Transcript of a Press Conference by the International Monetary and Financial Committee
September 24, 2000
Sunday, September 24, 2000
Gordon Brown, Chancellor of the Exchequer (United Kingdom) and Chairman, International Monetary and Financial Committee
Horst Köhler, Managing Director, International Monetary Fund
Thomas C. Dawson, Director, External Relations Department, International Monetary Fund
Gordon Brown, Chancellor of the Exchequer (United Kingdom) and Chairman, International Monetary and Financial Committee
Gordon Brown and Horst Köhler
Mr. Dawson: I am Tom Dawson, Director of the External Relations Department of the International Monetary Fund. This is a live press conference to review the outcome of this afternoon's meeting of the International Monetary and Financial Committee of the IMF. To my immediate left is Gordon Brown, United Kingdom Chancellor of the Exchequer and further to my left is Horst Köhler, Managing Director of the International Monetary Fund.
Mr. Brown: I want to report on what has been a very useful and productive meeting. We are grateful, first of all, for the hospitality of our Czech hosts and we were delighted to welcome, in his first meeting as Managing Director, Horst Köhler. During this meeting, he set out his vision for the future of the IMF. He set out his plans for reform and for achieving progress in crisis prevention and crisis resolution; progress, also, in the relationship between public and private sectors in dealing with these issues of crisis prevention and resolution. He also noted the progress that he was making, and we welcomed it, with the HIPC debt relief initiative, about which the World Bank Development Committee and the IMFC will meet in only a few minutes time. There will be a further statement at the conclusion of that session.
I want to draw your attention to three of the issues that emerged during the course of our conversations today. As you know, we start with a review of world economic developments, and we look at issues on each continent, and we look also at the vulnerabilities in the financial sector and elsewhere, and how we can measure these risks and opportunities.
On the question of economic growth generally, we noted that we had the highest growth rate in the world for 12 years. But we are not complacent. There were three issues that concerned us. One was external imbalances, and if I just say from the communique, the potential challenges include imbalances in external accounts and the possible risks from misalignments in exchange rates and the high levels of equity valuations in the major currency areas. We have examined these issues today in the context of intervention that took place on Friday and, also, the long-term commitments to economic reform made by the euro area.
The second area where we had discussions in some more detail were to look at the strengths of financial sector reform in relation to potential vulnerabilities, not least in emerging markets and developing countries. We noted the progress that has been made, but also the progress that is still to be made in these areas.
The third issue I should draw your attention to, and it is covered in paragraph 5 of the statement issued by the IMFC, is our discussion of the current level of oil prices around the world. The IMF has the great benefit of representing 182 nations. We had at our meeting today oil producers as well as oil consumers. We had at our meeting rich countries as well as poor countries, and we found that there was common ground on four main issues relating to oil prices. First, oil producers and oil consumers agreed that there is a need for stability and that must be a priority in our discussions and in future actions. They secondly agreed that there must be reasonable oil prices, and that is contained in the communique itself. Thirdly, oil producers and oil consumers agreed that there had to be an improved dialogue to look at issues relating to stability between oil producers and oil consumers, and I will just read the other statement that is made by the Committee so that you know exactly where the Committee stood unanimously:
"The committee is concerned that current oil prices, if sustained, could hamper global growth, add to inflationary pressures, and adversely affect prospects for many countries. It notes in particular the effect on the poorest countries and those highly dependent on oil imports. The Committee agrees on the desirability of stability in oil markets around reasonable long-term prices. It notes the recent U.S. decision to mobilize reserves and notes that some other industrial countries may be in a position to examine the possibility of doing so to help achieve greater stability.
"The Committee notes the steps the oil producing countries have taken this year to increase production and calls on them to take further steps to create conditions in oil markets conducive to healthy global growth. The Committee looks forward to improved dialogue between oil producers and consumers to promote greater oil market stability."
So oil producers and oil consumers were agreed that further steps must be taken to create conditions in oil markets conducive to healthy global growth.
Horst Köhler and I met representatives of some of the oil producing countries during the day. There was a lengthy discussion with all members of the IMFC over lunch. The agreed terms of the communique draw attention to the need for stability, reasonable oil prices, the need also for increased production, and for further steps to achieve that.
I believe that this Committee and the IMF, representing all these different countries, shows that you can achieve common ground. There is now agreement about what ought to be done. It is, of course, now time for the agreements that we are talking about to be seen in practice in this area. We look forward to the conclusions that will come from the meeting of oil producing countries in Caracas, which takes place during the course of this week.
Our discussions were completed this afternoon with the presentation from the Finance Minister from the Czech Republic, and we were able to record not only progress in the transition economies, but also the lessons we can learn from 10 years of work to achieve transition from economies in the old bloc to the market economies that now are emerging and being created.
