New directions for IMF?

26 October 2000

“I have a heart” pleaded Horst Köhler in a meeting with NGOs in London in September and at the Annual Meetings. NGOs welcomed Köhler’s commitment to tackle poverty reduction but warned him that they would watch to see what specific changes were made and that they would be highly critical if he did not put his words into action.

Köhler insisted that Africa will continue to be a major focus of the IMF‘s work. He also insisted that the IMF would have to tackle inequality. He claimed he would work towards “cooperation without ideology”, suggesting that the IMF should listen more to developing countries and ensure that the policies the IMF advocates, for example on privatization, are based on needs. “Its not just politicians but societies that need to be more involved”, he said, arguing that the IMF should go into the field to meet ordinary people. He was not convinced of any need to reform the IMF‘s voting system, however.

He agreed that the IMF should develop a more flexible approach to conditionality, with staff presenting governments and parliaments with a menu of reform options. The IMF should be “candid” with governments about what is feasible, whilst being sensitive to cultural and political issues. He also said that the IMF needed to streamline its conditionality, which currently is “too much and too difficult”, to focus on core areas, and focus its technical assistance.

He stressed that debt reduction was essential but insufficient for poverty reduction. In addition, rich countries should reduce their trade barriers to developing countries’ goods and increase the level of development assistance. Yet he gave no hints on how the IMF might encourage rich countries to reduce trade barriers and said that developing countries should continue to liberalize in the meantime.

The Annual Meetings in Prague also emphasized the IMF‘s role in crisis prevention through better surveillance of domestic and the international financial system, particularly through expanding the Financial Stability Assessment Programme and being more proactive in discussing appropriate mechanisms for regulation and supervision of international financial markets.