Examination of Witness(Questions 160-179)|
THURSDAY 4 JULY 2002
160. I understand that the IMF has admitted
now that the recommendation to Malawi was based upon the wrong
information. Do you think that was the case?
(Mr Kohler) I do not think that I can tell you,
"The IMF said this," and "The IMF said this."
I want to underline: this is an issue in the responsibility of
the World Bank and the EU Commission. The IMF was part of this
process of giving advice to the Malawi government and the IMF
may also have not been attentive enough, but I just tell you that
I am not accepting that the IMF is made the culprit for this case,
and I really also will go public if it continues, this kind of
accusation. I have sent the President of Malawi a letter in which
I made clear that he was involved with the World Bank and the
EU Commission in this project; that the IMF was part of, say,
the kind of international advice and the IMF may, again, not have
been attentive enough how they exercised how to run this maize
stock, but it was not the responsibility of the Fund to implement
161. If I may ask the last question, because
we have to move on. There may have been responsibility between
the different international organisations in relation to this.
My primary concern is about the issue not the individual allocation
of responsibility. Do you acknowledge that a mistake was made
here in the advice? Do you think there is something that we could
learn in the futurethe IMF, the World Bank and so forthabout
giving this advice and about the kind of impact assessments that
we might make before giving such advice again in the future?
(Mr Kohler) Clearly there have been mistakes.
I think it is right that the government of Malawi has now started
an audit in this, so that, after this audit, hopefully, we are
in a situation to have better information of what went wrong and
who was involved in what went wrong, so that we have a clearer
defined responsibility and, on this basis also, accountability.
It is clearly an issue to think how we can avoid that this kind
of mistake will happen again.
Mr Laws: Will you do an impact assessment
Chairman: I am sorry, but we have to
move on. Jim Cousins on macroeconomic stability.
162. Do you think, Mr Kohler, after the
experience of the last few months in our own markets, that we
can be completely confident in rolling out our own institutions
as they happen to be and our own practices as they happen to be
on the rest of the world, or that perhaps we should put our own
house in order first?
(Mr Kohler) I think what happens in the advanced
countries demonstrates that there are in all places of the world,
all countries, mistakes, political failures, and that means also,
again, there is a need for reviewing things, lessons learned,
to define a better policy. I have definitely the opinion that
it would be a big mistake if we would always concentrateIMF/World
Bank, but particularly, in this case, IMFon problems in
poor countries or emerging market countries. I agree that Enron/WorldCom
demonstrates that there are risks and vulnerabilities here in
the advanced countries, in the UK, in US, in Germany, in Europe,
and we need to tackle these issues.
163. You have made a very strong point this
morning, and I do understand that, about the need for what you
have called self-responsibility and political cohesion as a pre-condition
for economic prosperity. What do you think are the sources of
a lack of political cohesion and bad governance in some of the
poorest countries of the world? Do we not have a responsibility
in actually producing that lack of political cohesion?
(Mr Kohler) This is a question which has a variety
of elements. I think the history, the culture, politics, wars,
even the geographical location of countries often define this
particular situation. But we have no choice but to try, because
in a globalized world everything is interconnected, to work based
on dialogue, inclusion, and also on what I call an encouragement
for national systems to be aware of the need to have respect for
the social dimension or social cohesion in a country. Because
social peace is a productive factor, so that we work for a better
world, but, if we would give up self-responsibility for the countries,
I think we would take over or would try to take over responsibility
which no-one could implement. I mean, there is no world government.
I think even if there were one I have a doubt that the world government
could fix it all because, say, the dimension of the problem boils
down to this, that you need to have awareness for the local situation,
for the local politics, and encourage communities, local processes,
to deal with the situation. So I have no quick-fix, Mr Cousins,
for a better world but to say that there is a local level, there
is a regional level, there are national levels, there is a global
level, and try to define institutions, try to define dialogues,
try to define, as I call it, a kind of global ethics in order
to promote a better world. Global ethics is, for instance, something
which, I think, here in the UK but also in Germany, people now
care for more and more. There is, for instance, a foundation in
Germany called World Ethics where they try to promote, to facilitate,
a dialogue between religions and they try to find out that there
is some common ground between all major religionsso Judaism,
Christianity, Islam. For instance, in all the big religions you
have a rulea kind of golden rule, as they call itthat:
What you do not want to happen to tou, this you should not do
to anyone else. If we would, through dialogue, facilitate and
promote the acceptance of this golden rule, then I think it would
help to create a better world.
