Transcript

Transcript of a Press Briefing on IMF Reforms by Dominique Strauss-Kahn, IMF Managing Director

November 6, 2010

Webcast of the press conference

MS. ATKINSON: Good evening to those of you who’ve had the patience and stamina to stay here and to others watching on the web or otherwise. Apologies for the delay. The Managing Director has come directly from the Board room where agreement has been reached. And I will turn over to him to tell you a few things about that, and then we will just take a couple of questions and, given the lateness of the hour, wrap up. Thank you.

The press release will be here shortly. Thanks.

MR. STRAUSS-KAHN: Good evening. First, congratulations for staying so late. You all win the possibility of having an interview in the coming two years.

It has been a long day after long weeks and long months of work, and including the work which has been done after the meeting in Korea. The authorities in Korea have been very helpful at the ministerial and since then, but at the end we needed to have this day—a board meeting—to work out the different problems.

So, what’s the result of all this? We completed the reform which had been asked from us by the G-20 in Pittsburgh, and then endorsed by the IMFC at the last Annual Meeting or the last formal Annual Meeting in 2009. We did it earlier than expected because, as you know, the deadline was January 2011, and finally it appears it will be possible to do it a bit earlier.

What’s the result? The result is basically that the very long-lasting question of the legitimacy of the Fund is now solved. It’s not solved forever. New changes in the global economy will have to be also translated into new changes in the Fund, but at least we catch up with the reality.

What does that mean? It means that we have now a top ten shareholders which really represent the top ten economies in the world, namely the U.S. and Japan, the four big European, and the four BRICs. And so this very well-known question or remark made by a nasty journalist saying, well, is it correct that Brazil has a smaller voice and representation than this or this country from Europe? This point now disappeared. All these problems have been solved and the ranking of the countries is really the ranking they have in the global economy.

To do this we needed to shift a rather big amount of quota or of voting shares, which is almost the same thing, from advanced economies to dynamic emerging and developing countries. You remember that in Pittsburgh the requests by the G-20 and the same requests by the IMFC at the Annual Meeting of 2009 was a shift of 5 percent. We did a shift of more than 6 percent, and I think that is very, very significant because it comes on top on what has been done already with the 2008 reform.

At the same time—and that was a difficult exercise—we needed to do this while maintaining the quotas of the poorest country because there’s always a risk when you organize something which will be more in line with the economic weight of countries that finally the small countries, the poorest country, will just almost disappear in the process. So we had given ourselves this constraint that the poorest countries should be protected and they have been.

Then probably some of you will have the question, okay, but then who paid? Who paid for the increase of the dynamic emerging and developing countries? The payment can be broken down in the following way.

Let’s say one-half, a little more than one-half, let’s say one-half comes from advanced economies, mostly European advanced economies, but not only. The U.S. paid, also, some part of it. One-half, a little more than one-half of the shift comes from advanced economies. And one-third, almost one-third comes from oil producers, a country like Saudi Arabia, for instance. And so altogether 80 percent of the shift comes from advanced economy or oil producer, which means that 20 percent of the shift to dynamic emerging countries comes—that’s true—from other emerging countries being less dynamic. But I have read in some papers that finally all this was not that important because a large part of the shift to dynamic emerging countries were coming from other emerging countries. That’s wrong. A small part, only 20 percent, comes from other emerging countries. The largest—by far more than three-fourths of the shift, 80 percent of the shift—comes from advanced economies and oil producers.

Bottom line, 110 countries see their quota share increasing or maintained, 110 out of 187. And when you look at who are those 110 winners, you have 102 countries which are emerging countries or developing countries.

So that, I think, gives the clear picture of what has happened. One hundred ten are increasing or maintaining their quota and 102 out of these 110 are emerging or developing countries. What are the eight others? The eight others are a country like Spain, for instance, which is a developed country, but still was underrepresented and has some gain. But there are very, very few of them, only 8 out of 110. One hundred two are emerging and developing countries.

So this is a large part of the reform, but the reform is a package. And the reform is not only a quota reform; it’s also a reform in governance. And the two main things which in terms of governance are, first, the board composition—as you know, and there will be two fewer seats for advanced European countries. They have agreed to do it, agreed to the metric to do it and a timetable. So when this will be completed there will be two more emerging countries in the Board, which will just reflect the change in quota that I just mentioned.

And the second big governance reform is that the Board has decided to abandon, to get rid of, something which really was old-fashioned and was the fact that when the IMF was created 60 years ago, there was a difference between the five biggest shareholders called “appointed” executive directors and the others, which were “elected” Executive Directors. And this difference between, well, say, the high-class, high executive directors and the second-class Executive Director, was not the way to work in the Board where everybody was equal. But nevertheless, this old denomination of some being appointed, the others being elected, is what is going to disappear with an all-elected board, where all Executive Directors will be elected as soon as the reform will be implemented.

So taken all together, it’s a big shift in quota and, accordingly, in voting power. It’s a very important increase in the voice and representation of emerging markets and developing countries, especially among the 10 major shareholders, and it’s also a rather big change in governance. That’s why I said in Korea that, in my view, the proposal made by the G-20, which is not exactly the result we have today—some slight changes have been proposed by other members and they have been taken into account—but that this proposal, the breakthrough made in Korea seems to me at this time to be really a historic change and historic reform of the IMF. And I can confirm this today that the reform has been formally adopted by the Board and sent to the Governors, who will have to vote, of course, for this. It is an historic reform of the IMF.

Now I’m happy to answer your questions.

MS. ATKINSON: Thank you very much. So I’ll call on a couple of people for questions. If you could identify yourselves and your news organization. Yes, please.

