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

February 7, 2008

Washington, D.C.
Thursday, February 7, 2008

Webcast of the press briefing

MR. AHMED: Good morning to you. I'm Masood Ahmed and I would like to welcome you to our regular press briefing, which, as usual, will be embargoed until 10:30 Washington time, that's 1530 GMT.

Before I take your questions, let me just, first of all, remind people who are logged in through the Media Briefing Center to please send in your questions early so we can get to them.

Let me also just take a minute to update you on some management travel, and then I'll get to your questions. First, just remind you that the managing director departed yesterday for Tokyo, where he will be attending the G7 ministerial meeting this weekend. And while he's in Tokyo, he will also be having bilateral meetings with the Japanese to discuss global and regional economic issues.

From Japan, he will be going to India, where he'll be visiting Mumbai and New Delhi for meetings. And I just want to again refer you to a speech that he will be giving in New Delhi on February 13th, at an event organized by the India Council for Research on International Economic Relations. The subject of this speech will be the global economy and its impact on emerging markets. From India, he then goes to Beijing, on February 14th and 15th, where he'll be meeting with authorities in China to discuss a range of economic issues including a global and regional situation.

I'll give you a preview of the fact that later this month, the Managing Director will be traveling to Africa, and that's the week of February 24th to 29th. He will be visiting Senegal, Cote d'Ivoire, Nigeria, and Tanzania. We'll have a press release on that visit and give you more details on that trip closer to the date. But for those of you who are interested in finding out more about it, please contact my colleagues in Media Relations.

Let me also mention that Mr. Portugal, the Deputy Managing Director, will be in St.Kitts, Nevis, and Barbados from February 8th to 11th, for an official visit, where he will have discussions both with country authorities on the Monetary Council meeting of the Eastern Caribbean Central Bank. Again, details on that visit can be had from colleagues in Media Relations if any of you are interested in pursuing that. Let me now turn to your questions. And, as always, I'd be grateful if you could identify yourself and your affiliation.

QUESTION: Could you give us some details about the main topic the Managing Director is going to discuss at the G7?

MR. AHMED: At the G7 meeting, the Managing Director will have two broad areas in which he will participate or contribute. One, of course, is in the assessment of the international economic outlook, the impact and implications of the current financial market turmoil, and the Fund's work in that area. The Managing Director will be able to brief ministers and governors and participate in that discussion. And secondly, he will be able to brief them on the progress in the reform end of the IMF itself, where, as you know, there's work underway both on quotas and governance, and on the development of a sustainable financing model for the IMF, which means work on income and the parallel work on expenditure. So he'll be talking during that meeting both about progress and about the refocusing of the Fund that he's undertaking.

QUESTION: Can you update us on what the Managing Director will be saying at the G7 with regard to best practices for Sovereign Wealth Funds?

MR. AHMED: I can certainly tell you what our current view is on the best practices for Sovereign Wealth Funds. Just to remind you that the IMF initiated a dialogue on best practices for Sovereign Wealth Funds involving a wide range of interested bodies, which includes the Sovereign Wealth Funds themselves, their governments, host country governments, market participants, as well as academia.

The first step in this dialogue was a round table of sovereign and reserve asset managers in Washington in November, where a large number of Sovereign Wealth Funds were represented. There were 63 participants at that meeting, and as I said, they came from a broad range of stakeholders.

The general view was that more is needed to improve the public understanding of Sovereign Wealth Funds through transparency, and in that context, the participants who had that conversation generally agreed that it would be helpful to continue a dialogue on preparing best practices. As I've indicated, that was a discussion involving a large number of participants, and so the Fund has been working with that broad range of stakeholders, not just a few specific Sovereign Wealth Funds. The next step in this is for the Executive Board of the IMF to consider an initial paper on the issues surrounding Sovereign Wealth Funds. We anticipate that this paper will be discussed by the Board ahead of the Spring Meetings. And after that, the aim is for the Fund to continue the dialogue on a broad basis with all interested parties.

QUESTION: This paper, you mention, it's the first time I am hearing about it, would contain new rules in terms of transparency and in terms of best practices for these funds?

MR. AHMED: Upstream of that work so far, this is the first paper looking at the issues, simply trying to understand their scope, their age, and the different approaches that they have, and if you like, it's a first cut at trying to provide a better framework, and we see this as kind of one of the pieces of work that will be done over the coming months.

And as I said, the objective then is that after the Spring Meetings, we'll continue the dialogue on the development of best practices.

QUESTION: My question was also on that; I was just wondering, because the U.S. Under Secretary said recently that it would be mentioned in the Spring Meetings, I was wondering, will we actually get to see some sort of report from the IMF on what you say? These things are upstream, so it doesn't sound like they are actual recommendations.

MR. AHMED: I will certainly be reporting on the state of play of our work and our discussions on Sovereign Wealth Funds and the dialogue that we're conducting on that issue at the Spring Meetings. I don't anticipate at this point that we will have a specific set of proposals of any kind at the Spring Meetings, but let me check and see how much more detail I can get on it and I'll give you that at the next briefing.

I have here a question coming in from the Media Briefing Center, and this is from Jide Akintunde who's from, and his question is, "do you envisage that the U.S. will get more desperate in her call for OPEC to pump more oil into the international market as part of the measure to avert the looming recession, and to what extent would that mark down projections for the economies concerned?

MR. AHMED: Let me answer that question in the following way; I think the first thing that's important to note is that, so far, the output effect of high oil prices have been manageable. As helped by the fact that the rising prices over the past few years have been largely driven by a sustained, strong demand growth, including and particularly from emerging markets.

If, as expected, the global economy slows down this year, then we would expect oil prices to fall as oil demand declines. Indeed, concern about the slowing U.S. economic activity in recent days has already dampened oil prices considerably from their early January highs.