164. If I can follow that point directly, is
it not a common principle of the ethics of all those religionsand
one which certainly I would regard as being part of my own upbringingthat
the poor come to the table first to be fed before they get the
lecture on free markets.
(Mr Kohler) I think that is not, as I see it,
the issue, because I have said already that the social dimension,
solidarity, should be part of every human community, human body,
institutions. But, if you would create an environment where people
have the feeling they just can go to somewhere where they are
fed or get answers for everything they are asking for, I think
this institution is not available. The strengthening of self-responsibility,
plus an environment of solidarity and dialogue, I think is the
165. I understand that, and you are very clearly
putting what you call self-responsibility firstthat is
the first of your two pillarsbut do not the poor of the
world look at you and say, "Well, here are these guys lecturing
us about free markets and telling us of the value of free trade,
but what can they do to prevent the United States raising trade
barriers against the rest of the world and pouring untold sums
of money into food subsidies, price subsidies, for American farmers?"
(Mr Kohler) Mr Cousins, first, the IMF, at least
since my time, is not lecturing about free markets. I must make
this clear. Secondly, look to this very important kind of historical
initiative in Africa called NEPAD, a new partnership for the development
of Africa, where the African leaders themselves have said, "It
is our obligation, our responsibility to provide
good governance, to fight corruption, to fight against armed conflict.
It is our obligation." So it is not that kind of lecturing,
they themselves are saying, "It is our obligation"
and I think they are right, because of one point: I would guess
that the national pride or the pride of a people, even a tribe,
in Africa is an important element for development, more peace,
more freedom, more democracy. The pride of a nation depends also
on the fact that they are aware: "We did it. We
made it. We are not just depending on aid and all of this"a
very strong point which I feel should always be taken into account.
But your second point is right: there is too much of hypocrisy,
double standards, in the international community. I am, indeed,
advocating more trade integration. Then, I think, it is only clear
that I also have to speak up against subsidies, trade distorting
subsidies in Europe, in the US, in other advanced countries, and
I am doing that. But you should also be aware that there are trade
barriers amongst the poor countries themselvesand this
is, again, going back to self-responsibilityand it is also
not credible for the poor countries in Africa to ask for more
market access to Europe when, on the other hand, they are not
yet exploiting fully the possibility for more trade (and that
means more income and job regeneration) between themselves.
166. With the structure of world trade as it
is now, against the background of the Zedillo Report which examined
the benefits of trade liberalisation that went to the rich countries
and not the poor countriesand all over the world it is
easiest for a man with a gun to grab the latest lorry load of
cheap American maize, and President Bush is pouring another £190
billion into subsidising its productiondo you think they
will ever achieve self-responsibility?
(Mr Kohler) Yes. I am encouraged through NEPAD,
the Africans themselves. I do think that there are countries like
Mexico, like South Korea, like, if you want, China and otherssouth
Asian countrieswhich demonstrate that there is a chance,
through trade, to come out of poverty and a critical situation.
But there is really the need now to change the overall trade policy,
not least, in the advanced countries, and this kind of dialogue
here in this parliament, with the NGOs, will help to create the
public awareness that the advanced countries have to change and
have to change more rapidly.
167. You are indeed speaking out about these
things, because you gave a speech to the US conference of Catholic
bishops in January and you used some pretty tough language on
this point. You said, "It is unconscionable"that
is the word you used"for the United States, Japan
and the European Union to spend hundreds of billions of dollars
on agricultural subsidies to maintain marginal activities for
the benefit of a small segment of their population, while undermining
agricultural sectors that are central to peace and development
in poor countries." I think most of us would say, "Amen"
to that, but the question is: Where is your leverage as an organisation?
Because that comment is addressed to the funders basically of
the IMFand you have spoken in questions earlier about respecting
their capital, when we were discussing the organisation of the
IMF. Can you at the same time give due weight to the capital they
put in and do anything more than simple exhortation about what
they are doing with agricultural subsidies?
(Mr Kohler) I mean, certainly a difficult task,
and I should not be in the temptation to put too much of a load
or ambition on my shoulders. Butand I think you are more
aware than I am because you are a politicianpolitics in
the 21st century more than ever goes by a public debate communication.
I thinkand I do not hide itthat I feel myself committed
to participate in a public debate and, on this basis, create public
awareness about the problems. I have some trust in the reason
of the people, the ordinary voter, that he is able to draw conclusions.