QUESTIONER: Two short questions. One is it has to be approved by governors. It may require a legislative process in some countries. With the changing majority in the House in the U.S., do you fear that it could delay?

Second question, now we have China, that’s said to be number three of the Fund. You’ve often said that you expect China to act as a big player. For China and other emerging countries that are gaining weight, what do you think now they are expected to do?

MR. STRAUSS-KAHN: The first part, I don’t think that it will change something. The process has been launched and it is in the interest of the United States to have this reform being approved. So I don’t think in any way that a change in the majority in the House will in any way delay this process. But you’re right in saying that in many countries, not to say in most countries, the agreement has to go through the parliamentary process, and that’s why it takes time and that’s why I mentioned that all these changes really will take place when the reform will be implemented, and we know that it takes some time.

Now, on your second point, yes, I think it’s very important, if we want multilateralism and cooperation at the global level to take place, if we want the big players to be aware of their responsibility and not to play as an outsider, but really understand that they have in the system: on the one hand, voice, power, influence, but then, at the same time, responsibility. We need to have them correctly represented in the IMF. And that’s why I was so keen to have the 10 major shareholders being the ones I just mentioned, including China as the number three this time. And I think that it has an influence and it may have an influence on the behavior of the Chinese authorities. They were willing to have this position. They were willing to be better represented in the IMF, which shows that they do care about multilateral institutions and I expect that they will behave according to the importance of their role.

QUESTIONER: I was wondering, Mr. Strauss-Kahn, you speak about responsibility and decision-making. With this kind of shift, what kind of decisions or what kind of difference will it make in decision-making within the International Monetary Fund? So what kind of influence as your day-to-day decisions go? Do such changes have a bearing on the Fund?

MR. STRAUSS-KAHN: The Fund is very much an institution that works, if not by consensus, at least by a very large majority. And I can’t remember—I’ve now been here for 3 years—I just can’t remember any decision which has been made by a 50.1 percent majority against 49.9. So in this case, you may say, okay, then if all the decisions are made by a very large majority, then what does it change? That these countries increase their own voices by 0.2 or 0.3, it doesn’t change anything in the end. That’s wrong.

It’s wrong because it gives, around the table and in the dynamic of the Board, something different. The fact that the BRICs, for instance, will not feel as they probably felt before—invited to the table, but a minor player, but now feel as major players, will bring them to have a spirit of compromise and initiative that will certainly be different. And I can tell you already in this reform I have seen the representatives of the BRICs being much more constructive than I’ve ever seen them before, and I want to pay tribute to this just because they realize that now they’re big players.

QUESTIONER: Thank you. The first part of my question is that with some emerging economies leading now the economic recovery, do you expect those BRIC and other emerging economies to have a further and bigger voting share in the IMF in the future? And how and when would that be?

My second part is that what is your comment on the U.S. Federal Reserve’s recent quantitatively easing the QE, and it has sparked some critics and responding moves from other Central Banks. Is it in line within a coordinated response, the G-20 meeting at Gyeongju in Korea?

MR. STRAUSS-KAHN: You were very right in asking two questions, so at least I will answer one of them because the second has little to do with our topic of today. And I have as a rule, as you may know, that I only answer questions which are related to the topic of the day. So let me answer your first question.

Yes, I think it’s reasonable to expect that when the new quota review will take place in 2014, the 15th general review which has been set or for which a decision has been made that it will take place in 2014, I think it’s reasonable to expect—let’s say it’s likely—that emerging countries, when you look at the rate of growth of their economies these days compared to advanced economies, will gain some new shares in terms of quota and votes.

Growth and GDP is not the only variable that comes into account and, as you will see in the press release, it has also been decided that the quota formula will be reviewed and probably simplified, so I don’t know at the end what will be the real impact or influence of growth, but it will be important. So when you have countries like China, like India, even like Brazil, or others having a rate of growth between 5 and 10 percent, and some other countries, mostly advanced economies, having a rate of growth which is between 0 and 3, then, of course, it’s absolutely expectable that the next review, the shares of those having grown more rapidly will increase. So it’s a dynamic process.

Maybe some of you do remember that when we completed the 2008 reform—it was two years ago, two and a half years ago—I said, okay, the shift is modest, but it’s a first step. And if you look at the papers—not yourself, but your colleagues—wrote this time they were rather critical, saying—there was a lot of criticism, saying it’s a small shift, you know. You’re never going to change the face of the world with this kind of reform. And my answer was, okay, it’s a small shift because it’s the first step. There will be a second step and a third step. Here we have the second step and the second step is already twice as big as the first step we did two years ago, and there will be other steps in the future. So then the fact that this process is a dynamic process I think is, today, clear, and so we will follow the changes in the global economy.

But let’s imagine that for some reasons some advanced economy began to have 5, 6, 7 percent of growth a year and emerging economies goes down to 3 percent. I see no reason why it would happen, but let’s imagine. Then, of course, the changes could take place and the other way around. The goal is to represent in the best possible way the importance of the different economies and the global economy. When I say “the importance,” I’m not just thinking of GDP, but at the influence of the country in the global economy, which, of course, goes through as GDP, but maybe some other systemic consideration.

So thank you very much for having waited so long. I’m very sorry, but if it was only my decision we would have ended much earlier. I have to follow the discussion in the Board. Thank you for having been here and keep in mind that really this is probably not the most important problem in the world today. We have the economy and the recovery, the capital flows, the global imbalances, much more important problems than this one to deal with. But this was a problem which was taking a lot of time and energy during the last year. And I’m very happy that it’s now solved and really it’s a very important stone on the road of a totally legitimate institution.

MS. ATKINSON: Thank you very much.

MR. STRAUSS-KAHN: Thank you.