Examination of Witnesses (Questions 100-119)|
27 APRIL 2006
Q120 Ms Keeble: Can I come back just
a little on that because there are some questions we have got
here on the brief, which I think to an extent have been dealt
with, about transparency and about information, and obviously
having the media present, whilst some people do not like it, is
actually an important part of ensuring that. Part of the success
of your speech was that it did get into the general media and
not just the finance media and that was really important. In your
model, is there not a risk that you have a very nice economic
debate, very intellectually satisfying, you issue the communique«,
then you say to the Americans, "You've got to deal with the
deficit," which means budget cuts, which no politician likes,
and you say to the Chinese, "You've got to deal with your
surpluses," which means consumer spending, which is politically
explosive in China. How do you bring those two worlds together
to get obviously what you are wanting?
Mr King: You have to have both.
I think it is a question of timing. Some of the meetings that
might take place as part of multilateral consultations should
be able to take place without the participants feeling under the
pressure of immediately going out and facing the cameras. At the
end of the consultation, which might take several meetings and
maybe many months, the IMF should be under pressure, and the Managing
Director has said he would do this, to make public the IMF's views
on the outcomes. I think people will know that the IMF will have
to make a public statement at some point. Nevertheless, they should
still be able to have meetings where they can be frank and open
with each other. I think that was the original purpose of the
G7. The G7 has drifted into a situation in which the purpose of
the G7 meeting is to issue a communique«. This is the wrong
way round. A communique« might report on a meeting but you
do not want a meeting driven by the question "What can we
think of to put in the communique« this time?" There
have to be opportunities for having meetings where you are not
committed to a communique« at each and every meeting but
where the Fund, at the end of this process, has to make a clear
public statement of its analysis and its views on where the consultation
has got to. It is rather like our MPC meetings. We do not allow
the cameras into our MPC meetings because we want to encourage
frank interchange across the table, but at the end of the process
we do publish detailed minutes, 13 days later, which set out the
arguments and the terms of the debate. If we allowed the cameras
into the meetings you would not see as open and frank a discussion
at the MPC meeting as you do get now. You can get transparency
but it has to be designed carefully.
Q121 Chairman: There are cameras
here, Governor, and I hope you are still being frank?
Mr King: I always try to be frank,
Q122 Mr Gauke: Governor, first of
all, may I say what a splendid tie you are wearing.
Mr King: I hasten to add, this
is the tie of the All-Party Parliamentary Group on Cricket.
Q123 Mr Gauke: Indeed, and your address
to that Group earlier this week was very much appreciated, by
all Parties, and I think Colin would confirm that. If I may ask
how the Bank reports on its dealings with the IMF; the Treasury
produces an Annual Report, how does the Bank of England address
Mr King: In terms of communicating,
we do it through that Report. That Report summarises the contribution
of the Bank. We work closely with the Treasury on all the meetings
leading up to the spring and annual meetings of the Fund and our
work is reported in there too.
Q124 Mr Gauke: Do you think, as a
general rule, that the Bank is as transparent as it might be,
with regard to international organisations such as the IMF?
Mr King: We are here today, in
front of the cameras, as the Chairman has reminded us. I think
we could not be more transparent than that.
Q125 Mr Gauke: Fair enough. One issue
which a committee of the European Parliament has raised is greater
co-ordination at a European level in the IMF, in the sense that
the US has got a percentage which gives it a veto; if you combined
all the various EU countries together it would be enough also
to have a veto. Can I ask for your views on that issue?
Mr King: I think it is important
to distinguish between the European Union, on the one hand, and
the euro area, on the other. In the context of any multilateral
consultation on the world economy you would expect the European
Central Bank to be one of the players, yet the ECB does not have
a seat at the table of the IMFC. Why? It does not correspond to
a country. This is one of the challenges to the euro area in the
future. It needs to develop, on the political side, the way in
which it can have common and shared representation. That has not
evolved anywhere as quickly on the political side as it has on
the Central Bank side.
Q126 Mr Gauke: Is that in respect
of countries in the eurozone alone?
Mr King: Yes; just countries in
the eurozone. They have their currency and the multilateral consultations
will be about issues relating to the euro and the monetary and
fiscal policies in the eurozone and the consequences for the currency.