I trust, indeed, that the ordinary man or woman here in the UK,
in Germany or in France, will understand that the existing pattern
of trade policy needs a change because more and more the ordinary
people understand that this poverty issue is a major threat even
for themselves. So I am part of this public debate. I know that
I am taking risks because the big powers do not like itand
it is in a way backfiringbut I think I should take this
risk, first. Secondly, and more concrete, we are in a process
of discussion with the WTO how we organise our work also in the
institutions and with the orderly mechanisms. This means that,
in particular, the WTO has to take up this discussion and make
the Doha Round really a development round. Thirdlyand this
is what I am going to discuss with my shareholders, the UK ED
and the other EDswe have already discussed in the board
that within our Article IV process of surveillance and dialogue
we should also have a window about market access and trade distorting
subsidies. I am going to pursue this further and I hope that we
will come to a conclusion which enables us, on the basis of a
more systematic approach, to discuss in a transparent way market
access and trade distorting subsidies for all our membership.
168. Do you have in your mind a timetable for
the unwinding of these agricultural subsidies?
(Mr Kohler) Well, I mean, you are Europeanthe
UK is part of the European Unionyou know how difficult,
in particular, the Common Agricultural Policy is, so I should
be cautious about myself setting a timetable. But my advice is
to you and to all your colleagues in the parliaments of the world:
be ambitious. Set an ambitious timetable because time is running.
Because you, the politicians, the parliaments, need to change
169. Oxfam has saidand I quote"Trade
liberalisation measures should be removed from World Bank and
IMF loan conditions. Instead such discussions should be carried
out under the auspices of the World Trade Organisation which is
formally charged with negotiating reciprocal trade liberalisation
measures. Trade reform via the World Bank and IMF is not reciprocal".
Could I ask you therefore, Mr Kohler, why the IMF is involved
in trade liberalisation issues, when this is more properly, in
Oxfam's view, the responsibility of the WTO?
(Mr Kohler) Since I am at the IMF trade liberalisation
is not an element of conditionality, so I want to make it clear
about that. I do not want to comment on what was in the past,
but I do not make it a kind of, say, major conditionality point
for our policy point of view. I would also say that we have empirical
evidence that those countries which had been more forthcoming
with integrating international trade gained also the advantages
of that. I have mentioned already countries like Mexico, like
South Korea, like Malaysia, like Singapore. I mentioned already
what I have in mind about trade and the IMF, and that is, talk
about it, have a dialogue, an Article IV attention to this, but
indeed I would trust that it is the WTO who should sort out the
right political approach about further trade integration involving
both, equal and even-handed, the advanced countries and the poor
170. But it is not the case that you are disinterested
in trade issues. We have heard a theology from you today which
I translate into a sort of water babies theology of "Do unto
others as you would have done unto you". This is a "Do
as you would be done by" philosophy. Given that, you said
that you are ambitious in getting rid of barriers to trade between
developing nations themselves. Is it reasonable to ask them to
look at the problem in their own eye, when they are faced with
bigger barriers outside? In other words, we have America saying,
"I'll do unto others as I'll do to myself, I'll put up big
trade barriers, but you mustn't, you must remove your trade barriers,
before I shall." Is that reasonable?
(Mr Kohler) Yes, I think it is reasonable. If,
for instance, between Kenya, Tanzania, Mozambique, South Africa
there would not be a kind of trade integration, then it is pure
economics. For example, the cost of transportation is lower in
this regional area than the cost of transportation to the far
remote countries. I think it makes sense. I think it makes even
more sense in the direction that we have evidence alsoand
I think the European Union is the proof of thatthat to
cope with international competition it is easier if you have the
kind of strong home market and an extended home market; based
on that you are stronger also to compete with remote areas. A
third element, and what I think went wrong in Africa, for instance,
is that we need to strengthen local business activities. The Africans
should be able to produce food also for themselves, and they should
be able to trade with food or products to the next country. So
I think that it is not a contradiction if we would say strengthen
capacity to produce food and to develop a kind of division of
labour in the region, and based on that be prepared to integrate
in the bigger environment.
171. You touched on NEPAD a few times today,
so I am assuming from your answers that they hold an element of
support from you, but we also heard, I think particularly from
Professor Vines, Bretton Woods and Oxfam that there is a lack
of technical knowledge within some of the African nations and
that they need support. I also notice that you are supporting
five new regional centres for technical assistance. How do you
see those developing? Do you think they will be adequate to provide
the skills gap so that that internal trade and growth can grow
in the way that you imagine it can?
