Transcript of a Press Conference on Sri Lanka

April 3, 2012

Colombo, Sri Lanka
Tuesday, April 3, 2012

MR. MATHAI: Thanks very much for coming. We called this press conference because, as you probably know, or as you’ll find out from this press release that we’re handing out right now, the IMF Board met yesterday and completed the Seventh Review of the Stand-By Arrangement that the country has with the IMF. So that means that in the next few days, there will be a disbursement of about $427 million that will be disbursed to Sri Lanka.

This was the Seventh Review. This brings our total disbursements up to a little over $2.1 billion. There is going to be an Eighth Review. That will happen in a few months’ time and will take us up to the total amount of $2.5 or $2.6 billion.

As you know, we are fundamentally very optimistic about Sri Lanka’s prospects over the medium term, and we always have been. Over the second half of last year, however, we had some concerns about the policy mix—some concerns about the pace at which reserves were being drawn down at the Central Bank—and on account of that, we didn’t move forward with the program for some time. But in February, the authorities—the Central Bank and government—took some very decisive steps to control the current account deficit and to make sure that the growth in this economy was going to be sustainable.

And that’s really a theme that I want to focus on—sustainability. We are very concerned about making sure that the good economic progress we’ve seen over the last couple of years can be sustained over the medium term so that the welfare of the entire country can continue to increase.

We feel that the steps that the authorities have taken are in the right direction and should help to get the current account under control and lay the foundation for maintaining strong economic growth over the medium term. And it’s on account of that that we decided to recommend to our Board completion of this review.

Let me stop there and take any questions you may have.

QUESTIONER: In your handout you have said that you all have basically waived conditions on net international reserves and reserve money. Do you think you can elaborate on that? Why is it that you waived those conditions? Is it that you all see Sri Lanka once more as one of your darlings?

MR. MATHAI: I always get very colorful questions from you—thank you!

There were two waivers granted: one was on reserve money, as you said, and the other was on net international reserves. The waiver on reserve money really is a technical issue, and we can go into it in detail afterward if you are interested, but essentially it’s not that important.

There was an adjustment to the CBSL (Central Bank of Sri Lanka)’s statutory reserve ratio, as you know, and that--if you look at our Technical Memorandum of Understanding--implies some changes in how the reserve money target would be set. But because of some complications in how you calculate that adjustment, the adjusted target was missed slightly. But again, there was no substantive issue there, so let’s not focus on that.

There was, however, a substantive and substantial miss of the net international reserves target. And that, of course, was the focus of what we have been discussing since September last year. We saw that reserves went from $8 billion at the end of July down to less than $6 billion at the end of December and continued to decline after that.

And that pace of loss, $400 or even $500 million a month, was something that got us a little bit concerned. Now, it’s perfectly natural for an emerging market, converging toward income levels of richer countries, to run a current account deficit and import capital to facilitate all the investments going on in the country in order to increase income levels. And I think the Central Bank’s idea was that it’s okay to have the current account deficit, and we are going to try to mobilize capital flows from abroad in order to finance it.

But as you know, capital flows take time to materialize sometimes—they don’t come overnight. The Central Bank’s strategy was to bridge the gap, until those capital flows arrived, by using its own reserves in order to meet the market demand for dollars and avoid disruptive movements in the exchange rate.

I think the basic thinking was that there is a current account issue facing us, but let’s not add on top of that a capital account issue by scaring investors who may get worried by movements in the rupee. So, that, perhaps, was the rationale. Our view throughout was that it would be good to take measures not just to finance the current account deficit, but also to reduce the size of that deficit, given the uncertainties relating to the size and timing of capital flows.

And that’s what we’ve seen them doing right now—taking firm steps to control the current account while at the same time continuing these strong efforts to bring capital in from overseas (and that’s appropriate, and we’ve seen a lot of inflows, including into the stock market, over the last few weeks).