Looking forward, the extent of concern about the impact of future oil price changes on global growth depends very much on the underlying reasons. If oil prices rise because of more robust than expected growth in emerging markets, then clearly, in a sense, that increase would be a sign of good health in the global economy.

On the other hand, if it's a supply driven oil price spike, then that would be a serious concern at this point, as it would amplify the adverse growth effects of fighting credit conditions, which are already present in the global economy. And I should add in this light that while the oil price is market determined, ensuring orderly global oil market conditions clearly is in the interest of all stakeholders. OPEC where most of the world's spare capacity is located obviously is an important stakeholder in this respect. The final point I would make is that rising oil prices have contributed to boosting headline inflation in many countries over the past few months.

The impact of large oil and food price surges in 2007 on headline inflation will actually persist through much of 2008, even with the very recent oil price reversal. And the possibility of second round effects on inflation, therefore, remain a concern, which, as I've mentioned at earlier briefings, means that it does have an effect in that central banks may find less room to maneuver and respond to weakening demand caused by the recent financial market turbulence because of the need to also watch the uptake in inflation. Okay. Any other questions?

QUESTION: With regard to the assessment of the current economic situation and the impact of financial turmoil, could you provide any details about what the Managing Director is likely to report to the G7? As you said just now, the risks of inflation, on the one hand, to some extent, limit the ability for monetary stimulus. What are the concerns that the United States economic rough patch would have a broader impact?

MR. AHMED: What I would like to do is, first of all, to remind you, and also those in the Media Briefing Center, that we did put out 10 days ago our World Economic Outlook update, and this update provides our most recent assessment of the outlook for the coming year, both globally and for some of the major economies and major economic areas.

And accompanying the World Economic Outlook update, we also sent out on the same day the Global Financial Stability update, which, again, gave our current assessment of the state of play in terms of the current financial market turmoil, looking at the likely impact, and also at some of the (inaudible) lessons that could begin to be drawn.

So, the first thing I'll do is simply refer you to that, because that, in a way, gives our most recent and quite comprehensive update. And maybe just make a couple of points on the specific issue you raised in terms of what our assessment is of the global economic conditions, and how financial markets are effecting the prospects for growth, and as we said in that update, the outlook for global growth has clearly weakened and risks are stilted to the down side. And just to remind you that mainly due to the ongoing turbulence in financial markets, we, in the update, did bring down our growth projections for the world for 2008, from 4.9 percent in 2007 to just over four percent in 2008. And this reflects not only a slowing down from 2007, as I've just said, but also a mark down for 2008 of about 0.3 percentage points compared to the projection estimates that we made in October, when we were looking ahead.

The second point I'd like to make is that the United States growth outlook has clearly weakened further, reflecting an intensification of the housing sector and related financial market strains, and as a result, in the update that I referred to, our growth for cost for the United States has been lowered to 1.5 percent in 2008, down from 2.2 percent in 2007.

And perhaps a more telling number is that if you look at it in terms of a fourth quarter to fourth quarter comparison, which actually gives a better sense of the slowing growth momentum, then U.S. growth is projected in 2008, fourth quarter to fourth quarter, at 0.9 percent, which compares with 2.5 percent over the same period in 2007. So you can see there's actually been quite a sharp markdown in how we see growth going forward this year in the U.S. Now, just a word about the other point you raised, which is, what are the implications of this in other parts of the world? Well, in both Europe and Japan, growth appears to be decelerating, and our projections have also been marked down as reflected in the update that I mentioned.

And I might also say that headline inflation has risen across the advanced countries, reflecting, as I said in response to the previous question, large pressures from energy and other commodity prices. Tight labor markets in the euro area have also added to concerns.

And finally, a word on emerging markets and developing countries, which have been, for the last few years, engines of global growth, we do anticipate a slowing down in these economies with growth projected to moderate a little bit on average from 7.8 percent last year to 6.9 percent this year, still fairly healthy, but it is in moderation.

And I just want to add that the immediate problem confronting several of these countries is the pressure on inflation, from strong domestic demand and high energy and food prices. Clearly, a further weakening of demand in advanced economies, especially if it reflected a further tightening in financial conditions, will have a negative impact on growth prospects in emerging markets. In some, the deceleration of growth could help address some of the over heating concerns that these economies have, so that's the current outlook in the World Economic Outlook update, which is, of course, available on our website.

QUESTION: You referred twice to the IMF concern for inflation in Europe, and so in this regard the IMF is seeing positively the decision of the European Central Bank not to touch the interest rates?

MR. AHMED: Well, on that, what I would say is that amid the slowing growth, headline inflation has surprised on the up side, as you know, clocking in at 3.2 percent in January. And although we do expect in the medium term to see headline inflation in the euro area to move back in line with the ECB's targets, we do think that the ECB's appropriately keeping interest rates on hold for now, and we also think that it stands ready to respond flexibly if this balance shifts.

I have one more question coming in here in the Media Briefing Center, which says, "Is the IMF considering excluding Argentine economic data from future reports if the statistical agencies' explanations for its CPI's methodological changes are considered unsatisfactory?" I think what I would say on this is that I don't think the issue of what will or will not be included in future reports is something that I can comment on now. You refer to the World Economic Outlook, which is still two months away. So it's kind of premature to comment on its contents at this time.

What we have said about the inflation data you refer to is that I can reiterate what the Managing Director said when he was in Buenos Aires in early December, which is that reliable data on key economic indicators, such as inflation, is vital to formulating sound economic and monetary policy, not only in Argentina, but in all countries.

No further questions? We'll have the next briefing two weeks from today. And as I said, this is embargoed until 10:30 today. Thank you very much.


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