Transcript of IMF Press Briefing

April 6, 2017

MR. RICE: Good morning, everyone, and welcome to this press briefing on behalf of the IMF. I am Gerry Rice of the Communication Department, and as usual this morning the briefing will be embargoed until 10:30 a.m. Washington time.

As you know we’re heading into the Spring Meetings with a lot going on. This morning we are publishing the analytical chapters of the Global Financial Stability Report, which I know is of great interest to many of you. We’ve shared these chapters with you under embargo. One of them is entitled “Low Growth, Low Interest Rates, and Financial Intermediation,” and the second one is entitled, intriguingly, “Are Countries Losing Control of Domestic Financial Conditions.”

Now we’re going to depart a little bit from our normal practice given the publication of these important GFSR chapters today. And I’m very pleased to tell you that we will have one of the lead authors of these papers come to the podium, brief you in a summary way, and then take any questions that you might have in the room; then I’ll come back and do the regular briefing.

So with that let me introduce to you my colleague, Gaston Gelos. Gaston, please join us. Gaston is the chief of the Monetary Policy Division in the Monetary and Capital Markets Department. And, again, Gaston will be pleased to take any questions that you might have and then we will resume the regular briefing. Thank you very much. Gaston, over to you.

MR. GELOS: Thank you, Gerry. Good morning, ladies and gentlemen. Thank you for attending our briefing on the analytical chapters of the Global Financial Stability Report.

As you know, these analyses go beyond the headlines of the day to understand changes in the financial landscape and what they mean for financial stability. I’ll start with Chapter 2, which examines how the financial systems in advanced economies may evolve if a low-growth, low-interest rate environment were to persist for a very long time.

Despite recent signs of an increase in long-term yields, particularly in the U.S., an imminent and permanent exit from the combination of low growth and low rates that we have witnessed in recent years is not guaranteed. Why? Well, for a number of reasons, including an aging population and slower productivity growth. And, in fact, real interest rates have been on a steady decline over the past three decades. Let me be clear, this is not our most likely or baseline scenario. Nevertheless, it is useful to think through the possible consequences for the financial sector. In doing so, we aim to separate long-term effects from temporary ones and from the impact of monetary policies, and this is precisely the novel aspect of this approach in contrast to much of what has been written and discussed thus far on the topic.

Persistently low growth and low yields would imply significant changes to the business models of banks, insurers, and pension funds. Smaller, deposit-funded, and less diversified banks would be hurt most. Banks would reach for yield at home and abroad, creating new financial stability challenges. Typically, an aging population needs less credit, so banks would reorient themselves toward the provision of fees-based services, and all the population would likely boost demand for health and long-term care insurance. Demand for guaranteed long-term savings products offered by insurers could weaken while investors would pour even more money into passive index funds.

Governments would need to adjust to such an environment. They would need to help to adjust to such an environment. For banks, policies should help facilitate smooth consolidation and exit of nonviable institutions while limiting excessive risk taking. Implementing rules that encourage life insurers to undertake necessary adjustments to their business models would be key. Oversight of asset management activities would also become more important. Okay, so much for Chapter 2.

The other analytical chapter poses the question: With global financial integration, are countries losing control over domestic financial conditions? And the answer, which may come as a surprise to some of you, is not really. We found that global factors account for about 20 to 40 percent of domestic market conditions. So these global factors are important, but local policymakers still have scope to steer their own financial conditions in line with domestic objectives, specifically through monetary policy.

But doing so in a financially integrated world is complicated. We came to this conclusion by developing a set of financial conditions indices, which broadly aim to capture the ease at which firms and households can access funds across a large number of emerging and advanced economies. We also concluded that the influence of global factors has not increased very much over the past two decades; however, what often happens is that the rapid speed and the strength by which foreign shocks affect domestic markets can make it difficult to react in a timely and effective manner if needed. This is even more true when shocks coming from abroad meet with domestic fragilities. Emerging market economies are much more prone to be affected by external financial shocks than advanced economies and should, therefore, prepare for a tightening of global financial conditions. Over the medium term, governments can promote domestic financial deepening to enhance resilience to these shocks. Developing a local investor base, as well as fostering greater equity and bond market liquidity, can help dampen the impact of such financial shocks. In other words, deeper local financial markets can serve as a sort of shock absorber.