So the net international reserves target at the end of December was, in fact, missed, but what we’re seeing now is that they have taken very substantial corrective actions to get the ship back on course. We feel that with these policies, the current account deficit will be reduced, the need to supply dollars into the market will be reduced, and reserves can be safeguarded. It’s on the basis of this corrective action that the IMF decided to waive that target for December and move forward.

QUESTIONER: The fact that broad money grew at an inflated level, than that which the Central Bank targeted, was not a problem as far as the IMF was concerned?

MR. MATHAI: There was definitely an issue that credit grew faster than expected. Credit to the private sector grew at about 34 percent last year and helped to fuel import growth. That was part of the reason why we had the current account deficit widening last year, and that also is precisely why the Central Bank, when it introduced these measures in the beginning of February to control the current account deficit, included a tightening of monetary policy—an increase in interest rates by 50 basis points, and then an imposition of a credit ceiling on banks.

QUESTIONER: Can you explain about the additional two percent surcharge on top of the current interest rate?

MR. MATHAI: This is an issue that got a lot of confusing press coverage earlier. It’s actually quite simple and nothing has changed since when the program was approved in 2009. We are charging a floating interest rate, based on LIBOR, that is around 1.1 percent. That 1.1 percent rate applies up to a certain amount of lending—about $2 billion in Sri Lanka’s case. Any excess over that will attract a 2 percentage point surcharge.

So, that is to say that right now, out of the $2.13 billion which has been disbursed, $2 billion is attracting an interest rate of 1.1 percent or thereabouts, and the $130 million extra is attracting an interest rate of 3.1 percent.

QUESTIONER: What about the amount that was approved yesterday? There was no surcharge on that?

MR. MATHAI: The surcharge applies only above $2 billion. We were not above $2 billion until -- well, we will not be above $2 billion until a few days from now. The latest tranche hasn’t been disbursed yet, but when it is disbursed, very shortly, whatever is over $2 billion will attract the surcharge.

QUESTIONER: The position mentioned by the Central Bank was that they did not want this tranche. Is this because of the additional 2 percent surcharge?

MR. MATHAI: I wouldn’t presume to speak for the Central Bank. I think you should ask them. From my perspective, there was a lot of talk going on, and I wasn’t quite sure what the arguments were on both sides. Certainly this interest rate issue was raised at one point, but I think that all parties would agree that even a 3 percent rate is not very high.

We have now offered a tranche, and I think the Central Bank is deciding to take the tranche. And that’s always the decision of the authorities’ to make, whether or not they want to draw a tranche that our Board has authorized for disbursement.

QUESTIONER: So for the next tranche, the whole amount will face a 3.1 percent interest rate?

MR. MATHAI: That’s right.

QUESTIONER: The government has imposed taxes on imports—what is the view of the IMF on trade controls? And in the new Letter of Intent, there is mention of the Petroleum Act—what will be the content of the changes to that?

MR. MATHAI: As for the recent taxes on vehicles and other goods, that actually is something that we didn’t discuss with the authorities at all. We were not expecting it. We were happy to see that it shows that they are taking this balance of payments issue very seriously. They are very responsive to that issue and are trying many different policy tools in order to address it, so we were happy about that.

Our view is that adjusting tax rates is not always the most productive way of addressing this kind of problem because, yes, it is certainly true that the rise in vehicle imports was part of the widening of the current account deficit last year, but whether it’s appropriate to do selective tax increases in order to combat that, rather than more generalized instruments that are less discriminatory and apply more across the board, whether that’s the appropriate approach, is something that we had some concerns about.

We would probably advise using broader tools. One thing that we’ve talked about in the past is the need for monetary tightening. There’s been a policy rate hike of 50 basis points, but we’ve seen market rates rise by more than that. Could there be a case for raising policy rates further to match what we’ve seen with the market interest rates? Those are more the lines that we are thinking along.

The second question you asked was about the Petroleum Act. To tell the truth, I don’t know the details of that but I know that one important idea is that petroleum pricing would be put in the Public Utilities Commission’s domain. That’s one idea that the government has in mind, and that legislation is in progress now.

