The Prague Meetings: A View from the IMF
An Op-Ed
By Horst Köhler
Managing Director
International Monetary Fund

Pravo
September 5, 2000

Reproduced with permission of Pravo

In a few weeks, Prague will host a major international event, the annual meetings of the IMF and the World Bank. The meetings will draw delegates representing the governments of our 182 member countries. What brings them to Prague?

First, as they do every year, the delegates will review the outlook for the world economy. The news on this front is good: the outlook is the best we have seen in over a decade.

Second, this will be an appropriate time and place to review the experience of a decade of transition in countries such as the Czech Republic. President Havel said recently that people "often forget what it looked like here before the fall of Communism. How gray life was, how gray streets were ..." What better way to showcase the success of transition than for the delegates to see the new Prague?

Third, the delegates will discuss how the international financial system and the IMF itself should be reformed to the benefit of all.

Pervading the discussions will be issues relating to globalization, which refers to the declining importance of national boundaries, especially in trade and capital movements. This process has accelerated in recent decades. By moving resources to where they can best be used, globalization offers large benefits through improved efficiency and economic growth.

But the benefits of globalization have not been spread evenly, with many of the poorest countries falling further behind the most prosperous. Moreover, international capital movements can be a source of volatility and crisis, as shown, for example, in Asia in the late 1990s. The Czech Republic itself went through a crisis in 1997 that led to a subsequent deep recession. Such crises reflected not just domestic factors, but the challenges posed by the increasing integration of the international financial system. So more needs to be done to make globalization work for all and to better protect countries against its risks.

I see the IMF as a part of the work force to undertake these tasks and to secure shared prosperity in the world. The founders of the IMF 55 years ago gave it the responsibilities of fostering international financial stability and promoting high levels of employment and real income in all countries. In Prague, I will outline my thoughts on how the IMF can more effectively serve these purposes and its member countries.

I believe that a major element of IMF reform must be a sharpened focus on the core purposes and responsibilities of the institution. These are to promote growth by fostering sound fiscal, monetary, and exchange rate policies, and robust financial systems, in its member countries, and global financial stability as well. A sharpened focus on these core duties will increase the effectiveness of the IMF's work for crisis prevention, crisis resolution, and poverty reduction.
A key lesson from recent crises is that, in matters of financial health, prevention is better than cure. The IMF must pay closer attention to weaknesses in financial sectors and external vulnerabilities of member countries, and provide more candid advice to prevent weaknesses from leading to a crisis. It must also continue to promote the application of internationally agreed standards and codes for sound policies, and encourage more data transparency. My ambition is not to have more IMF-supported programs put in place after crises have erupted, but to have fewer crises and programs through early detection of difficulties.

Of course, even with these efforts, we cannot rule out crises. The risk of crises is a fact of life in an open and dynamic global economy. This is why international agencies like the IMF are needed to mount a credible response to crises that do occur. But borrowers and lenders must appreciate that the IMF's resources are and should remain limited. So private lenders must assume greater responsibility for the risks they take and must be involved in the resolution of crises. One of my main objectives is for the IMF to work more effectively with the private sector both to prevent and resolve crises.

What can the IMF do to help its poorer members who are not seeing enough of the benefits of globalization? The IMF's work with these countries is vital because reducing poverty is a moral imperative, and because there will not be a good future for the rich if there is no better future for the poor. Moreover, the work of the IMF, in helping the low-income countries achieve macroeconomic stability and growth, has a major contribution to make to their welfare. The IMF must therefore stay engaged in the poor countries. We will continue to help them through the new loan facility introduced a year ago-the Poverty Reduction and Growth Facility-and by speeding debt relief linked to poverty-reducing policies, through the initiative for heavily-indebted poor countries (HIPC).

The official delegates are not the only ones coming to Prague. The meeting will also draw representatives of civil society, including non-governmental organizations (NGOs). The IMF stands ready to engage in dialogue with them. This is part of our effort to be an open institution and to subject our policies and actions to the scrutiny of all.

I particularly welcome President Havel's initiative of organizing an event at Prague Castle on September 23 to bring political leaders together with representatives of civil society and the financial world. This can send a message from Prague about a new culture of global partnership and cooperation.