I would be happy to take your questions. Thank you.

QUESTIONER: Thank you. So in Chapter 3, in your view, has the United States become more important to the global financial market? And if so, or not, what are the emerging markets should be watching out?

MR. GELOS: Well, we find that U.S. financial conditions are a very good proxy for global financial conditions, the global factor more generally, so U.S. financial conditions do have an important impact on financial conditions around the world. Now, if we look over the past two decades, we don’t really see that much of an increase in the impact, in the influence, of that global factor that is the U.S., although it is important, as I mentioned before.

So why is that? And that gets to your question of what countries can do. We believe that part of the answer is that at the same time as countries have integrated more financially, they have also -- many of them at least -- have also deepened the local markets so that the impact has not increased that much.

MR. RICE: I appreciate you being here today, Gaston, thank you very much.

MR. GELOS: Thank you, Gerry.

MR. RICE: I can see actually that we have questions online. Can I ask that you might respond to those separately after the briefing?

MR. GELOS: Of course, sure.

MR. RICE: Thank you very much. As I mentioned, Gaston will respond to a few other questions that I see online after this briefing and any other questions you might have. Gaston is here, so thanks again.

Let me turn to some other announcements, and then I’ll come to your questions in the room.

Next Monday, April 10, the Managing Director, Christine Lagarde, will be with the Director General of the World Trade Organization, Roberto Azevedo and the World Bank President, Jim Kim, in Berlin to discuss how to make trade work for all, and this event in Berlin will be held at the association of German Chambers of Commerce and industry, and the discussion will be framed around a new publication, a joint publication from the three institutions called “Making Trade an Engine of Growth for All.”

And the background to this report is that it was requested by the G-20. It has been submitted to the G-20, and we are publishing it, so if you’d like more information on that event, we can get that to you. That’s Monday in Berlin.

Okay, then on Tuesday, that’s April 11, the managing director, at the invitation of Chancellor Merkel, will participate in the regular annual meeting of the heads of International Financial Institutions. As I said, that’s a regular meeting that’s held once a year. On the same day in Berlin, so separate from that, Christine Lagarde will speak at the European School of Management and Technology in an open event on innovation, technology and growth.

So two events on Tuesday in Berlin and then on Wednesday -- busy week next week -- on April the 12th, the managing director will deliver what we call, and those of you who follow us, you know this, it’s our Curtain Raiser speech for the Spring Annual Meetings, so the managing director will raise the curtain on those meetings and give you and the world an indication of what we expect to be the main messages and the main points of discussion at our annual -- sorry, at our Spring Meetings and as usual, we will get that speech to you under embargo and so on.

So moving on to other events related to the Spring Meetings, I want to note that on Monday, next Monday, April 10, we will release the analytical chapters of the WEO, so we had the GSFR chapters today. You were just briefed on that, and we’ll have the WEO chapters on Monday and an online discussion with the authors, if that’s helpful to you. And then on April 13, so that’s later next week, the Fiscal Monitor, the Fiscal Monitors and analytical chapter upgrading the tax system to boost productivity will be presented at the Peterson Institute starting at noon, so that’s the rollout next week. There’s a lot going on, but that’s the rollout of the analytical chapters for our three flagship publications, the GFSR, the WEO and the Fiscal Monitor.

So then the Spring Meetings formally begin that week of April 17, so that’s the following week, and we will have the various press conferences and briefings related to that. For details on the calendar, I won’t go through it here, you can find all that on our website or be in touch with someone from media relations, and we’ll be happy to give you more information. With that, let me turn to any questions that you might have in the room.

Let me start here, and I’ll come to my friends. Yes, sir?

QUESTIONER: Hello. So my question is about the next step of the EFF program for Ukraine. What is the schedule of the review? I mean when will the monetary mission go to Ukraine, and when is the IMF Board meeting scheduled? And, what is the amount of the next disbursement? Thank you.