QUESTIONER: Did the IMF exert any pressure on the government to increase taxes on vehicles?

MR. MATHAI: No, no, that’s what I’m saying: we were not involved in that at all, and it came as a total surprise to us.

QUESTIONER: Doctor, this is a supplementary question to that. There is a lot of talk about conditions. Are there any harsh conditions or anything like that? It’s a common question, I know that.

MR. MATHAI: It’s a totally valid question to ask because people sometimes have this impression. Sitting here in front of you, answering these questions, I’m very happy to be able to say that every item of the agreement is spelled out in black and white and is on the website in a document called the Letter of Intent. And there is a Technical Memorandum that explains every part of the agreement in great detail, so there is nothing that is not completely in the public domain—everything is there.

I think it may not have been posted on our website yet, but it will be posted probably in one day’s time. You’ll find everything laid out totally transparently in that document.

QUESTIONER: How serious was the reserves situation at end-December, and what were the end-March numbers, just to assess how important the IMF’s $400 million is in the overall picture?

MR. MATHAI: Right. Well, look, I’m not going to front-run the Central Bank. Let them release data as per their normal schedule. You know that reserves were a little under $6 billion at the end of December. We never said that $6 billion is a very low number. In fact, quite the contrary, $6 billion was quite good compared to what Sri Lanka had in the past.

Our issue was only with the rate of change of the reserve coverage—that it had come down quite rapidly and, extrapolating forward, that spelled a troubling story for us. But we were not saying that $6 billion itself was a very dangerous level or anything like that.

In any case, we were glad to see the change in policies. I think $400 million certainly helps, but it’s not by itself the solution to any problem. Fundamentally, the main point of the IMF’s involvement is not to give a lot of money, but rather to discuss policy with the government and to have an exchange of views. The government has decided to change these policies, which will steer the whole economic ship in the right direction to a point where $400 million one way or the other would ultimately not be the most important factor.

QUESTIONER: How much of that $6 billion was commercial debt? That is, investments in treasury bonds and treasury bills, and…

MR. MATHAI: Well, I think you can get those figures publicly. Eurobonds would have been about $3 billion, foreign investments into treasuries would have been $2 or $2.5 billion.

QUESTIONER: Did you all also have a condition that the CEB and the CPC should have broken even by the end of last year, and the budget deficit should have been curtailed to 6.8 percent of GDP? But I don’t think the government met those targets.

MR. MATHAI: You know, the 6.8 percent was slightly exceeded, but actually our condition is not on the deficit, but rather on the domestic financing of the deficit, and it so happens that that condition was actually met.

Anyway, the deviation on the deficit target was very small. The deficit was under 7 percent of GDP, so that wasn’t a big thing.

The other question you had was on the CEB and CPC. You know, it’s one thing for us and for the government to have some projections about what’s going to happen at these institutions, but God decides how much rain we have, and I think people in other countries decide what oil prices are going to be! So, with oil prices rising so very sharply and with the rains, after being so favorable—indeed, too favorable—at the beginning of last year, when we had flooding, not materializing in the second half of the year, implying that the mix of electricity generation was much less focused on hydro and much more on expensive thermal generation than expected – with these two factors, the government’s break-even target for the CEB and CPC was not met.

QUESTIONER: Doctor, when you all agreed to this $2.6 billion in July 2009, you were always talking about this “vulnerable group,” right? In every press release you’ve talked about this vulnerable group. But how do you make sure these vulnerable groups are not affected by these policy measures?

MR. MATHAI: That’s a very valid question to ask. And, you know, the government did take some measures in terms of some of the --

QUESTIONER: But from the IMF point of view, what are the measures you all have taken to ensure that vulnerable groups are not affected?

MR. MATHAI: You know, the IMF itself is at most advising, while government is deciding on policies. So, I’ll comment on policies the government has introduced. They have done, for instance, these fuel price increases and they had at the same time a program to increase the amount of kerosene coupons available to those benefiting from Samurdhi. Now that covers the very poorest people, hopefully.