(Mr Kohler) I believe that it is often not a
lack of political will but a lack of capacity, administrative
operational capacity, to do a better job. Therefore, indeed we
decided to set up five regional technical assistance centres,
but we want to concentrate our assistance on our major focus,
and that is macroeconomicsthat is, not least public expenditure
management and the statistics for that and financial sectors for
thatso that is what we are concentrating on. Our initiative
is well discussed and co-ordinated with the World Bank, and the
Work Bank is co-ordinating with the WTO and their trade
assistance to poor countries. So I think you are right, there
is a need for technical assistance, and the WTO and the World
Bank should care about what they can do to provide support for
the poor countries. We are concentrating on our four areas.
172. Could you tell me a little bit more about
how you envisage this operating? It is not really clear to me
where this new expertise would be drawn from, how you would make
sure that there would be some home-grown new technical knowledge.
Who would be co-ordinating it? Who is taking precedence, and will
that mean that the priorities that you want to see set would actually
develop out of these?
(Mr Kohler) We have discussed it with the Africans
themselves. They appreciate very much our concept, and they encouraged
us to concentrate on what I call our prioritiesthat is,
public expenditure management. For this we have two kind of major
vehicles. First, training. We train Africans so that they are
able to handle the budget, how to collect data, how to put it
in a framework, how to assess statistics. We are going to train
them. We are also going to hire Africans as much as possible as
permanent staff in this technical assistance, because we want
again to demonstrate that we are not coming from Washington or
the UK, white people, lecturing them; we want to demonstrate "We
want to support your philosophy, your approach, your culture."
I also want to say that there is an issue where again I give it
back to you as parliamentarians. Official development aid is still
too heavily bound to so-called domestic intereststhat is,
tied aidand I sometimes get really impatient when I recognise
that there are big rhetorics about official development aid, but
in substance it is a kind of accommodation of domestic interest,
giving orders to domestic construction firms and so on. There
is a political interest, clearly, but if it is not going to change
that official development aid is really given with the clear idea
to help the Africans or poor countries, and not to help the next
company around the corner here in Germany or in the UK, I think
then it will not substantially improve.
173. On that, we understand that in Britain
aid is now substantially untied, but we welcome your comments.
To clarify one difference in evidence, we have had a written submission
which says that in 2000 the IMF advised the Government of Malawi
to reduce the strategic grain reserve from 165,000 tonnes to between
30,000 and 60,000 tonnes. In your reply to Mr Laws you said that
that statement was actually false, and it was not the IMF, it
was the World Bank and the European Union, is that correct?
(Mr Kohler) I concentrated on the Malawi case.
You may have an advantage to me. I offered to you a kind of paper
where we outlined in the IMF how we see this development.
174. Mr Kohler, could we have that paper
from you on Malawi, and then we could go on to another question?
That would be very handy.
(Mr Kohler) Yes.
175. That would be fine. How do you react to
the criticism that the poverty reduction strategy papers have
not really been integrated in the basic thrust of the IMF's thinking,
that it is almost like lip-service or lip indicator, that the
focus of the IMF is still on macroeconomic stability and not poverty
(Mr Kohler) First, I think macroeconomic stability
is good for poverty reduction, because poverty reduction will
only be achieved in a medium and long-term approach, and without
macroeconomic stability you cannot sustain this effort. Secondly,
I think Mr Fallon had a different angle of asking me on this.
He said I am over-ambitious and take everything on my shoulders.
Indeed, I travelled three times to Africa. On my last visit when
I travelled to Africa I particularly concentrated on a dialogue
with officials, with civil society, with business people, churches
and so on, asking does this process work, is it accepted? The
outcome of this dialogue was that it seems that it is promising,
the African people themselves accept this concept, and therefore
there is no problem within the IMF. But I admit to you that I
feel the major guardian for the PRSP should be the World Bank,
because we should have this concentration on macroeconomics, financial
sectors, good monetary policy and exchange rate regimes, but the
overall concept and its implementation in the medium and long
term should be the prerogative of the World Bank.
176. I see. I was struck by the fact that when
you were asked about the poverty and social impact assessments
you were not sure which countries were involved. Obviously this
is not a quiz programme, but that did suggest to me that it was
not getting a tremendous amount of management attention. Would
you agree that actually these are a bit peripheral for you?
