Transcript of a Press Briefing by Masood Ahmed, Director of External Relations Department

August 3, 2006

Director of External Relations Department
International Monetary Fund
Washington DC
Thursday, August 3, 2006

View a Webcast of the press briefing

MR. AHMED: This is our regular press briefing. We will be embargoed, as usual, until 11:00. It is a quiet month for announcements, but I just wanted to remind you the Managing Director has been in Japan over the past couple of days as part of his program of consultations on the Fund's medium term strategy.

Welcome also to people from the Media Briefing Center. I encourage them to pose questions. I will open it up now, if you could please identify yourself and your affiliation.

QUESTIONER: Just a couple of days ago, the Managing Director, Mr. de Rato, spoke about his proposal for a new reform on the representation of IMF. There were some reports coming out from Spain before that speech, the speech that Mr. de Rato offered here a few days ago. Some of the reports talked about some of the countries may benefit from this reform, among them, Mexico, I think, Turkey among others. The question is, at this point, do you have could you give us any more precise information of how far these proposed reforms are going to reach, and also if this is something that Mr. de Rato wants to do in phases or is it going to be like a one time act?

MR. AHMED: Okay, thank you. I will tell you where we are now on this. What the Managing Director is proposing is to come to the annual meetings in Singapore with a two-year program of action, which will result in a substantive modernization of the governance of the Fund, and this program of action, as he envisages it, will likely include both immediate increases in the quota of a few of the clearly most under-represented countries. That will take place immediately after the Singapore meetings, but he would also like the membership at Singapore to agree upon a set of measures which would be implemented over the next two years or so, which would then do other things beyond the first limited number of increases.

That set of measures would include, as he has said, perhaps a further round of increases for other countries, a review of the formula that is used to calculate the economic weight of countries, which would then be used for this subsequent round of increases, and equally, he has also said that he would like to make sure that, in addition to these measures which are aimed at ensuring that countries' quotas are better aligned with their relative economic weights in the world economy, he would also like to see a set of measures that would enhance the reputation and voice of low income and small economies where the Fund has an active role.

He has proposed, in this context, that he thinks the most sensible way to do this would be by increasing the basic votes which are the common votes that all countries have and which would then be used as a basis for helping those countries. So that is, if you like, the program of measures that he would like to get agreed when he is in Singapore.

As he has said, all of this was laid out, in fact, in the speech that he made in Tokyo yesterday which I would like to refer you to as well.

QUESTIONER: A follow-up, I have to confess that I didn't read that speech.

MR. AHMED: Well, you can look at our web site.

QUESTIONER: I wonder if there are a specific number of countries who will benefit in the first phase of this proposed reform.

MR. AHMED: At this stage, we don't have a proposal that is to say the following countries will benefit in the following amounts. That is the discussion that he is now having with the Executive Board, with the membership more broadly, and that is, in fact, a bit of the proposal that will now be firmed up, and he will come forth with that in the run-up to Singapore. Today, I can't say to you these are the countries and this is the amount in the first place, but it will be a limited number of countries, as he said.

As I have also said, there will be probably a further round of increases down the road for another set of countries.

QUESTIONER: Masood, would you say that there is a broad agreement now, currently, that those four countries -- China, South Korea, Mexico, and Turkey -- are given those quota increases for now? The other one is would you say, by Singapore, we are going to have a comprehensive package that includes not only those but the next phase which is going to be a new formula for quotas, the basic votes, and also a decision on the European Chairs?

MR. AHMED: On your first question, as I have said, we don't have, at this point, a set of countries that we are saying, these are the countries that are going to get increases in their quotas in the first round. There are many, many people who doing lots of analysis, saying which countries are likely to be part of that, which are more under-represented than others, and we are certainly taking all that on board. We are working on it, but we don't have a set of countries that I can give you for the first round.

As to your second question, yes, it is his intention to come forward with not just a proposal for a limited set of countries whose quotas will increase immediately after Singapore but also with a comprehensive proposal, as he says, a program of measures that will probably take about two years to implement and on which he is hoping to get agreement of the membership at Singapore, which would then include a range of things which would need to be addressed. Precisely what will be in that program of measures, I have sort of outlined what I think are some of the measures that he has been talking about, but that is something we are still working on between now and then.

QUESTIONER: Masood, where do the names of those countries come from? Are you saying that those countries can be changed, or are you saying that the proposal does not yet name those countries but there is an understanding that these countries are underweight?

MR. AHMED: You can push me, Lesley, but all I am going to say is the Fund has put out various papers and other people have put out papers that look at which countries are most under-represented by which set of criteria. There are various criteria that you can use to look at under-representation. What is clear is that in the first round, the Managing Director has said that he wants to focus on a limited number of countries which are clearly the most under-represented.

Now you have access to the same set of tables that other people have, and people are doing their calculations. Various names, including some of the names that you have mentioned, pop up all the time, but there are also other countries that people think are under-represented, and that is the discussion that is now underway.