Then you will ask me, well, what about all the middle-class people and even the upper-middle-class people who are facing increased transport fares? And I think the answer there is that there comes a point where the government is not able to cover that cost. I mean, when petroleum costs go from $75 a barrel to $110 or $120 a barrel, if government is to keep retail prices constant for all consumers, and not just focus it on the very poorest people who need society’s help, then you’ll run into problems. Lots of people need help, there’s no doubt about that, but if you try to go beyond the very poorest who absolutely need the help the most, very quickly the government is going to find it unaffordable.

And what is the alternative? How would the government finance a generalized subsidy? One alternative is that the government could simply print money. That’s going to yield general inflation that will hit everybody in the economy. Or the government could try to borrow money. That will drive interest rates up, which will slow growth in the economy even more. None of these alternatives is very attractive. And fundamentally the government, like most governments in the world, has come to the realization that when the international prices move so dramatically, there has to be some reflection of that at the retail level, and I think that’s what we saw here.

QUESTIONER: What are the subsidies introduced for the low-income groups?

MR. MATHAI: These kerosene coupons are an example of what was given precisely to cover those who are not electrified yet, who are relying on kerosene heavily for lighting and for fuel.

QUESTIONER: How do you see the macroeconomic indicators after these policy measures? Economic growth, inflation, etc.?

MR. MATHAI: Well, we had a growth projection of 7-1/2 percent before. We would probably revise that down somewhat. We haven’t come up with a new figure yet, but it would probably go down somewhat, maybe to the 7 to 7-1/2 percent range.

Inflation certainly will be higher than we were expecting last year, but I think we expect that it will remain in the single digit range—maybe mid- to upper single digits as opposed to mid- to lower single digits.

It's hard to predict exactly how an economy will respond to economic policies being applied, but we do think that the policies are aimed in the right direction. We do think that they're the right steps in order to ensure the sustainability of the economy’s growth. Because yes, maybe these steps would reduce growth in the short-run, but we would much prefer to have 7 percent growth that can be sustained for 20 years rather than 8 percent growth that goes along with a very rapid increase in imports and a sharp drop in reserves that can't be sustained for more than a few years.

For us and I think for the government, it's a matter of sustaining the growth over the medium term, and taking policy steps that make sure that can happen.

QUESTIONER: Do you see demand-driven pressure in the economy? Because the credit growth is high…

MR. MATHAI: For a long time we asked ourselves, is the Sri Lankan economy overheating? And we never really were seeing traditional signs of overheating. We didn't see inflation rates getting out of control. We didn't see core inflation getting out of control. We were not seeing huge wage prices. We were not seeing property prices rising as they have risen in some other Asian countries. We were not seeing material shortages in one sector after another. For all these reasons we said that we don't think the economy is overheating but, yes, certainly credit is growing fast and maybe that needs to be drawn down.

I think now, probably, there's more wage pressure than there was a year or two years ago—I think it's undoubtedly true that there is more labor market pressure than before. The property market may be picking up, but I don't think it's at East Asian levels by a long shot.

The credit growth is there. I think to us, we would still not necessarily say the economy is overheating, but certainly we've seen some kind of pressures that have spilled over into the import side, because the imports were growing at a very rapid pace. We had imports growing at more than 50 percent last year, and that was something that couldn't be sustained, and as a result the government made these policy changes in order to make things more sustainable.

QUESTIONER: The announcement says that further time is required for monetary and exchange markets to stabilize. What kind of duration are you talking about? People are thinking that the exchange rate is settled at Rs 127/$, but you are suggesting that that isn’t so.

MR. MATHAI: Don’t read into this any prediction on the rate. I think all of us are humble enough to say that we are not able to predict an exchange rate, and we've always shied away from that and instead focused on the quantity side of things.

What is your reserve coverage at the central bank? Do you want to increase it? Do you want to decrease it? What are the policies needed? Let the rate fall where it may, but focus on the reserve coverage in order to ensure sustainability of the economic progress.

