Brown: I want to report on what has been a very useful and productive meeting. In his first meeting as Managing Director, Horst Köhler set out his vision for the future of the IMF. He set out his plans for reform and for achieving progress in crisis prevention and crisis resolution and also in the relationship between public and private sectors in dealing with these issues. He also noted the progress with the HIPC [Heavily Indebted Poor Countries] debt-relief initiative.
I want to draw your attention to three of the issues that emerged during the course of our conversations today. We started with a review of world economic developments and looked at issues on each continent and also at the vulnerabilities in the financial sector and elsewhere, and how we can measure these risks and opportunities. We noted that we had the highest growth rate in the world for 12 years. But we are not complacent. The first issue that concerned us was external imbalances, and the potential challenges include imbalances in external accounts, the possible risks from misalignments in exchange rates, and the high levels of equity valuations in the major currency areas. We have examined these issues today in the context of the ECB [European Central Bank] intervention that took place on September 22 and, also, the long-term commitments to economic reform made by the euro area.
Second, we looked at the strengths of financial sector reform in relation to potential vulnerabilities, not least in emerging markets and developing countries. We noted the progress that has been made but also the progress still to be made in these areas.
The third issue was the current level of oil prices. The IMF has the great benefit of representing 182 nations. We had at our meeting today oil producers as well as oil consumers, rich countries as well as poor countries, and we found that there was common ground on several main issues relating to oil prices. First, oil producers and oil consumers agreed that there is a need for stability. They agreed, second, that there must be reasonable oil prices and, third, that there had to be an improved dialogue to look at issues relating to stability between oil producers and oil consumers.
Köhler: I am very satisfied with my first IMFC meeting. I think that, after this Annual Meeting, the IMF will be strengthened in its capacity to prevent crises and manage crises if they occur. And I am personally very satisfied, because the main ideas of my understanding, or my vision, of the IMF have been strongly endorsed by the Governors.
Brown: We looked at what would happen if current oil prices remained. We had information prepared by the IMF about the effect on growth. Clearly, this is a problem affecting the developing countries, and it will affect the heavily indebted poor countries as well. It is also a problem affecting the industrial countries, as we have seen from events in America, Europe, and elsewhere.
Köhler: We talked a lot about this because it is part of the process of multilateral surveillance. In my view, surveillance is one of the most important tasks that the IMF has to do. To conduct these discussions in the IMF means also that we have a membership where oil producing countries are involved in this debate. Based on today’s discussion, I am encouraged that a dialogue will develop that will help us to define common interests for the global economy The oil producing countries are well aware of their responsibility for the global economy and particularly of the impact of these oil price hikes on the poor. Some countries have been very happy that we also had an exchange of views about the exchange rate misalignment. There was a bit of a debate in the run-up to today’s meeting. I think the fact that the ECB acted, intervened, and coordinated—and that the IMF made clear that the euro is undervalued—was very much appreciated by many Governors.
Question: India has questioned the one-size-fits-all approach to the observance of standards and codes.
Brown: While we must be sensitive to the problems countries face in introducing codes and standards, there’s general agreement that greater transparency and greater surveillance are the way to ensure that the international economic system has a sounder and more effective base. Indeed, Horst Köhler made it a centerpiece of his proposals for the reform and improvement of the IMF. I believe, again, that common ground is being achieved.
If there were a sustained high level of oil prices, then we would have to look at what the IMF could do, particularly for heavily indebted poor countries. But it is also important to recognize that the level of oil prices at the moment—which has gone from $11 to more than $30—is itself a problem that must be dealt with directly. This view is shared by members of the IMFC, who agreed on the need for stability, a reasonable long-term price, further steps that have to be taken, and an improved dialogue to promote greater oil stability.
Köhler: First, we should give the HIPC [heavily indebted poor countries] the debt relief that is promised. This is why Jim Wolfensohn and I decided to accelerate the process, bringing a further 10 countries to the so-called decision point by the end of this year. Debt relief is an important part of a comprehensive approach to combat and reduce poverty. The other elements of this approach are, first, to promote strong, sustained growth and to open markets to the products of developing and emerging market countries so that they can help themselves. I always tell Governors that they should also try to better convince the public in their home states to deliver more on official development aid. And, finally, if what we do is not based on good policies in the poor countries, it will not help. I also would like to add that debt relief cannot be a quick fix for everything. We particularly have to be careful not to destroy a credit culture that is needed for the long-term effort to combat poverty, because to combat poverty means that we need to organize savings also from international markets and to channel the savings into investments. To do this, you need to use credit instruments. Credit means that you trust the debtor to pay back his obligation.
Köhler: The vision I outlined was based on a considerable number of discussions, meetings, and travels. I spoke with academia, developing countries, and shareholders. I took into account all the discussions. I particularly listened to the membership of the IMF and to developing and emerging market countries, because they are the recipients of IMF support. Altogether, the reform concept that was today deepened and accelerated takes into account, first, that the IMF has to adjust to changes in the global economy. That means the IMF has to respond to the fact that global capital markets offer a huge potential for growth productivity, job creation, and income creation. But they are also a potential source of turbulence and crisis. Therefore, the Governors strongly endorsed the idea that the IMF must be at the center of the discussion about the stability of the international financial system, which is being seen as an important international common good.
Second, there was a clear understanding that the institution, with its 182 members, is an asset, because when we talk about globalization—and our concept is to make globalization work to the benefit of all—we have to know that globalization means, first and foremost, a need for cooperation. And cooperation has to build on trust, first, that all members’ interests are taken into account, and second—and equally important—that all members are aware of and act according to their responsibility to the fundamentals in their own country.
Then we had a clear understanding that we have to strengthen the ownership idea of our support. That means that we are going to concentrate our conditionality on priorities that are important to get macroeconomic stability promoted. But we are not going to go into too much detail with conditionality, trying to micromanage economies and societies.
Brown: This is a complex issue. Production went from 30 to 28. It has now gone up to 32. Some countries have the capacity to expand production, and some of those were with us today. It is therefore possible to see production increased and to see an effect on price.
Brown: I cannot comment on behalf of the Saudi Arabian government. I know that discussions have taken place throughout the day. Many of the oil and finance ministers are now assembled in Caracas.
Köhler: I also had dinner yesterday evening with what we call the Group of 11. These are the 11 chairs from the developing and emerging market countries, and here more oil producing countries are represented. From this discussion, I can confirm that there is an awareness among the oil producing countries that it is also not in their interest for this excessive oil price to be in place for too long and that there is a common responsibility for the global economy to come back to more sustainable prices. I am optimistic that we will see some improvements in the not-too-distant future.