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

September 18, 2008

Washington, DC, September 18, 2008
Webcast of the press briefing

MR. HAWLEY: Good morning, ladies and gentlemen. I'm David Hawley from the IMF's External Relations Department. Welcome to another of our regular embargoed press briefings. The briefing will be embargoed until 10:30 Washington time. That's 14:30 GMT. This is our last briefing before the Annual Meetings take place in early October, so let me make a few housekeeping announcements before we move to questions.

Today, at 3 o'clock here in Washington, the First Deputy Managing Director, John Lipsky, will give a speech on the global economy and the financial turmoil at the Center for Strategic and International Studies. We'll have the speech for you later today.

The IMF's Executive Board is going to consider the Exogenous Shocks Facility tomorrow, and as you are aware, the proposed reform is intended to make it easier and faster for member countries to receive financial support from the Fund when they are facing balance of payment problems caused by external shocks As usual we will inform you of the Board's decision following it.

Next week -- and this is relevant in the context of the Exogenous Shocks Facility -- we'll be presenting you an updated assessment of the impact of the increase in food and fuel prices. You may remember we gave a cross-country presentation of this issue in June, so you have the opportunity to have the latest analysis in a few days' time. On the subject of food and fuel, this is going to be at the heart of the Program of Seminars, which is a regular feature of the Annual Meetings.

On September 26, the Fund will be co-hosting with the Center for Financial Studies, a conference called "A Financial Stability Framework For Europe: Managing Financial Soundness In An Integrating Market." This will take place in Frankfurt, Germany. Academics, practitioners, and policymakers will discuss the current crisis in the banking system and credit markets. Jaime Caruana, the Director of the Monetary and Capital Markets Department and Alessandro Leipold, the Acting Director of the Fund's European Department, will represent the Fund at this event. If you want more details, please turn to Media Relations.

Let me just mention the released timetable of our various publications around the Annual Meetings. The Analytic Chapters of the World Economic Outlook will be released on October 2. The Global Financial Stability Report will be on October 7. The World Economic Outlook, the front end, Chapter 1, will be on October 8, and the Managing Director will hold his opening press conference for the Annual Meetings on October 9.

With those announcements let me turn, if I may, to your questions.

QUESTIONER: I wanted to ask you about the situation in Russia. What do you see as the root causes of the situation, the policy response from the authorities, any suggestions you might have.

MR. HAWLEY: Well, as I'm sure you're aware, there are reports this morning of a number of policy actions under consideration. We don't have details of those yet and so, of course, I can't provide you with an assessment of them. But, in general, we encourage the authorities to seek market-friendly solutions that would encourage a turn around in investor sentiment.

But I would underline one point, which is that Russia has some buffers. Despite recent events, Russia's overall macro-economic situation remains strong. The current accounts surplus will, even with lower oil prices remain strong, and there are reserves of $570 billion that have remained largely unchanged despite capital outflows.

QUESTIONER: I assume you are reviewing the situation in preparation of the WEO. Do you see a possibility of correcting the figures in the WEO?

MR. HAWLEY: I don't have any information about what the WEO numbers will be. You'll have to wait for the release of the WEO chapter.

QUESTIONER: On a slightly different but related subject, you recently approved this enormous amount of money for the Georgians because of this unique situation, but every situation is unique. Every unique situation creates a precedent. Does it mean that now other countries will be able to claim similar exceptions in the future?

MR. HAWLEY: What exceptions are you talking about?

QUESTIONER: The amount of financing provided way over the usual limit that you referred to in your own opinion, 100 percent quarter, I think, in one year, and 300 percent quarter over all in other one.

MR. HAWLEY: Well, as you know, the Fund has guidelines on access. Depending on need, these can be exceeded where there is a balance of payments needed that justifies exceptional access.

QUESTIONER: So it is a precedent?

MR. HAWLEY: No. I'm saying you should set the size of the Georgia Stand-By Arrangement in the context of the Funds policy on exceptional access, which acknowledges that there are normal access limits, but goes on to say that where there is need, these limits may be exceeded.

QUESTIONER: I just wonder if you could say a little bit more about Russia. I'm just interested in your characterization of the situation, what might have led to this situation and how severe it is.

MR. HAWLEY: I characterized the situation in Russia. I don't think I have anything to add

QUESTIONER: You said that it would be important for countries to seek market friendly solutions. So should countries be closing down the markets while there is a sense of panic? Some people would call it irrational, but is it viable to close down markets at this time?

MR. HAWLEY: I don't have a specific comment on that.

