Questions in the News
Responses to Questions About IMF Policies and Country Operations
Global economy and markets
Last Updated: July 26, 2007| Question: In the Fund's recently updated World Economic Outlook, the projections for Italian growth are not revised upward. Could you elaborate why this is the case? Also could you comment on the pension reform measures in Italy that were finally passed by the government? |
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MR. AHMED: On the issue of pension reform, I should say that our reaction to this agreement at this stage obviously is preliminary because several important aspects of the recent agreement remain to be finalized. We still need some information and analysis including those relating to labor market aspects before you can have a definitive assessment. That said, we share the European Commission's assessment on this and welcome the agreement's aim to protect the financial impact of already legislated reforms, which has been a key consideration for us. But it is also key to strengthen incentives to work, that is to encourage participation in the labor force and to lengthen working life. We believe that it will be important to bear these aspects in mind in resolving positively and quickly the outstanding aspects of the agreement. On the issue of the Italian growth projections, the WEO update is an interim process during which we look at the major economies and the world economy as a whole and see where there have been significant changes from the situation as it was when we did the last WEO analysis. In some cases there have been significant changes for one reason or another—either the events have turned out to be more positive, as has been the case in a number of emerging markets, in Europe in some countries as well, and in Japan; or in other cases, events have turned out to be such that the projections now for the remainder of the year have been revised down, particularly in this case in the U.S. So my colleagues yesterday went over some of those and Italy was one of the countries where there has not been that much of a change from the time that we looked at it a few weeks ago. July 26, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, IMF |
| Question: Does the IMF have any comments on the rise in oil prices? |
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MR. AHMED: Futures prices, which form the basis of our own oil price predictions, have risen by about 8 percent since the April World Economic Outlook. In the U.S., gasoline prices have risen by over 20 percent over the same period. Clearly, what these developments have done is increase the downside risk especially for U.S. consumer expenditure. However, we do not feel that this will have a tangible impact on global prospects. We have seen this kind of volatility before, and the experience of the past few years suggests that both global growth and inflation are not very sensitive to oil price variations in this sort of range. Nevertheless, I should also add that geopolitical concerns remain, because spare capacity is still quite limited and oil demand remains solid. Reflecting these realities, futures markets suggest that price risks are on the upside in the period ahead, and we continue to be concerned about the possibility of a price spike with a larger economic impact than what I have indicated with the current range. May 24, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, IMF |
| Question: What is the growth potential for the main economies of the Latin American region? What aspects of their economies should grow in order to go hand in hand with the population growth? |
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MR. DE RATO: We are all aware that one of the great challenges of Latin America is to increase its integration with the world economy. Latin America still depends a lot on raw materials for economic growth. It requires greater integration of manufacturing and industry. Overall, there is a need for greater foreign investment, when you compare to other regions such as Asia and Eastern Europe. Speaking in general terms, the region's macroeconomic policies are much better. Debt and inflation are much better. But the region needs structural changes that are adapted more to the world economy, and that will make it more attractive for investments—both domestic and foreign. The fact that Brazil and Peru are near investment grade is great news for everybody. So is the macroeconomic evolution in Mexico, Brazil, and naturally in Chile—the economy that started this path earlier than others. Certainly, the growth in Latin America is lower than growth in other regions, and the reason for this is that the benefits of a good macroeconomic situation are not being transmitted to growth, because the markets are not sufficiently open and competitive. Moreover, countries need greater tax revenues in order to have more effective social policies. We have seen progress in several countries such as Mexico and Brazil, Chile and Argentina, where poverty has been falling significantly. Would we still need are policies that help the population to recover the confidence lost through recent economic crises. April 12, 2007 Transcript of a Press Conference by IMF Managing Director Rodrigo de Rato with John Lipsky, First Deputy Managing Director, and Masood Ahmed, Director of the External Relations Department, IMF |
| Question: Regarding global imbalances, are the risks associated with these imbalances increasing with every passing year? How does the IMF see it and what can the IMF do about it? |