We had a very useful discussion learning lessons from the experience of the last 10 years. That was the main business of the Committee today. It does show--as we will show with HIPC and debt relief later this afternoon--the response that can be achieved when people work together is far greater than when people act in isolation and apart. Thank you very much.
Mr. Köhler: Ladies and gentlemen, from my perspective, I must tell you that I am very satisfied with what was my first IMFC meeting. I was quite impressed by the professionalism of the discussions and, of course, particularly by the Chairman. I do think that after this Annual Meeting, the Fund will be strengthened in its capacity to prevent crises and to manage crises if they occur. And, of course, I am personally very satisfied, because the main ideas of my understanding, or my vision, of the Fund have been strongly endorsed by the Governors. And I think on this basis there is even more encouragement, excitement and commitment to do a good job in the future.
Mr. Dawson: Questions?
Questioner: Mr. Brown, you told us about discussion for an oil-related agreement. Can you be more specific? You said there is no agreement yet, but what can we expect? In your view, what would be, from a European viewpoint, a good agreement? Are there discussions for specific oil production? The following second to this: Is there a problem for industrial countries from the high price of oil besides just the poor countries?
Mr. Brown: We looked at what would happen if current oil prices remained. We had information prepared by the IMF itself about the effect on growth. Clearly, this is a problem affecting the developing countries, and it will affect the Heavily Indebted Poor Countries as well. It is also a problem affecting the industrialized countries, as we have seen from events in America and in Europe and elsewhere.
Where I think there is common ground now is that everybody agrees--and I mean oil producers as well as oil consumers--that we must have stability in oil markets. Everybody now accepts that we must have reasonable long-term prices, and I think people do know that the OPEC countries themselves have said that a sustainable rate for the oil price per barrel is far lower than the existing price and have themselves published their range.
At the same time we noted the action the United States had taken, and I think it is significant that the oil producers as well as the oil consumers were able to sign a statement that called on the oil producers to take further steps to create conditions in oil markets conducive to healthy global growth.
That obviously arose from the discussions--and I praise Horst Köhler for being part of these discussions--which we had bilaterally as well as in our Committee, as people came to discuss what is necessary for the next few months and for the next period to ensure the continuation of world growth.
Mr. Köhler - I would like, if you do not mind, to add a word to that. We talked a lot about this, of course, because it is part of the process of multilateral surveillance. In my view, surveillance is one of the most important exercises and tasks that the Fund has to do. And to conduct these discussions in the Fund means also that we have a membership where oil producing countries are involved in this kind of debate. Based on today's discussion, I am encouraged that a dialogue will develop that will help us to define common interests for the global economy. I think that the oil producing countries are well aware of their responsibility for the global economy and particularly of the impact of these oil price hikes on the poor. Discussions like today's will help to improve the climate.
I would also like to underline that some countries have been very happy that we also had an exchange of views about the exchange rate misalignment. There was a bit of a debate in the runup to today's meeting. I think that the European Central Bank acted, intervened, coordinated, and that the Fund made clear that the euro is undervalued was very much appreciated by many Governors.
Questioner: This is a question to Mr. Brown. In the search for the IMF's focus on observance of standards and codes for prevention of a crisis, India has questioned this boilerplate approach, that one size fits all. What is your assessment of this, and would you have any response to it?
The second question is, India has also proposed a kind of consultative committee to review the oil price situation from time to time. If you are going today to discuss the oil price situation, what about the commodities whose prices are depressed and which have hit the poorest countries over the last 20 years? Can the IMF enter into improving the situation of the commodity producers of the poorest countries?
Mr. Brown: On your first question, of course we are sensitive as to how the timetable for the introduction of codes and standards can work, and the technical and other changes that are necessary and the difficulties that some countries face. But there is general agreement that greater transparency and greater surveillance is the way forward. Indeed, Horst Köhler, who may wish to add to this statement, made it a centerpiece of his proposals for the reform and improvement of the International Monetary Fund. I believe that, here again, there is common ground being achieved. While we must be sensitive to the problems countries face in introducing codes and standards, I think there's general agreement from all countries that this is a proper way forward to ensure that the international economic system has a sounder and more effective base.
On the question of oil, yes, it is the case that if there was a sustained high level of oil price, then we would have to look at what the Fund could do, particularly for HIPC countries, but not only for HIPC countries. Perhaps others may wish to ask us questions after the meeting that we will have with the Development Committee in a few minutes.
But it is also important to recognize that the level of the oil price at the moment--that is, the level of the oil price which has gone from $11 to more than $30--is itself a problem, and it must be dealt with directly. And if this is my view, the view is also shared by members of the International Monetary and Financial Committee, who agreed on the need for stability, a reasonable long-term price, further steps that have to be taken, and for an improved dialogue to promote greater oil stability.