In terms of talking about more time here, this is related to the reason why we have a Seventh Review and an Eighth Review. For a long time, the Central Bank was pursuing one type of policy, and now we see a change to a quite dramatically different type of policy, basically since the beginning of February. It's now less than two months later. It takes time to assess how the policy changes have affected the economy, how the economy is going to respond, and that's why we thought rather than trying to judge everything up front, we'll give it a little more time. We'll do one review now, one review in a few months' time, and then let's see what happens.

And I think one thing we've been very happy to hear from the government, is their absolute commitment to flexible policies. They have said very clearly that, if there's a need for more policy adjustments on the external side or monetary policy side or fiscal side, because the current account deficit is not responding enough, then they can certainly do more. But equally so, if the current account deficit starts to narrow by more than expected, or faster, they can pull back on some of these policies. Neither they nor we are going to pre-judge what the right policy stance is going to be, and what it needs to be, over the indefinite future. But rather, they are planning to play it by ear and respond to changing conditions. We think that's a very wise decision on their part.

QUESTIONER: The degree of policy changes they’ve made, including last weekend’s decision—doesn’t it disturb you in terms of policy consistency? Because we have seen, from February, very volatile and extreme conditions. Does it disturb you?

MR. MATHAI: You know, a lot of people have told me things like, oh, conditions in Sri Lanka are not so good now, and I always correct them. I say, now is the time when we should be happy about the sustainability of the economy going forward. Yes, there are changes, and everybody is going to be disrupted by changes in the short-run, but fundamentally these changes are ones that make the economy stronger, that make the underpinnings of the economy stronger and make sure that things can continue in a good way going forward.

If you ask me when was there a problem, it's not in the last six weeks. It was six months before that, when we had a growing problem and the policies were not being changed perhaps rapidly enough. Now, policies are being changed and on the surface maybe we are seeing some movements in economic variables, but the underlying strength of the economy is being boosted dramatically as a result of these changes.

QUESTIONER: How do you see Sri Lanka’s economic performance amidst the world economic crisis?

MR. MATHAI: It's a very good point. We've got an economy here in Sri Lanka that is exporting more than 50 percent of its exports to Europe and America, which are not growing fast at all. And certainly there are large downside risks in Europe. There's a chance that activity there could slow down more than expected.

Exports somehow managed to hold up last year—it was quite a remarkable achievement that we had 20 percent growth even though our exports are still tilted so dramatically toward these two markets. But, I think what it means is that over the medium term there's a heavy priority, I think, that needs to be placed on reorienting those exports toward the fast-growing markets, perhaps in this region.

Sri Lanka has always been, obviously, in this part of Asia but what's happening around us economically has changed dramatically over the past few decades. Now we have two of the fastest growing economies, two of the economies that are driving the whole world's growth, just around us, India and China, but India accounts for only 5 percent of our exports, maybe a little more. China accounts for only 1 percent of our exports.

Now you'll say to me, well how do we export to these countries which produce similar goods? And the fact that we see a Sri Lankan tea company exporting tea to China gives me a lot of confidence. If you can export tea to China, surely you'll be able to export all sorts of goods to all sorts of locations. And I'm not a businessman, I can't tell you particular sectors, but we strongly believe that yes, the world is an unsettled place. There are external risks out there, that's why there's a premium in the short-run to safeguarding your reserves, to make sure that you're resilient to these kinds of changes, but over the medium term there's a need to reduce your dependence on those markets and diversify a little bit more.

QUESTIONER: What’s the “F-S-A-P” mentioned in the press release?

MR. MATHAI: FSAP, we call it FSAP. Financial Sector Assessment Program. It's an exercise that the IMF goes through with countries in which we basically do a health check of the financial sector, including the banking sector, the non-banking sector, the stock market, the debt market, etc. We take an overall view of how things are going.

Sri Lanka had an exercise like this some years back, and this is an update of that exercise.

QUESTIONER: When will that be?

MR. MATHAI: Sometime over the summer. Sometime in the next few months.

QUESTIONER: And your final review—you didn’t specify the month. Is it in three months’ time?

