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

March 1, 2007

Director, External Relations Department
International Monetary Fund
Washington, D.C.
Thursday, March 1, 2007

View a Webcast of the press briefing

MR. AHMED: Good morning and welcome to this regular press briefing. I am Masood Ahmed, and as usual, this briefing will be embargoed until 11:00 o'clock Washington time. Let me also encourage those of you who are at the Media Briefing Center to pose your questions early so we can get to them.

I just have a couple of announcements to make before we get to questions. First, just to let you know that the Managing Director is in Madrid today where he has just spoken at a Ministerial Conference on middle-income countries that is being organized by the Spanish Ministry of Foreign Affairs and the U.N. Department of Economic and Social Affairs. His speech will be posted on the Fund's website later today. And tomorrow he will be speaking a meeting of the Presidents and Directors of Spanish savings banks also in Spain.

Secondly, let me just inform you that today we are opening the online press accreditation for the Spring Meetings. As you know, the Spring Meetings are on the 14th and 15th here in Washington, D.C. This process will be open until Friday, April 6, which is the last day for accreditation. We have already put up on the website a tentative schedule of events in the run-up to and at the Spring Meetings. At the next press conference that we have in 2 weeks I will be happy to walk you through some of the details of those events for then. The next briefing will be held here on March 15, 2 weeks from today.

That is all I have by way of announcements. Let me open it up and take questions.

QUESTIONER: The stock market plunge the day before yesterday, does the IMF regard that mainly as a technical correction or something that is going to continue for some time? The second question is there are some questions now as to if any of that will affect growth either global growth or what about in Asia and China?

MR. AHMED: The first thing I should say on that is that we still see a soft landing as the most likely scenario for global growth this year. We see solid growth across the major advanced economies and continued strong growth across emerging markets and developing countries. The overall pace will be a little less rapid than in 2006 which has helped to reduce inflation concerns, but there has been no material change in our outlook.

Of course there are downside risks and one of the risks that we have highlighted is the possibility that financial markets could become more turbulent, and market developments over the past week have shown that risk appraisals can change very quickly, as indeed we also saw in spring 2006. It is too early for us to look back on this process, but based on the information we have seen so far, we see this more as a correction than a fundamental shift in market direction. Already there has been some recovery in the markets and we see corrections as part of the functioning of financial markets. And it goes without saying that we will continue to monitor developments in the coming days.

QUESTIONER: On this note of the financial market and the forecast, I believe that Greenspan has come back to say again that he believes there is the possibility of a recession in 2007, if I am not mistaken. He did not say it is likely, but it is possible and he repeated that on a couple of nights. Can you comment on that?

MR. AHMED: I do not comment on what Mr. Greenspan said, but what I have just said is that as far as the Fund is concerned, our most likely scenario for this year remains one of continued strong global growth, and the numbers that we have come out with for this year are just under 5 percent for the world. We see no reason to change those numbers at this time.

As I said, there are 20 journalists in the center who are online in the Media Briefing Center, so please do send in any questions that you have on that. Are there any further questions?

QUESTIONER: Could I have a follow-up? The whole shakeup in the market started in China, and this was on rumors that the government is going to clamp down on illegal trading and stuff like that. Does that show part of a broader problem going on or that China is still a risk in some ways with the changes in the economy that are going on?

MR. AHMED: We do not see the change of market appraisal of risk that has happened over the last few days as having been triggered by any single event.

QUESTIONER: I have a question regarding my country, Italy. I am sure you have seen the new data that came out today from the Italian Statistics Bureau about the GDP and the deficit. I do not know if I need to repeat them to you, but the GDP is 1.9 percent which is highest since 2000, and the net deficit, it appears at 4.4 percent, but actually according to the Statistics Bureau when you adjust it to exceptional -- I do not know how you say -- expenses, it should be at 2.4 percent. The last time we talked you expressed a positive estimate in your review of the accounting for Italy. So what can you tell me in the light of this new data for the upcoming world outlook in the spring regarding Italy?

MR. AHMED: Let me start by saying first that this encouraging new data that has just been released underscores the call that was made by executive directors at the time of the Article IV discussion that we talked about at my last press conference, that the government should take advantage of the current window of opportunity to undertake some important reforms.

On the GDP growth estimate that you mentioned which has come in as 1.9 percent for 2006, this is not surprising given the fourth-quarter data that was released earlier. For us now in terms of what does this mean for the projections we will be making, the WEO exercise, the World Economic Outlook exercise, is still underway and our growth projections for WEO including those for Italy will be released in the context of the WEO press conference on April 11. But as I said, the final figure in the WEO will obviously depend on the iterative process in terms of the forecast for other major economies as well, so it is a global forecast.

In terms of the fiscal deficit which you mentioned of 2.4 percent of GDP net of the one-offs, we welcome the better-than-expected figure as a good starting point for the needed further adjustment. At the same time, I think it is worth noting that revenues still account for much of the improved outcome, and spending trends remain an issue in terms of the fiscal situation. So that is what I would like to mention on the fiscal.

QUESTIONER: Could you repeat the last two points you made, what remains an issue exactly? The spending?

MR. AHMED: Spending trends, because much of the improved performance has been accounted for by the revenue side.

QUESTIONER: Is there any update regarding Liberia -- an agreement among the shareholders in the IMF on Liberia's debt?

MR. AHMED: I have no update on Liberia beyond what I mentioned earlier, but as soon as we have something I will be happy to come back to it. No other questions?

QUESTIONER: No, I can always have another one.


QUESTIONER: It is actually about the new commitment for the cooperation among IMF and the World Bank, what are the first practical and tangible steps you are going to take and will we see something already at the Spring Meetings as an expression of this new cooperation?

MR. AHMED: Sure. On the cooperation between the World Bank and the IMF, and in particular to the follow-up of the report that has been produced by the External Committee on Collaboration Between the World Bank and the IMF that was headed by Pedro Malan and the report of which came out earlier this week, the next step in the process is that having had the first briefing of the two boards earlier on this week on Tuesday and having delivered that report to the two boards, if you like, the boards and the management of the two institutions are now going to digest the document and take stock of it. There will probably be a further opportunity for the Board of the IMF to have a discussion of this report with the chairman of the committee and other members of the committee who might be there before the Spring Meetings. Then at the Spring Meetings themselves, the document will be circulated for information to ministers who may wish to comment on that, but on the subject more broadly.

Beyond the Spring Meetings there will be then a process where drawing on the suggestions and recommendations that had been made in the report, we will be putting together a program of work in terms of how exactly we can take some of those ideas forward and some of those will be issues that can be dealt with by the Fund itself, and there will be other areas where clearly the nature of the report is such that it can only be done in collaboration between the two institutions, so there will be joint proposals that will be put together by the two staffs to be considered by their respective boards and that process will unfold over that period.

QUESTIONER: Considering we are talking about the reform issue, is there any update on any sort of agreement on the formula for quotas? Please correct me, if the formula meant to be -- there is going to be progress through the Spring Meetings and an agreement by the end of the year, right?

MR. AHMED: That is absolutely right. Our intention is that we will progress through the Spring Meetings and that the process is underway, there is discussion going on both within the Fund and a number of other fora where people are discussing it. You know there is a G-20 process where there has been an active discussion last year, and the G-20 this year is also discussing amongst other things the issue of quota formulas. But the expectation is that by the end of the year we will have agreement on the quota formula and then the basis to actually that forward and implement the recommendations of that process in terms of the next round of ad hoc increases which of course is the practical application of the formula itself.

If there are no further questions, thank you very much. Embargoed until 11 o'clock, next time on March 15.


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