Now, this is the International Monetary Fund and its committees working at their best, bringing together oil producers and consumers, rich and poor countries, developing and developed countries. If we can now see action as a result of the common ground that we have identified--and I believe that that is now for the different countries and organizations to respond--then this will be the international organizations working at their most effective.
Questioner: Mr. Köhler, I would like to focus a little bit on these discussions about debt relief. In your view, could these discussions maybe send out the wrong signal to the markets and to the involved countries--the signal that you do not have to pay for your debt?
Mr. Köhler: I think first we should implement what is promised and that is to give the HIPC countries the debt relief that is promised. This is why Jim Wolfensohn and I decided to accelerate the process, bringing a further 10 countries to the so-called decision point by the end of this year.
I also want to add to that. The debt relief is, of course, an important part of a comprehensive approach to combat and reduce poverty. The other elements of this approach are, first and foremost, to promote strong, sustained growth, and to open markets for the products of developing countries and emerging market countries so that they can help themselves.
I always tell Governors that they should also try to better convince the public in their home states to deliver more on official development aid. And the last element in this concept is, of course, whatever we do, if it is not based on good policies in the poor countries, it will not help.
Having said this, I also would like to add debt relief cannot be a quick fix to solve everything. We particularly have to pay attention not to destroy a credit culture that is needed for the long-term effort to combat poverty, because to combat poverty means that we need to organize savings also from international markets and to organize savings and to channel it into investments. To do this, you need to use credit instruments. Credit means that you have to have trust that a debtor pays back his obligation, and therefore we have to find the right balance between very active, very forthcoming debt relief, but also seeing it within a broader concept of a sustainable and working credit concept.
Questioner: Reasonable people can differ on the meaning of the word "reasonable". Mr. Fabius has been talking explicitly about $22 to $28 (per barrel of oil). Do you agree that $22 to $28 is a reasonable long-term price for oil and, if so, did you think two years ago that $11 was an unreasonably low price?
Mr. Brown: What I think Mr. Fabius was referring to was a statement that OPEC itself had made. He was not referring, I think, to his own assessment, or to mine. He was referring to the statement that OPEC itself made some weeks ago saying that, for them, the sustainable oil price dollar rate was $22 to $28. They also said at that time that if that rate was not being achieved, they would take further action.
This came up today in a number of different parts of our discussion when people reminded the oil producers that this was a statement that they had made. So it is not a figure that we have devised; it is not a figure that Laurent Fabius has devised. It is a figure that OPEC themselves have given about what their aims are in this matter, what they consider to be the present sustainable rate, and they said that if it had not been achieved, they would take action.
It is perhaps on the basis of that that we have now in this statement today the call for them to take further steps to create conditions in oil markets conducive to global growth. This is a statement that they were prepared themselves to sign on to, the oil producers who were members of the IMFC committee. I am not going to be drawn into making predictions myself.
What I do say is that if OPEC had made this commitment that they would take action if the oil price was above the $22 to $28, then that is a reason why this statement carries even more force.
Questioner: Today's changes to the IMF come after a lot of criticism, both on the streets, in Congress, in academic think tanks. How have those criticisms affected what was decided today and how is the Fund different today than what it was a month ago or two years ago?
Mr. Köhler: Well, I base the vision I outlined to the Governors on a considerable number of discussions, meetings, travels, with academia, with the developing countries, with shareholders, and so I do think that I can safely say that I took into account all the discussions. In the end, I want also to be honest, I particularly listened to the membership of the Fund. I particularly also listened to developing countries, emerging market countries, because they are the receivers of Fund support and I think it is important to know what they think is right.
Altogether I think that the reform concept which was today deepened and accelerated--it was not starting from scratch--takes into account, first, that the Fund has to adjust to changes in the global economy, and that means the Fund has to respond to the fact that global capital markets offer a huge potential for growth productivity, job creation, income creation. But they also are a potential source of turbulence and crisis. Therefore, the Governors strongly endorsed the idea that the Fund must be in the center of the discussion about the stability of the international financial system. This stability is being seen as an important international common good.
Secondly, there was also a clear understanding that the institution as such, with its 182 members, is an asset, because when we talk about globalization--and our concept is to make globalization work to the benefit of all--we have to know that globalization means, first and foremost, a need for cooperation. And cooperation has to build on trust regarding two things: first, that all members' interests are taken into account; and second, and equally important, that all members are aware and act according to their responsibility to the fundamentals in their own country. This was endorsed.
Then we had a clear understanding that we have to strengthen the ownership idea of our support. That means that we are going to concentrate our conditionality on main priorities which are important to get macroecomic stability promoted and, on this basis, growth. But we are not going to go too much in detail with conditionality, even try to micro-manage economies and societies.
