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

July 26, 2012

Washington, D.C.
Thursday, July 26, 2012
Webcast of the press briefing Webcast

DAVID HAWLEY: Hello, everybody. I’m David Hawley, deputy director of the IMF’s External Relations Department, 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 1430 GMT.

Before turning to your questions, let me do a couple of housekeeping points, as usual. The Managing Director, Christine Lagarde, is in London today and she’ll be attending the Global Investment Conference, which is hosted by the UK authorities, and she will take part in a panel discussion. I don’t have advanced text for you on this and because it’s a panel discussion I’m not sure we’ll have text to release. However, it will be webcast live both on the UK Trade and Investment website and, perhaps easier for this audience, on our website starting at about 11:30 this morning Washington time.

In terms of upcoming Article IVs, the Spain Article IV was discussed in the [Executive] Board yesterday and we plan to publish the documents tomorrow, Friday. That’s July 27. And that will be at 11:30 a.m. Washington time. As usual, make them available to the press under embargo and we’ll send out a media advisory on this later today.

We plan, also, to publish the staff report and PIN on the Japan Article IV Consultation in the next few days and, looking slightly further ahead, the FSAP for Brazil. Details on these will come to you in a media advisory.

And a final point on upcoming events. We mentioned in an earlier press advisory on Monday, July 30, we’ll publish the staff reports and public information notice on the integrated surveillance decision and the pilot external sector report, which the Executive Board approved last week. There will be a briefing on that and details will follow.

Two final points. The Annual Meetings in Tokyo are October 9-14, and so we’d remind you that press registration is open and you can carry that out on

Finally, this is our last press briefing before the summer break. We always take a summer break during the IMF’s Executive Board recess. And this year that is from August 6 to August 17. So the next press briefing after the summer break will be towards the end of August.

With those remarks, I’m open for questions.

QUESTIONER: Hi. I was wondering, David, if you’ve got any comment on remarks today by Draghi, in London, in fact, saying that he’ll do the ECB will -- signaling basically that the ECB is ready to move and also to defend, or act to try and bring down these very high borrowing costs in Spain and Italy. Connected to Spain and Italy, you know, the borrowing costs have been so high, the question is now whether, you know, whether this is sustainable or not. Does the Fund still believe that the fundamentals of these countries are strong and the high costs, borrowing costs, are hard to explain?

MR. HAWLEY: Well, Mr. Draghi’s remarks are a welcome reiteration of the ECB’s well-known commitment to do what is necessary. On Spain and Italy, which is the focus perhaps of your question, the main message is that in both countries important policy measures have been announced and implementation is key.

In Spain, as you know, the authorities have been taking strong and wide-ranging reform measures. Implementation, as I say, is key. And Spain’s prospects will also be helped by further progress at the European level.

If I turn to Italy, the other part of your question, perhaps I should focus on the structural reforms just introduced by the government. These are important reforms to deregulate the service sector and make labor markets more inclusive and flexible. Accelerating these reforms and working in the necessary legislative and administrative changes would strengthen confidence and create momentum for further reform.

QUESTIONER: Perhaps I can follow up. So are you saying that these high borrowing costs are not justified because these countries are doing stuff, or that they need to continue doing this and showing markets that they are performing and trying to correct the imbalances?

MR. HAWLEY: It’s not my job to comment specifically on whether the markets have it right or wrong on rates.

QUESTIONER: The IMF has been criticized recently, including an opinion piece in the FT, for “The IMF has failed to challenge orthodoxy, forfeiting its role as a valuable referee in the policy debates,” in particular Arvin Subramanian is talking about IMF’s role in Europe. And I’m wondering, with that as the context, can you say whether the IMF thinks that the official sector in Europe should restructure its holdings of Greek debt?

And secondly, should the ECB’s role in maintaining stability of borrowing costs for Italy and Spain -- should it be acting now or can it afford to wait?

MR. HAWLEY: I’ll take the two parts of your question in the order you asked them. Firstly Greece, assessing debt sustainability is always part of our work and our discussions with any country where a program is in place, and that is work that continues in Greece.

Your second question is about the ECB and what action it should take. We welcome the interest rate action that the ECB took on July 5, but we continue to see a need for further monetary easing and unconventional support.

QUESTIONER: So just to be clear on my question, if not to answer, the IMF cannot and will not say publicly whether the ECB needs to intervene to keep bond prices in Italy and Spain low now or whether it needs to wait. So the IMF is not giving any sort of clear message.