There is quite a good argument for suggesting that the euro area
has to think quite hard and deeply in the years to come about
how it is represented at the IMF. The same does not apply to the
European Union, where there are countries with national sovereignty
over their monetary and fiscal policy, and obviously in our case
a different currency altogether. There may be a question about
exchanging views to see whether there is or is not common ground
on various issues to put forward a common European position. It
could not be the case that the representatives, for example, of
the euro area could possibly speak for the United Kingdom on monetary
or fiscal policy; we have our own currency. I think it is important
to distinguish between those two aspects of it.
Q127 Mr Gauke: Presumably, you think
the ECB should be there?
Mr King: Obviously they should
be there, but I understand the frustrations of many non-Europeans,
which are that in a process of what is described as European integration
and the creation of a single currency with a single Central Bank,
the result is that more Europeans end up at the table rather than
fewer. This does not seem intuitively obvious and indeed it has
been a source of quite significant friction and frustration at
all international meetings, whether it is the IMF or even the
G7, and at some point the euro area will have to face up to this.
Q128 Mr Gauke: As far as you are
concerned, there is a substantial distinction between those countries
that are in the eurozone and those countries that are outside,
as far as organisations such as the IMF are concerned?
Mr King: Yes, because the IMF,
as some of the earlier questions indicated, is, first and foremost,
about currencies and exchange rates, so what distinguishes members
round the table is that they have their own currency and exchange
rate. This is the challenge which faces both the euro area and
indeed the Fund itself, which is that there is a group of countries
which have one currency. That does not make representation easy.
The arguments about pooling representation have some force, but
they have force because those countries share a common currency.
Q129 Mr Gauke: They do not have a
force when applied to us?
Mr King: No. They would have,
if we were to join the single currency, but with our own currency,
Q130 Mr Gauke: Given that, is there
room for much scope for co-ordination with other EU countries?
Mr King: Yes, there is plenty
of scope and indeed we ourselves sit on the International Committee
of the European Central Bank, because we are members of the system
of European Central Banks and I am a member of the General Council.
It is useful to have discussions about the questions and issues
in order to help all of us evolve our view. Sometimes that view
is very similar, in which case we can present a harmonised view.
In other cases it is not, in which case we present our own view.
Q131 Mr Gauke: It is essential, whilst
we remain outside the eurozone, which looks likely for the foreseeable
future, that we must have a separate voice at the IMF?
Mr King: Indeed, and I do not
think anyone would suggest otherwise.
Q132 Mr Todd: Can we turn to the
issue of governance and accountability. You have given your opinions
on the possibility of dividing the function of lending and the
representation in that part of the IMF's role from, for example,
setting out the accountabilities of the leadership of the IMF,
where perhaps there might be a rather broader representation gulf.
I think you have made the very fair point that lenders have a
perfect right to set their own conditions and have a substantial
say in those conditions. Do you want to add to that approach?
Mr King: No. I think that, in
general terms, it is important that the Fund has a very clear
sense of its own mission. It has, in the past, been less clear.
I think the Managing Director has evolved now a very clear view.
I think the membership too must have responsibility for ensuring
that it understands the clear mission of the Fund and over recent
years there has been a tendency for groups like the G7, or even
the IMFC at times, to say, "Well, here's a new problem we've
thought of in the past six months, let's give another responsibility
to the IMF." I think that does not make life easy for the
Fund. It is very important that we maintain a very clear view
of the core mission of the Fund and then to hold the Managing
Director and his staff accountable for achieving that.
Q133 Mr Todd: Let me come back on
the accountability issue. You disagree very strongly with the
World Development Movement who told you that you were wrong in
advocating increased independence for the Fund and more accountability
within the Fund?
Mr King: I am not sure if they
understood entirely what I was suggesting. To hold senior management
properly accountable is something which I find it hard to believe
they would disagree with. It is important to have proper accountability
mechanisms and they must be accountable to the members as a whole.
That is why I think that we need to make the Board, which represents
all 184 member countries, an effective Board which is capable
of holding the management accountable.
Q134 Mr Todd: Rebalancing the representation
in decision-making within the Fund is based on decisions about
quotas and there is a review with us currently. How do you feel
that should be addressed?
