Köhler: I am more impressed than ever with the quality and commitment of the staff, my management colleagues, and the Executive Board. Yesterday at the Board, we had a full day’s discussion about the IMF’ s work program. We agreed to organize our work on a double track. On one track, we will work on the homework given to us at the spring meetings: review of facilities, standards and codes, transparency, and the HIPC [Heavily Indebted Poor Countries] Initiative. On the other track, I want to put these items into a broader picture—what I call a vision about the future of the IMF. We have organized a special working group that is concentrating on that.
My personal priority in these first weeks is listening and getting input. I have my ideas, but it is important to listen very carefully, have talks, and build up a dialogue. I have been meeting individually with every Executive Director of our member states. I came back from a tour of Latin America just last week, where I met with the leaders and economic teams of Argentina, Brazil, Honduras, and Mexico. I also took the opportunity to meet with businesspeople. At a lunch meeting in Honduras, I met with representatives of all parts of society—farmers, women, NGOs [nongovernmental organizations], and so on.
Next week, on a tour of Asia, I will meet with leaders and people from the financial sectors of Thailand, China, Korea, Indonesia, and India. Coming back from this tour, I will meet in New York with representatives of private capital markets. And we will, hopefully, have enough time before the Annual Meetings in Prague to organize a meeting here at the IMF with representatives of civil society to show that we are prepared to have a dialogue with civil society and the NGOs.
What impressed me most in Latin America was how clearly committed and dedicated the leaders, ministers of finance, central bank governors, businesspeople, and even trade unions—which I met with in Argentina—are to democracy and to organizing their economies on a market-oriented basis. The leaders made me aware of the dialogue with civil society and encouraged me to build up this dialogue but also expressed some concern that this dialogue should not undermine the legitimacy of democratically elected and established institutions.
I was also very much impressed with how prepared they are to continue with a clear agenda for reform policies. All of them told me they will stay on track with the economic policies they have been pursuing. This has already paid off for Mexico, which has a very strong growth performance, and clearly seems to be paying off for Brazil, whose recovery is gaining strength. It is also showing some success in Argentina, but its economy is not recovering so strongly. In Honduras, which was badly damaged by Hurricane Mitch, there seems to be a new spirit. That is the most important thing—to get out of the mess. So they stay on track.
I discussed very carefully the situation in Argentina. I had a good talk with the leaders of the trade unions. The main focus was on the social tensions in Argentina. I made clear that the market economy needs to be based also on a consensus about the social dimension of development. There cannot be blindness to poverty and social problems—that was also the understanding of the president and the government. So despite the difficulties and the sacrifices, I hope the ongoing process will stay on track.
What was also important is that these countries didn’t ask for particular favors from the IMF; they rely on themselves. But they also complained strongly that developed countries seem to believe that only the emerging countries have to reform. I agreed that to make global growth stronger and steadier, there must also be a strong reform process and structural change in the developed countries. For instance, the weak euro was a point of concern in Argentina particularly, but also in Brazil and Mexico. And the request that markets be opened more rapidly for these countries was a constant demand of these leaders.
In the IMF and other forums, there is an understanding that stronger and steadier world economic growth will require structural change and reform policy in the developed as well as the emerging and transition countries. This issue has to get more attention in the political debate to fight poverty and reduce the frequency and severity of crises.
Köhler: This has to be defined country by country, but the main direction is quite clear. The big countries in Europe must reform their social security and tax systems and make their labor markets more flexible. There is also a question about the sustainability of the European Union’s agricultural policy. These reforms do take time, but if the direction is clear, and commitment is clearly demonstrated, they will also have an impact on the euro in the short term.
Köhler: First, I was quite impressed that the president of Argentina firmly told me that it is his government’s program and not one imposed by the IMF. Ownership of programs and reforms is very, very important. Argentina has to make tough choices. You have to decide to spend on investment or consumption, and emerging countries need to make investment a priority. But when I met with Argentina’s trade unions, I had the feeling that this basic principle is understood, or could be explained and in the end will be understood. I am optimistic that these tough choices will pay off for the people. And the most important way for countries like Argentina to deal with debt is to strengthen growth.
Köhler: Before I answer with regard to the U.S. Congress, let me tell you that I met with members of the Honduran legislature, and we had a very interesting discussion. Honduras is a HIPC [a participant in the Heavily Indebted Poor Countries Initiative] and is in the process of getting to the decision point where it is eligible for debt relief. To do so, it has to take prior actions. And among the items the IMF had suggested is reform of the social security system and approval of a framework law for the energy sector, particularly the electricity sector. Social security reform is well under way, but the law for the energy and electricity sector is a bit stalled, because the legislators told me that the time is too short for them to understand the full impact of this law. I said that certainly the IMF will not press for congressional approval in two weeks’ time. It is too important that congress, which is the most important institution in a democracy, have the full understanding of what the law means and what its impact will be. We are flexible in process but firm in substance, so that the issue of, for instance, raising electricity tariffs in the medium term is not forgotten. Based on that, I think that we will get a good conclusion in Honduras.
It is important for me to elaborate first on the congress of a small and poor country before I come to the congress of a big and rich country. But I will take up a dialogue with the U.S. Congress. I am in the process of organizing appointments and am quite confident that it will be a very constructive dialogue.
Köhler: I will meet with Professor Meltzer. I have already told him so in response to his letter congratulating me on my appointment as Managing Director. And the then—Acting Managing Director, Stanley Fischer, has already testified before the U.S. Congress on the Meltzer report.
Dawson: Mr. Fischer also appeared with Professor Meltzer as recently as last week. And the actual formality of the commission is that the U.S. Treasury, to whom it was in part directed, is preparing a response.
Köhler: Restructuring, rescheduling, or other steps are an issue for Argentina and its creditors. But a major point in dealing with this issue is for Argentina to keep the confidence it has built up in the last years with the private capital markets and the international community. And the IMF is prepared to play a role in this ongoing confidence-building process. Argentina has the potential to prove it is a reliable partner and—even more important—has the potential and the commitment to achieve a very strong growth path.
Köhler: We are in mid-process in organizing it. The core of this group will be the heads of some IMF departments. We will also try to get some external advice, but give us a bit more time to organize it more carefully. I am chairing the working group, but it will involve the full management team. In terms of size, it should be big enough to have the full range and expertise needed, but small enough to be practical.
Köhler: The Central Bank of Mexico was right to raise its interest rates. Mexico’s fundamentals have improved remarkably, and there is potential for steady growth. With some vigilance, which has been demonstrated by the decision of the central bank, it should be possible to hold up strong growth for some period in Mexico.
Köhler: I am planning to make a one-week trip to Africa beginning July 10. The countries may include South Africa and Nigeria and several francophone countries—about four or five countries—but the trip is still being planned.