Secondly, on the Greek debt restructuring, can you tell me flat out that no IMF management has asked the ECB or the eurozone official sector to restructure Greek debt?

MR. HAWLEY: In this case as in any other wouldn’t tell you what may or may not have occurred in any conversation that is not public between the IMF leadership and the authorities.

QUESTIONER: So just to confirm on my first question, which still remains unanswered, whether the IMF believes as part of its advisement to the return to the health of the eurozone economy, that the ECB should act now or should wait. The IMF has no view on that at all.

MR. HAWLEY: I’ve given you an answer to your question. It may not be entirely to your satisfaction, but I can’t --

QUESTIONER: I’m not sure which one that is. Can you remind me of what your answer is?

MR. HAWLEY: My ECB answer.

QUESTIONER: Yes, I’m not sure what your ECB answer is, If you could refresh my memory.

MR. HAWLEY: Okay. We welcome the ECB’s action on interest rates on July 5, but continue to see a need for further monetary easing and unconventional support.

QUESTIONER: Can you give us an update on how talks are going in Greece? And can you tell us how successful so far or are you nearing any end on discussions in Hungary?

MR. HAWLEY: On Greece, as you know, there’s a mission in the field. This is an opportunity for a first substantive discussion with the new government following the elections. We expect these discussions on the program to continue into September.

QUESTIONER: And on Hungary?

MR. HAWLEY: Oh, on Hungary, I’m sorry. The mission is wrapping up. I expect we’ll have a proper statement before too long from our mission. But the headline, which I can perhaps give you now, is that the IMF mission jointly with the European partners has had constructive discussions with the authorities, and this dialogue will continue in the period ahead. I don’t have anything further to offer at the moment because we haven’t yet issued a statement, but one will be coming shortly.

QUESTIONER: Well, can I just -- does it mean that the mission is finished, that there will be agreement, or that they’re going to go back? It sounds like they’re going to go back.

MR. HAWLEY: The dialogue will continue in the period ahead.

QUESTIONER: To go back on Greece, so based on what you said, what the IMF said in the staff report of March, where it said that any slippage in the program would have to either lead to a restructuring or the Europeans putting more money -- meaning the IMF wouldn’t put more money. Does it mean that now when everybody says the program is off track and there’s a need for more money, it will have to come from elsewhere. Can you just clarify that’s still the IMF position?

And just to go back on the ECB. There’s that paper that was released with the Article IV on the eurozone that suggests that any bond buying now from the ECB, because of the seniority of the ECB on bonds, would make any further bond buying less effective. Is that the IMF --

MR. HAWLEY: Can you just run me through that again?

QUESTIONER: That the fact that because the ECB kept seniority on the bonds in the case of Greece, the IMF paper suggested that this seniority does -- and the markets don’t have the confidence that wouldn’t be the same case on any other countries -- so that future bond buying would be less effective. I just wanted you to clarify.

MR. HAWLEY: I can’t offer you an immediate clarification, and there isn’t a change from our earlier position which was the first part of your question.

QUESTIONER: I don’t understand your answer.

MR. HAWLEY: You asked two questions, one on Greece and one on the ECB I think.

QUESTIONER: Yes, just a follow up on that -- just to clarify the question. IMF made it abundantly clear in its Greek report in April -- I believe it is, March or April, I forget exactly which month -- that any extra financing -- well, first of all, that if there was a program slippage, that the program would require extra financing whether it’s restructuring or additional loans or a combination of both. So can you confirm -- I believe you just said there’s no change in that position. So if there’s a slippage --

MR. HAWLEY: Let me refer you to --

QUESTIONER: May I finish? I’m sorry. And secondly that any extra financing that is needed would have to come from Europe and not the IMF. That was the IMF position. You have just told us that that has not changed. I’m just clarifying that that’s --

MR. HAWLEY: There’s no change. And let me just remind you -- let me point you to the briefing we did on the eurozone on July 18.

Can I turn, if I may, to some questions online.

QUESTIONER: Excuse me, but my second question on the effectiveness of future bond buying -- so you don’t want to answer that question?

MR. HAWLEY: I don’t have an immediate response to you.

All right. I have a question: “Russia is about to enter the WTO. The government promises economic benefits for the country. How soon can they come and how significant can they be?”

