Select Committee on Treasury Minutes of Evidence


Examination of Witness(Questions 180-187)

MR HORST KÖHLER

THURSDAY 4 JULY 2002

Mr Tyrie

  180. You have just said that you would be prepared to consider a bail-out package for Brazil. Is that what I heard?
  (Mr Ko­hler) I should not interpret that in this way. We are prepared clearly to do what we can do to keep the situation in Brazil manageable.

  181. What you can do is offer a bail-out package.
  (Mr Ko­hler) I do not seek for the moment to define a bail-out package, because we need to decide when we come in, and we need also to be able to distinguish between that situation and pressure from the private sector. They possibly want us to step in very early to bail them out, but that is not our intention. Our intention is to support Brazil and to keep the achievements they have been able to promote alive and keep them on the track of a good development.

  182. Over the last few years the IMF have done some extraordinary bail-outs. They have done lending in breach of all previous precedents by the institution. You are a quota-based institution which would normally be thought of as shareholding. You have been lending since September 11 something like 25 times what would normally be accepted under the old quota rules—25 times the amount to Turkey, very high levels to Pakistan—and you have also done extremely high and unprecedented levels of lending to Russia. Do you think that it would be right to conclude that some of this lending has been driven largely by pressure from the US Administration rather than based on IMF rules?
  (Mr Ko­hler) I was what we call a State Secretary in Germany in the early 1990s, and that means Russia. I would guess that Germany was as interested, if you take the US, as the US to do something for Russia. It was not just the US, it was the G7, and the UK was part of the G7. So I would guess all of these members of the G7 had been involved in the Russia policy. My conclusion out of this is certainly that it should be the IMF's direction and commitment to work even-handedly to all its members; the big members should have a voice, but also the small and poor members should have a voice. It would be really a big development in the wrong direction if we would not be able to demonstrate that the IMF is not just there to accommodate what the big powers want them to do, and that is my commitment, not least because of my own experience. Regarding the big bail-outs, with hindsight, I must say, in terms of history, it is too early even to say that what the IMF did with Russia was wrong. It is ten years after the breakdown of the Berlin Wall. That is not such a long time. Regarding what could have been worse, I think it is not so bad. Go to South Korea. Go to the packages with Mexico. It was not totally wrong, it made sense. That is not, say, a plea that we should repeat these kinds of exercises, but of course we should learn from these exercises. One of the lessons learned for me is try to make clear and make the IMF managing director, if you want it so, personally accountable so that he listens as much to the emerging market countries, the poor countries, as he listens to the G1, the G7 or the G-something.

  183. You used to have a fairly clear and understandable set of rules about what limits there would be to draw in IMF resources. In the light of the bail-outs now of Turkey and Pakistan, I do not think any reasonable man could say that you have stuck to those principles. Would you be prepared to give us a note that can give us some transparency and guidance on what the limits are to the level of lending the IMF will entertain?
  (Mr Ko­hler) There is a debate. We are preparing a debate in the board about limits to IMF lending, and I should not pre-empt this discussion, but I will give you a clear indication about my own thinking. First, we need to make clear that there are limits to lending of the IMF. This is mainly also to strengthen self«responsibility of our members. This is also because the IMF is no lender of last resort in the sense that the IMF can print its own money and has therefore unlimited access to resources and liquidity. It would be wrong to give the impression that the Fund would have unlimited access to liquidity, because this would really then promote moral hazard in all of this, but we need also to be able to judge case by case. In the case of Turkey and Pakistan, it was before the war in Afghanistan and before September 11, that the IMF worked with Pakistan on a staff-monitored programme, and then we had already before September 11 the idea to extend this co-operation to a three-year programme. That means that they really worked with us and they work and delivered. The same with Turkey. Turkey embarked in a comprehensive, bold reform process, and they delivered. That means if we have a sound judgement that there is really delivery and not just talk from our members, then we should also be forthcoming, because our obligation is to support our countries and not to tell them, "That's it." So on the one hand we have limitations, and I stick to saying that it is important now to clarify even more these limitations. On the other hand the philosophy should be that a member should rely that if he is in a kind of emergency, he can go and should go to the IMF and talk on how we can deal with this.

  Chairman: I am conscious of the time, Mr Ko­hler. Andrew, a very brief question, then I will end with a question, but I am conscious of the time.

Mr Tyrie

  184. To the outside observer, you seem to have become an even more political institution than you were before. My last question is whether you think that could be in any way connected to the fact that thousands of people have gathered outside your windows and your offices in recent years to try to throw bricks through them; whether you think that the riots that have taken place, even if misguided, all around the world, in opposition to policies in the Washington institutions, are in some way connected to what they perceive to be the politicisation of these institutions? Do you think there is a connection, and have you come to a firm view about why it is people are rioting in the streets outside your offices?
  (Mr Ko­hler) I think there are demonstrations because these people and a lot of people feel there is something wrong, and I think they should speak up. The demonstrations, in my view, can and should help for you, for all parliaments, because that is, in my view, the place to decide on the right policy. But we should listen to them and try to sort out what is good, what we need to change, but also where do we need to be firm, telling them "That's not right." I also want to say that I see, I beg your pardon, the main demonstration should not, and does not, go to the IMF, because in my dialogue I challenge also the demonstrators. The main challenge goes to you, to the parliaments: official development aid, trade policy, that is an issue for you, and I am reiterating that in parliaments there must be a discussion about globalisation. We should listen, we should be available, we should change as much as we can, but there is no way, as I feel it, to make the IMF the scapegoat or to say for all bad things, "That's the IMF. We parliaments have hearings like that, but at the end we have no impact on trade policy, on official development aid." So I am challenging you. You are requested to change and to define a better policy.

Chairman

  185. Mr Ko­hler, you can take comfort from the fact that there are demonstrations against us as well on issues. Can I lastly talk about the HIPC initiative . One of our expert witnesses mentioned that it was in crisis, and he mentioned Uganda in particular. In Uganda 1993-94, in terms of their commodity, coffee, they exported about $400 million, in 2001 they exported the same amount, but because of the fall they only got $100 million, so there was a $300 million shortfall. The $300 million is what they got from the HIPC initiative, so what they are saying is that because of the commodity price drop then the benefit to Uganda is zero. Do you have any comment on that?
  (Mr Ko­hler) I think this is an issue , and we are prepared to look at this issue. If there is an argument, we will be prepared to suggest to our board topping up of debt relief on a case by case basis.

  186. I know the G8 came out with some additional money, and I am sure you will be using that very quickly and efficiently, would that be correct?
  (Mr Ko­hler) I very much hope so, because the G7 often have ideas at the expense of others. So in case they make suggestions, they should also deliver the beef—that means the money—for it.

  187. Mr Ko­hler, I have been asked by my colleagues, who have written to me as you have been speaking, to thank you very much indeed, they have found this fascinating and informative. It will certainly help us in our deliberations in this country, so that we can push, along with yourself and others, for not just a more stable international environment, but a fairer one for everyone. Thank you for your presence this morning. We are indebted to you for coming across, and we are privileged.

  (Mr Ko­hler) Thank you, Mr Chairman. On Malawi, I will give you a paper so that we have a fair chance to sort it out.

  Chairman: Thank you.





 
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