Why and how was the JVI established 25 years ago? What were the milestones in its development? For answers to these questions, Adam Gersl, JVI senior economist, interviewed Eduard Hochreiter, Oesterreichische Nationalbank (OeNB) representative when the JVI was established (1975-2006) and former JVI Director (2006-2012).
What were the main reasons for establishing an international training center in the early 1990s?
Recall the pivotal moments of history at that time: the Soviet Union disintegrated, the centrally planned economic system collapsed, and countries in Central, Eastern, and Southeastern Europe began their journey of economic and political reintegration into the world. Out of these events arose an urgent need for these countries to have public officials and managers capable of steering and administering this transition. As you can easily see, these tasks presented an immense challenge for all. You only need to think about an official in the planning ministry, say, who had been used to simply deciding on production targets and prices and then allocating the resources he thought necessary to reach the targets. Then, from one day to the next, all his knowledge became worthless. Instead, he now was expected to think about rules of competition, figure out how the price mechanism works, and understand how products are sold on the market.
Clearly, an enormous demand for training sprang up not only in nearly all areas of economics and economic policies but also in institution building and infrastructure areas. For example, one of the first courses the JVI offered was on water and waste management, an area where Austria always scored high and thus could share best practices.
Quite a few people sensed these emerging needs and for some these needs soon proved to be a very worthwhile business idea. However, the blend of theory and practice that was available in the pool of knowledge in the organizations that eventually made up the JVI was the big comparative advantage over academic and business-centered competition.
Which institutions were the main drivers in establishing the JVI?
There were three who were among the very first to see and act: Mr. Michel Camdessus, Managing Director of the IMF; Mr. Ferdinand Lacina, Austria’s Federal Minister of Finance; and Ms. Maria Schaumayer, President of the Oesterreichische Nationalbank. At the 1991 Annual Meetings of the Bretton Woods Institutions in Bangkok, they decided to move quickly to set up a multilateral training center to help build the capacity of public officials in the transition countries. Due to historical ties to the region and other factors, such as excellent transport connections and infrastructure and the attractiveness of the city, Austria proudly offered to host the institution in Vienna.
As there was a need for training in very diverse areas, they also brought other international organizations on board. In the end, four other likeminded international organizations—the BIS, the EBRD, the World Bank, and OECD—plus the European Commission, which for institutional reasons needed a special status, became sponsors. Though Austria supported and cooperated with the JVI by providing the infrastructure, initially it was not an official member. That only happened later. Other countries also contributed generously to the costs of providing courses.
The JVI was officially opened in 1992. What was the vision at that time?
I remember the opening very well. It was attended by highest-level representatives of the sponsors, the donors, and many of those who had worked so hard to set up the Institute. All were proud and confident that something unique had been achieved. And they were right. The JVI has been a unique organization from the outset: its course offerings were broad; the lecturers were well-versed practitioners and skilled academics; and there was significant excess demand for participating in its courses.
The vision was clear and it was deeply shared by all: the JVI was to become a pre-eminent joint training institution and a worldwide model for public training. It would build on the core activities of the participating organizations in order to offer the best training possible, combine up-to-date theory with best practices, and be hands-on-oriented. It would make a difference. From a long-term perspective, I would say it did what was intended, it still does, and, I am confident, will do so in the future.
Setting up the JVI as an international organization in its own right was something quite exceptional. It gave an equal voice to all partners, and in requiring them to give and take, it assumed a large degree of mutual trust, confidence, and shared values. In today’s world, I am certain, such an organizational structure would have no chance of acceptance.
What was the JVI’s mandate then?
The mandate is explicit in Article II of the Articles of Agreement which says that the JVI’s purpose is to provide training to support and supplement the national efforts of the countries of Central and Eastern Europe, the Baltic and Balkan countries, the members of the Commonwealth of Independent States, Asian transition countries, and other eligible countries, in their transition to full market-based developed economies.
Furthermore, the JVI was established as a training institute primarily for public officials, although it does not exclude participants from the private sector.
What about the preparatory meetings for the JVI: was there consensus on why, how, and for how long to establish such a center?
As far as I recall, the preparatory meetings were full of drama. One was never quite sure how much of that was staging and how much of it a real problem. Drama was especially intense at two meetings, one in DC and the other in Vienna. In each, one representative argued for hours that the whole idea was dead, and even the minutes remarked on the negative atmosphere. Yet, outside the official meeting, the tone was much more conciliatory. Personally I was convinced quite early that in the end the idea would fly, but of course one could never be sure.
One tricky issue was the name of the institute: each sponsor had good ideas and there also were institutional necessities. That issue was decided at the 1992 April meeting in DC, when participants amicably agreed upon the ingenious compromise, The Joint Vienna Institute.
