Transcript of a Press Conference by Dominique Strauss-Kahn, Managing Director-designate of the International Monetary Fund, with Masood Ahmed, Director, External Relations Department, and Saleh Nsouli, Director, IMF Office in Europe

IMF News, October 3, 2007

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Published: October 3, 2007

Appointment and immediate context

Dominique Strauss-Kahn was appointed Managing Director-designate of the IMF by consensus of the Executive Board following an open and competitive process.
Nomination details:
- Term length: five years, beginning on November 1, 2007.
- Campaign travel: traveled more than 60,000 miles meeting leaders of major member countries.
Transitional remarks:
- Executive Board, Management, and staff intend to ensure a smooth transition until arrival in Washington.
- Strauss-Kahn emphasized the need for relevance and legitimacy of the Fund in a changing global economy.

Reform objectives and approach

Overarching reform goals:
- Make the Fund both relevant (adapt policies to today's problems) and legitimate (reflect new balance of power).
- Reformulate Fund policies to promote growth, the highest levels of employment, development of trade, and financial stability (citing Article I of the Articles of Agreement).
Process and timetable:
- Strauss-Kahn sketched reforms but declined to define detailed plans unilaterally.
- He intends to develop detailed reforms in consultation with staff, Management, and the Executive Board.
- He deferred specific timing, noting ongoing negotiations on quotas by Rodrigo de Rato and the importance of outcomes before the Annual Meetings in late October.
- Formal policy positions to be stated after taking office on November 1, 2007.
Strategic emphasis:
- Shift emphasis rather than seek a radical break; adapt the Fund to contemporary financial crises (e.g., subprime-related turmoil) and the broader scope of global financial challenges.
- Prioritize surveillance, advice, crisis avoidance, and ensuring robust growth and employment.

Quotas, representation, and legitimacy

Key framing:
- Quota reform is essential to legitimacy because emerging economies (Brazil, India, China, South Africa, Mexico, others) must have more voice and representation.
- Strauss-Kahn described quota allocation as effectively a zero-sum game (shares must sum to 100 percent).
Specific numeric references and examples:
- Brazil's current quota: 1.4 percent.
- Possible incremental increases mentioned illustratively: 0.2, 0.3, 0.4 percent (as examples of what Brazil's quota "could and should increase" by).
- Even after increases to "1.6, 1.7, or 1.8 percent" Brazil would still be under-represented relative to its global weight.
- Strauss-Kahn observed that most quota formulas yield an increase for the United States rather than a decrease; the United States has indicated it does not want to increase and would accept reverting to pre-Singapore shares.
Political feasibility:
- Some countries (notably certain European countries and Russia) will need to accept transferring part of their quota to emerging economies to achieve rebalancing.
- Strauss-Kahn saw it as a central task (with staff and Board) to secure agreement among these countries; he emphasized that no solution exists without such transfers.

Financing, income model, and institutional efficiency

Revenue challenge:
- Current IMF income derives largely from the spread on lending; as lending decreases, Fund income falls.
- Need for a "permanent and steady-state financing system" has been examined (reference to the Crockett Report directed by Sir Andrew Crockett).
Possible revenue and cost measures discussed:
- Options include using gold reserves, altering revenue from Fund assets, and limiting or decreasing expense growth.
- Strauss-Kahn stated: "95 percent of what is written in the Crockett Report is not a problem for me," while noting a slight difference on one specific point.
- He indicated gold sales are possible but not sufficient alone.
- Institutional downsizing and refocusing on core functions were raised as legitimate options; internal management has already launched measures toward expense control.
Operational location and staffing:
- Moving out of Washington or reducing headcount were mentioned as possible elements of cost-efficiency, but Strauss-Kahn advised a detailed, case-by-case approach rather than blanket percentage cuts.

Regional priorities and relationships with member regions

Latin America:
- Acknowledged widespread mistrust of the IMF in Latin America rooted in past program designs (including Argentina).
- Noted widespread support from Latin American representatives for his candidacy, reflecting hope for different Fund policies.
- Emphasized adapting Fund policies to help people and avoid "unbearable remedies."
Africa:
- Noted African growth around 5 percent (described in question framing) and acknowledged uneven distribution of gains across countries.
- Argued against a "one-size-fits-all" approach; called for policies tailored to historical, cultural, demographic, and political contexts.
- Called for greater diversity among Fund staff to improve understanding and representation of African countries.
Asia and China:
- Observed emerging countries will likely drive world growth and stressed their greater role in decision-making.
- On the renminbi (yuan): said valuation is a topic for multilateral discussion; cautioned against bilateral acrimony between the United States and China and advocated multilateral debate and solutions.

Global outlook and threats

Growth outlook:
- Strauss-Kahn judged world growth foundations "currently solid" due to accumulated profits and structural adjustments.
- He expected emerging countries to drive growth and anticipated that by end-2008 the world growth rate "will still be very respectable."
Risks and recent financial tensions:
- Noted the summer's crisis originating with subprime mortgages and its transmission into the banking sector, citing Northern Rock in the UK as an example.
- Stated central banks have taken actions and the situation appeared "under control," while acknowledging uncertainty about short-term developments.
Institutional role:
- Emphasized the Fund's preventative role—success in crisis avoidance can render its contributions invisible—and the need to ensure adequate resources and credibility for surveillance and crisis prevention.

Coordination with other multilateral institutions

Boundaries and cooperation:
- Acknowledged overlaps with the World Bank, UNDP, and WTO but argued overlaps are manageable and coordination is desirable.
- Identified complementary mandates: World Bank focuses on project financing and long-term structural issues; IMF focuses on macroeconomic balance, fiscal and foreign exchange issues.
- Expressed intent to work closely with counterparts (e.g., World Bank, UNDP, WTO) rather than seeking hegemony.
Outreach priorities:
- Three stated priorities for outreach: cross 19th Street (to the World Bank), cross the equator (to Latin America), and cross the Pacific (to Asian countries).

Governance, values, and personal stance

Political background:
- Strauss-Kahn identified himself as a Socialist but stressed that this has no adverse implication for IMF leadership; described himself as a "free-market socialist."
Social justice:
- Argued there is no contradiction between economic growth and social justice; both are mutually reinforcing and should be central to IMF policies.
- Emphasized adapting corrective policies to account for social impacts and the "happiness of the people."

Transcript of a Press Conference by Dominique Strauss-Kahn, Managing Director-designate of the International Monetary Fund, with Masood Ahmed, Director, External Relations Department, and Saleh Nsouli, Director, IMF Office in Europe (October 1, 2007).