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World: Prospective IMF Head Sheds Hints On His Administration

  • Andrew Tully

Sometime this week, the 24 members of the executive board of the International Monetary Fund (IMF) will decide on a new managing director. They will almost certainly choose Horst Koehler of Germany. His nomination ended five months of embarrassing political maneuvering. This came at a time when the fund's operations already have been facing increasing criticism. Last week, Koehler met with reporters at the IMF's Washington headquarters. RFE/RL's Andrew F. Tully reports that he gave a few hints about how he will approach his new post.

Washington, 21 March 2000 (RFE/RL) -- Germany's Horst Koehler will be taking over the International Monetary Fund at a time when the IMF has emerged as one of the world's most important -- and most criticized -- financial institutions.

Asia looked to the IMF in the autumn of 1997 to help resolve its financial crisis. Later, it was Mexico that needed the fund's help to help resolve its own currency disaster. And many other countries -- notably Russia and Ukraine -- rely on the IMF to prevent economic disaster.

But critics say the IMF is too intrusive in the demands it makes on countries needing assistance, and that it is secretive in its dealings. Ultimately, these critics argue, the IMF has strayed too far from its original mission: being the lender of last resort for countries with serious currency shortfalls.

Last week (Friday, March 17), Koehler for the first time met with the Washington reporters who cover the IMF. He made no major revelations. But his brief comments, and a look at his background, give at least suggestions about the kind of managing director he will be.

First, it is significant that Koehler is president of the European Bank for Reconstruction and Development. The EBRD was established in 1991 to help countries of Eastern Europe and the former Soviet Union emerge from communist managed economies into the free-market system.

As such, these nations can expect Koehler to be familiar with their needs. In fact, during last week's news conference, the next IMF chief spoke specifically about Russia. He said he met in December with Vladimir Putin, not long before Boris Yeltsin resigned as president of Russia and named Putin acting president.

Koehler said Putin agreed that Russia's economic reform is moving too slowly. But he stressed that it is his impression that Putin is capable of bringing economic stability to Russia if he is elected president in his own right on Sunday.

"He outlined that in his view, Russia needs to have a strong state. I confirm that is right in terms of bringing more predictability to this state and country. But at the end, we will have to wait on concrete deeds, and not just listening to words."

Still, Koehler said the IMF is prepared to give Putin "the benefit of the doubt," as he put it.

The IMF also was embarrassed recently when it had to acknowledge that it had been deceived two years ago by financial scheming by the National Bank of Ukraine. The fund said it made disbursements to Kyiv at the time that it would not have made if it had known the truth. Koehler alluded to this matter when he said the IMF will have to monitor the economies of member countries more closely.

Meanwhile, the U.S. Congress has been especially critical of the IMF. Two weeks ago, a special commission created by Congress issued a report recommending that the IMF and its sister lending agency, the World Bank, revert to their original missions to avoid what it called expensive overlapping.

In the case of the IMF, this means focusing solely on loaning money to a country's central bank when that country faces a severe financial crisis. And the panel said the IMF and the World Bank should be more open in their conduct -- and make fewer demands as conditions for IMF assistance.

These recommendations were made by a commission whose majority was appointed by the leaders of Congress, members of the Republican Party. Most Republicans are staunch opponents of the policies of U.S. President Bill Clinton, a Democrat. And yet these recommendations are very similar to those of Clinton's treasury secretary (finance minister), Lawrence Summers.

At last week's news conference, Koehler said he plans to work more closely with the fund's critics, particularly Congress. He must, after all, because the U.S. is the fund's largest shareholder at nearly 18 percent. Therefore it has a virtual veto on anything the IMF proposes to do.

"I have a good feeling that out of all these contributions and comments in this discussion of reforms, it is and will be possible to sort out structures and conclusions which will strengthen the IMF for doing a good job in the future."

Sometime this week, the IMF's executive board will vote on Koehler's nomination, and almost certainly it will choose him. But he may not be able to settle his affairs at the EBRD before he can take over the leadership of the fund in time for the IMF/World Bank spring meetings in Washington, scheduled for the middle of April.

That may work in his favor. Groups that advocate environmental issues and increased aid for developing countries are planning demonstrations in Washington to coincide with the IMF/World Bank meetings. Some observers expect the protests to rival the disturbances that severely disrupted the meeting of the World Trade Organization (WTO) in the western U.S. city of Seattle in December.

The WTO meetings ended in without setting an agenda for the next round of negotiations on trade liberalization. In fact, because of dissent within the WTO, the Seattle meetings probably would not have ended better even if there had been no protests. But the world is equating the chaos in the streets with the disarray in the WTO meetings. If the demonstrations outside the IMF/World Bank meetings are similarly disruptive, then Koehler would be lucky to be elsewhere.

Another criticism of the IMF is how it selects its managing director. Since the IMF and the World Bank were created a half-century ago, it has been understood that an American should run the World Bank and a European should run the IMF. When Michel Camdessus of France announced in November that he would be retiring as the IMF's leader, there was a rush to find a worthy successor.

Most observers say the best man for the job is an American, Stanley Fischer, Camdessus' deputy who has been acting managing director since Camdessus' retirement became effective on February 14. A group of 20 African nations, led by Jose-Pedro de Morais of Angola, their representative on the IMF's executive board, nominated Fischer. Japan, meanwhile, nominated another well-respected candidate, Eisuke Sakakibara, formerly of the Japanese Finance Ministry.

But the European Union (EU) nominated Caio Koch-Weser of Germany, even though Clinton had warned German Chancellor Gerhard Schroeder that the U.S. would not support him because it found him lacking in political stature. Koch-Weser's candidacy failed, and Germany quickly came up with Koehler. The U.S. said it would support the new German candidate.

With Europe and the U.S. in agreement on a candidate, the nominations of Fischer and Sakakibara were quickly withdrawn. But bitterness remained. De Morais, the Angolan, said that being limited to a European candidate is a distraction from the IMF's work. And a spokesman for Japanese Prime Minister Keizo Obuchi complained of what he called Europe's monopoly on the position.

At last week's news conference, Koehler agreed that the selection process is flawed.

"I agree that this process was really not the best I could imagine, and I have no hesitation to say, 'This process, as it had been experienced, should be reviewed and improved.'"

But Koehler said nothing further on the matter. In fact, he stressed that he would say little about his plans at the fund because he had not yet been elected.

As for Fischer -- who has the most experience at the top levels of the IMF -- Koehler said the two men had a friendly meeting the day before, and that he expects to be working with Fischer, as he put it, "very closely for some time."