Finally, or better firstly, there was the question of how long transition was likely to last and thus how long such a training center should be kept in operation. Some thought the transition would easily be completed in 10 years at most; some argued it would take at least a generation; and there were also views that transition would last forever, depending on how “transition” was defined. In the end, it was decided to introduce a sunset clause into the initial Articles of Agreement signed in 1994 that stipulated that all stakeholders would revisit the need for the JVI after five years and decide by 1999 whether to close or continue the JVI. With the sunset clause, the answer to the question of the length of transition could, so to speak, be postponed.
In 1997, the Austrian authorities organized a JVI Brainstorming Conference to discuss the 1999 sunset date. What happened at that conference?
By the mid-1990s it had become very obvious that the speed and depth of transition diverged. One could think of transition in terms of three groups of countries: the first group would be countries in Central, Eastern, and Southeastern Europe plus the Baltics, which later joined the EU. The second group consisted of all the Western Balkan countries except Slovenia and Croatia, which then, and now, formed a “transitional universe” of its own while keeping an EU perspective. The third group were countries further east without an EU perspective that were lagging in transition or even on the brink of regressing.
Out of this divergence arose a number of issues for JVI stakeholders, among them: Is there a continued demand for training that would warrant the JVI continuing after 1999? How would evolving demand affect the type of courses offered in terms of sophistication and focus? How could the sponsors satisfy the new needs?
In the end it was agreed that demand for JVI courses continued to be sufficient and that the sponsoring institutions could satisfy the training needs as they evolved. Also, in 1998, the WTO joined. Thus, it was proposed to continue the JVI after 1999, leaving the sunset clause in place through 2004.
What happened after 1999?
Around 2000 it became clear that the types of training needed by JVI-eligible countries had shifted and the needs of the groups had further diverged. Some of the initial sponsors, like the BIS, felt that although they still wanted to contribute, they no longer wanted to be involved so heavily and dropped their member status; others still wanted to be involved but less so than before. A discussion about the institutional structure of the JVI ensued.
In the end, Austria and the IMF decided to turn the JVI into a permanent institution while inviting other international organizations to participate and contribute to the training. New Articles of Agreement were approved in 2002 and introduced the governance model that is still valid: Austria and the IMF became Primary Members, sharing equally most of the running costs and offering most of the courses. Thus, in effect it was only in May 2003 that Austria, represented by the Federal Ministry of Finance and the OeNB, became an official member of the JVI. Other international institutions, such as the EBRD, the World Bank, the WTO, and the OECD, became Contributing Members, and the European Commission kept its special status as an observer. Later, in 2013, the EIB joined as a Contributing Member.
With this change, the JVI also moved from a former Customs Office building in the south-east part of Vienna to its current building on the Mariahilfer Strasse with modern infrastructure and the associated JVI residence—a necessary change welcomed by stakeholders, JVI staff, and, I believe, also course participants.
Could you tell us a bit about your term as JVI Director in 2006-2012?
The JVI is an incredible institution. It had, has, and will have a mission of paramount importance, which it pursues with excellence. Its success has many fathers and mothers. It was a time of unheard-of change, unbelievable intellectual challenges dealt with by dedicated staff and committed stakeholders.
When I joined the JVI in August 2006, the world economy was booming, macro-volatility was low, and most transition countries were on a promising catch-up track. Eight formerly central planning economies in Europe had already joined the EU and two others were about to join. True, there were warning signs like asset price and credit bubbles, external disequilibria, and insufficient structural and policy reforms, but it was generally felt that the emerging vulnerabilities were manageable.
Demand for JVI training remained high and we were operating at full capacity. JVI stakeholders offered innovative courses addressing the evolving training needs. Dedicated staff and excellent lecturers representing stakeholders safeguarded the outstanding reputation of the JVI as a pre-eminent training institution. Feedback was positive, many previous course participants had already embarked on successful careers, and costs were under control. We were happy.
Then, in 2008, the global financial crisis struck, and we woke up in a different world. The JVI-eligible countries were particularly hard-hit. Demand for our courses shifted dramatically, which had severe consequences for our training offerings. For instance, demand exploded for JVI courses explaining the economics of IMF-supported adjustment programs (which had been nonexistent), interest in financial sector topics surged, and there was high demand for a variety of courses on how to manage sovereign debt. Interestingly, considerable demand for our training in the new areas also came from Western Europe, especially countries severely hit by the crisis and official EU institutions.
All stakeholders responded promptly, and JVI soon had in place new courses to meet most of the demand. Austria and the IMF quickly agreed to enlarge the infrastructure and to finance both additional training and to hire a team of resident economists. In about 2011 capacity expanded to about 2,000 course participants a year.
It has been very satisfying to have been part of this entire process. I enjoyed every minute of it.
Eduard Hochreiter and Adam Gersl, Senior Economist, JVI
