Transcript of a Press Briefing by David Hawley, Senior Advisor, External Relations Department, IMF

June 19, 2008

Washington, DC
Thursday, June 19, 2008
Webcast of the press briefing

MR. HAWLEY: Good day. I'm David Hawley of the IMF's External Relations Department. Welcome to another of our regular press briefings.

I'd like to make a few housekeeping announcements at the start of today's briefing. Tomorrow, June 20, the First Deputy Managing Director, John Lipsky, will hold a press briefing here at headquarters on the 2008 U.S. Article IV Consultation. This will be at 10:00 a.m. The briefing will be web cast live via the Media Briefing Center. Mr. Lipsky will be joined by Anoop Singh, Director of the Western Hemisphere Department, and other senior staff involved in this annual review of the U.S. economy.

The concluding Article IV Mission Statement will be posted under embargo on the Media Briefing Center at 8:00 a.m. Washington time on June 20.

I should note that the IMF's Executive Board yesterday met to discuss the IMF's work program, which details the priorities and direction of the institution's work over the period ahead, following the finalization of the work program report. This will be released in a few days time.

There is some management travel that I'd like to mention. The Managing Director, Dominique Strauss-Kahn, will be in Cancún, Mexico, on June 24, to take part in the First Meeting of Finance Ministers of the Americas and the Caribbean. This is an event organized by the Mexican government.

First Deputy Managing Director, John Lipsky, will take part in the oil meeting in Jeddah, Saudi Arabia, at the weekend, and he will be in Basel, Switzerland attending the BIS general meeting on June 28 to 30.

Deputy Managing Director Murilo Portugal will visit Santo Domingo, Dominican Republic, on June 23 and 24 for bilateral discussions with the government, as well as other meetings.

And on June 26 and 27, Mr. Portugal will travel to San Salvador, El Salvador, where he will participate in the Seventh Annual Regional Conference on Central America. I expect there may be some media availability in connection with this travel.

With those announcements, I'm ready to take your questions.

QUESTIONER: I was wondering if the release of the Article IV for the U.S. tomorrow is going to be an opportunity for you to change your forecast or release some new members?

MR. HAWLEY: I'd say, wait for tomorrow's briefing.

QUESTIONER: John Lipsky was in Istanbul yesterday, and I was wondering whether discussions have actually started with the Turkish authorities on a new program, or what sort of indications does the Fund have from Turkey that you can tell us about that will move the issue forward.

MR. HAWLEY: At this precise moment, the authorities are still carefully considering their options, which are basically a precautionary stand-by arrangement or enhanced surveillance under the so called post-program monitoring.

QUESTIONER: So it's going to be one or the other?

MR. HAWLEY: It is basically two options. But I'm not excluding other options, Leslie.

QUESTIONER: When is the update on the WEO, please? Do you have a date for that?

MR. HAWLEY: Late July. We'll announce the exact timing shortly. I've got a question submitted via the Media Briefing Center that says: What does the IMF hope will be achieved at the energy meeting in Jeddah on June 22? In response let me say that the IMF is concerned that the recent oil market developments have generated unwelcomed head winds to global growth and raised inflation risks, and pose external financing problems for oil-importing low-income countries.

There are many obstacles to more stable oil market conditions, both in the oil demand and oil supply side. These obstacles are a global problem, and we believe that they are best addressed in a multilateral context. The efforts by Saudi Arabia, a key oil producer, to organize the conference in Jeddah at short notice signals to markets, consumers, and producers that a serious policy dialogue aimed at results has begun. We'll have more after the weekend.

QUESTIONER: Coming back to the oil issue, the G8 asked the IMF to look into what's stirring oil prices. How's that going to be tackled? When would such a thing start?

MR. HAWLEY: The G8 asked the Fund and the IEA to work together with appropriate national authorities in carrying out further analysis of real and financial factors behind the recent surge in oil and commodity prices, their volatility and the effects on the global economy, and to report back at the Annual Meetings. The Fund's Annual Meetings are in October, as you know.

From the Fund's side, I can't speak for the IEA at this juncture, the contribution we will make will draw on work that is already underway in a number of areas. If I may summarize, these will look at the analysis and causes of the price rises, the analysis of the effects and the policy responses. We're also - and this is another matter raised by the G8― looking at oil market transparency issues. Now, if I could highlight a couple of points: There is, and has been underway for some time, a staff task force on food and fuel prices whose work is coming to a conclusion and the Executive Board will have the opportunity to discuss this shortly.

There is also going to be a chapter in the October, 2008 World Economic Outlook on commodity prices and inflation. It will examine changes in key benchmark crisis, market supply and demand, inventory conditions, and real and financial factors behind the oil price surge.

QUESTIONER: Did the Fund get a sense from the G8 on the way that it should be tackling the whole oil issue? I'm just trying to get a sense whether the Managing Director came away with something that there was a certain way to be dealing with this right now.

MR. HAWLEY: I'm afraid I don't have anything for you on the specifics of the G8 guidance to the Fund.

QUESTIONER: I've been reading a couple of comments from Saudi Arabia and Kuwait about the oil price not being based on fundamentals and lots of speculative interest. I wonder what your opinion was about that.

MR. HAWLEY: I can give you what the Fund's view is on why prices have risen sharply. Basically, our view is that we expect oil prices to remain at high levels as needed to bring supply and demand back into a better balance. Demand for oil has been robust on account of strong growth in emerging markets led by China and India. Emerging market economies as a group have accounted for all of the increase in growth in global oil demand over the past two years.

The continuing strong growth has been partly the result of policies in some countries of not allowing full passage of international prices to domestic users. At the same time, the supply response to rising prices has been sluggish, particularly among non-OPEC oil producers. And the lack of a meaningful supply response has reflected cyclical factors, geological and technological constraints, as well as concerns about policy frameworks in some oil producing countries.

The resulting high oil prices reflect the market's view that sustained high oil prices will be needed to induce the investment required to satisfy demand going forward. Moreover, spare capacity and inventories have dwindled. The oil market has become highly sensitive to news of supply disruptions and geopolitical events. More recently, financial factors may have added to upward pressures on oil prices. There are indications that a combination of U.S. dollar depreciation, falling short-term real interest rates, and rising credit risks in advanced economies have made oil and other storable commodities more attractive alternative assets.

QUESTIONER: Could you expand a little bit on the work program for the Fund, please?

MR. HAWLEY: Not at this juncture. As I said, the Executive Board had a discussion of it yesterday and, as is always the case, the Managing Director's work program is modified in places as a result of the Board discussion. The document is then finalized and released. Probably next week is when you can expect to see it. It sets institutional priorities for the Fund going forward. In that sense, it's a very important document in identifying the direction of the Fund's work and the emphasis of the Fund's activities over the months ahead.

If there are no more questions, I will end this briefing. Thank you very much.


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