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MR. LIPSKY: Global imbalances are not a new problem or a new issue. They have emerged in this decade in a new way in the context of the unexpectedly favorable economic growth performance of the global economy and relatively low underlying inflation. So the challenge is to preserve this favorable economic performance while reducing risks to sustaining the favorable growth and inflation outlook through reducing global imbalances. In 2004, the IMFC laid out a clear strategy for achieving that goal, and that strategy called on all countries, all members, and all major groupings to enact the policy changes that would produce the structural shifts necessary to achieve that goal. That has been the focus of the multilateral consultations that we will be discussing with the IMFC, and already there is a path toward progress. We see that over the past year there have been signs of stabilization in imbalances and progress towards implementing policies that are consistent with the IMFC strategy. April 12, 2007 Transcript of a Press Conference by IMF Managing Director Rodrigo de Rato with John Lipsky, First Deputy Managing Director, and Masood Ahmed, Director of the External Relations Department, IMF |
| Question: What is the strategy to deal with the significant economic issues facing the world's major economies at this time? |
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MR LIPSKY: The IMFC strategy is straightforward. For the U.S., the task is to increase savings, including through fiscal consolidation. For the euro area and Japan, the task is one of structural reforms that will increase potential growth, and policy shifts that will enhance the growth of domestic demand. The energy-producing countries need new investments in production facilities and also measures to improve efficiency and increase domestic absorption. For countries of emerging Asia, especially those following fixed or pegged exchange rate policies, the task is structural reform plus measures that would increase flexibility with the goal of sustaining strong domestic growth while enhancing the role of domestic demand.
April 12, 2007 Transcript of a Press Conference by IMF Managing Director Rodrigo de Rato with John Lipsky, First Deputy Managing Director, and Masood Ahmed, Director of the External Relations Department, IMF |
| Question: If the global economy grows as quickly as you think it will in 2007-08, it will be six years of very strong growth. Is there a period in the past that had been longer than that? Secondly, what risks do you think are the most threatening to a continued period of global prosperity? |
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MR. JOHNSON: There was a period of very good growth in the late 1960s and early 1970s. So we would be around that previous record. We can go back earlier in the 1960s or 1950s, to find something comparable. This growth is more balanced than some of the rapid global growth we have seen before. Everyone around the world is sharing this prosperity. It is a very important point to emphasize. I hesitate to say that it is completely without precedent, but it is very impressive and something we obviously hope will continue. In terms of the risks that are most threatening, I would not single out any particular one, I think you have to look at the range of potential risks in all of these situations. Obviously, whenever you have rapid growth, inflation is seen as a potential issue. But again, I would emphasize the balanced nature of this global growth. There are many economies expanding their capacity. China and India are investing dramatically. Japan and Europe are having strong pickups in business investment as well. And there are also increases in oil capacity. As long as participants continue to see the prospect of returns on investment as being positive, I think we can sustain global growth around 5 percent per year for some time to come. April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: A year ago, the IMF spoke about the urgency of coordinated action to deal with global imbalances. Does the fact that there is less talk of it now mean that you think they can be resolved without international coordinated action? |
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MR. JOHNSON: As described in the WEO report, progress has been made on these global imbalances. For example, our projection on the U.S. current account deficit has come down by about 1 percent of GDP this year relative to the last WEO. That is an important step in the right direction. And I think that the major countries around the world that are involved in these imbalances have been paying more attention to this issue, partly, I believe, because we, along with others, raised it.
April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: For some years the U.S. economy has been regarded as the engine for world growth. Do you suggest that now the shoe is on the other foot—that increasing growth abroad is in fact keeping the U.S. economy from sliding further than it otherwise might? |
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MR. JOHNSON: The fact that growth is more balanced around the world is a very good thing for global growth, and there is also a positive effect on the United States. It also helps to address global imbalances, which is important. And this is part of the reason why the U.S. current account is going to improve this year. U.S. growth, though, also remains very important, and the WEO report is positive on that. Household balance sheets are strong, business investment is holding up well. And, we think that going forward there is going to be strong momentum for growth in the U.S. and in the rest of the world. We are seeing balanced global growth, much more balanced than for a long time.
