Johannes Witteveen, 1921–2019

Johannes Witteveen, a former International Monetary Fund managing director and adviser to Central Banking, has died aged 97.

He headed the fund from 1973 to 1978, a period of great monetary instability and reform, as the Bretton Woods system began to fall apart. Later, he became a founding member of Central Banking’s advisory board.

Hendrikus Johannes ‘Johan’ Witteveen was born on June 12, 1921, in the province of Utrecht, in the Netherlands. He went to secondary school in Rotterdam, before going on to study economics at the Netherlands School of Economics, where his PhD was supervised by Nobel laureate Jan Tinbergen.

Witteveen continued working under Tinbergen at the Bureau for Economic Policy Analysis, part of the Dutch Ministry of Economic Affairs, starting in 1947. In 1958 he was elected to the Senate, and in 1963 to the House of Representatives, representing the liberal VVD party.

He became finance minister in 1967 – a position he held in conjunction with the role of deputy prime minister until 1971. For the next two years he returned to the Senate, before taking up his role as IMF managing director. In all, he served 2,441 days in the Dutch parliament.

IMF managing director Christine Lagarde said: “On behalf of the IMF, I express our deep condolences to the family of former managing director Johan Witteveen. In a remarkable career including as the Netherlands’ finance minister and deputy PM, he led the IMF 1973–78 with great distinction and continued to support our mission.”

“Staggering disequilibrium”

Witteveen had a challenging time at the fund. Writing in the IMF’s F&D magazine in 1974, he noted the major turbulence in the international system, as the decline of the Bretton Woods agreement clashed with the oil crisis that began in 1973.

“The international monetary system is facing its most difficult period since the 1930s,” he wrote. “As a result of recent developments in oil prices and supply, 1974 will almost certainly be a year of staggering disequilibrium in the global balance of payments.”

The global monetary system was at the time coping with the de facto collapse of Bretton Woods, as Japan and the European Economic Community allowed their currencies to float freely in 1973.

Growing public debt in the US was causing the dollar to become increasingly overvalued relative to the price of gold, depleting US gold reserves. At the same time, the growing economic clout of Japan and Europe led many to question the dollar’s privileged position in the global system.

The oil crisis of 1973 added fuel to the flames. Because oil was denominated in dollars, and the end of the gold standard under Bretton Woods devalued the dollar, oil producers felt the squeeze on their profits and raised prices. The problem was compounded by instability in the Middle East due to the Yom Kippur War and Iranian revolution. Oil prices quadrupled in the space of six months.

Monetary reform

Under Witteveen, the IMF scaled up its support for the international monetary system and put out guidelines on managing floating exchange rates in 1974. He also contributed to the development of the first World Economic Outlook, which started out as internal analysis and grew into what is arguably the fund’s most important publication.

Over the following years, the fund was closely involved with supporting countries suffering from oil-induced balance of payments crises. A new “subsidy account” was launched to support the most seriously affected. The IMF also launched a trust fund to support developing nations, funded in part by gold sales.

Towards the end of Witteveen’s term, in April 1978, the fund amended its articles of agreement to give members the formal right to adopt exchange rate agreements of their choosing. Witteveen passed the reins to Jacques de Larosière on June 17, 1978.

After leaving the IMF, Witteveen served as the first chairman of the G30. He became a member of the Royal Netherlands Academy of Arts and Sciences in 1980.

Robert Pringle, founder of Central Banking, remembers working closely with Witteveen at the G30. “Johannes Witteveen was a profound thinker, an inspired leader and, for those who knew him well, a warm and affectionate man,” says Pringle.

Pringle and Witteveen worked together during the second oil crisis, in 1979–80. “I remember vividly a trip I took with him to Riyadh to meet Sheikh Yamani, a Saudi oil minister who basically ran the cartel of oil-producing countries,” says Pringle.

“Yamani listened carefully as Johannes explained the implications of the further oil price hike for importing countries and agreed to consider our proposals. Witteveen had got to know Yamani and other key players when he set up the trust fund in the IMF after the first oil crisis in the early 1970s.”

Witteveen believed in the IMF’s special drawing rights as a means of anchoring the international monetary system. He pushed for the IMF to set up a substitution account that would allow countries to deposit surplus dollars in return for SDR claims. In the G30’s first policy statement, published in 1980, Witteveen wrote: “A multiple currency reserve system is inherently unstable”.

“That is vintage Witteveen,” says Pringle. “His fellow Dutch colleague, Jacques Polak, long-serving chief economist of the fund, once told me, with a laugh: ‘The trouble with Johannes is that he always tries to solve all problems with a single solution’.”

Witteveen was married to Liesbeth de Vries Feijens until her death in 2006, with whom he had four children. His son Willem followed in his footsteps to become a senator, representing the Labour party. Willem died in July 2014 as one of the passengers on board Malaysia Airlines Flight 17, which was shot down over eastern Ukraine.

Johannes Witteveen died on April 23.