New York Times - June 30, 2000
I.M.F. Is Expected to Ease Demands on Debtor Nations By JOSEPH KAHN
WASHINGTON, June 29 -- The International Monetary Fund, which has ordered developing nations to enact wrenching reforms as the price for emergency aid in recent years, is likely to curtail the demands it makes of clients who borrow money in the future, a senior fund official said today.
Streamlining the conditions the I.M.F. imposes on borrowers is one of the changes Horst Köhler, the fund's new managing director, is weighing as a panel he commissioned to study the role of the agency completes a draft report. Some government officials, academic experts, and private charity groups criticized the fund for requiring that Thailand, South Korea and Indonesia overhaul their economies during the Asian financial crisis in 1997 and 1998.
The I.M.F.'s demands for broad changes were captured in a widely reprinted 1997 photograph of Michel Camdessus, the fund's recently retired managing director, peering over the shoulder of former President Suharto of Indonesia as Mr. Suharto signed a lengthy letter of intent to receive emergency aid. The fund required Indonesia to overhaul its transportation and energy sectors and end price subsidies on some commodities, changes that fund officials now say might have been too much for Indonesia to swallow.
Mr. Köhler, who visited Indonesia during a tour of Asia earlier this month, has said that he wants the fund to focus on what he calls its "core competencies."
The senior official said today that the fund's main goal during a crisis should be to restore investor confidence quickly by helping troubled nations manage their finances and currencies. Dictating more sweeping economic changes as the price for assistance potentially works against that goal, the official said.
"Some people say that the fund has acted like a Trojan horse to impose the economic system of the West," the senior official said. "There may be more of a possibility for countries to find their own path."
Mr. Köhler, a German who took over as I.M.F. managing director in May, served previously as head of the European Bank for Reconstruction and Development and, before that, as a senior economic aide to Helmut Kohl when he was the German chancellor. He has said that one of his top priorities is to sort through several conflicting proposals for overhauling the I.M.F., including a plan put forward by Treasury Secretary Lawrence H. Summers and another by a Congressional commission.
Mr. Summers suggested that the I.M.F. should limit its long-term lending programs and discourage repeat borrowing by developing nations, the better to preserve its capital to fight financial crises. The Congressional commission advocated a much more radical overhaul, which was dismissed by both the fund and the Clinton administration.
A senior Clinton administration official said today that he believed the I.M.F. overhaul process was headed in the right direction.
The Clinton administration strongly supported the fund's role during the Asian crisis, though Mr. Summers has subsequently said that some of the fund's initial demands on crisis-stricken nations were too severe. Administration officials today declined to comment on the fund's plan to streamline the requirements it imposes on developing nations during times of crisis.
The I.M.F. board plans a retreat in mid-July to discuss changes, the senior I.M.F. official said. The fund has also arranged a retreat with the World Bank, its sister lending agency, where officials will try to sort out things the two bodies should do together and others that they should do separately.
Many broad economic changes that the fund has required its client nations to carry out in recent years have in fact been designed by the World Bank, I.M.F. officials said. Fund officials now feel their lending programs should not be used as leverage to advance sometimes hotly disputed World Bank ideas, especially those involving the sale of state-owned companies.
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Financial Times - June 30, 2000
Köhler seeks to streamline IMF loan conditions By Stephen Fidler in Washington
Horst Köhler, the new managing director of the International Monetary Fund, sees a need to reverse some of what he has called the fund's "mission creep" and aims to streamline the conditions attached to its loan programmes, a senior fund official said on Thursday.
The official said that after two months in office, which have included trips to Latin America and Asia, Mr Köhler took the view that the fund had overburdened its programmes with conditions, which had to be scaled back in the future.
The senior official pointed to the detailed 43-page agreement between Indonesia and the fund signed this year as an example of where, in the managing director's opinion, IMF conditions had become excessively broad. As well as setting goals in fiscal and financial policies, the agreement covers reform in energy, forestry, agriculture and other parts of the economy.
Mr Köhler believes such broad conditionality is interpreted unfavourably by Asian and some other borrowers from the fund to be a Trojan horse, a way of imposing western values by stealth on member economies, the official said.
The managing director has made clear in comments to staff and to member governments that he wants to enlarge the voice of the developing economies in the fund, a wish which if fulfilled could well lead to reduced representation of Europe on the IMF's board of directors. The view suggests he is eager to undo some of the ill feeling caused by his appointment earlier this year, when European governments led by Germany, in effect imposed their candidate to lead the fund.
He has said he wants to see the IMF become focused more on its core mission to encourage macroeconomic stability - and to see it better integrated in the international system, with not only the World Bank but also organisations such as the World Trade Organisation.
Mr Köhler has also argued that IMF programmes should be framed to place more emphasis on growth and less on austerity. He saw a need, said the official, "to look at the more dynamic elements of an adjustment programme, not just the austerity elements".
The official said the managing director saw strong arguments for keeping the fund involved in the poorest countries in Africa and elsewhere, but believed the division of labour between the fund and World Bank in anti-poverty programmes in these countries should be examined.
Since taking over, Mr Köhler has established a special committee of a dozen members of senior management that has put together a draft version of a "vision statement", which when completed is meant to guide the future work of the fund.
The fund's 24-strong board of directors, which represents government shareholders, is expected to discuss the document at a retreat in mid-July.
Mr Köhler has visited senior US lawmakers, meeting in recent weeks Phil Gramm and Paul Sarbanes, chairman and ranking minority member of the Senate banking committee, in an attempt to unblock authority for further IMF gold sales.
The managing director leaves at the weekend for a five country trip to Africa.