Transcript of a Press Briefing with Christine Lagarde

November 12, 2011

Tokyo, Japan
Saturday, November 12, 2011
Video of the press conference Webcast

MR. RICE: Good morning everyone and welcome to this press conference on behalf of the International Monetary Fund (IMF). It is my great pleasure to introduce you this morning the Managing Director of the IMF, Madam Christine Lagarde. Let me also introduce to you Anoop Singh who is the Director of the IMF’s Asia and Pacific Department. And sitting just to his left is Mr. Shogo Ishii, who is the Director of the IMF Regional Office for Asia and Pacific, and as you know, is based here in Tokyo.

Can I ask that you keep your questions short, and that you identify yourself by name and by affiliation? And if I can bring to your attention also that there is a press release available… And with that if I would ask Madam Lagarde to make a few opening remarks.

MS. LAGARDE: Thank you very much, and merci beaucoup.

This is my first visit to Tokyo as Managing Director of the IMF – not my first visit to Japan; not my first visit to Tokyo. And I am very pleased to have come, particularly as the IMF will be holding next October, in 2012, its annual meeting in Tokyo on the occasion of the 60th anniversary of Japan joining the IMF. This is an event that will bring anywhere between 13,000 to 15,000 people to Tokyo, to discuss economic and financial issues of concern to all of us.

Japan has always been a lead and a key member and partner of the IMF in all circumstances. And I had the occasion both this morning, with Minister Jun Azumi, and with Mr. Masaaki Shirakawa, the Governor of the Central Bank, last night, as well as with the Minster of State for Financial Services, Shozaburo Jimi – we discussed predominantly the current economic situation in the world, and obviously we focused on the situation in the euro area, which Minster Azumi was very familiar with, for having attended lately the G20 finance ministers’ meeting and the G20 meeting of the heads of states in Cannes. We also discussed the Japanese economic policy mix, and I had a chance to congratulate my colleague Mr. Azumi for the decision of his Prime Minster, both in respect of the economic policy mix and also on his decision to enter negotiations on the Trans-Pacific Partnership (TPP), for which I am sure he will be holding discussions.

So without further ado, may I suggest that we take a few questions, and I will ask Gerry to pick up from here.

QUESTIONER: Thank you. You said that you met with Mr. Azumi, Mr. Shirakawa, and Mr. Jimi. What was the most important topic at the meeting with them? And next, according to the statement, you have some concerns about the negative impact on the Asian countries from the European turmoil. If so, what type of negative impact is most serious for the time being? According to financial circles, European banks are just now withdrawing their loan money from Asian countries. If so, how to fix such a condition?

MR: RICE: Thank you. So let us take a few others.

QUESTIONER: Thank you for taking my question, and welcome to Japan as the Managing Director of the IMF. I have one question regarding currency, especially the Japanese yen. What is your opinion about the currency intervention by the Japanese Government? And in this regard, did you discuss this matter with Japanese Finance Minister Azumi or Bank of Japan Governor Mr. Shirakawa, today?

QUESTIONER: With special reference to special drawing rights, which seem to be a perfect instrument to tap the vast foreign exchange reserves in emerging markets, what is the obstacle to the IMF intervening in the European crisis?

MS. LAGARDE: Well, thank you very much for your questions. On the topic of discussions with Minister Azumi, as I said, we touched on the current economic situation in the euro zone, the ways to address it, and the consequences that a euro zone crisis has and would have if it deteriorated further in the rest of the world, particularly in Asia. And on that vein, I insisted with Minister Azumi that no country can be immune under the present circumstances and no matter how developed or how emerging or how far away it is, the countries are totally interconnected. That is what we see at the IMF; all of our studies demonstrate it. And Japan is no more immune than other countries.

There are two channels that are conductors of crisis contagion or consequences of crises elsewhere: the first one is the trade channel; the second one is the financial sector channel. On the trade channel, clearly Japan, being a country of significant exports, would be exposed if some of its large clients were in serious difficulty. On the financial channel, we have observed that banking institutions, insurance companies – the financial sector in general is a catalyst and an accelerator of contagion, and I will come to that in a second, because you did ask a question about banks.

You actually asked about the deleveraging, essentially, that is taking place. The IMF has said for several months now that European banks had to reinforce their capital. And we stated a few months ago that this should be done by way of capital raising, either from existing shareholders, from the incorporation of reserves, when they exist, and certainly not by general deleveraging. I was pleased to see that at the October 26 meeting, the heads of states of Europe tasked the supervisors in Europe to check that recapitalization is taking place appropriately without general deleveraging. I think it is an important supervision job that they have to do and it would be very detrimental and damaging if banks were to recapitalize essentially by way of deleveraging.

