Transcript

Transcript of the International Monetary and Financial Committee (IMFC) Press Conference - Thirty-Third Meeting of the IMFC

April 16, 2016

Webcast of the press conference

Mr. Rice - Hello. Good afternoon, everyone. Welcome to this Press Conference on the behalf of the International Monetary and Financial Committee. I am very pleased to introduce to you this afternoon the Chairman of the IMFC, Mr. Agustìn Carstens. We also have with us, of course, the Managing Director of the IMF, Madame Christine Lagarde.

I trust that you all have the communiqué; you have seen that. I would ask that you keep your remarks short; keep the questions crisp; and we will try and take as many as we can. With that, I am going to turn to the Chairman for some opening remarks and then to your questions.

Mr. Carstens - Thank you very much, Gerry.

Good afternoon to all of you. I have to say that we had a very productive discussion today. Let me review briefly the main points that we discussed today.

As the Managing Director has noted, the IMF is alert but not alarmed. That was the general sense around the IMFC table.

As you see from the communiqué, we agreed that global recovery is continuing, but expansion is modest. There has been some improvement in the past months, but financial market volatility and risk aversion are rising amid questions about medium-term global growth prospects. The situation may ultimately weigh on sentiment, which is why we must implement mutually-reinforcing policies to boost global growth and strengthen financial stability.

We agreed that emerging market and developing countries are generally better prepared than in the past for a possibly less favorable environment, but many of them are exposed to tighter financial conditions, slowing capital inflows, and currency pressures. In this context, clear and effective communication of policy stances will be key to limit excessive market volatility and negative spillovers. We also considered how best the Fund can support member countries, as they address these complex and interdependent challenges.

As for the desired policies, you will see in the communiqué that we underscored ambitious structural reforms, growth-friendly fiscal policy, and accommodative monetary policy as key areas for action, the three-pronged approach. We also reiterated our commitment to refrain from all forms of protectionism and competitive devaluations, and to allow exchange rates to reflect fundamentals.

Overall, in the context of global macroeconomic developments, we reaffirmed our commitment individually and collectively to cooperation amid ensuring a well-functioning international monetary and financial system, stronger global trade, combating corruption, addressing international tax issues, and coping with refugees. A strong and well-resourced IMF remains at the heart of our global cooperative efforts.

In addition, as the communiqué also mentions, we welcomed the appointment for a second five-year term of Madame Lagarde as the IMF Managing Director and of Mr. David Lipton as the IMF First Deputy Managing Director.

Thank you.

Mr. Rice - Thank you very much, Mr. Chairman. Okay. Over to you for your questions.

Question - Good afternoon, Madame Lagarde. Can you give us a sense of what the mood was in the discussions this week on the global economy? It seems that there is a little less concern about the financial volatility that we saw in January and February, a little less concern about downside risks that we saw in Shanghai. With how much urgency should policymakers be looking at the economy right now?

Ms. Lagarde - Thank you, and good afternoon to all of you.

I think your observation is correct. There was not exactly the same level of anxiety, but I think there was an equal level of concern and a collective endeavor to identify the solution and the responses to the global economic situation.

What I come away with is the collective determination by the members of the IMFC that the three-pronged approach is the right approach. How it is calibrated, what the sequence will be, what ingredients will be necessary are going to be country-specific and that is what pretty much all Ministers concluded. Equally, they all identified, whether it was in the area of trade, in the area of taxation, in the area of financial regulations and completion of that agenda, they all also assembled behind the necessary collective approach.

You know, in a way, the IMFC and the meetings that precede the IMFC is a bit of a therapy, collective therapy to move from the negative situation that we are facing and the challenges on the horizon, to a positive approach in order to identify the solutions that will respond to the challenges. I think that has worked. I mean, I defer to you, Chairman, but it was my sense, particularly during the last meeting we had this morning.

Mr. Carstens - I think Madame Lagarde’s opinion is right on the spot. I think the only element I would add is that, even though it was recognized that we have had better performance in the last weeks, less financial volatility, and so on, there was a consensus that there is no room for complacency and that ahead of us we still have important challenges. In that sense, the three-pronged approach that was proposed by the IMF was widely subscribed and accepted.

Question - Madame Lagarde, you just mentioned that you want to see a positive approach, and although you have been calling for this for a long time, the G20 has agreed to it for a long time in multiple meetings, there does not seem to be a lot of concrete action. The communique references some vague steps to guidelines that they will announce in July.

Secretary Lew mentions/thinks that there have been actions and mentions spending on the refugee crisis, but the IMF’s own analysis says that that spending—which, by the way, is not proactive but is forced on the EU—is going to have a very modest impact on growth, 0.1 percent.

So, how satisfied are you that the G20 or the member countries will actually take concrete steps to implement these progress policies, which we have not yet seen.

Ms. Lagarde - I think you do not make any progress if you do not have a positive attitude. So, that is certainly an imperative. Now, there has been some action. They have delivered about 0.8 percent of the 2.1 percent that was identified in Brisbane under the Australian G20 Presidency, and more work needs to be done. So, we have advocated an acceleration of the agenda for reforms.

