Journal Issue

Interview with Horst Köhler: Outgoing Managing Director backs rethink of IMF voting structure

International Monetary Fund. External Relations Dept.
Published Date:
May 2004
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IMF Survey: Your sudden departure has cast a spotlight once again on how the IMF Managing Director is chosen. Is it time to abandon the tradition that Europe holds the top IMF post and the United States the top position at the World Bank? What would you suggest be done?

KÖhler: I support an open and transparent process to select the Managing Director, and I see no reason to restrict the search to a particular country or region. But we must also be realistic: there will always be an element of politics in the selection process because the IMF is an important institution, and its members want, and deserve, a strong say in who is at the helm.

IMF Survey: Governance issues extend beyond the selection process for the Managing Director. Many developing countries have long felt that they don’t have sufficient voice and representation at the Executive Board. You chaired the Board for several years. Are the developing countries underrepresented? What is needed to reach a political solution to address current imbalances in representation?

KÖhler: It’s critical for the IMF to maintain a spirit of consensus and ensure that all members, large and small, feel that they are heard and can say, “Yes, this is also my Fund.” That’s why listening and consensus building are more important than numerical representation. That said, I do see scope for some adjustment in voting shares, for example, by increasing so-called basic voting rights, which would favor small, low-income members, and by raising the share of fast-growing emerging market countries, whose quotas no longer reflect their true weight in the world economy. I also think that Europe, in a bold political gesture, could rethink its own representation.

IMF Survey: Would you favor consolidating the EU’s representation in the Executive Board, currently spread over 10 chairs, into a single EU chair?

KÖhler: This is an issue for the Europeans to decide. The draft European constitution does go in that direction. Personally, I support a vision of an ever closer political union in Europe, and consolidating EU chairs in the IMF’s Executive Board would be consistent with that vision!

IMF Survey: Reflecting on your four years as Managing Director, what would you regard as your greatest successes and greatest disappointments?

KÖhler: It’s too early to come to final judgments on reforms that have been implemented over the past four years, many of which were under way before I arrived. But, overall, I believe the IMF has contributed to stronger global financial stability. Indeed, we should be encouraged by the global economy’s ability to weather successfully a series of severe shocks in recent years. I also see considerable progress in changing the IMF’s image from that of a relatively closed institution to that of a much more open institution. When I first traveled to Africa in June 2000, I met with Ellen Johnson-Sirleaf of Liberia, who said that the IMF, for her, stood for SAD—secretive, arrogant, and dominant. Today, I more often hear from leaders in Africa that the IMF is valued as a partner in the fight against poverty.

IMF Survey: Are you worried that progress toward greater IMF transparency has plateaued with one-fourth of members—including several large countries—still not agreeing to the publication of IMF Staff Reports on their countries? How can the IMF get this moving forward again?

KÖhler: I’m not worried. The progress in recent years has been breathtaking. Most countries now agree that transparency is desirable because they know that if markets doubt the credibility of information, such as statistical information, this just increases uncertainty and risk. The IMF’s policy, rightly, is to continue to encourage and assist its members to be more open, including by agreeing to the release of IMF documents, and I believe it’s vital that countries do so on a voluntary basis.

IMF Survey: Early on, you stressed the need for the IMF to raise its efficiency and legitimacy by refocus-ing its work, concentrating on its core areas of responsibility and expertise. Yet, in some ways, our mandate seems to have broadened even further to include such issues as combating money laundering and the financing of terrorism. How do you see it?

KÖhler: The new responsibilities that the IMF has taken on fall within our mandate of promoting global financial stability, and I believe we’ve ensured that our involvement doesn’t extend beyond our areas of expertise. At the same time, the streamlining of IMF conditionality for loans has helped both the institution to focus on those policies that are critical to achieving a program’s objectives and countries to strengthen ownership of their stabilization and reform policies. There’s been significant convergence on which economic policies are needed to sustain growth and fight poverty; in principle, people have accepted freedom and market economics as the basic approach to prosperity and social stability. But markets alone are no panacea: they need to be supported by a strong framework of rules and regulations and by sound institutions. Building the institutions of a market economy requires national ownership and consensus, not program conditionality.

IMF Survey: How about the IMF’s involvement in low-income countries? Early on, you suggested that this wasn’t a core area for the IMF. But after your first trip to Africa, you seemed to have a change of heart.

KÖhler: We need to understand that we’re living in one world, which is becoming ever more interdependent. The challenge of reducing global poverty is therefore everyone’s challenge because no one is immune from its consequences, including disease, like HIV/AIDS, civil conflict, and international terrorism. I strongly believe that no continent, no country, no people, no culture should feel that it’s isolated or not part of this one world. That is why I’ve always strived for evenhandedness in the IMF’s approach, focusing on the problems of all of our member countries, regardless of their stage of economic development.

As for Africa, on my first trip there, I was struck by the dignity of the people, especially the women, and their determination not to let themselves be crushed by poverty and hardship but rather to improve the lives of their families. I do think that the IMF—with its focused approach—can contribute to the fight against poverty. Of course, we’re not alone in this effort, and we need to work closely with others, especially the World Bank.

IMF Survey: The crisis in Argentina arguably represented the most difficult one the IMF faced in recent years. The IMF has been criticized for being too supportive of economic policies that, in hindsight, proved unsustainable in 2001. And the current economic program supported by the IMF has been perceived by some as falling short of what is needed to tackle fully Argentina’s problems. How do you feel now about the IMF’s involvement with Argentina?

KÖhler: I think it is premature to come to a definitive judgment on our involvement with Argentina. A process of internal reflection is still going on, and the forthcoming report by the Independent Evaluation Office will also help the institution draw lessons from this experience. Of course, I feel sorrow that the IMF was not able to help avoid the crisis in 2001 and spare the Argentinean people all the trauma, hardship, unemployment, and poverty. But the roots of the crisis clearly lay very deep and extended well beyond the realm of economics. Looking ahead, the solution therefore cannot lie in simply more economic adjustment. We need to think in broader terms than just the growth rate and the size of the fiscal deficit. President Nestor Kirchner has said he wants to make Argentina a “normal” country again. I think we should give him credit for making significant progress in that direction: Argentina is experiencing a remarkable economic recovery, stronger and longer lasting than many had expected, and the government has drawn up a program of structural reforms. And I also believe the IMF deserves some credit for supporting Argentina in these difficult times and playing its part in helping Argentina regain the road to stability and rising living standards.

IMF Survey: Looking ahead, if elected, how would you like to shape your role as president of Germany?

KÖhler: The president of Germany has a defined role in the constitution, which is mainly a representational role. He has no executive power—that is reserved for the chancellor and the political parties. On the other hand, the president isn’t totally powerless. His power is the good argument, the capacity to see the big picture. But I also want to help find concrete answers to the key issues facing society. The president could and should speak up, and I will do so!

IMF Survey: You’ve been a strong supporter of the Monterrey Consensus, which calls for developing countries to adopt sound economic policies and improve governance and for developed nations to open up their markets and boost foreign aid levels. Would you use your new post to push these issues higher on both Germany’s and Europe’s political agenda?

KÖhler: Monterrey is a major step forward because it marks a global consensus on the strategy to fight poverty. I won’t forget what I said as Managing Director, and I won’t change my mind as president of Germany because it’s also in Germany’s long-term interest to be an advocate of the Monterrey Consensus. Germany is an open, export-oriented country, and its prosperity can be sustained only if there is peace, freedom, and political stability in the world—and for that to happen, poverty needs to be reduced.

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