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World: IMF May Be Ready To Reform

  • Andrew Tully

Horst Koehler, the new managing director of the International Monetary Fund (IMF), appears ready to do what the fund's critics have been demanding for years -- reform the IMF, or at least return it to its original focus. RFE/RL's correspondent Andrew F. Tully reports that Koehler announced his plans during a speech in Washington on Monday, but will not release details until the IMF/World Bank meetings next month in Prague.

Washington, 8 August 2000 (RFE/RL -- For years, critics of the International Monetary Fund (IMF) have been complaining increasingly that the institution has lost its focus.

The IMF was set up more than a half-century ago to maintain world financial stability and to intervene when a country's currency showed signs of collapse.

In the past year, the calls for reform have come from the fund's harshest critics in the U.S. Congress, and even from staunch supporters in the administration of U.S. President Bill Clinton.

Five months ago, the International Financial Institution Advisory Commission urged the IMF to return to its original mission of issuing short-term loans to countries facing currency crises. At about the same time, Clinton's treasury secretary (finance minister), Lawrence Summers, came to much the same conclusion.

On Monday, Horst Koehler, the fund's new managing director, announced that he will outline a series of reforms when the IMF and the World Bank hold their annual autumn meetings next month in Prague.

Koehler, who took over as managing director three months ago, gave few details of his proposals. But he did say the IMF will focus on its core mission.

He acknowledged that the fund has "made mistakes." Now, he said, the IMF should focus less on distributing money and more on trying to prevent the trouble that leads to lending.

"My ambition for the fund is not to have more and more programs for more and more countries. Instead, the objective should be to identify problems early through better data transparency and prevent problems through the promotion of internationally agreed standards and codes for sound monetary and fiscal policy."

Koehler gave only one detail of the plan he will propose in Prague: That he is setting up a Capital Markets Consultative Group in the fund to maintain direct contact with the private financial sector. He said this could provide the knowledge to help struggling nations keep their economies growing.

Koehler said he welcomes constructive criticism from outside the fund, even from non-governmental organizations, or NGOs, that held crippling protests outside the IMF/World Bank meetings held in April. But he said any decisions on reforming the fund should be made by the IMF's members themselves.

"I consider it very important that the discussion about the reform of the IMF is conducted within the fund itself. Outside contributions -- be it from the academic world, from the G-Groups [like the Group of Seven], other institutions, or from NGOs -- are valuable, useful and welcome. In the end, however, it is crucial that the members of the fund know what they want and decide how they wish to give the mandate and the operations of the fund a new shape."

After his speech, Koehler answered questions from the audience, which ranged from the IMF's approach to debt relief for poor countries to how the IMF and the World Bank should divide their efforts.

One questioner asked how the IMF, under Koehler, will be approaching Russia. The managing director responded that Russia should be judged on its achievements not its government promises. "Don't humiliate this country. On the other hand, don't be euphoric. Part of the mistakes we made was because we had been too euphoric relying just on rhetoric about reform programs. We need to see more implementation of the good ideas. And based on that, I do think that we have a good start with President [Vladimir] Putin, but my recommendation is to look carefully (at) what is implemented in this."

Before answering, Koehler noted that he has long experience with Russia, beginning when he was an official of the Finance Ministry of the former West Germany. Most recently, he noted, he was the president of the European Bank for Reconstruction and Development. This institution was created a decade ago to help the former Warsaw Pact nations as they move from managed economies to the free market system.

Koehler delivered his speech and answered questions during a luncheon at the National Press Club in Washington.