MR. MATHAI: Yes, it will be in roughly three months.

QUESTIONER: How do you find the revenue situation?

MR. MATHAI: Revenues last year underperformed, but the expenditures were constrained even more and they were able to roughly meet the deficit targets.

I think one reason for that is that petroleum taxes were reduced last year, as you know, and that was one reason why their revenues were not performing so strongly. But also, you know that with the tax reform of a year or two ago, one major idea was expanding the NBT to wholesale and retail trade. That has taken longer than expected. It takes time to register these new taxpayers.

One thing that gives us a lot of comfort is that the government has said over and over that they're committed to meeting their fiscal targets, and they've taken some difficult measures already to do that. I think we're confident that they'll make their targets.

QUESTIONER: So basically you overlook the fact that they didn’t meet their revenue target?

MR. MATHAI: It's not possible or productive for us to try to look at every single line in a budget. We try to focus on the basic variables that are significant for the overall economy. What is the government’s financing need? What is the amount of reserves of the central bank? What is the growth of reserve money? These sorts of basic things are what we focus on. Yes, sometimes things can be a little over or a little under. Certainly there was a shortfall in revenue, but going forward I think they've committed to policies in order to make sure that they meet the deficit target this year.

QUESTIONER: Do you think there will be a need for new taxes, to offset the revenues that could be lost, on account of reduced imports, by the recent increase in vehicle taxes?

MR. MATHAI: I'm not sure, and I think that's part of the flexibility that the government is talking about. They will look at how the situation goes, and they are committed to meeting their fiscal targets.

That said, I think that's one basic reason why we are not big fans of adjusting tax rates up and down in this sort of manner. It's probably a helpful thing to have a set tax structure that continues to apply and gives some stability and certainty to the market. But we were very glad, as I said before, to see that they are so totally committed to the issue of getting the balance of payments in order, so as to deliver sustainable growth.

QUESTIONER: Policy inconsistency, isn’t it? In June 2010 they lowered vehicle taxes. Now they’ve increased them. So you give wrong signals. An investor or consumer needs consistency in policies.

MR. MATHAI: I think we should step back and take a look at the broader picture. On vehicle taxes you pointed to a rate going down and a rate going up, and I've given you a view on that.

I think the broader issue is that generally if you poll the business community they will say that there has been a dramatic improvement in the consistency of tax policies over the last few years. I speak to businessmen frequently, and they often tell me that whereas before duty structures were changing all the time and without notice, now it's a relatively infrequent occurrence. And of course, it goes beyond the tax arena. It's a matter of more general policy consistency, and of course that's an important thing.

In a way, you can say that the policies that they have introduced right now have been highly consistent because they have clearly stated we have an issue with the balance of payments, and we're taking policy measures that are all directed towards that. So that in a way is a demonstration of consistency.

QUESTIONER: You spoke of monetary tightening. During the last Central Bank Monetary Board policy review, there was an expectation, but they didn’t make any changes. What were the reasons, in your view?

MR. MATHAI: Well, I think that's a question you should really ask of the Central Bank. I don't know what the reasons are.

QUESTIONER: But you’re suggesting monetary tightening.

MR. MATHAI: We’re suggesting monetary tightening as a way of supporting the exchange rate, as a way of supporting the whole package of measures that they've taken so far. And really, not in order to push the envelope any further, but just to catch up with what's already happened in the market. There are policy rates; there are market rates--you can rationalize them.

QUESTIONER: Do you think that this month they should do an adjustment to policy rates?

MR. MATHAI: You know, we have this basic view. As for the particular timing of it, I'm not sure. And again, I think they are probably the best placed to answer that.

QUESTIONER: Why is it that inflows are so slow and far-between?

MR. MATHAI: Well, I think if you were here one week ago you wouldn't have said inflows are few and far-between. We had a huge chunk of money coming at us, with the foreign purchases of some big stocks in the stock market. So, I think money is coming. I think money definitely is coming.

QUESTIONER: I’m talking about FDI.