My sense is that we did not get pushback. Clearly, the question is, how much is going to get done back home when they return? How much political force will that require and will they exercise it? You know, it is a matter that we will measure, that we will score, and we will tell them how much they have accomplished.

Question - This is a question to both Madame Lagarde and Mr. Carstens.

There was a sense this week that the IMF was much gloomier at the start of the week than both the G20 and the IMFC have been toward the end of the week. Is this because the IMF has learned from the countries that things are not quite as bad as it seemed to make out at the beginning of the week or what is going on? Are things just slightly better than we feared?

Mr. Carstens - Well, I would like to start by saying that, almost by nature, the Fund has to be very prudent in terms of its point of view. I do not think there was any disagreement in terms of, let us say, the baseline scenario of growth. I certainly did not feel any expression that the perspectives were better than the baseline scenario even presented by the Fund.

Now, the Fund needed—because, as a matter of fact, that is the role of the Fund—to highlight the possible downside scenarios or downside risks. As a matter of fact, from our last meeting to this meeting, those downside risks have increased. This is important, because it signals to the countries precisely the degree of urgency to implement policy measures that were discussed and advocated for, that they really need to get going with those policies.

I mean, I do not think that there is a major divergence. It is more a point of view. In a way, also, regretfully, conditions did not really allow for this. Nobody expressed a more positive outlook than what the IMF presented.

Question - The G20 is discussing capital flow management measures to avoid rapid capital flight from the appropriate countries. In principle, the IMF was negative on capital controls in the past. What do you think about the G20 discussion?

Ms. Lagarde - Well, two things. As you know, we have done a lot of hard work on capital flows and capital flow management. We have adopted about three years ago what we call the institutional view. If you see that language, that is what it means; it is the views of the IMF concerning capital flows and capital flow management.

Now, it has been three years in the making. What we will be doing in the coming months is actually a stocktaking exercise through the various Article IVs that we have done over the last three years of how that institutional view has been applied by the countries when they applied capital management measures. How did it work; were there gaps; was it too early; was it too late; did it last for too long; were the conditions satisfied, and so on and so forth; and is there a gap that we need to think about that would eventually lead us to change the institutional view or to make some new suggestions.

We are going to bring into the fold of that stocktaking exercise the macroprudential measures that have been more and more used in various economies and that have been often used in conjunction and in anticipation with management measures of capital flows. That is, you know, an important exercise. What will come out of it, we will see. It will be data-dependent. Then we will put our analytical forces behind to see whether that is conducive to more stability, less stability, and whether or not we should change.

Mr. Carstens - I do not have to add anything else. It was a very good answer.

Question - The first question is that the Argentine Minister of Finance said that the country was in a sunny spot in a region that is in a complex scenario. How do you think this will benefit the Argentine people? Second, Argentina will finally leave default next week and the government is implementing reforms to improve growth. So, what else can the Argentine government to further improve its growth outlook?

Mr. Carstens - Certainly, all the membership welcomed the tremendous progress that the Argentine government has made in terms of finishing a very difficult period in terms of its relationship with capital markets. Certainly, all the member countries welcomed the fact that they are in a way regularizing their relationship with the IMF.

I think it is a major step forward. Especially speaking as a Latin American, it is very good to have a country as important as Argentina putting its house in order, because it will contribute to further growth and more stability in the region. Needless to say, the immediate beneficiaries will be the Argentine people, but as the World Economic Outlook reports, the forecast for growth in the region is negative. Of course, many countries need to do their job, but, in particular, being the third largest economy in the region, it is of the essence to have Argentina up to speed. Again, the Argentine people are the ones who will benefit the most.

Needless to say, in the short run, some measures might be difficult to digest, but I think what this government is trying to do is to establish basically a very strong foundation so that they can build on that and that will lead to sustainable growth with stability, with access to markets, and basically for a much better living standard in Argentina.

I think another very important point that was recognized by all the membership is the very important drive that the government is showing in terms of being more transparent and, more than anything, to have a good process of measuring the national accounts. If you do not have that, it is almost like navigating a plane without instruments. So, it is of the essence to have those elements in place.

So, all in all, we feel very encouraged about what we have seen that has happened in Argentina in the recent months.

Ms. Lagarde - Just as a follow-up to give you an example of the change, in September 2016 ¹ we were in the normal course of things and were supposed to review the data and statistics situation, with probably some negative decision. Instead, what we are likely to do in September is a full-fledged Article IV of the economy, where we will get much better data and information about the state of the economy which is the condition to determine the right set of policies.

Question - A question for Madame Lagarde, if I may.

There has been a lot of action on the sidelines of these meetings about the Greek negotiations continuing in kind of an informal way here. I was wondering what the progress is that you have seen yesterday. I understand you also met with the Greek Finance Minister. What is at stake for the IMF and the European economy if we end up having another crisis in the summer?

