[stop-imf] Kohler: Toward a More Focused IMF

[Robert Weissman]

These are the relevant excerpts of Kohler's speech relating to the idea of
limiting the scope of IMF activities. Full text at:
<http://www.imf.org/external/np/speeches/2000/053000.htm>

Toward a More Focused IMF
                    Luncheon Address by Horst Khler
                    Managing Director of the International Monetary Fund
                    at the International Monetary Conference
                    Paris, France, May 30, 2000

8. This is "work in progress" and the Fund has a strong commitment to
carrying it forward through
                    its surveillance and, where needed, through technical
assistance. But I want to go a step further and
                    find a credible answer to the question of where the
IMF itself has to change. Therefore, we have
                    established a two-track work program for the Fund in
the coming months. One track responds to
                    the guidance of the International Monetary and
Financial Committee (IMFC), which, at its meeting
                    last month, set us a very full program--so full and so
sophisticated, for example in the area of
                    standards and codes, that I worry a bit about the
practicality of implementation in many developing
                    countries. 

                    9. The second track of our work program in the Fund
will seek to outline a vision for the future
                    role of the IMF. We want the IMF to be as effective as
possible in contributing to prosperity in all
                    parts of the world. In fact the IMF has a long history
of continuous reform and adaptation. And
                    clearly it has not been standing still in the past few
years after the emerging markets crisis. I see no
                    need to turn the Fund upside down or to devise some
new grand design for the IMF. But the
                    crucial question for me, is whether the IMF has yet
sufficiently adapted to a world where financial
                    markets have seen such phenomenal growth in size and
sophistication. In this context, I assess the
                    many recent reports on IMF reform as clearly helpful.
The bulk of these reports recommend that the
                    IMF should be more focussed in its activities. I share
this view. The authority of the Fund derives
                    strongly from its expertise. No institution can have
expertise everywhere. The Fund's
                    concentration on macroeconomic stability should lead
to a focus in its advice on monetary, fiscal
                    and exchange rate policies and financial sector
policies. The Fund should have a clear position
                    about the key elements of a global growth strategy and
this should be discussed and agreed with the
                    other multilateral institutions. But based on this and
good cooperation among these institutions,
                    there should also be a clear division of labor, not
least between the World Bank and the IMF.

                    10. No one can rule out that there will be more
financial crises in future. The difficulty is, that we
                    do not know where or when they will occur or how
severe they will be. Therefore, clearly there is
                    a need for an official international lending agency to
be able to mount a credible response. The
                    recent establishment of the Supplemental Reserve
Facility (SRF) and the Contingent Credit Lines
                    (CCL) are certainly conceptually promising further
developments of the IMF facilities. But we have
                    to review the entire range of the Fund's instruments
in order to streamline and sharpen them. And
                    we must also be realistic. We have to ask ourselves
whether it is possible or even desirable that the
                    IMF, as official lender, should try to match the
extraordinary growth of private capital markets. It
                    seems to me, that we have to think about limits to the
scale of crisis lending that the Fund can be
                    expected to undertake. At any rate it becomes
imperative that the Fund, and the international
                    community, pay the utmost attention to crisis
prevention, especially through sound macroeconomic
                    policy, the promotion of transparency and the
implementation of practical standards and codes. And
                    if the Fund is effective in this task through its
surveillance, then I see a good chance that there may
                    not be a need for ever-growing rescue packages that we
saw during the 1990s.

                                                        * * * * *

                    11. This brings me to the discussion about the
involvement of the private sector. My starting point
                    for this discussion is the undeniable fact that it is
the private capital markets that play the major role
                    in promoting investment and growth around the world.
And in particular we should not jeopardize
                    this role in the emerging markets and developing
countries. Therefore, how can the private sector
                    be engaged to the mutual benefit of all, and with less
volatility?

                    12. I see three broad considerations that should help
to find answers to this question:

                           First, there should be no presumption about
automatic bailouts either of countries or of
                           lenders. The primary responsibility, the first
line of defense against crisis, is the sound
                           policies implemented by countries and good risk
appraisal by investors.

                           Second, the framework for the "involvement of
the private sector" should shift towards
                           "constructive engagement"--cooperation among
borrowing countries, the private sector,
                           and the official sector, especially during
non-crisis times. This means a focus on crisis
                           prevention, and a shift of emphasis away from
the coercive or punitive approach that some
                           market participants seem to perceive as the
meaning of "private sector involvement".

                           Third, in crisis situations, solutions should
not be seen as arbitrary. Although it may well
                           not be possible to devise a comprehensive set
of rules guiding all such cases, there will
                           need to be broad principles that can be applied
to avoid the perception of uneven treatment
                           of creditors and countries.