QUESTIONER: The other question now is, one doesn't know where this crisis is going to unfold next. What sort of coordinated action should not only the U.S. but the G-7 countries be taking?

MR. HAWLEY: Well, there have been some joint actions including coordinated steps by major central banks to help ease the liquidity strains and in particular, I'm commenting on today's news, of an expansion of existing facilities -- the flexible approach adopted. These should help promote a more orderly functioning of the markets. I would move this forward to John Lipsky's speech this afternoon for a discussion about the bigger policy responses which I think is behind your question.

QUESTIONER: Does the Fund currently think that the way the U.S. has gone with AIG, does it support those decisions?

MR. HAWLEY: I would make the following observation on AIG. It's clear that the calculus underscoring that decision was that while the financial system can weather the failure of a large investment bank, it cannot bear so easily the collapse of a major insurance company that is truly interconnected to fail.

QUESTIONER: Can I ask you what the Analytical Chapters are going to be in the WEO?

MR. HAWLEY: They're going to be about commodity prices, counter-cyclical fiscal policies, and current account positions in emerging markets.

QUESTIONER: Can I ask what the Fund is advising the emerging markets to be doing right now? Is advice being given to them? And what sort of advice?

MR. HAWLEY: Well, the Fund, is constantly in touch with its members and in the current episode, is helping them to analyze the impact of market developments above the multilateral and the country level. So far, emerging markets have been less affected by the spreading credit market turmoil than the U.S. or European markets. Nevertheless, financial conditions in emerging markets have tightened, and there is certainly potential for renewed deleveraging in financial markets that would affect emerging markets. Most countries would be well placed to handle such stresses but policymakers must continue to act cautiously while balancing the need to ensure that they do not fall behind the curve on inflation risks.

QUESTIONER: This new Exogenous Shocks Facility, when could it actually come into place and has the system helped to allay concerns in some emerging markets over the current state of play?

MR. HAWLEY: The background to the review of the Exogenous Shocks Facility was the surging food and fuel prices that was felt rather earlier this year, and the timetable for the Board consideration of a decision on the Exogenous Shocks Facility was driven by that schedule. Let's await the outcome of the Board before saying who can take advantage of it.

QUESTIONER: Could you characterize the situation in Russia and tell us what you think is going on?

MR. HAWLEY: I went on to make the point that Russia has buffers. That is to say, despite recent events Russia's overall macro-economic position remains strong and the current account surplus is strong even with lower oil prices and the reserves are $570 billion.

MR. HAWLEY: I have a question from the Media Briefing Center on how the banking crisis in the U.S. can impact Latin American countries and Mexico. I'll focus on Latin America more generally than a particular country. Many countries in Latin America are entering this turbulent period from a position of strength with much stronger current account and fiscal positions than in the past, although some countries are still growing above trend. In this period of uncertainty, it will be critical for policymakers to be preemptive in monitoring domestic financial markets and flexibly adjusting macroeconomic policies to contain remaining excess demand pressures. As in previous episodes, markets will distinguish sharply between countries on the basis of their vulnerabilities. It's too early to say how the current episode will affect the region, and at this stage our projection for gradually moderating growth through 2009 remains central scenario.

QUESTIONER: I see the release on the World Economic Outlook yesterday and I have a question on whether you are going to be including Argentina's figures in that.

MR. HAWLEY: We will include Argentina's inflation figures. We include every country's statistics in the WEO. That is our practice. However, the inclusion of a country's statistics, official statistics, does not necessarily imply an endorsement of them.

QUESTIONER: What is the Fund's view of Argentina's inflation figures?

MR. HAWLEY: I'll throw that question forward to the WEO.

QUESTIONER: As we watch and follow this crisis, I'm curious to know what the Fund's role is at the moment. This is unusual because in every other crisis, the Fund has taken the lead and it has usually been in an emerging market. Where does the Fund see its role in this particular one? It's definitely not at the forefront as it used to be. I'm just looking at the changing role of the Fund.

MR. HAWLEY: The Fund has responsibilities for the stability of the international financial system and specifically, in an episode like this, a responsibility to follow and analyze events and share that understanding with our membership and stand ready to support them with policy advice and whatever other services they need, as they respond to events.

QUESTIONER: So what's the outcome of the Fund's analysis?

MR. HAWLEY: Well, the Fund is preparing its analysis in the context of the GFSR and the WEO, which are to be released shortly. And as I mentioned earlier, John Lipsky has an important speech this afternoon at which he will give an early assessment of the impact of the crisis and the policy measures that we see as desirable in this setting.

Thank you very much. The embargo is 10:30 as I mentioned.

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