QUESTIONER: I might follow up on the same issue. It was revealing to me that you say these increasing quotas will be having effect after Singapore. Maybe I didn't use the exact word that you used a few minutes ago, but the question is: Do you expect to have these reforms implemented after Singapore or do you also not have a timeframe at this point?

MR. AHMED: I think what the Managing Director has said, including in the speech in Tokyo, which I will give you a copy at the end of this, is that he would like to bring forward a program of measures on which you get a decision by the membership. They agree to the whole program at Singapore. Some bits of that can be done right away; some other bits will take longer.

To give you a practical example to sort of illustrate that issue, I mentioned earlier that one of the measures that people are thinking about to help the small, low income countries increase their voice is to increase their basic votes. That is one of the measures, and that is what he mentioned in his speech. But to get an increase in basic votes, you need to get an amendment of the Fund's Articles. To get an amendment of the Fund's Articles agreed by all the membership will take longer than some of the other measures. So the expectation is that we get a sort of broad agreement on the measures in Singapore, but the implementation will take some time, and the hope is that this whole program will then get done, more or less, over two years. That is sort of roughly where we are on the quota and representation issue

QUESTIONER: Sir, since you just mentioned a thing about the increase in the basic votes, just to clarify that, you can increase the basic votes without anybody else losing out. I mean if you have an amendment to the Fund's Articles and X number of countries get an increase in their basic votes, it doesn't mean that anyone else has to give up anything, correct?

MR. AHMED: Basic votes, the way that the Fund's quotas are structured is that there are two parts to that. One is a quota that is based on your relative economic weight, and that is different for every country. Then there are basic votes which are the same for all the members, regardless of their size, and that reflects a universality of the institution. So, if you were to increase basic votes for everyone, yes, you could do that for everyone and that would just be a decision in and of itself.

QUESTIONER: Do you need 85 percent of the voting power for that or what?

MR. AHMED: You need an amendment of the Articles for that.

QUESTIONER: And that is?

MR. AHMED: To get an amendment of the Articles, you need 85 percent to vote for it.

QUESTIONER: Regarding the governance issues, how many countries can get gains of the quota and the votes, and then, on the contrary, how many countries will lose the quota and the votes?

MR. AHMED: Well, as to how many countries will gain, I have been going around that topic a bit, and I guess all I will say to you is what I have said so far which is what the Managing Director has said is that he would like to come forward with his plan where, in the first phase, for a small, limited number of countries who are clearly under-represented, we will take steps to increase their quotas. Then there is also, as he has laid out, a second round of increases during the two-year period later, which will affect again a limited number of countries. How many there will be, we don't know yet, and I can't give you a number on that.

As to you when you say how many will lose, the important thing to recognize is that this is not a zero-sum game, necessarily, where some win and some lose because in an arithmetical sense, of course, if the quota of some members is increased, the relative share of other members goes down, but there is no proposal to actually reduce the quotas, in absolute sense, of the members.

The other point I want to make is if we are talking about relatively even quota increases that might be significant for a small number, it will add up to a relatively small amount for the membership as a whole. And so, the impact of that on any dilution of their quotas, their shares is quite small because it is spread over 184 members, less those whose quotas will have gone up.

QUESTIONER: Masood, getting to the Middle East, regarding the conflict which seems to be going on a little longer, is there any fear, first of all, that the conflict is going to have any sort of impact on the global economy?

Number two, the economies of the region, we know that the Middle East countries have been earning a lot through oil and having been paying down their debts. Is there some fear that might stop now and they might hold it, wait and see what is going to happen, and if there is going to be any effect on them, they would use that money instead to prop up their economies in any way?

MR. AHMED: At least up to now, the impact of the crisis in the Middle East on global markets, financial markets, has been relatively limited, although we have seen some, again limited, but we have seen some effect on oil markets. As to what the impact will be on global markets, I think we are watching. It depends, as you say, very much on how long the crisis lasts. It depends very much on how deep it is and how wide it is, and all of those are unknowns that we are watching as much as anybody else.

As to the question of whether this is likely to change the savings and investment behavior of countries in the region, I think, first of all, it is important to recognize the point you made, which is that in this particular oil price boom, the countries in the Middle East, the oil producers in the Middle East have been saving and investing a larger share of the increased revenues in the region. I think the important point there that we take away also is that this reflects the fact that there are better opportunities. There are many more better opportunities to save and to invest in the region than there were in the 1970s or the 1980s when oil prices went up.

How, again, the current crisis is going to affect that pattern and whether or not it is going to change their savings and investment profiles, it is kind of early to say, but again, that is something that we will be watching.

I have one question on the Media Briefing Center which is to ask for an update on multilateral consultations and saying: When will these talks take place and at what level will these talks take place? This is from Martin Dowded [ph]. Let me answer that.