Now, you asked me about the currency intervention. Yes, it is a matter that I discussed briefly with my counterparts, particularly with Minister Azumi, and it is a matter on which the Fund has a view. We take the view that concerted action is the most efficient way of intervening, and we are aware of the fact that the Japanese intervention was done with a view to avoiding disorder and excessive volatility on the markets, and that is very much in the spirit of communiqués and statements by the G7 on such matters.

Now, on special drawing rights, this is one way, one of many ways, in which the Fund can mobilize resources. There have been talks about it at the last G20 meeting at the heads-of-states-level, and clearly it is one of the avenues that could be considered. Now, the IMF, as you know, is involved with countries. It is not involved with specific funds, the likes of the EFSF. The IMF gets involved at the request of countries. To give you one example, we are requested to monitor the measures that Italy is about to implement, now that the senate has voted and the lower house, hopefully, will vote today. This is the kind of additional route that we can take to help monitor programs that are determined by countries. But I would not exclusively focus on special drawing rights. I think that there are also other ways to increase resources and to dedicate those resources not only to members of the euro zone, which are the epicenter of the crisis at the moment, but to also other members of the IMF, because there are emerging markets, there are low-income countries, middle-income countries, that could be the, what we call the “bystanders of the crisis,” who might need help as well. Which is why I believe that while the IMF resources are adequate at the moment, if the crisis were to develop further, than we would have to rethink this issue.

QUESTIONER: Welcome to Tokyo. I just want to ask you if you have asked the Japanese authorities for any specific support to deal with the European crisis? And apart from Japan, what do you think of the situation in Italy? Do you think that Italy needs to have support from the EFSF or IMF?

QUESTIONER: Allow me to ask my question in Japanese. Within a single country, expansionary fiscal policies are implemented in weak regions and the strong parts of the country would support these weak regions. In the case of euro zone, if the fiscally weak countries are to implement austerity measures, do you think the problem would be solved? I am very skeptical as to whether that is a viable answer.

QUESTIONER: I have two questions. First, do you think that the yen is in line with the medium term fundamentals of the Japanese economy? Secondly, during your meeting with Mr. Azumi, Finance Minister, did you asked any additional bilateral contributions from Japan to the IMF?

MS. LAGARDE: One of you asked a question about the additional support needed for Italy. I think it has to be clear that each of the European countries currently under a program with the IMF, whether it’s Ireland, Portugal, Greece – it is a different situation. They face different difficulties. The economic chemistry is different as well. So I would not want you to go away after this press conference assuming that each and every region of Europe, as you called them, is the same. Each one has different patterns, and each program has to be tailor made.

In the case of Italy, there is no program in place. And if the financing of Italian debt has clearly reached rates that are difficult to sustain in the long run, they have also just recently been lowered as a result of political expected stability and credibility. And I think that those are two key factors – that clarity and credibility which is much need in Italy – that will have an impact on the way in which the Italian economy responds. The second impact that will be needed will be the proper, expedited, solid implementation of the program and reforms that have just been decided by the Italian two houses of parliament. And if that happens, and if the agreement entered among members of the euro zone on October 26-27 are implemented dutifully, then clearly the situation will be clarified and should be improved significantly. But it is going to be a matter of steady, solid, sustained implementation of measures which are sometimes difficult.

That brings me to the second point, of the potential success of what you called the austerity plans. In a currency zone such as the euro zone, for some of the countries to support others, it is going to be very much a question of joint interest and burden sharing. It is in the interest of all members of a currency zone that there is economic stability, that there is economic discipline within the zone. And it is a matter of burden sharing, which is why it is important that each member of the zone complies with the rules, and when the rules have not been respected, or when the thresholds have been exploded, that action be taken to restore the situation.

In the case of Greece, for instance, when at the time, the growth and austerity pact called for deficit not to exceed 3% and public debt not to exceed 60%, the deficit numbers were more than triple those thresholds. So austerity measures decide by Greece are necessary for its own economy, but it is also a factor of sharing the burden of what needs to be done within a currency zone.

As far as currencies are concerned, we do not take a short-term view at the IMF. We take a much longer-term view, and we assess whether currencies are generally in line with the fundamentals of the economy. And I don’t comment on short-term up or down appreciation or under-appreciation of a particular currency.

Did I ask my former colleague, Minister of Finance Azumi for an additional bilateral loan? If I had, I would not tell you, because it would be for him to say so, and second, as I said I think that the adequately current resources of the Fund are adequate at the moment. I know equally that I can rely on my major shareholders, particularly Japan, the second largest shareholder, to be up to the task, if the task were to increase the resources of the IMF.

Okay? Thank you very much to all of you. And thank you for having warmly welcomed me to Tokyo and to Japan; it is a real pleasure to be back in your country. Thank you.


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