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In the Midst of Upheaval,

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By Edmund L. Andrews

New York Times
March 15, 2000

Frankfurt - Horst Kí¶hler, the veteran German banker now expected to run the International Monetary Fund, is not widely known, even in Germany. But he is no stranger to the kinds of seismic political and economic upheaval that come with the responsibility of managing a global lender to financially distressed nations.


Mr. Kí¶hler was a financial engineer behind two of Europe's biggest transformations. The first was the reunification of Germany 10 years ago after the collapse of Communism. The second occurred relatively recently: the creation of the euro, the common currency that 11 European nations adopted more than a year ago.

People who know Mr. Kí¶hler say that far from being a political or economic lightweight, as detractors have suggested, he has the toughness of someone who has endured baptisms by fire. Perhaps more surprising, he could prove to be a tough-minded fiscal conservative in the political battle over the I.M.F.'s future mission and strategy.

Many of Mr. Kí¶hler's mentors and longtime colleagues are top officials at the German central bank, people who have for years argued that the monetary fund should avoid big bailouts. In that regard, Mr. Kí¶hler may well echo those in Congress and the Clinton administration who want to curtail some of the lending institution's activity. "He is a conservative -- by his background, his party affiliation and the jobs he has held," said Norbert Walter, chief economist at Deutsche Bank. "He is a hard-liner." After two weeks of trans-Atlantic bickering, the United States reluctantly endorsed Mr. Kí¶hler on Monday to become the next managing director of the I.M.F.

Washington's accession, following agreement by all 15 European Union countries, ended a spectacle stemming in large part from Germany's insistence that the job go to a German for the first time in the I.M.F.'s 37-year history. A week earlier, President Clinton defied the Germans' wishes by rejecting their first choice for the job, Deputy Finance Minister Caio Koch-Weser.

Mr. Kí¶hler, who was on the way to I.M.F. headquarters in Washington today, declined to be interviewed. But he picked up more endorsements: from Russia and Japan, and from his prospective counterpart at the World Bank, James D. Wolfensohn, who said that the German would be "a very, very good person to run the I.M.F." To most people, Mr. Kí¶hler is an unknown quantity. Born on Feb. 22, 1943, in Skierbieszow, Poland, he is married with two children. He has spent most of his career in banking and finance -- for the last two years as president of the London-based European Bank for Reconstruction and Development, which lends money to projects in the former Soviet republics and Eastern Europe.

Despite his professional achievements, Mr. Kí¶hler has worked largely outside public view. That could be one of his biggest problems. American officials vetoed Mr. Koch-Weser partly on the grounds that, in their view, he lacked sufficient international stature to run the I.M.F., which provides emergency financing to developing and distressed countries.

But Mr. Kí¶hler is hardly a neophyte. Now 57, he was a top economic adviser to Chancellor Helmut Kohl a decade ago, as the Berlin Wall was crumbling. Without warning, he found himself in the midst of changes of extraordinary sorts. As Mr. Kohl's representative to the Group of Seven industrial nations, he led negotiations over the restructuring of billions of dollars worth of debt left by the collapsed Soviet Union. Because Germany was and remains one of Russia's biggest sources of foreign lending, Mr. Kí¶hler frequently sparred with the United States over how countries would divide the burden of refinancing or writing off old loans.

Mr. Kí¶hler was also the financial architect of a far-reaching deal with Russia to evacuate its troops from the former East Germany. Under that deal, the Germans agreed to finance an enormous building program in Russia, which would provide homes for soldiers as well as a source of jobs.

One of his important legacies was his work in bringing about the economic unification of eastern Germany with the western areas. He provided the blueprint for Germany's currency conversion in 1990, under which the former East Germans received one West German mark for every two of the nearly worthless Ostmarks.

The plan was harshly criticized by some economists and led to the resignation of Karl Otto Pí¶hl as president of Germany's central bank. But Chancellor Kohl barreled over all objections on the ground that the political reality of German unification would allow nothing less. Germany is still groaning under the consequences. Eastern unemployment remains nearly 20 percent, twice as high in the West, partly because prices and wages have soared to western levels without a comparable rise in productivity.

Mr. Kí¶hler also played a big role in organizing the enormously expensive privatization of state businesses in the eastern areas. As a top official in the finance ministry, he organized the Treuhand, the agency charged with selling 11,000 rusting and moribund companies. The Treuhand soon gained a reputation for catering to western German bargain hunters. It supplied tens of billions of dollars in taxpayer subsidies to industrial companies that either collapsed or eliminated most of their workers.

Many experts argue that the privatizations would have been messy under any circumstances, and the experience in some other former Communist countries was worse. Even as Germany was coming to grips with reunification, Mr. Kí¶hler was negotiating over plans for a common European currency. His job was to take the vaguely defined vision of a single currency and ensure that Germany's unflinching emphasis on price stability was dominant in all policy-making.

That meant forcing countries like France to accept German demands for fiscal austerity as well as an independent central bank. "If you look at the structure of the European Central Bank, it is not far from the structure of the German Bundesbank," said Gert Haller, who worked closely with Mr. Kí¶hler and succeeded him as top adviser to Chancellor Kohl."If we hadn't succeeded in making the central bank the way it is now, the whole thing could not have been sold in Germany."


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.