Transcript

International Monetary Fund
Wednesday, April 17, 2002
National Press Club
Washington, D.C.

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MR. AUBUCHON: Good afternoon and welcome to the National Press Club. My name is John Aubuchon. I'm senior correspondent for Maryland Public Television, and I'm President of the National Press Club.

If you have questions for our speaker, please write them on the cards provided at your table and pass them up to me. I'll try to ask as many as time permits.

When Horst Köhler spoke here in August of 2000--and that was his first major address in the United States--I introduced him as the chief of the international financial fire brigade. Well, the firefighters have been busy since then, have they not, Mr. Köhler? The most recent blaze on his hands is in Argentina, where Köhler is demanding more and deeper reforms while pledging to work with the government to pull Argentina out of its default crisis. But the current menu includes, I believe, financial difficulties in Turkey, in Sri Lanka, in Indonesia, and many, many more countries.

Mr. Köhler came to his job in March of 2000 with an IMF reform agenda and a promise to open a dialogue with its critics. He has pushed in both of those directions, but the critics are still pushing back. And since last November, the IMF and the Bush administration have been pushing back and forth over an IMF proposal for an international bankruptcy court to protect countries in default from threatened lawsuits by creditors. It was an idea Treasury Secretary Paul O'Neill urged Köhler to develop. But then O'Neill backed away from its strong protections. A weaker, less sweeping U.S. alternative is on the agenda for IMF's Washington meeting.

And protesters have the IMF on their agenda, insisting that the debt service the IMF and the World Bank require serves to drive poor nations deeper into poverty. There is a companion to that argument, a Bush administration proposal to change half of the World Bank's loans to the poorest nations to outright grants.

Mr. Köhler has not ignored poverty issues. In fact, quite the contrary. In a Washington speech in January, he observed that the disparities between the world's richest and poorest nations is wider than ever, and he called that a threat not just to peace and stability, but also the world's greatest moral challenge. And he chastised the developing world: "It is inconceivable of the U.S., Japan, and the EU," he said, "to spend hundreds of billions of dollars on maintaining marginal activities for the benefit of a few of their citizens while the devastating manufacturing and agricultural sectors that are central to peace and development in poor countries remain undeveloped."

So we'll see if he brought his "No More Subsidies" protest sign with him today. Ladies and gentlemen, please welcome Horst Köhler, Managing Director of the International Monetary Fund.

[Applause.]

MR. KÖHLER : Thank you, John, for this nice introduction.

Speech: "Promoting Sustained Growth and International Financial Stability" [full text available]

So, ladies and gentlemen, I am ready and happy to take your questions. Thank you very much.

[Applause.]

MR. AUBUCHON: Thank you very much, Mr. Köhler. Have they reviewed this at the U.S. Treasury Department?

MR. KÖHLER : It's brand new, so--

[Laughter.]

MR. AUBUCHON: Are you any closer to reaching a confluence of views with the U.S. Treasury Department on that issue?

MR. KÖHLER : I think we are in a really good process of work discussion and identifying issues and open questions, a really good working process. There is no quick fix. I think that the questions raised by the U.S. Treasury are more helpful than they are detrimental to this project. And I hope, based on this booklet, but also on our further work process, that we will come together with U.S. Treasury to a good solution.

MR. AUBUCHON: You mentioned a more optimistic outlook for the world economy at the beginning of your speech. Of course, I note that the report is to be issued tomorrow. Nonetheless, the German business newspaper Handelsblatt, quoted by Reuters, is saying that the global economy, according to the IMF, now should grow a 2.9 percent rather than 2.7, that in 2003 you see the global economy growing 4.1 percent, the U.S. economy up 3.4 percent. Are these figures in the ballpark?

MR. KÖHLER : These figures are not correct. I'm, of course, joking, but with a grain of salt. We gave these figures out in order to test where is the leak.

[Laughter.]

MR. KÖHLER: The numbers are not quite precise, but the general direction is right. We expect really a better number for the global economy -- and I think can I say only this number today --- it's not 2.9, but 2.8 for the global economy. The other numbers for the U.S., for Germany are not changed, but the major message is that there is a recovery, there is even some consideration that the numbers could go up further. My advice is to be optimistic, but also have a bit of guarded optimism because, as I said, and hinted before, there are still some risks around, and therefore we should be prudent.

MR. AUBUCHON: You mentioned that you are conferring, perhaps not hourly, but several times a day with your people on the scene in Argentina, who are attempting to negotiate agreements, reforms there so that the IMF might complete its commitment to assist. The Argentine Minister of Economic Affairs, according to this questioner, has said that state reforms asked for by the IMF means firing 450,000 people which he says is crazy, and he wants an easing of demands.

