Examination of Witness(Questions 180-187)|
THURSDAY 4 JULY 2002
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 rules25
times the amount to Turkey, very high levels to Pakistanand
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.
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
(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.
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 beefthat
means the moneyfor 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
(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.