As I said at the last press briefing, this process, which was launched after the spring meetings, is now underway. As I said, we have been having discussions with the five participating countries or economies. The next phase in this, as we laid out in the press notice we first put out, is going to be to try and bring officials of these economies together to have a discussion around some of the common issues of linkages and spillovers. Those discussions are yet to be held. As we said also, at some point in the process, when it is most useful, it is also envisaged that there will be a meeting at the ministerial level amongst that group.

The question that is asked here is: When will these talks take place? The first set of discussions, the bilateral ones, has been taking place, but we don't yet have dates for the next phase of this.

Any further questions? Please, yes.

QUESTIONER: Can I ask a different question?

MR. AHMED: Yes, certainly.

QUESTIONER: Re-update us on the standby credit to Iraq or the other assistance to the Iraqi Government.

MR. AHMED: Yes, I can certainly do that. The Board completed the first and second reviews of the program, the standby arrangement with Iraq, yesterday. We issued a press release today, setting out some more details on that Board discussion. As you know, this standby arrangement, the total amount of which is about $705 million, is being treated as a precautionary aid by the Iraqi authorities.

QUESTIONER: Just a technical question, I am trying to think about the logistics of the annual meeting. The first briefing, I believe, is the WEO on the 14th. I am wondering, given the time change and so forth, when would that be available online under embargo. Do you know yet?

MR. AHMED: I think, if I am not mistaken, the first briefing is actually the GFSR, the Global Financial Stability Report, which is on the 12th. So that is, if you like, the first event.

As to when the WEO will be available online, we have traditionally made it available, I think, about 24 hours or so before. I have heard, from a number of you, a desire to have it available with a slightly longer lag because it enables you to prepare some of the stories that you need to write on the countries and on the regions. Particularly those of you who are covering a whole region, you feel the need to have more time to be able to do that before the embargo is lifted. As you can imagine, we always worry about long embargoes on something like the WEO, but we have taken that on board and we are now exploring to see whether, given the time issue as well, there is a way of putting it out slightly earlier. It will be a question if we put if out earlier, that instead of 24 hours, it might be a day and a half, but I don't see us putting it out a week earlier.

QUESTIONER: [off mike]

MR. AHMED: As to when they are going to be made available? I am going to have to ask my colleagues for a time on that. If not, I will make sure that we post that as part of the response on this. Actually, what we might do, if we haven't done that already, is post on our web site soon, or Media Briefing Center at least, the information on exact times for these things again and when documents will be made available for you.

QUESTIONER: [off mike]

MR. AHMED: Yes, we will give you details on all of those, the annual meeting run-up events.

In fact, I wanted to say something. I was going to save this until the end, but since you have raised this and it is linked, let me do it now. Our next press briefing is going to be on the 24th. The Board is in recess for the next two weeks, so it is just after the Board comes back from recess. What I was hoping that we might do in that next press briefing is simply make sure that we walk through all of the logistics leading up to the annual meetings, so that people have a very clear sense. If you have any questions, you can address those at that meeting as well on the 24th.

One more question, sure.

QUESTIONER: Masood, three PINs have come out this week that have been pretty interesting: Europe policy, the U.S., and Japan. All three of them, especially the Japanese one and the U.S. one, showed a lot more detail in the PINs, especially the stock reports. Is this the kind of new way that the Fund is talking about greater surveillance in many ways and publishing more information? I checked on previous PINs and then this one, and there is a lot of information in there.

The other question is the Fund said that the dollar was over-valued and by 15 to 35 percent. Is that real? I see that the authorities dismissed it and said, well, market forces need to determine the value of the dollar. But is there specifically a reason why you raised that issue and are you in talks with the authorities on that specific issue?

MR. AHMED: As to the fact that the PINs have more information over time, I think what you will find is more generally as we move forward, we are, as part of our general efforts, trying to provide more details and more candor in the work, wherever it is useful and wherever we can.

On the specific point that you said about the U.S. dollar, I think what I can most usefully do is refer you actually to what the MD said last night on this in the CNBC interview that he gave in Tokyo. I think the point that he made in that is that these are the values in terms of the estimates of over-valuation that emerge from our model which itself is based on fundamentals, but he also went on to point out that it is pretty clear to all of us who watch currencies and know that currency markets don't follow models in the short term. We did our analysis. We gave our opinion on it. With the agreement of the U.S. authorities, we allowed that to be made public in the document, but that doesn't necessary mean that markets are going to follow the results of that model. In the short term, we all know currencies are not predictable. That is what he said yesterday, and I think that is, in essence, where we are on that.

Just to remind you again of our embargo, it is 11:00.

Also, just to remind you that, as I said, while the Board is on recess for the next two weeks, we will have the next press briefing here on the 24th. I am, personally, going to be on leave at that time, but David Hawley will step in and give you an update on anything that we have to say but also questions that you have. For those of you who are going to take a break in August, have a good break as well.

Thank you very much.


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