First of all, is what has just been said accurate? And, second, how do you go about meeting these political pressures from within a country? I mean, any government that had to fire 450,000 people would be out the door.

MR. KÖHLER : Well, I said already in my speech that the Argentine situation is a very, very complex situation. In order to contribute to find out how we can help Argentina, I do think that to begin with, nobody should feel comfortable about what happened in Argentina, and I include myself and the IMF in this feeling. There is no good feeling. But, on the other hand, we need to face reality because there is no institution which can print money. We are still living on the verge of scarcity.

I think there is meanwhile no dispute that the core problems in Argentina are homegrown and therefore the key of finding a way out of the crisis will be an Argentine effort. You also want political unity to find the right way, but the right way certainly will not be a way which makes it easy for the people, and I am saying this again with a lot of concern, but I have no better advice. That means there is a need for correction to adjust to less prosperity, less wealth in this country, and that means it will have also an impact on workers.

There will, I would not exclude it, there will be layoffs, but there is no choice, and I think if the Argentines can pull together, as I think this is needed, and the authorities can agree with us on something which is comprehensive and paves the way out of the crisis, the workers, the poor, the less-rich people will also, after some time, get the benefit of this.

Because when growth comes back, if there is again trust in the institutions, in their parliament, in their judiciary, in their legal framework, I have no doubt that investment will come back to Argentina because, in principle, Argentina is a rich country. It has a lot of natural resources. Why shouldn't it get out of this mess? Why shouldn't it have the potential to go in a development like Canada? I am here absolutely optimistic.

And to the Argentines, the lady from Clarin, I must tell you, I don't think they are less intelligent than Germans or U.S. citizens. So they should pull together, try to swallow some kind of bitter medicine. I have no doubt, at the end, it will pay off for the Argentine people.

MR. AUBUCHON: One specific Argentine issue, perhaps one that is less emotional, but nonetheless complex, regarding Argentina, "Apparently," the questioner says, "an important source of the troubles is or was the unfettered spending by the provincial governments. Has progress been made on this difficult issue?"

MR. KÖHLER : This is, indeed, part of the core problems. It was clear that fiscal profligacy, which is at the heart of the problems in Argentina, was in particular exercised at the provincial level. That is reality, and the Argentines, and the governors of the provinces have to face this reality. And there is no way out, but to bring back fiscal discipline, particularly to the provinces.

There is a deal between the provinces and the Federal Government. What the IMF is saying is that this deal, this pact, has to be implemented. I am not going in details now about the talks, but I think if the provinces can agree on being part of the solution, I am optimistic that we can also agree that at the end the Fund will come up with its support.

MR. AUBUCHON: Before touching on broader policy questions, permit me to visit several specific countries and related. Is Brazil safe from the consequences of the crisis in Argentina?

MR. KÖHLER : It is always a matter of definition of what is "safe," but I think what we should be happy, first, to recognize is that Brazil has nearly totally decoupled from financial contagion from Argentina, and this is due because the Brazilians did a very good job, with sound policies.

And I have a lot of confidence that this good track record and the commitment of the current government, and even more so the experience the Brazilian people have had with more order in the fiscal, in the monetary and with structural reforms at the end bringing growth and jobs, that there will not be a major risk of contagion from Argentina. So I have a lot of trust in the Brazilian economy and also on its policy fundamentals.

MR. AUBUCHON: Two related questions concerning Japan. One asks you to assess the risk that Japan's recession will degenerate into a full-fledged financial crisis. And the next natural follow-on to that, what are the global implications if that would happen, if that were to happen? If Japan fails to tackle its banking and domestic consumption problems, what are the risks to the global financial system?

MR. KÖHLER : Well, I said already that Japan or the status of the Japanese economy is a point of concern, serious concern. On the other hand, we should also avoid, say, exaggerations or even dramatizing things. We should not forget, first, that Japan still, in terms of the balance of assets and liabilities, is a very rich country. They are still a net claimer to international property.

Second, I think what is good, there is a recognition of their problems in their political system, and there is a Prime Minister who clearly wants to organize change. It is obvious that the political system is very difficult to handle change, and certainly we have to recognize and really recognize it without, say, a particular negative tone that change in Japan may take longer than in, for instance, the U.S. or even in Europe. We should have some respect, also, for the culture identities of societies.

But on the other hand, we need to permanently--and very candidly--give them advice as to what to do, and this is what the IMF is doing. We are in the process of having a financial sector assessment program with Japan, where we, together with Japanese authorities, very comprehensively review weaknesses and strengths of their financial sector.