April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: How often is the IMF right in its projections? Do you assess your accuracy? |
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MR. CALLEN: We do assess our accuracy. What we have done typically is every five years we employ an academic economist, an expert in economic forecasting to come in and look at the forecast performance of the WEO. The last assessment was published in early last year, done by Prof. Allan Timmermann of UC-San Diego. Of course, it depends on how you assess accuracy. We can certainly not claim to be spot-on every actual number, but I think that the review Prof. Timmermann did suggest that we were certainly in line with the accuracy of the private consensus forecasts, which we take to be a good sign given that statistically an average of many forecasters is very difficult to beat. We think that is positive. Clearly, there are times when we are too optimistic about the global economy and times when we're too pessimistic, and I think over the last couple of years we have actually been erring on the side of being too pessimistic, that we have seen global growth coming in above what we expected in the WEO. Assigning a grade to our forecasts is for others to do. If you look at Fig. 1.10 on page 13 of the WEO report, you see the line is our central forecasts, and that is the numbers we talked about. But we show you the error band around this. We're quite honest about this. That error band is based on historically what our error has been in terms of forecasting. And then we adjust the band in terms of what we talk about in the report. We are trying to be quite transparent on what our forecast errors have been in the past. I think that the report has considerable analytic content in addition to providing the numbers, and we think that, because of the 185 members of the IMF, we have unique insights into what is going on around the world, in both big economies and small economies, so we have a multilateral perspective on growth, and our mandate is very much not to come out and tell you that things are good when things are bad, it is actually to come out and tell you honestly what is happening with the global economy, honestly how that is going to affect countries, how that is going to help them and how it is going to hurt them. That is what we're trying to do. If we do that right, we're doing our job. April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: Could you explain what you see as the biggest risks in financial markets at the moment? And on leveraged buyouts, I would like to know if you are particularly concerned about any particular region where leveraged buyouts present a bigger risk, perhaps the United States or Europe? |
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MR. CARUANA: The main risks we're seeing at the moment arethe subprime mortgage market—that is, credit risks—and leveraged buyouts. We stress also that in the emerging markets, the situation has improved, so globally, the risks have diminished, but there are pockets of risk, pockets of vulnerabilities that we need to follow, pockets of exposures of some countries. And in this edition of the Global Financial Stability Report, we have signaled the increasing corporate debt that some of these emerging markets have been issuing. From our point of view, these are the areas that we need to pay attention to. In terms of leveraged buyouts, of greater concern than what is going on in any one region is the question of the extent to which there has been a relaxation of standards and the extent to whidch the companies that are subject to these leveraged buyouts, end up in a more difficult situation to cope with changing economic conditions in the wake of the buyouts. It is more a question of the specific deals than concern related to one region or another. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: The GFSR mentions the fact that there is a rapid growth of foreign banks in emerging markets and suggests that the benefits offset the possible risks. For example, in Mexico, you mentioned that foreign banks account for 75 percent of assets in the whole industry. I am wondering if you could be more specific about what kind of benefits you see from this situation and what are the potential risks. |
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MR. CARUANA: What we have analyzed is the impact in terms of financial stability of banks expanding globally. We find that there is evidence that it helps to improve financial stability at the level of the institution because there is more diversification. We could add that it usually also helps in terms of improving the financial system where these banks bring a new perspective, new risk management abilities, and new techniques, and capital. So, from that point of view, we see positive developments in this global expansion of banks. It is important for those banks that have a global view to have global risk management. From that perspective, it is important to balance the need to understand and compound the different risks that global institutions have in different markets with the need to be sensitive to the needs of the markets and different regions. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: Several emerging markets, for example, Brazil, have been trying to reduce their exposure to foreign debt. They have been reducing their foreign debt exposure, but at the same time the foreign investor participation in local markets has been increasing. What are the risks? |
