in November will clarify political support for continued reforms.
- Africa successes:
  - Countries cited with progress: Tanzania, Mozambique, Uganda, Cameroon, Benin, Ghana.
  - Success linked to IMF engagement on poverty reduction strategies combined with domestic commitment to governance and reform.

### Reflections on leadership and institutional role
- Horst Köhler’s view:
  - IMF Managing Director role is "the most fascinating" among prior public jobs; requires comprehensive, "eyes-open" attitude under intense public scrutiny.
  - Acknowledgement of pressure: "six billion people, so you have 5.99 billion people who know everything better."
- Closing assessment:
  - The IMF should focus on areas of core competence, promote sequencing and ownership of reforms, support transparency, and collaborate with other institutions to make globalization benefit the poor.

*Transcript of a Briefing by Horst Köhler, Managing Director of the International Monetary Fund at the Council of Foreign Relations, Washington, D.C., September 19, 2002.*

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## References

- [Ghana and the IMF](http://www.imf.org/external/country/GHA/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Republic of Türkiye and the IMF](http://www.imf.org/external/country/TUR/index.htm)
- [United Republic of Tanzania and the IMF](http://www.imf.org/external/country/TZA/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Argentina and the IMF](http://www.imf.org/external/country/ARG/index.htm)
- [Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)
- [Republic of Mozambique and the IMF](http://www.imf.org/external/country/MOZ/index.htm)
- [Conditionality](https://www.imf.org/en/about/factsheets/sheets/2023/imf-conditionality)
- [The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Text of speech](https://www.imf.org/external/np/speeches/2002/091902.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr020919_