MR. RICE: Okay, thank you for those questions. Just for those who don’t follow it so closely, just a few days ago, our Board, our Executive Board, completed the third review related to the IMF’s support for Ukraine and its economic reform program, and there was a disbursement of 1 billion, so our total disbursements are 8.4 billion with a four-year program of 17.5 billion, so that’s just happened this week, and we issued -- published quite a lot of material related to that, including the staff report.

In terms of next steps, you know, our Board, our Executive Directors, you may have seen in the publication, commended the authorities’ decisive policy actions over the past two years and encouraged them to accelerate their efforts to tackle a number of longstanding weaknesses, and this was also reflected in the statement by David Lipton, our First Deputy Managing Director, that the authorities needed to -- let me just quote him: “Push ahead reform to achieve faster and sustainable growth and to lift incomes,” so in terms of next steps, maybe a bit more for you, the main objectives of the program then going forward over the next few months are comprehensive pension reform, progress on privatization, developing a market for agricultural land sales, restoring banks’ soundness to reinforce their ability to support growth, and an important component of this program from the very beginning, tackling corruption decisively.

We have said that, responding to your other question, we have said in the staff report that in principle, we could have three more reviews completed this year if, let me underline if, everything goes according to plan, and this depends on the authorities’ ability to deliver on time the reform commitments under the program that’s almost -- it goes without saying, but it’s a very important caveat. Those three reviews, if completed, could lead to further disbursement of about 4.4 billion dollars this year, but again, contingent on, as always, progress under the program and implementation and subject to review. Thank you very much. Yes?

QUESTIONER: If I could follow up on that. So you just said that in the next three reviews, if everything goes according to plan, the disbursements will come to 4.4. Up to now -- originally, you started the program with the size of the (tranche as 1.7 then it was cut to 1.0. The latest was 1.0.

You are now saying that the next few tranches will be larger, right? If anything goes according to schedule. How is it decided? The amount of money in each tranche?

MR. RICE: So again, you know, the schedule I think is published in the staff report, as we normally do. It’s not unusual for the schedule of disbursements to change over time and again, contingent on progress and implementation under the program.

QUESTIONER: Since I had the floor anyway, I wanted to ask you on a different subject.

MR. RICE: Yeah.

QUESTIONER: On oil. The OPEC and non-OPEC producers are supposed to meet relatively soon and decide on whether to prolong their agreement. I would like to ask you to comment on the IMF’s take on this situation. How do you project further development in this?

MR. RICE: It’s an important question that you’re raising. I am going to defer it, however, to -- in the next, in the coming days, as I mentioned, we are going to have the publication of our World Economic Outlook, and it will be dealing with the question of oil and our assessment of the situation, so I don’t want to preempt that today and ask you to hold on for Maury Obstfeld and the World Economic Outlook coming your way very soon. Good morning.

QUESTIONER: Thank you, good morning. So, what are latest on the negotiations regarding the Greek issue? What are your expectations of tomorrow's Euro group, and if you think an agreement can be reached tomorrow, or it's too early to speculate? Thank you.

MR. RICE: Yeah, so negotiations have been ongoing in Brussels this week, and the IMF representatives have been fully engaged in those discussions and, again, that's toward a program that the IMF could support. What I can tell you is that there has been progress in the discussions, but important issues remain outstanding. So, those discussions are continuing, and we hope that the IMF mission can return to Athens soon. So, again, progress -- and while there has been progress -- more work needs to be done; and I think, I wouldn't speculate about the prospect for reaching staff level agreement.

QUESTIONER: Can you be more specific on the issues that remain outstanding?

MR. RICE: You know I don't want to get into the details as those discussions are ongoing, but you know, the managing director was asked about this on Monday, and she reiterated the importance of what we've discussed here before, the two legs of the program, so we need to see progress on the reform package, on the Greek side, on the behalf of the Greek authorities, and debt relief, credible debt relief commitment for the IMF to go forward. So, that position has not seen.

QUESTIONER: But it seems that the Greek authorities are willing to fulfill your requirements regarding pension and tax reform, no matter how painful those will be socially and politically, and that's the one leg that Madam Lagarde talked about again. And where are we on the second leg, on that discussion? Is there any timeline ahead?