MR. MATHAI: Well, I think partly it's an issue of expectations’ maybe being a little too high. You know, I was here starting in 2009 after the war, and the talk then was oh, the war is over, everything is going to be wonderful overnight. But I suppose things don't work like that in the real world. I suppose it takes time.

I think an empirical fact is that the domestic investment usually leads foreign investment. Foreign businessmen usually wait to see what happens with domestic businesses, and if they start investing then the foreigners follow. Domestic businessmen sometimes make the point that it takes a while to get used to a new business environment. You know, for 30 years businessmen were operating with diminished expectations because a war was going on—they weren't thinking of these big investments, and maybe it takes them time to get used to it.

QUESTIONER: But the war has been over for two-and-a-half years!

MR. MATHAI: Well, neither you nor I is a businessman. Is two-and-a-half years enough? I don't know.

QUESTIONER: We opened up the economy in '77, and FDI just flowed in, after seven years in the wilderness.-

MR. MATHAI: I think the world is a different place now. There are a lot more competitors for FDI than there were back in 1977.

QUESTIONER: Or is it that we are giving the wrong signals, as far as Geneva and the human rights issue goes?

MR. MATHAI: You know, I'm not sure what the reasons are. I know that there are a lot of competitors for FDI out there now. There are a lot of countries there, and of course the investors look at a whole range of factors. I think probably there was some over-optimism on all of our part at the beginning.

But I think the government is quite committed to reducing red tape and also improving policy consistency, as you were saying. I think we're going to see those FDI figures increase. Maybe not go to $10 billion overnight, but I think we'll see a steady increase happening over the course of the years. And probably there's been a lot of focus on the tourism sector, but I think it's broadening beyond that. We're seeing some interest and some projects around the Hambantota port, and maybe as that starts to take off you'll see more and more projects going. But you know, I don't have a crystal ball. I can't predict it exactly, but we would expect FDI to pick up in this kind of economy.

QUESTIONER: What are your immediate concerns, over the next 6 to 12 months?

MR. MATHAI: I think in 6 to 12 months we're still looking at balance of payments issues, and looking for consolidation of this new policy regime where we have flexibility, and where reserves are being safeguarded for a rainy day. I think making sure that that sort of policy is maintained is probably the focus.

QUESTIONER: You have said in the statement that there is an extension of the program. From when to when?

MR. MATHAI: The program was to expire at the end of May and now it's been extended to the end of July.

That's really a technical issue—it's not a substantive thing. It's basically in order to facilitate this Eighth Review. We were to have had two reviews, and we're doing one of them now. And we’re extending the program so that we can have the next review before the arrangement expires.

QUESTIONER: The final tranche is more or less equivalent to the penultimate tranche?

MR. MATHAI: Yes, they’re the same size.

QUESTIONER: Any reason why you all divided it into two?

MR. MATHAI: I think I said before in response to another question. We wanted more time in order to evaluate the change. We've seen a very different policy regime, so let's evaluate how it operates and what kind of effect it has on the economy over a slightly longer period.

It's not like we're delaying by very much. It is a reasonably short period, and it actually is the normal schedule. Usually we've been having quarterly reviews, and that's what we're doing in this case.

QUESTIONER: Considering the scenario in December, do you think the government was quick enough to put things in order so that we could have got the money and had the program back on track?

MR. MATHAI: I think the point is not the program, really. We are just advisors, giving advice to governments that they can take or not take. The basic question is, did they act fast enough…not for the IMF's sake, but for the economy’s sake?

Hindsight is 20/20. In hindsight, maybe some action should have been taken a little bit earlier. But I think the critical thing is that now the actions have been taken. So, let's look forward and see what effects those are going to have. We are quite encouraged by the policies and hope that they are going to promote sustainability.

I keep saying this word “sustainability,” which is really the mantra for us because we want to make sure that the economic growth that we've seen can continue over the medium term.

Are there any other questions? If not, I'll call an end to it. Thank you very much. I appreciate your being here today.

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