Russia’s WTO accession is a useful platform for further reform. WTO membership should be used to strengthen the momentum for domestic reforms, to make the business environment more predictable and rules-based, and thereby boost Russia’s long-term growth potential.

He has a second question, which is about our view of the Russian banking system. He says “What’s the view of the Russian banking system at this point?” noting that its head has just assured The Financial Times that it is sound. The Fund’s views on Russia’s banking system were most recently in our statement on the Article IV where we had a couple of paragraphs on the financial sector. So, specifically, it’s paragraphs 15 through 17, but I’ll basically just give you the headline messages from them: “The official liquidity support for the banking sector has shielded the economy from international financial turmoil. The financial system is improving, but concerns remain about asset quality in the context of rapid credit growth and volatile oil prices, and a stronger supervisory framework is a key safeguard for a sound financial system.” Those points are made at greater length in the statement to which I refer you to.

And [another questioner] asks: “Is the Fund looking into any of the issues raised in Peter Doyle’s letter?”

As we’ve said several times this week, the issues that are raised in this letter, which was written to the Executive Board rather than the public, is that the Fund is in a constant process of examining its work and drawing lessons from experience. It’s done in two ways. One is the daily work of review, but also more formal exercises, such as the work done by the Independent Evaluation Office and then periodic exercises, such as the tri-annual review of surveillance where we look at our practice in economic analysis and our engagement with the authorities.

QUESTIONER: For the sake of clarity, we both posed questions on Greece. We stated our understanding of the IMF’s position and for all intents and purposes, I believe you agreed with our assessment. I don’t want to misinterpret your words, so I’m asking you just to clarify once again that our understanding was correct.

MR. HAWLEY: I’ve answered that question, I think.

QUESTIONER: Okay. I gave you an opportunity.

QUESTIONER: I’m afraid I’m going to come back to Greece as well, and I was wondering if we can try to just try and figure this out. So in these discussions, you do look at the debt sustainability of Greece as in any other place. Within these current discussions right now, are you looking specifically at official sector debt? And are these discussions, as many sources or that people are telling us, that the IMF is in talks with Greece on a debt restructuring and that’s part of the conditions? The question is how would that take place? Is it just one of the things that you would be looking at? Does the IMF believe that the official debt is high and will probably need to be restructured? Can you give us anything on that?

MR. HAWLEY: I can only repeat what I’ve said, which is in essence because one is in discussion with the authorities, it’s premature to talk about outcomes. So let me repeat, assessing debt sustainability is always part of IMF discussions with the authorities in this or any other country when we’re in a program relationship. But I’m not going to, because I’m not in a position to offer you more than that at this stage.

QUESTIONER: If I may, respectfully David, the IMF has within the discussion period, so in the recent weeks while there is an IMF mission there, made it very clear that one of the parameters of the discussion was Greece reducing its deficit through structural means. So the IMF has already determined the parameters of its discussion, and you’re saying -- you’re raising an excuse for not commenting based on the fact that the discussion is ongoing, and yet you’re breaking that rule by saying well, the discussions must include Greece returning its deficit lower. So I don’t understand the contradiction there. How is it that you can comment on one specific aspect of the discussions, but when asked about another specific aspect, you can’t?

MR. HAWLEY: Let me say that you can’t anticipate the outcome of discussions in every case. And on this issue, I’m not anticipating the outcome of discussions.

QUESTIONER: But we’re not asking about the outcome. We’re asking about the nature of discussions. So you said, the IMF has said, that a fundamental part of the nature of the discussions as they are ongoing is Greece reducing its deficit. So the IMF has said that while the mission is going on. We are asking whether official sector debt restructuring is also part of those discussions. We’re not asking for the outcome. We’re asking for the nature.

MR. HAWLEY: And I’m reminding you that in this case as in many others, while discussions are ongoing, there are aspects of the discussions that we don’t talk about publicly.

Can I take a question from the Briefing Center? [A questioner] reminds us that a staff-level agreement has been reached with Jordan for a $2 billion loan. And she asks when there will be a Board date. I’m afraid we don’t have a Board date yet, but we’ll give you that when we’re in a position to do so.

QUESTIONER: On the subject of Egypt, I was wondering if those discussions had already started with the new authorities, whether there’s a mission planned.

MR. HAWLEY: Well, as you know, there has been contact with the new authorities, including a conversation between the Managing Director and [President] Mohammed Morsi. They discussed the economic situation and how best the IMF could help in the period ahead. She repeated that the IMF stands ready to support Egypt and looks forward to working closely with the new authorities, but we don’t yet have a time table for missions.

