Transcript of a Press Briefing by David Hawley, Deputy Director, External Relations Department, International Monetary Fund

May 17, 2012

Washington, D.C.
Thursday, May 17, 2012
Webcast of the press briefing Webcast

MR. HAWLEY: Good morning, everyone. And welcome to another of our regular press briefings.

As usual, this is under embargo, and the embargo is 10:30 Washington time, that's 14:30 GMT.

I'm David Hawley, Deputy Director of the External Relations Department.

Before taking questions, let me, as usual, start with a few announcements.

The Management Director, Christine Lagarde, will be in London early next week, on May 21 and 22, where she will take part in the concluding part of our Article IV discussion with the United Kingdom. She will take part in the mission's concluding press conference, and that will be on May the 22nd. If you need more information on that, please turn to Media Relations.

Then, on May the 23rd, the Managing Director will deliver the commencement address at Harvard's Kennedy School, and that is at two o'clock on May 23rd. If possible, we will make her remarks available ahead of time.

Looking slightly further ahead, the Managing Director will take part in an International Conference in Riga, Latvia, on June the 5th to review economic recovery in the Baltics. There is a website dedicated to this conference. If you go to our own website and then go "\latviaconference", the full program details are available, as are registration possibilities.

The day before the Riga conference, she will be in Stockholm to attend an International Monetary conference.

Finally, Deputy Managing Director Min Zhu will today give luncheon remarks at the annual meeting of the Bretton Woods Committee here in Washington, D.C.

So, with those opening remarks, I'm happy to take questions.


SPEAKER: Good morning, David. Any reaction, now that Greece has a new prime minister and a new minister of economy? And also, I have a second question, are the mission and Mr. Thomsen going back to Greece now for consultations?

Thank you.

MR. HAWLEY: Okay, well, we take note that elections have been called, and we look forward to being in contact with the new government once it has been formed.

SPEAKER: The government has been formed, so it means that Mr. Thomsen is going back.

MR. HAWLEY: Following the elections.

SPEAKER: Following the elections –


SPEAKER: -- Mr. Thomsen is going to Greece on June 18th, for example?

MR. HAWLEY: I have no precise information on the time --

SPEAKER: Well, the elections are on the 17th, so he will go, most likely, after the elections at some point?

MR. HAWLEY: I would expect the mission would follow the -- the main point is, the mission would follow the elections. I don't have a date specific.

SPEAKER: So they are not going back to Greece before the elections.

MR. HAWLEY: The mission would be after the elections.

SPEAKER: There has been some speculation that Greece will run out of funds before then. What actions would you take if it was unable to meet its obligations?

MR. HAWLEY: That's a question for Greece. I don't have comments on that.

SPEAKER: There would not be any bridging mechanism that the IMF might engage in, in order to ensure the liquidity of Greece in an interim period whilst they're engaging in election?

MR. HAWLEY: There is a program in place that was agreed recently, and funding was made available in the context of that program.

SPEAKER: Thank you, David. Andrei Sitov, from TASS. I wanted to ask you about oil.

The sanctions against Iran are supposed to enter into force very shortly. Has the IMF looked into that situation and projected as to how this may influence the oil markets?

MR. HAWLEY: Yes. I'll refer you to the WEO, where you perhaps recall that there was the suggestion that an embargo could increase oil prices by 20 to 30 percent.

But two important caveats here. One, that would be in the absence of any offsetting increase in supply from other quarters. And the second caveat is to note that current oil prices, in our view, appear to have already priced-in, to some degree, the impact of an oil embargo.

SPEAKER: And if I may follow up, the additional supplies that you refer to presumably might include the U.S. strategic reserves.

Again, have you tried to, like, measure specific steps that may be taken in that situation? And whether any particular steps might be sufficient to prevent a steep rise in price?

MR. HAWLEY: I don't have specifics on additional sources of supply, other than to note that oil prices have, you know, already reflected a significant in OPEC production.

I'll turn, if I may, to a question on the Media Briefing Center.

It says, "Your Article IV consultation on Italy ended on a very positive note, but troubles remain. Liberalizations have come to a halt, and the Italian banking sector has a -- " -- what he describes a $290 billion exposure to sovereign debt.

"Isn't the IMF worried about these issues?'

I will recap by noting that there was the conclusion of the Article IV staff discussions yesterday that was accompanied by a press conference and the release of a statement.

Some of the issues that questioner mentions are, in fact, covered in that statement. And I'd refer, in particular, to Paragraph 5 -- and this is in the web -- that the mission noted the important potential gains to growth to be made from deeper structural reforms.

And then, further down in the statement -- and I'm looking now at Paragraph 17 and following, there was extensive discussion of the ways in which it would be possible to promote a more dynamic and resilient banking system.