(Mr Kohler) No, they are not peripheral, but
indeed we are at the beginning of this process. As I said before,
the social impact and poverty analysis is an idea since round
about a year now. I am asking staff, "What about it?",
and the answer to this is that the concept is in a process of
implementation and learning by doing. This involves the World
Bank, us, it involves also particularly the countries themselves.
It is not the concept which you sort out here at the green table
and then overnight it is implemented. We need to have the countries
themselves backing it and working with that. Here there are, I
would guess, as much difficulties as possibly lack of attention
at the managing director's office.
177. Finally from me, the IMF has its own poverty
reduction and growth facility approach. It has been suggested
to us in evidence that this has superseded and overridden the
policy-making process of the PRSP in certain cases, notably Senegal.
Basically the argument is that the country itself is leading the
PRSP, they make a certain amount of progress, and then the IMF
comes along and says, "This is our concept of the PRGF"
and that really overrides it, because they need your money.
(Mr Kohler) That is not our philosophy. What
I understand from the review process of the PRSP and the PRGF
is that there was a kind of very well harmonised attitude to implement
both, and that the PRGF should fit in the PRSP, and the PRSP is
the bigger contest and the bigger concept. So if there is a complaint,
we have to look at it, but I feel the PRGF is not the dominating
vehicle or instrument for the PRSP.
178. Mr Kohler, we have had the issue
of the sovereign debt restructuring, and your deputy Anne Krueger's
proposals for a domestic bankruptcy court which she said would
be an international, worked-out mediation service. They have been
contrasted with John Taylor the US Treasury Secretary's aspect
of debt contracts. They seem to be quite far apart. Are they as
far apart as that, and is there a possibility of us resolving
this issue so that we have such a mechanism to resolve the unsustainable
debt problems of countries, which would benefit debtors, creditors
and, more importantly, the international community?
(Mr Kohler) These two tracks are, for management
of the IMF, two complimentary tracks. That means we are very much
engaged in discussing and working to make the collection action
clauses in sovereign bonds operational. There are a lot of difficulties,
but we are working on that and, as you know, also the G10 are
working on that. We are also sayingand I personally have
the opinionthat at the end the collective action clauses
will not do the job, we need also the sovereign debt restructuring
mechanism. I then depend on shareholders. We have made a kind
of step forward that the G7 major shareholders have agreed that
this is a double track, a complimentary approach, but it is up
to the shareholders and their input whether we will succeed in
this process. There is an argument that the United States Congress
will never accept a change of articles, because the sovereign
debt restructuring mechanism needs to be accommodated through
a change in articles. I would not advise us to stop our activities
because of this argument, but there is a major question. I think
the two positions are in substance not apart, they should be part
of a wider concept, but at the end the politics is decisive here,
and I encourage you, your Parliament, Gordon Brown, the Government,
to be a strong advocate, outspoken, ambitious, to work for the
sovereign debt restructuring mechanism.
179. Back to us, then. On the issue of Brazil,
economic analysis has suggested that the growth prospects there
are dimming with the financial turmoil. If Brazil defaults on
its £171 billion in foreign debt, then the shockwaves will
be felt everywhere. One of our expert witnesses last week said
to us that "To have the Fund walk away from Brazil is exactly
the wrong solution to problems of this kind. That is where the
Fund needs to be, not helping just in fundamental solvency crises,
but in liquidity panics of this kind". They said, as others
have said, "Brazil has done everything the IMF wants, yet
we still find ourselves in this position". What can the Fund
do to reassure Brazil and the international community?
(Mr Kohler) We have demonstrated that we are
supportive and at the side of Brazil, not least that I think two
weeks ago we, in a very flexible way, accelerated our programme
and our policy dialogue with Brazil, enabling them flexibly to
use IMF money for their situation. We are also in a close dialogue
with them to follow what happens and be prepared. I think that
clearly the situation in Brazil is manageable, and we will do
everything to make it manageable, but you should also be aware,
Mr Chairman, that the difficulties come not because of the IMF,
or the stupid IMF, but because of some discussions about politics
and the question "Will more left from the centre coming in
be prepared to service the Brazilian debt, or will they pursue
the policy which was in principle very reasonable from President
Cardosa?" There is an element the IMF has not under its control.
I make you aware, the IMF again cannot be the saviour for everything,
but regarding Brazil I can assure you, it is our interest, we
have a good dialogue, a good co-operation with the Brazilian Government,
so that we should not exaggerate that.
Chairman: Thank you. My colleague Andrew
Tyrie wants to come in on the back of that.