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MR. CARUANA: I think that these developments are positive. They have helped to improve the fundamentals of these emerging markets. It is true that, on the one hand, actions taken to reduce exposure to foreign debt reduce the volatility or vulnerability of your budgetary process in the sense that the size of your debt is less sensitive to foreign exchange changes. But some of these risks are now there because of the presence of foreign investors and, therefore, may add some volatility in the flows to the local capital markets. There is no free lunch here, but we think that this is a positive development. The fact that local markets and the local currency are developed has contributed to reducing the vulnerabilities of emerging markets, and Brazil is a very good example of that. And in many occasions—as it is in this case—it has been accompanied by improved fundamentals in terms of managing the budget, managing debt, and developing local capital markets. It tends to improve fundamentals of these countries. But at the same time, as I mentioned, you have to be aware of how risk profiles have moved and how foreign investors are subject to additional risk. They may react in a different manner. So, you have to be conscious of what is changing. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: There is a lot of liquidity in the global financial system, and everyone seems to be comfortable with those risks. Is the financial system well prepared to deal with those risks and measure them? Are control systems in banks and funds well prepared to deal with those risks? Is this is a source of concern for you? |
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MR. CARUANA: We think that over the last years the improvements in risk management techniques and processes in many financial institutions have been very important, very relevant, and very positive, and this has contributed to strengthening the resilience of the financial system. We see these developments positively. There is liquidity in the financial system, and I would like to say that part of this liquidity comes from the innovation of the financial systems. As I said, we think that there are trends that are strengthening the resilience of the financial system. However, the system is becoming more complex, more interlinked. Therefore it requires some monitoring because, although it has been able to cope with some shocks, we think that the growth in some of these elements of markets—for example, the credit risk transfer market—has been dramatic over the past few years.I It has not been exposed completely to a sustained or persistent slowdown or shock. So, again, we view all these developments positively, especially improvements in risk management, but we think that we need to continue to monitor, especially when some turbulence or some productive downturn comes to the market. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: On the issue of leveraged buyouts and the growth of the private equity market, do you have any advice about how governments should monitor or what remedies they may pursue to make sure that this phenomenon doesn't get completely out of control? |
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MR. TRAN: The concern we have regarding the financing of leveraged buyouts (LBOs) and private equity activities is more from the financial stability perspective. From that perspective, we are concerned with the relaxation of credit standards and credit discipline that one begins to see in some of the financing for LBO activities and dividend-related financing deals, which continued to run very strongly in the first quarter of this year compared to previous quarters. What we see is a sign of relaxation of due diligence by investors, relaxation in the terms of the leveraged loans, including the growth of the so-called government light loans. If we have learned anything from the deterioration in the subprime market segment of the U.S. mortgage market, it is that the relaxation of credit standards will "come home to roost" at some point. So we would urge regulators in the major markets to make sure that lenders and/or investors operating in their regions try to exercise due diligence and make sure that the credit quality of the investment is up to standards. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: With the world economy being healthy, how much further would the U.S. economy have to slow before you would start to see larger global ramifications? |
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MR. JOHNSON: The estimates in the WEO are if you have a 1 percent slowdown in U.S. growth, this would knock 0.16 percentage points off global growth, which is actually a relatively small effect. The 1 percent figure is not what we are saying is going to happen—that is actually far beyond what we think is a likely scenario. But I think that even if you have a fairly large effect from the housing sector and some other things happen in the United States, it does not actually have a big effect on the global economy.
This is somewhat counter to what people might expect. They usually suppose that when the U.S. gets a little sick then the sickness spreads to everyone else, and maybe it makes other places even worse off. But that is not what we are seeing in the recent data on these kinds of spillovers, and it is not what we are expecting going forward precisely because most other economies in the world are in rather good shape right now. Macroeconomic policy has become better managed and more forward looking in almost all parts of the world. The rest of the world has become more insulated from what happens in the United States compared with some previous experiences.
