The IMF must adapt and reform to meet the demands of an evolving world economy, IMF Managing Director Horst Köhler told a Washington audience on August 7. Speaking at the National Press Club, Köhler said that “calls for a reform of the IMF are justified” for two reasons.
The first, he said, is that “the environment in which the IMF operates has changed dramatically.... Private capital flows are now a major source for promoting growth and productivity, but they can also be a source of abrupt volatility and crisis. To contain the latter and to promote the former is the issue at stake.”
Second is the fact that “we need to draw lessons from experience,” the Managing Director observed. “The IMF has made mistakes. In particular, the IMF was not attentive enough to the changes in global financial markets and their repercussions on exchange rate systems and domestic financial sectors.” The IMF also underestimated the importance of institution building, which needs both time and the ownership of the affected societies.
Saying that “the issue is to make globalization work for the benefit of all,” the Managing Director explained that he sees “the IMF as a part of the workforce to secure shared prosperity in the world.” To promote macroeconomic stability and growth, he said, the IMF needs to refocus on fostering sound monetary, fiscal, and exchange rate policies in its member countries and to concentrate particularly on the financial markets, both domestic and international.
A key lesson from the recent economic crises is to concentrate more than ever on crisis prevention, Köhler said—by identifying problems early through greater transparency and preventing them by promoting standards and codes for sound monetary and fiscal policy. To develop the dialogue with the private sector, he announced that he would set up a Capital Markets Consultative Group in the IMF, which would have its first meeting in September before the Annual Meetings.
An edited version of Köhler’s remarks follows.