Ms. Lagarde - All I can say is that we had productive, cordial meetings with the various participants. I think I have reported very clearly in my statement yesterday what we achieved during those meetings. The team will return to Athens early next week. There is plenty of work to do so do not expect an immediate outcome, because those things take time. Certainly, we are of the view altogether that it has to move and to proceed promptly and efficiently. But our position with respect to Greek economic sustainability and stability has not changed. It is predicated on the same two-legs approach.

Question - My question is to Ms. Lagarde. I will go back to the issue of refugees. I know that a lot of emphasis in these meetings was on development as a main tool to ease or to meet the challenges of the refugee crisis. However, when it comes to countries like Lebanon, the main concern is refugee resettlement, especially if those refugees have had their lives established there, the crisis in Syria takes much longer than expected, and even the reconstruction process might be difficult due to the low oil prices. How can international institutions like the IMF and the World Bank help in easing this concern?

Ms. Lagarde - Well, we do not provide grants. We provide concessional loans under certain conditions. What we can do and what I have done certainly is add our voice and raise our voice to advocate that these countries like Jordan, like Lebanon, like Tunisia, receive the support of either donors on a bilateral basis or other institutions as well, at ultra-concessional rates, and preferably as grants, because those countries are sometimes in difficult economic circumstances.

Tunisia was undergoing a program and has done very well, but still needs support and help. Jordan has gone through a program, has really re-established financially a lot, but still needs support. Lebanon clearly has also a need for support financially. So, you do not want to just add an additional burden of debt on those countries. That is Point No. 1.

Point No. 2, I think all forces have to be harnessed to address the situation. As you said, it ranges from peace negotiations to resettlement, to education, to humanitarian assistance, and so on and so forth. So, we can provide the policy advice, the macroeconomic framework to help those countries. When we have a program in place, we take into account the fiscal constraints.

To give you an example, in the case of Jordan, we have extended the period of time during which fiscal consolidation should take place. In Tunisia, we have also taken into account the fact that they have 1 million refugees as well. So, that is what we can do. It will require all resources, because we regard their situation and the security associated with the need to look after refugees as a public international good, not something that concerns one country.

Question - Ms. Lagarde, just about the G20 communique that it would be implemented if the country does not sign or participate in collaborative efforts to stop illicit debt flows and transparent transactions and Corruption Act. What has been discussed at the IMF if [?] the possibility to block the flows to those financial havens? What do you think that we know that Panama refuses to go that explains the Panama Papers? It could be the same for those who are signed but do not even go through the standard code of fiscal transparency, and a question of reveal or a question of sanction?

Ms. Lagarde - You know, I think the overall issue epitomizes extremely well the combined action at the national and at the international level. Having international standards and guidelines is extremely useful and was a major effort undertaken by the G20 countries and where the OECD played a leading role.

So, the BEPS, the automatic exchange of information, that is very, very well, but it needs to be very comprehensive and it needs real implementation. In the case of Panama, there had been alerts and alarms raised, but they had not been at the level of implementation that was expected.

So, I think all of us need to think outside the box and see how the mechanisms and the flow of assessments, audits, reviews, can actually follow through with due implementation and consequences in case of failure to implement. We will do our part.

When we do an FSAP, for instance, a Financial Sector Assessment Program, we look at the anti-money laundering and the combating of terrorism financing mechanisms in place and we check that the laws are there. We check that it is implemented and we check that the bodies are set up to enforce it. But then there has to be follow-up, because it is too serious to be just left to a report.

So, as I said, all of us are going to have to think outside the box. I have certainly committed myself to members of the IMFC that is going to be one of the areas that I call the new challenges. We have had the new challenges of climate change and effect on subsidies, gender and contribution to the labor force, inequality and its impact on sustainable growth.

I think that international taxation, the implementation of a safe network of taxation systems, as well as the economic framework of the fight against corruption, those are two new areas where I think we need to do more work.

Question - My first question is, what should developing countries like Ghana be doing following the recent slump in the prices of commodities? What should be the policy response by these countries?

Secondly, countries sign up to a Fund program for a certain response. In Ghana’s case, we are trying to address market confidence. A year down the program, we are still not seeing that. For you, what is the problem? What do you think the authorities should be doing to get the confidence that they are looking for from the market?

Ms. Lagarde - I would say that for any country under a current program, to actually deliver under the program, go through the review one after the other, is probably the best response to market concerns about the stability and the macroeconomic policies decided by the country.

For countries that are facing the shock of the commodity prices, I think we generally recommend to use flexible exchange rate regimes in order to operate as a shock absorber. For those countries that have buffers available, use them reasonably. Generally, for countries that have been predominantly relying on commodity exports, really think through a diversification model so that other sources of growth can be identified and developed within the country.

But I have to say that each and every country is going to be a story of its own, and Ghana is going to have special circumstances that will call for particular solutions.

Mr. Rice - I would like to thank Governor Carstens and Madame Lagarde, and thanks to all of you, too.

¹ See Statement by the IMF Executive Board on Argentina, Press Release No. 15/252