MR. RICE: Well, you know, I think the timeline broadly, the framework, is that there will be discussion of the reforms and that's ongoing. Then once we know exactly what the reforms are, then the level of debt relief is, obviously, matching. You know, it's a complementary to that. And what I have said before, just in terms of guidance, is that for the IMF to take a proposal to our Executive Board for support of a program in Greece, it would need to have both of those components, both legs. So, it would need to have the credible economic reforms and the credible commitment to debt relief, both, before we would take a program to our Board.

QUESTIONER: There are some reports that the Fund projects a fiscal gap for '18 and demands for additional measures for next year, can you confirm?

MR. RICE: No, I can't confirm that. And, again, I'm not going to get into the details of the discussions.

QUESTIONER: I have a simpler question, I think. In your opinion --

MR. RICE: I always worry when you say you have a simple question.

QUESTIONER: -- in your opinion, really, who is responsible for this deadlock? Somebody has to be responsible. It's a deadlock that is going on for a few months now, seven.

There are so many accusations, as you know very well, about the IMF. They are saying even that you want to change the government with a moderate one. I'm sure you've heard about this. They are saying that -- and I told Mrs. Lagarde on Monday -- that you keep saying that Greece cannot handle more austerity, but at the same time, your people in the talks, they demand for more difficult measures. So, really, I've known you for seven years, you always say the truth, tell us who is this possible for this deadlock?

MR. RICE: You know, I think -- well, a couple of things -- I think everyone is working toward a program that can support Greece, can support growth, and jobs; and, I think, everyone is working toward that with goodwill, and to try and do it as soon as possible. I can only speak for the IMF and tell you, what we focus on is the economics, and we are trying to serve our member country, Greece, as best we can in terms of providing signed analysis to support what would be a credible program that would put the country back on the growth path, which is what we all want.

So, the IMF objective, our intentions are clear; and, again, we're trying to do that in the best way possible. We're trying to do our job, which is to provide that rigor in terms of the economic analysis. So, that's what we're trying to do with Greece, to support Greece. That's what we try to do with all of our member countries. So, it's a focus on the economics. Did you have something else?

QUESTIONER: Yes, I have something else. Yes, first of all, we're hearing all these days that the Prime Minister of Greece is talking with Madam Lagarde almost every day. Is it possible to tell us how many times they have talked the last ten days; that's one thing? The other thing is that who is taking part on this talks on your behalf? Is Mrs. Velculescu, is Mr. Thompsen, who?

MR. RICE: On your latter point, both; okay. I don't have the exact, their travel arrangements right now, but they're both involved in the discussions. And on your other point about discussions, yes, Madam Lagarde and the Prime Minister have spoken; and, again, there's regular contact between the managing director and, you know, leaders of our member countries, on a regular basis, I don't have the tick-tock, the detail, on how many times, or where, or how; but, you know, discussions are ongoing.

MR. RICE: Is this on Greece?

And then I'm going to really move on from Greece, okay; because I see we have some other questions.

QUESTIONER: I'm asking because there are expectations that during the Spring Meetings the Greek issue will be discussed in depth, and what should we expect since all the major players will be here in Washington? Thank you.

MR. RICE: Well, I think you're right, that the Greek delegation will be here along with a delegation of another 188 countries; so, you know, there are always discussions with the delegations. I am not aware of any specific discussion that is planned, that's on the agenda; but, you know, if that changes, I'll keep you posted.

Good morning.

QUESTIONER: Today and tomorrow, leaders of U.S. and China have a meeting; so, I wonder what do you expect from the meeting?

MR. RICE: Yeah, I don't have any comment on that meeting that's taking place this week. The IMF is not involved. However, more generally, of course, we always encourage and are supportive of dialogue and exchange of use among the membership. So, we are supportive of that, but we're not involved; so I don't have a comment on the potential outcome and so on.

Okay, I'm going to take a few questions online. I see he has one more, and then I'll try and wrap things up. There's a question on Egypt. And it’s asking in what form -- I’m sorry, it says Madame Lagarde said yesterday, that the IMF will help Egypt to control inflation. And it’s asking in what form will this help be? Is the IMF talking with authorities about delaying some of the planned reform measures, such as subsidy cuts to help ease inflation?

