International Man of Money

For someone whose org-anization has been targeted by violent protests during his two years at its helm, International Monetary Fund managing director Horst Köhler is surprisingly sanguine about the antiglobalization activists who have become a fixture at recent international financial gatherings. If they're as peaceful as those at April's imf-World Bank meeting in Washington, he says, "in the end, the demonstrations are helpful." The fund, which is capitalized by 183 member countries at $265 billion and has $77 billion in outstanding loans, is undergoing major reform and, says Köhler, the protesters' demands have been heard. "I'm sure we would have done it also by our own decision, but the process of transparency in the imf was surely accelerated by this request from the demonstrators that the fund should be more open."

Köhler, a former president of the European Bank for Reconstruction and Development, agrees that the inequities that galvanize protesters are a matter of urgency. "If we are not able to have a vision of how globalization works for the benefit of all, it will backfire and put at risk prosperity even in rich countries," he warns. On a visit to Africa this week, his third to the continent during his tenure, Köhler will be focusing on promoting economic stability and financial-sector development. Conducting poverty-reduction workshops with authorities in places like Burkina Faso and Tanzania may seem like a dramatic shift in focus for someone who, as Germany's Deputy Minister of Finance, led his government's negotiations in the talks that resulted in the Maastricht Treaty on European monetary union.

The problems of pension reform and labor-market inflexibility that Köhler cites among the most pressing facing Europe are far removed from Africa's more basic economic hurdles, like providing clean water and health care. But, like the activists, Köhler stresses the interconnectivity of the world's economies. "They cannot create more jobs in Africa if they can't have a better opportunity to sell their products in agriculture, for instance, to Europe," he says. "That means there is a need for structural change in European agricultural policy."

Köhler, 59, was born in Poland to ethnic German parents from Romania who moved to Germany when he was an infant. He says the E.U.'s imminent eastward expansion is another reason for Europe to "be more ambitious with labor reform." Though Köhler is careful to note that he's not advocating a "harsh hire-and-fire policy," he faults rigid labor practices that can make it difficult for businesses to react quickly to change. He dismisses as "overdone" fears that eastern European workers will stream westward and says that "the ideal of European integration is not a centralized state, but a diversified Europe with the identities and cultures remaining. Polish people want to stay in Poland!"

Perhaps, but when his five-year term expires, this particular German may want to stay in the U.S. Köhler says he has no intention of going back to government in Germany, and though their two grown children are at school there, he and his wife Eva, a former teacher, are happy in Washington.

Q&A
TIME: Are you surprised by the speed of the economic recovery?
KÖHLER: It was indeed a bit of a surprise to me that, in particular, the U.S. economy recovered so quickly. I think the main reasons are the aggressive stimulus coming from cutting interest rates and President Bush's tax cuts. They demonstrate that the U.S. economy is very flexible in terms of tech-nology and labor markets.

TIME: How can Europeans boost economic growth?
KÖHLER:First, they need to be serious about creating a single market. They have monetary union, but they don't really have a single market in energy, finance, telecoms and other things where a single market would give them further grounds for productivity gains. Secondly, they are not clear enough about reforming their pension systems. Another core problem is that their labor markets are not flexible enough.

TIME: What impact will E.U. expansion have?
KÖHLER: The accession process is a further argument to be more ambitious with labor-market reforms. People are frightened that workers from the east will stream to the west. If the reform process in the accession countries is accelerated, why shouldn't there be a boost for growth all together? The E.U. should create a kind of win-win situation.