April 5, 2007 Transcript of a Press Briefing on the Analytic Chapters of the World Economic Outlook (WEO) by Simon Johnson, Economic Counselor and Director of the IMF's Research Department; Charles Collyns, Deputy Director of the Research Department; and Timothy Callen, Chief of the World Economic Studies Division, IMF |
| Question: With the rising economic strength of China and India, is the global economy more insulated than in the past from a slowdown in the United States because the U.S. economy is simply less dominant than it was previously? |
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MR. JOHNSON: The question is whether the rise of some emerging markets, in particular China and India, has changed the distribution of economic production and income around the world in ways that are broadly stabilizing. I think that the chapter has some very detailed, specific numbers on how much the U.S. produces. The U.S. is still the largest economy in the world and we should definitely pay attention to the effects of the U.S. on the rest of the world. But there is strong performance in China and India, and the Euro area, and I would also emphasize that the Japanese economy has been showing some robust growth of late. So if you put all of this together, this is very much part of what stabilizes the world economy. The U.S. is a significant part of the world economy—between a quarter and a third, depending on how you do the calculation—but it is by no means the whole story.
April 5, 2007 Transcript of a Press Briefing on the Analytic Chapters of the World Economic Outlook (WEO) by Simon Johnson, Economic Counselor and Director of the IMF's Research Department; Charles Collyns, Deputy Director of the Research Department; and Timothy Callen, Chief of the World Economic Studies Division, IMF |
| Question: How much should the dollar depreciate in order to contribute to narrow global imbalances? |
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MR. JOHNSON: The question that we think is important and timely is the relative role of exchange rate changes both in the U.S. dollar and in other currencies around the world, that is, the relative role of those exchange rate changes in addressing global imbalances. What the WEO chapter shows is that actually two things are important. One is that a depreciation in the U.S. dollar has a greater impact on global imbalances than sometimes supposed. But remember, one country's depreciation is another country's appreciation. Surplus countries, that is, countries with current account surpluses, would also experience positive effects and easier adjustments were their currencies to appreciate in real terms. So, on the one side, we're saying that changing the exchange rates would be helpful for the United States, and there has already been some depreciation of the United States dollar and that is already helpful and already working its way through, for example, into strong exports for capital goods from the United States. Surplus countries should read the chapter as encouraging them to see exchange rate adjustments there as facilitating the reallocation of resources in a way that helps the global imbalances. But remember, the second message is very important: these exchange rates are only helping the broader picture, which is so-called rebalancing of demand. Demand has to go up in surplus countries, and savings rates in the medium term have to go up in some other countries, such as the United States. So that is very important to get right because that rebalancing in demand means that you unwind the global imbalances without slowing the global economy, and that is what we are aiming to get and where we think we are heading with the current alignment of policies. April 5, 2007 Transcript of a Press Briefing on the Analytic Chapters of the World Economic Outlook (WEO) by Simon Johnson, Economic Counselor and Director of the IMF's Research Department; Charles Collyns, Deputy Director of the Research Department; and Timothy Callen, Chief of the World Economic Studies Division, IMF |
| Question: The Peterson Institute of International Economics has said that in order to address international imbalances currency realignment is necessary, and specifically that the Japanese yen and the Chinese yuan should be appreciated. What is the IMF's view on whether currency realignment is necessary in order to address global imbalances? |
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The IMF for a long time has taken the view that the disorderly unwinding of global imbalances is a risk to the economic outlook, and it is something that needs to be addressed. We have also taken the view that this is best addressed in a framework by bringing together the key actors, and that is why the IMFC endorsed and asked us to launch a process of a multilateral consultation. That is aimed precisely at how you can reduce global imbalances while sustaining high global growth—because the important point here is not just to reduce imbalances but to sustain global growth. That multilateral consultation has now been underway since last June. There has been active engagement of participants in that process and constructive discussions. The Managing Director and the participants will be reporting to the IMFC on the progress made in that exercise. Immediately after the IMFC, we will make that statement available. March 29, 2007 Press Briefing by Masood Ahmed, Director, External Relations Department, IMF |
| Question: Does the IMF regard the recent stock market correction as mainly a technical correction or something that is going to continue for some time? Will there be effects on global growth? |