So refer, please, to the statement we issued.

SPEAKER: President Zoellick of the World Bank yesterday made some remarks about Greece and other euro zone countries. He basically said that the core program, in his opinion, if the situation of Greece deteriorates sharply, it will not be Greece, as such, but rather the impact, potential impact on countries such as Italy and Spain.

Is that a view that is shared at the IMF?

MR. HAWLEY: Let me stand back slightly from that question to discuss our views on the euro area. Of course, the critical question is about finding solutions to Greece's economic crisis.

But that aside, our key policy messages remain the same. And they go into four areas, I believe.

The first is the importance of strengthening the firewall to prevent contagion.

And, second, the importance of short-term demand support, where possible. In this context, monetary policy should remain accommodative.

Then, more specifically, country reforms are needed to lift growth. Sovereign debt sustainability depends critically on growth prospects. And there is a range, depending, of course, on countries, of structural reforms needed.

And then, finally, there needs to be a clear path in the euro area -- I clear plan within the euro area towards greater integration and risk-sharing.

I have a question also on the Media Briefing Center, which says, "Are you concerned about the fear of political instability in Greece?"

I would simply say that in this country, as in any other, we respect the political process, which is underway -- which, in the case of Greece, currently, towards an election next month.

SPEAKER: If I may, another question on the same subject.

What do you at the IMF expect from the upcoming summit, G-8 Summit at Camp David? What, realistically, should be expected, in terms of economic decisions?

Or, are we to wait until the G-20 gets together?

MR. HAWLEY: I don't have a specific comment on the outcome of the G-8 Summit in Camp David on May the 18th and 19th. To anticipate a question that might be coming, the Managing Director is not participating.

The summit, as I understand it, is to focus on food security in Africa. This is an important issue for us, food security, and high and volatile prices continue to pose a serious challenge in many developing countries -- especially those suffering drought in the Sahel region and the Horn of Africa.

In this context, we've stepped up our financial support to those affected by the drought. Most recently, for example, arrangements to Kenya and Djibouti have been augmented. And I would note, too, that the Fund is encouraging its membership to use the distribution of proceeds from gold sales to return to lending for low-income countries.

SPEAKER: And, David, if I may again, to follow up on what you just said -- isn't it customary, though, for the Managing Director to take part in such discussions, at least informally, or meet with the participants before their summit?

MR. HAWLEY: In a summit such as this one it is the decision of the host on a case-by-case basis to determine who to invite. You're right to point this out, that on a number of occasions the Fund has taken part. But it's not -- there is no hard-and-fast rule on this matter.

SPEAKER: You laid out very clearly the four points that the IMF has been making with regard to how it sees the route forward for the euro zone. Could I zero in a little bit on the second point, short-term demand support and monetary policy should remain accommodative?

Given the worsening of the bank stresses at the moment, and some of the liquidity problems that emerged yesterday in the Greek banks -- and, indeed, we just had a Spanish debt auction which pushed the yields even higher -- do you see further room for the ECB to resume some bond buying actions, and also to lower rates?

MR. HAWLEY: Let me answer the question more specifically than in response to a given -- to different market developments on a given day.

In our view, the ECB has room for further monetary easing, given the expected weakening of underlying pressures. The policy rate remains at its historic lower bound of 1 percent, but this could be reduced further if -- this could be reduced further, as inflation is expected to drop well below 2 percent.

Further, unconventional policy measures may also be needed.

SPEAKER: You mentioned, before, growth. And I was wondering if you would acknowledge that there is a need for growth measures to complement the severe austerity that is being implemented in Greece? Because there's a lot of -- you know, as you've seen with President Hollande being elected –


SPEAKER: -- there's a debate within Europe, not only in Greece.

MR. HAWLEY: Oh, you're raising the –

SPEAKER: The larger specter. And I'm asking about Greece, but growth in Europe in general, but coming from Greece, I am concerned about Greece, as you understand.

So I'm just wondering if, in both cases, growth is something that maybe the Fund, and the rest of Europe, should pay attention to?

MR. HAWLEY: Okay. This was, as you may have noted, an issue that the Managing Director, Christine Lagarde, touched on recently in Zurich, in the speech. And I'll quote very briefly her language. "The austerity-versus-growth is very much the debate the hour. I believe it is a false debate. I would argue that it is not 'either-or.' We can design a strategy that is both good for today and good for tomorrow, good for stability and good for growth, where stability is conducive to growth, and where growth facilitates stability."

Perhaps I should add, in the context of Greece, since you make clear that you were asking also in that context, that the Greek program is -- in challenging, of course, circumstances -- explicitly designed to bring forward Greece's projected recovery. Reforms target up-front improvements in competitiveness to encourage higher investment, growth, and employment.

