Transcript of a Press Briefing by Rodrigo de Rato, Managing Director, IMF

July 2, 2004

Managing Director
International Monetary Fund
July 2, 2004
Paris, France

MR. DAWSON: [In progress] -- although it's likely that most answers will be in English. Absolutely on the record. We believe in transparency. Mr. de Rato?

MR. DE RATO: Bonjour, ladies and gentlemen--visit to the President of the Republic, and I want to first of all show my good feelings of being here in Paris and have the chance to talk with President Chirac. I have been having regular contacts on the phone with the Minister of Finance. But I was having the chance to see the President here in town, a continuation of a group of visits I've been having with different leaders in Europe and in Asia and in other countries.

As you know, I've already visited Germany, Japan, China, Singapore, and Vietnam. Today I'm visiting France. I'm close in date for a visit to the U.K. and Italy. I will be visiting Central America next week and having a trip to Africa at the beginning of August, during which I will cover probably three countries--Gabon and Nigeria and Uganda--and then another trip to Chile for the meeting of APEC countries, probably at the same time other meetings in different Latin American countries, plus a trip again to Africa in mid-September for a meeting in Burkina Faso with the Presidents of the West African countries. So I will have the chance in all those trips, as I have today in Paris, of getting information and positions of different leaders in the world, which I think is essential for my job as Managing Director of the International Monetary Fund.

Then getting specific of what has been our meeting with President Chirac. Mainly-the most part of the meeting has been devoted to Africa and to the policies of the Fund and, more general, the whole policy of development in Africa; also, the immediate future of the HIPC Initiative, and the very special interest of President Chirac in questions of financing the millennium strategy. As you know, he, together with President Lula of Brazil, has appointed a group of experts in which the Fund collaborates; that's a group that is chaired by Mr. Landau. So we have devoted most of our conversation to the HIPC Initiative, the African situation, the role of the Fund in Africa, and also the international financing of development. And also we have paid attention to the European situation from the point of view of the economic recovery in Europe and specifically in France, in which the next week the French authorities will meet with the members of the Fund, the mission of the Fund that will be here in Paris to complete the Article IV evaluation of the French economy.

We are seeing a strong recovery of internal demand, domestic demand in investment and especially in consumption, and we are seeing with a lot of interest the proposed reforms by the French Government of the health system that we value very positively for the future sustainability of the French public finances, as we valued last year the pension reform, and we consider that the efforts that the government is doing and will do in getting more flexibility in the French labor market will be very important for increasing the employability of the French people. And we believe that's one of the questions, as I said to President Chirac, not only in France but in the whole of Europe.

Those have been the main topics of my meetings with the President. I probably will see him in the future regularly, and I will have then the chance to talk to you again.

So I'm ready for questions.

MR. DAWSON: Questions?

QUESTIONER [Interpreted from French]: Good morning, Mr. de Rato. The media in Argentina reported that the IMF has hardened its assessment of that country's position. How would you react to that statement?

MR. DE RATO: --is right now in the third review. We are working with the Argentinean authorities in that review. That, of course, has to go over all the items that were proposed by the Argentinean government as part of the program.

Last week, there was a mission in Buenos Aires that worked with the authorities. I have to say that it was a very cordial and fluent work. This week, the main people responsible in the Argentinean Finance Ministry are traveling in different international travel, so we will continue working next week. As in any review of any country, we are just seeing the progress made by the authorities in its compromises and reforms that were proposed by the authorities to see to what degree they have been completed. And in that respect, we hope that next week we will have substantial advance in that respect. So once we have completed the review, it will be the time to take the conclusions to the IMF Board.

QUESTIONER: Next week, you expect to have substantial progress with regard to Argentina in exactly what respect?

MR. DE RATO: Well, exactly at the third review that we are now in the middle of. Next week, it will be a good week for working in Buenos Aires, and we have a lot of issues that we have to address, what has been the degree of completion and fulfillment of the commitments the government made in March on many issues--budgetary policy and structural reforms. And once that work has been done between the Fund and the authorities, the Argentinean government, well, that will be the moment to take the conclusions to the Board.

QUESTIONER: [In Spanish.]

MR. DE RATO: Not only. I mean, the restructuring of the Argentinean debt is one of the parts, a very important part, but one of the parts of the program. I want to underline once more that the program was the program that the Argentinean Government considered necessary in March and that we share that view. And the restructuring of the debt, of course, is very important because it will allow Argentina to regain its access to the international markets. But there are also other issues that are extremely important like budgetary policy and primary surplus that, of course, are linked to the completion of the debt restructuring and to the sustainability of the debt, and also structural reforms that will give the Argentinean economy a much stronger path of growth in the next years.

QUESTIONER: [inaudible] on the Argentinean situation, is that what you told us? Has that decision been made yet?

MR. DE RATO: I probably didn't convey correctly. What I said is that, like in any other program, the mission works with the authorities, and when that work is completed, that is, the mission and the authorities have arrived at a joint analysis of what is the situation of the evolution of the program and what are the dates and the degree of completion of the program, that report is taken to the Board, but not before. So that we will have to wait for the technical mission to work with the authorities as to how an overall view and detailed view of the program. And once that is completed, it will be the time to take it to the Board.

QUESTIONER [Interpreted from French]: I know this is a Paris Club question, but with President Chirac, did you mention or did you talk at all about the Afghanistan or the Iraqi debt?

MR. DE RATO [Interpreted from French]: No, we didn't, but if you'd like to discuss it--

QUESTIONER [Interpreted from French]: Well, I'm putting the question to you. Where are things at with the debt of these two countries?