And again, thank you for the question. The background to the question is that to the managing director met with, the President, Mr. Sisi yesterday. And we issued the short statement related to that, which is on the website. And this is all to do with the IMF’s support for Egypt’s economic reform program, which we are supporting with the $12 billion extended-fund facility.

The managing director referred to, as the question indicated, to the issue of inflation, one of the challenges that the Egyptian government and people are facing.

And what I can say in response is that, is we will be discussing with the government and the Central Bank, how they can best use budget restraint and tighter monetary policy to contain demand, and so, bring down inflation. So, that is a priority in the period of ahead.

I’m seeing a question on South Africa, which I’d like to take. And the question is around, does the IMF have any comment on the recent firing of the finance minister and separately, have there been any discussions with the IMF of a possible program with South Africa?

On the second question, the South African authorities have not requested a program from the IMF.

On the first question, as a general rule, we don’t comment on domestic politics. That’s clearly an issue for the member authorities.

As we’ve said before, it’s important that institutions remain strong and that the government can be united in implementing economic policies aimed at achieving inclusive growth and maintaining macroeconomic stability for all South Africans. So, I would leave it at that.

And I think there’s another question on Bosnia. And it’s asking what is the IMF’s comment on opposition from the farmers and the Republic of Srpska to the excise tax and on fuel? The excise tax on fuel, which it is reported as a condition or the IMF program.

Now, there’s been some recent news on Bosnia. As you may have seen, there was a statement from the IMF. And yesterday, we learned that the Parliament of Bosnia and Herzegovina, failed to adopt important reforms of the excise tax and the deposit insurance.

And in our view, and again, the IMF mission chief for Bosnia went on the record with a statement. This decision will have negative implications for Bosnia and its economy. And indeed, that’s why both reforms are key elements of the authorities’ program, which is supported by the IMF.

We now expect a significant delay in completion of the first review of the program. Having said that, we remain fully committed to support Bosnia in its reform efforts. The program remains in place, and our staff is ready to assist the authorities in continuing the implementation of reforms, to unlock growth potential and maintain macroeconomic stability, including through our advice and technical assistance.

So, that’s on Bosnia. You had one question, and then I’m going to wrap up.

QUESTIONER: We had an additional speaker. So, is the embargo still 10:30?

MR. RICE: Yep.

QUESTIONER: Okay. And secondly, can you repeat please the name and position of, Gaston, the speaker?

MR. RICE: Yes, it’s -- let me just catch my notes here, so I get Gaston’s title correctly. It’s Gaston Gelos, that’s G-E-L-O-S, if you’re reporting. And Gaston is the chief of our monetary policy division in the Monetary and Capital Markets department, MCM. Okay. Good.

I’m seeing, actually, one more online. Let me take it.

Can you confirm that an IMF team is visiting Tunisia for 10 days to evaluate the progress and the reforms of the 2.9 billion loan program and when? And when the second drawing of the program will be dispersed?

What I can confirm for you is that and IMF team is visiting Tunisia for 10 days to evaluate the progress in the reforms of the 2.9 billion loan program. And, you know, discussions are ongoing, obviously, on completing the first review. A mission will be in Tunisia tomorrow. And they will communicate their findings at the end of the mission.

So, let me leave it there for today. Thank you all very much.

Let me make one important correction to what I said at the beginning. The meeting of the International Financial Institutions in Berlin, I think I said was Tuesday. It is Monday. Michael, I think you caught that, right?

So, anyway, I had mentioned that just to clarify, I had mentioned that the heads of the three institutions will be publishing and speaking about the report on trade. So, they will. That’s going to happen. And then later that day, there will be the meeting of the International Financial Institutions with Chancellor Merkel.

It’s a meeting on the International Financial Institutions. It’s a regular meeting, and that’s the agenda.

MR. RICE: No, it’s the World Trade Organization will also be there and OECD.


MR. RICE: Yeah.

Okay. Thank you very much. I appreciate it. And we will see you during the Spring Meetings. Thanks again.

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