I think this process, plus the already taken positions to better classify nonperforming loans, all of this goes in the right direction. The message of the IMF and of the international community, with all due respect for their specifics, is that, nevertheless, they should do more, they should be more ambitious, they should get more rapidly to decisions.

MR. AUBUCHON: Turkey is now a year out from its larger financial crisis. When do you think the Turkish economy's delayed recovery can resume growth, and is their 3-percent growth rate target possible for this year? And one step further, what's the most urgent action they need to take now?

MR. KÖHLER : The most urgent and the most important action is just to implement what they have agreed on their program in cooperation with the IMF. Because, again, the issue is not so much their weakness or their assets. The issue is confidence that they implement the needed reform program. And it is not so an issue that the quarterly data behind the [inaudible] is getting in or getting out. It is more important is that they implement consistently what they agreed with us.

Based on this, I, in principle, have no doubt that they will recover. There are first indications even for production. We have a fabulous, good track record for the interest rates coming down, the exchange rate getting back to strength.

Now, we are even concerned that it may be too strong sometimes. The doubts are whether the political system has the persistence to implement the needed reforms, and second we have also to be frank. Of course, the debate about the oil price, and the political uncertainty related to the Middle East developments, doesn't make it easier for the Turks to handle their economy and their crisis.

So we should not be arrogant. There was a setback for Turkey with September 11th. The new uncertainties around the Middle East developments is a kind of new risk, but I am very confident that this reform program will be implemented so that the recovery will not be derailed, and I expect still for this year a positive growth rate of 3 percent. It is possible.

I know that there are a lot of concern about unemployment, job losses, but I can say, again, that here it is partly the unavoidable price for a lot of misbehavior in the past. It is a strong point from our side, but really also from my side the Turkish economy is doing better if there is less political interference, and therefore there is a need to recognize also some increase of unemployment, but there should be also the communication to the people. At the end, they have better jobs, more jobs, if they implement this program.

MR. AUBUCHON: You strongly restated your position on selective tariffs, selective subsidies and free trade during your remarks, but I am going to ask you specifically to address the policies of the Bush administration in tariffs, selective tariffs against Japan and Europe in the area of farm products, certain farm products, timber, steel.

MR. KÖHLER : You are not making it easy for me.

[Laughter.]

MR. KÖHLER : I would like to start, first, with a more principled comment, and this is that we may not like what happens in the U.S. sometimes, but there is no other nation which stands up, regardless of who runs the administration, be it Bush or Clinton, which stands up to free trade and liberalized markets, and this is good, in principle.

My second remark is, of course, and I say it frankly, that I regret the steel decision. I regret it. Of course I would have wished a different decision. But I would like to see the Europeans react in a mature way and think twice before moving into retaliation. If they avoid retaliation, this may give them even more impact on the talks in the WTO, in the World Trade Organization.

My third remark is that the big issue are indeed the subsidies for agriculture, for cotton, for sugar, for citrus fruits and so on. Ladies and gentlemen, I am deeply convinced, if there is leadership, and we need leadership, to tackle these subsidies, we will create a better world. Because whatever we do with poor countries, give them debt relief, even debt cancellation, that will not do the job of bringing them out of poverty. We need to have a concept which helps them to help themselves, and that is trade. It is really devastating, when I travel, to talk to people--be it in Central America or in Mali or in Indonesia--it is really hard to hear how these people complain about double standards in trade. Therefore, I wholeheartedly am an advocate for less subsidies in these particular important areas for poor countries, and that is agriculture, textile, cotton, citrus fruits, and so on. And I am appealing to the rich countries: open your markets. At the end, it will pay off for the American people.

MR. AUBUCHON: Mr. Köhler, we have time for one more question. As a final question, let me ask you to deliver a personal message to the protesters who will be in the streets this weekend. Many are going to be concerned with other issues, but at least a small portion of them are there specifically because they don't like what the IMF and the World Bank have done and are doing.

MR. KÖHLER : Well, my message to the demonstrators is, first, we recognize in the IMF that we have made mistakes. We are in the process of learning. Second, we are absolutely prepared-and I do think this is to our advantage--to listen to the demonstrators, to NGOs, to be involved in this dialogue. Third, at the end, I do think that they should also recognize, the demonstrators, that there is a process of change. We need to have, on the other hand, patience, and on this basis I would also appeal to them to demonstrate, to say clearly what they like, what they dislike, but be prepared with us to discuss, to have a dialogue, but be peaceful. It will have more impact.

MR. AUBUCHON: Thank you very much, Horst Köhler, Managing Director of the International Monetary Fund.