MR. DE RATO: --which I think is very useful in the sense that it allows that all decisions are based on our technical work. But, of course, it's the decision of the creditors that counts. We have done in the Iraqi crisis a technical analysis with different options, and now it's up to the members of the Paris Club to evaluate those options and, of course, make a final decision.

QUESTIONER [Interpreted from French]: Two days ago, the World Bank recognized the new Iraqi Government. Have you recognized that government? Are you willing and ready to work with the new Iraqi authorities?

MR. DE RATO: We will establish different contacts with all our members, and we have a clear position of recognition. We will recognize the country--the government, sorry. So we are in that process. We are talking with the members of the Fund, and I think that soon we will make a formal recognition.

Nevertheless, we have informal contacts with the authorities, the Iraqi authorities, and we think that probably one of our first joint work together will be to study the useful tools that the Fund has for post-conflict countries and apply them to Iraq.

QUESTIONER [Interpreted from French]: If you did provide post-conflict assistance, what might the amount of the loans be?

MR. DE RATO: [No answer on microphone.]

QUESTIONER: [In Spanish.]

MR. DE RATO: No. We have talked mainly about financing of the millennium strategy. You know that President Chirac and President de Lula, they have worked together, and they have a working group in which the Fund is represented that is working on different initiatives that could contemplate international resources. There are also proposals by the U.K., by the Treasury of the U.K., so there are some proposals there and we're looking into them, and President Chirac was very interested and mentioned them to me. And they will be part of probably our discussions in the autumn meetings in Washington, in the meetings of the Bank and the Fund. That was the main topic of finance that we talked about this morning.

QUESTIONER: You mentioned that you talked with Jacques Chirac about Mr. Landau's study about a tax on international finance in order to find funds for developing countries. This is a very controversial issue, actually. At the G-8 summit, it was very controversial. What's your option, I mean, what's your take on it, what's your opinion on that?

MR. DE RATO: Well, it's true that specific solutions are under very strong debate. There are probably mainly three: one is the study of an international tax on different subjects; the other would be the international financial facility; and the other could be special SDR use, special drawing rights use for this type of thing that will be especially useful in regard to capital account crisis.

We do not have a Fund position on it. We are advising that group and others, and we have discussions among these issues in the Fund, and especially at the levels of government in the committee chaired by Gordon Brown. So I hope that by the fall we will be able to narrow down the options from a technical point of view. And, of course, it's not so much a question of international financial institutions but of government to take a decision. We can, I think, provide a good expertise analysis of different options, but they all entail political decisions that are extremely important.

QUESTIONER: [inaudible] the French reform attempts at social security and welfare state. Did you actually endorse the content of the Chirac government's plan, or did you support merely the idea of reforming the French public finance system?

MR. DE RATO: We considered that the proposals that are in the government proposal are worthy, and our Article IV mission next week will make a detailed analysis of it. But we think not only that the aim is worthwhile, but also that right now the proposal effort, which, if I am not mistaken, is about one-third of the effort in additional revenues and two-thirds of the effort in cost-cutting strategy, are worthwhile to be looked at in the future, not only at short term but also in the sustainability of French finances.

QUESTIONER: [inaudible] endorse the government's efforts to reduce the deficit, or do you think that it's enough what's being done in France to cut the budget deficit?

MR. DE RATO: We will have to wait for the Article IV mission to complete its work. But as an overall view, a general view, we are of the opinion that France has to take advantage of the cycle right now to reduce its budget deficit and so to enhance its possibilities of productive tax cuts in the future. And this is a reflection not only for France but for the rest of the European Union.

It's clear that the European Union as a whole and the euro area are in a recovery moment, which is good news. But I think it's also a very important moment to avoid the mistakes that were made between 1999 and the year 2000 and take now advantage of the recovery that has clear consequences on the revenue sides of governments, of budgets, and reduce the budget deficit, cyclically adjusted, as to prepare the European economy for a better footing to reduce taxes.

QUESTIONER: [In Spanish.]

MR. DE RATO: No, we have not talked about any specific budgetary European policy, no.

QUESTIONER: In the context of a recovery in Europe and a situation where the central banks throughout the world, practically, are now moving to a tightening cycle, what is your view of the situation for the ECB? How long can it wait before following the pattern of other banks?

MR. DE RATO: Well, I think that inflationary pressures are not yet strong on both sides of the Atlantic. The Fund shares the view of those responsible for monetary policy in the U.S. and in Europe to be vigilant regarding if there is inflationary pressures. And in that respect, it's very important that the second round's effect of the oil price increase of the last months is moderate, especially in relation to wages.

MR. DAWSON: Okay. We will do one final last question.

QUESTIONER [Interpreted from French]: You were referring to structural reforms. What is your attitude on working hours? The debate has become much more lively in France since several Ministers have said that we can yet again refer to the 35-hour-week regulation?

MR. DE RATO: Labor reform not only in France but in the whole of Europe is a key question and a policy that has to be addressed. The past years have shown that the capacity of European Union to grow is limited so there are demands for structural reforms, but especially that the increase of growth has not been translated as quickly as we wanted into new labor.

So to have new labor created in Europe, we think that, of course, that demands an overall policy in many areas--structural reform, taxes, but certainly labor reform. And that's, of course, also the case in France.

MR. DAWSON: Okay. Thank you very much, and we will be back.

[Whereupon, the press briefing was concluded.]


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