Mr King: I think everyone accepts,
and that came out of the IMFC communique«, that there does
need to be a change. The reason is not so much effect the day-to-day
workings of the Fund.
Q135 Mr Todd: I think it conceded
that there needed to be change; it did not say actually quite
how people could do it?
Mr King: No, but it made it clear
that the Managing Director had to bring forward concrete proposals
at Singapore for that, and I would be amazed if we did not get
some agreement at Singapore about at least a limited set of ad
hoc increases in quotas. The main objective here, I think, is
to deal with the perfectly reasonable questioning by many countries
of the legitimacy of the Fund, when the quotas represent a rather
outdated view of the world economy. Some change is important to
ensure the legitimacy of the Fund. I would not expect this to
make a dramatic difference, it is cultural, it is a question of
legitimacy. It is not going to have much impact on the way the
Fund works, because it is an organisation where people make their
contribution, how seriously it is taken, how it affects other
people, is not a function of their quota, it is a function of
their clout and weight in the world economy. The fact that China
has a small quota now relative to its calculated quota does not
mean to say that people take China less seriously now than they
would 12 months from now if the quota were increased.
Q136 Mr Todd: Would you extend that
argument to discussion of the USA's quota and to their role effectively
as having a veto in the organisation, in the sense that obviously
no-one could ignore the USA's position in the world economy, regardless
of precisely what voting weight can be given within the IMF?
Mr King: I think if the US were
strongly to oppose something it would make it very hard for the
Fund to be effective. We have seen that in the G7. If the US does
not really go along with a proposal in the G7, the G7 tends not
to go off in a different direction, and the G7 as a whole is the
major block in the Fund. Countries do have enormous influence
reflecting their status and position in the world economy, and
the precise quota does not really influence that. That is not
an argument against changing quotas at all, because it is of more
than just symbolic importance. If there really is to be an institution
where people have trust in the neutrality of the management and
the fact that it will be objective in its analysis, it must be
willing to change the quotas in line with the changing importance
of countries in the world economy. It is important in terms of
establishing the overall trust and confidence of members in the
Fund, but if we had made quite significant changes in quotas I
doubt that you would see that reflected in changes in decisions
or attitudes, and so on.
Q137 Mr Todd: Do you think the discussion
of the US's unique position within the IMF is really an artificial
discussion and, in a sense, that everyone accepts they do have
a unique position, however we choose to parcel out voting rights
and powers within the IMF?
Mr King: I think that is largely
the case and I think it would be much better to focus on, for
example, something that is very important for governance, the
debates on how the Managing Director is chosen. To my mind, this
does not have anything to do with quotas or votes, it is to do
with the determination of the membership to say, "Well, look,
this time we really must put in place a process to ensure we have
the choice of the best candidate."
Q138 Mr Todd: You have led me on
to a question I was going to ask, which is about the process for
appointing the Managing Director. Do you feel that procedure should
be altered? Obviously I think it has already been accepted there
should be a transparent procedure, but there are lots of procedures
which can be transparent without necessarily producing the best
outcome. What reforms do you think should be put in place to ensure
that we secure a person with widespread acceptability, who may
not be, for example, European?
Mr King: Indeed, and I think that
what is most important is to put in place a process which is acceptable
to the membership overall. It is not at all clear what the present
process is. The most important thing is to write down what that
process is before there is a vacancy. If you try to develop a
process for making an appointment once there is a vacancy then
you are in deep trouble, because the question of who the candidate
will be is bound up inextricably with the process. It is most
important to put this in place now while there is no vacancy.
I think this view is becoming more widely accepted. I think it
is particularly incumbent on the European countries to make a
reality of this and to say, if a vacancy were to occur, "No,
we're not going to fall back on simply having a private European
meeting and nominating a candidate. We will abide by the process
and we'll put forward some candidates perhaps, but we have to
go for the best person."
Q139 Mr Todd: Do you think the IMFC
Mr King: Up until now I would
have said it is one of those meetings, on a Saturday afternoon
in a windowless room in Washington, when you would be sitting
there thinking "Is anybody else outside the room taking any
notice of this?"