SPEAKER: David, Madame Lagarde talked about the possibility of Greece's exit from the euro zone.

MR. HAWLEY: Mm-hmm.

SPEAKER: My question is simple. Do you have contingency plans here at the IMF for this possibility?

MR. HAWLEY: Okay. Let me start by mentioning, perhaps, what her main message was in this context. And here I'm referring to remarks she made in an interview yesterday with the Dutch national TV.

And I'll quote her: "I think what we should look at is the optimal scenario, where the country, Greece, has the political resolve to stay within the zone." And she noted that "This seems to be the desire of the population of Greece."Now, to answer the question you raised, she did address this. And, again, she said simply that, "In this, or in any other situation, we have to be technically prepared for any eventuality because that is our job." She made clear, as she made that remark, that she is not suggesting that this is the desirable solution.

She went on to say, "I am saying that this is within the range of multiple options, one that we have to look at because this is our job."

SPEAKER: If I may, "optimal" is all very nice, but we're scarcely in an optimal situation right now.

In the IMF's view, do we have the time to wait until June 17th, when depositors are withdrawing money from banks, and the banking system -- not only in Greece, but also in Spain -- is looking increasingly fragile?

MR. HAWLEY: I will simply stay with the Managing Director's main point, which is that we are focused on the optimal solution.

I'm going to turn to a question from the Media Briefing Center, which says, "What is your opinion about the nationalization of Bankia, and the latest reform of the bank system?"

As you know, there was an FSAP mission -- that's a mission that looks at the looks at the financial sector -- that concluded its work in Spain at the end of last week, that concluded its work recently. And at the end of last week the Spanish authorities announced a number of measures to strengthen the banking sector.

We commented at the time -- and this is very much our view -- the Managing Director said, "I strongly welcome the comprehensive set of measures announced by the Spanish authorities. These measures offer an effective response to the vulnerabilities of the banking system." You can take the whole statement from our website.

SPEAKER: I wanted to go back to Greece. You said that the mission is not going to Greece before the elections.

And my question is, who is going to review the implementation of the program? And do you really have any idea how the implementation is going? And, I mean, are you satisfied with the implementation? Because this is the biggest question.

MR. HAWLEY: Review of implementation takes place, in any country case, in the context of a review mission. And that remains the case in Greece.

SPEAKER: David, that statement you just quoted, I just remembered there was a quote -- quote-unquote -- "to resolve some banks," or almost exactly. What does that mean, "resolve banks?"

You know, I'm just asking, if at all possible, when you do those press releases, please try to phrase them in a way that is at least translatable.

MR. HAWLEY: That's a very fair comment. I'll take -- and we will try to improve our language.

I'll take a question, if I may, "The Egyptian finance minister has said that Egypt will sign an agreement with the IMF on a loan to Egypt by the beginning of next month." He referred to some discussion between the IMF and the Egyptian government to get the first phase of the loan within two weeks.

Let me describe where things stand on Egypt.

We have no fixed timeline for an agreement on a standby arrangement with Egypt. We stand ready to support a home-grown program that maintains macro stability and promotes inclusive growth, and enjoys -- and here's the key point -- the necessary broad political support, and includes adequate external financing from Egypt's international partners. And so we look forward to advancing the discussion, with a view to consideration by the Executive Board, once those elements are in place.

So, as I said, no firm timeline on Egypt.

SPEAKER: Can you, in your book of spells, is there any update on Ukraine?

MR. HAWLEY: Yes. The mission, the Article IV mission is going to be visiting Ukraine on May 21st to 28th, and that is with the purpose of concluding the Article IV discussion for 2012.

Okay, if there –

SPEAKER: I have another question. Going back to your answer on the possibility of Greece's exit from the euro zone –

MR. HAWLEY: Mm-hmm.

SPEAKER: -- you have contingency plans, correct? Did I understand well?

MR. HAWLEY: I can only tell you what the Managing Director said.

SPEAKER: I'm asking –

MR. HAWLEY: We have to be technically prepared for anything -- and she's referring not merely to this case, but to any case, because that is our job. And I'm not going to be more specific than that.

SPEAKER: Article IV missions, and programmatic missions are different, right?

MR. HAWLEY: That is correct. So -- I assume you're referring to Ukraine here -- this is an Article IV mission, not a program.

SPEAKER: It does not involve –

MR. HAWLEY: The review in Ukraine is on hold.

SPEAKER: I think I know the answer, but just to try -- would you have any preliminary comments on the U.K. situation, ahead of the –

MR. HAWLEY: No. They will make know, the mission will make known its views on the U.K. outlook when it releases its mission findings at the beginning of next week.

So, thank you very much. Thank you.

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