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We still see a soft landing as the most likely scenario for global growth this year. We see solid growth across the major advanced economies and continued strong growth across emerging markets and developing countries. The overall pace will be a little less rapid than in 2006. That has helped to reduce inflation concerns, but there has been no material change in our outlook. Of course there are downside risks. One that we have highlighted is the possibility that financial markets could become more turbulent, and market developments over the past week have shown that risk appraisals can change very quickly, as indeed we also saw in Spring 2006. We do not see the change of market appraisal of risk that has happened over the last few days as having been triggered by any single event. It is too early for us to look back on this process, but based on the information we have seen so far, we see this more as a correction than a fundamental shift in market direction. March 1, 2007 Press Briefing by Mr. Masood Ahmed, Director, External Relations, IMF |
| Question: There have been projections that oil may go over a hundred dollars a barrel. At what point are you concerned that there might be a global repercussion because of oil prices? |
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The real point to focus on is the possibility of volatility. Even as demand from developing countries has increased, investment has not kept pace, resulting in very limited excess capacity. Not only can we not rule out price spikes, we can also not rule out price plunges if volatile developing country growth slows.We should not just be looking at the short term; we need to think about the medium term. Because of the growth of the emerging markets, we need to be prepared, which means creating the incentives for investment going forward. We cannot foretell whether today's price—which is around US$51 a barrel—is going to go up to US$100 a barrel or if it is going to go down to US$25. Both are possibilities. In our view, however, we should be prepared for some volatility.
April 13, 2005
April 13, 2005 Press Briefing by Raghuram Rajan, Economic Counsellor and Director of the Research Department, IMF |
| Question: The World Economic Outlook suggests that the European Central Bank may need to cut interest rates. Do you have a trigger point of slowdown to warrant cutting interest rates? |
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The primary problem in European growth is structural, and, therefore, reforms of the labor market, the product market, and the financial market are needed to increase the growth rate. With growth potential relatively low, it may not be necessary to offer a lot of monetary stimulus at the current levels. However, we think that the European Central Bank should retain all options going forward and, therefore, it makes sense to leave them all on the table and not take off one set of options off the table. We do not have a magic number in mind.
April 13, 2005 Press Briefing by Raghuram Rajan, Economic Counsellor and Director of the Research Department, IMF |
| Question: There is a perception among European policymakers that while structural reforms are important and need to be furthered, the real immediate problem is the global imbalances, and that is something that should be sorted out in the U.S. and in Asia, where Europe is more on the sidelines. What would you say to that? |
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Structural reforms are immensely important in Europe in its own right, even putting aside the issue of global imbalances. Europe needs to increase its growth potential. Some of the fiscal problems that we see nowadays result, in general, from having a relatively low growth potential. So, it is important for that reason. A more flexible economy would help. It would also help with the looming problems such as aging populations. How to keep the elderly employed in appropriate professions going forward will require a more flexible economy. As to the question of whether Europe has a role to play in the resolution of global imbalances, both Europe and Japan could play a very valuable role in supporting growth as U.S. growth slows down. U.S. domestic demand will have to slow down in order for the global imbalance to rectify, and all of it cannot transfer immediately, if you will, to the emerging markets. So, some support has to be given through higher growth from Europe and Japan.
April 13, 2005 Press Briefing by Raghuram Rajan, Economic Counsellor and Director of the Research Department, IMF |
| Question: What is the outlook for Latin America over the next couple of years? |
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There have been a number of improvements in Latin America. A number of countries have moved away from the past cycle. We have better fiscal policies. We have some countries running current account surpluses. We have countries trying to improve the structure of their public debt, including some countries recently borrowing in their own currency and getting away from what is known as the original sin—the inability to borrow in their own currency. There have been tremendous improvements, not uniformly, but certainly across a number of countries in Latin America. I think the outlook, in general, looks quite good, especially if the reform process continues and spreads across the region.
April 13, 2005 Press Briefing by Raghuram Rajan, Economic Counsellor and Director of the Research Department, IMF |
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