QUESTIONER: I wanted to also talk about Peter Doyle’s letter. The things that struck everybody about his letter is that it is unusual for an economist or someone from the Fund to do that kind of thing and write such a public letter -- or for it to be leaked -- but to write a letter like that to the Board. So that’s unusual and that’s what struck everybody, I mean now that you’ve looked into these issues before and continuing to do so. But is anything specifically being done to look at his specific issues, complaints, about -- well, we know the governance issues, but about the suppression of information. Is anything specifically being opened? Most normal institutions and companies would open a specific investigation and look at these charges. These are serious.

MR. HAWLEY: It was, as you said, a letter written to an internal audience, the dean of the Executive Board. So it wasn’t specifically a public letter, but it has come into the public domain.

QUESTIONER: Well, Stan Fisher was on that. He’s not part of the Board, but he’s the governor.

MR. HAWLEY: He’s the governor for Israel, one of the countries for which Peter Doyle was the mission chief. The letter, I think, raises a couple of issues, raises them without specific content to follow up on the issues. I can say that we have found no evidence of suppression of views, and as I’ve said, the letter raises important issues which, as I’ve tried to say, we address as part of our work. What a specific response inside the building is at this stage, I can’t describe. The letter is only very recent and as you said, it is raising heads of issues rather than offering detail on them.

QUESTIONER: So would people ask Peter what he’s talking about?

MR. HAWLEY: I’d prefer not to talk about conversations that are taking place inside the building.

QUESTIONER: In past programs, and in Greece in the past, one of the big IMF mantras, if I can say, was that the program needs to be fully funded. Is that something that’s going to drive your discussions to --

MR. HAWLEY: Any program needs to be fully funded.

I have a question [online]: whether the IMF has comments on how to improve Libor formation given the recent scandal.

We are following this closely, but I don’t at this stage have a specific response. But I could mention [Monetary and Capital Markets Department Director] José Viñals’ interpretation of the importance of this: it is that it risks undermining the certainty and trust that markets have in benchmarks that are used to establish prices. It underlines the importance of good supervision and regulation. And I would note that there was some discussion of this issue as early as 2008 in the GFSR of that year.

QUESTIONER: Yes, so [Ewald] Nowotny of the ECB has raised the issue of the ESM and EFSF having a banking license with the ECB as a backstop. Does the IMF think it’s a positive idea, a constructive idea? Is it one that has been studied and suggested or is it something that it believes the ECB should not do?

MR. HAWLEY: I don’t have a comment. I haven’t seen his remarks.

QUESTIONER: But the concept itself has been around for quite some time, so surely you must be aware of it and the IMF has a view on it.

MR. HAWLEY: I don’t have anything specifically for you.

If we don’t have other questions, I’ll wrap up because there’s nothing more on the Media Briefing Center. There’s a question [online] that’s just come in, though, on Sudan. I’ll respond to it, and we’ll add the remarks to the transcript.

[IMF response to question submitted on Sudan:

“It’s important for all in Sudan, and in particular for the most vulnerable, that the country’s economy is put back on a sustainable path while at the same time strengthening social safety nets. Over the medium term, continued policy reforms will be needed to ensure macroeconomic stability to foster economic growth, job creation and contribute to poverty reduction.”]

QUESTIONER: Can I just clarify a point of process here? Is it correct that the IMF staff can recommend a course of action on a bailout program and the Board still do as it pleases on a loan program?

MR. HAWLEY: Yes, I’ll describe the process. At the staff level, staff from various departments comes together with a collective view on policy. It could be on a program issue. It could be on any other issue. That is approved after review by management, which means the Managing Director and her deputies. At that point it becomes a position held by management and staff, and they, if it requires Board approval or Board consideration, go to the Board. And so the staff management will offer a decision or a piece of policy recommendation to the Board. It is the Board, however, which has the decision-making authority for most issues. As you know, some go to the Board of Governors, but for practical purposes, you’re talking about decision-making lies in the hands of the [Executive] Board. Typically -- I think that’s the right word to use -- the Board approves the recommendations, and the background to that is, of course, that Board views are well known before management and staff go to them with a policy recommendation.

QUESTIONER: Thank you very much.

MR. HAWLEY: Thank you. The embargo is at 10:30.


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