So on this basis I do think that we did take into account a lot of recommendations and thoughts after a broad discussion.
Questioner: Mr. Brown, did the producing countries lead you to believe that, if they wanted to lower the price of oil, they could do that, or was it your observation that there are some other problems that are keeping the price of oil high that OPEC could not necessarily resolve by turning the dials on their pipelines?
Mr. Brown: I think we all know this is a complex issue that involves a number of different factors and cannot be put down to only one issue. The fact of the matter is that production went from 30 to 28. It has now gone up to 32. The fact of the matter also is that there are some countries that have the capacity to expand production. Indeed, some of the countries with the capacity to expand production were with us today and, therefore, it is possible to see production increased, and it is possible, therefore, to see an effect on price.
The Committee noted the American release of strategic reserves. Of course, it noted that some other countries may be in a position to examine this possibility as well. But at the same time the Committee was of the view--and I just repeat that the oil producers signed this communique as well as the oil consumers, which shows that we have a consensus in the meeting on these issues--that there should be further efforts to deal with this issue; as I say, further efforts to create conditions in oil markets conducive to growth. I look forward to hearing from the Caracas summit in the next few days.
Of course, there are other meetings that will be taking place in the next few weeks as well. There are complex issues involved, but there is no doubt, in my view, that it is possible, if a choice is made, to increase production.
Questioner: Just on the question of the strategic reserves, the Spanish Finance Minister said that he would be supportive of a decision by European Union countries to draw on their strategic oil reserves. Has that been discussed in any more detail than you have just mentioned, Minister Brown?
Mr. Brown: Each country has different reserves of course, different means of making decisions, different requirements that have been put by law on the use of their reserves, and that is why the communique is carefully drafted. Some other industrial countries, that is other than the United States, may be in a position to examine the possibility of doing so to help achieve greater stability. So that means that countries will examine this possibility, if they are in a position to do so. That is what the communique says.
So here you have measures that oil consumers will look at, but of course we also have a call on oil producers to take further steps.
Questioner: Mr. Brown, you and Mr. Köhler had a meeting with the Saudi Arabian Central Bank Governor today before the meeting of the IMFC. Can you tell us what was said at that meeting and whether you expect Saudi Arabia to take a pivotal role in brokering some sort of deal with the OPEC countries?
Mr. Brown: I obviously can't comment on behalf of the Saudi Arabian government. I know that discussions have been taking place throughout the day. I know that many of the oil and Finance Ministers are now assembled in Caracas, and I think there is an understanding on the part of those members of the IMFC who are oil producers of the strength of feeling. But also, there is a common understanding of the need for both stability and a reasonable oil price.
So I think what encouraged us today is that there is common ground on both what is the analysis of the problem that we face and what needs to be done. Obviously, some of the decisions will have to be made by other countries and some of the decisions have got to be made in other places, but I think it is an important step forward that we have for the first time a communique signed by oil producers and oil consumers urging further steps to deal with this situation and recognizing the importance of both stability and a reasonable oil price.
So we have had discussions. It would be for the Saudi Arabian government to say something about that. But, of course, other oil producers were members of the committee and participating in the discussions as well, and there is obviously a wider interest in this from oil producers as well.
Mr. Köhler: I would like to add that I also had dinner yesterday evening with what we call, in the jargon of the Fund, the G-11. These are the 11 Chairs from the developing and emerging market countries, and here there are more oil producing countries represented. Coming from this discussion I can only confirm what the Chancellor said: there is an awareness among the oil producing countries that it is also not in their interest that this excessive oil price is there for too long and that there is a common responsibility for the global economy to come back to more sustainable prices.
I am quite optimistic that we will see some improvements in the not too distant future.
Mr. Dawson: I think perhaps one more question. We are running dry on the subject matter, too.
Questioner: It sounds like a one-way street still. Two weeks ago the OPEC oil ministers meeting in Vienna was also demanding that the consumer countries should reduce their petroleum taxes. We have seen a lot of unrest in European countries on this very issue. Was this not a point of discussion at all today?
Mr. Brown: All issues are obviously discussed during quite a long debate and meeting, but I think on the issue of oil taxation, I would refer you, if you are talking about Europe, to the statement made by the European Finance Ministers on this issue two weeks ago. I have to say the main part of our discussion was about what needed to be done on oil production and the effect on the oil price, and it was a discussion that involved not just the oil consumers, the European countries, or others; it was a discussion that involved the oil producers as well.
Mr. Köhler: No, it is certainly not a one-way street, because there was a clear understanding here amongst the participants in the discussion that the global economy, the price hike with oil, and the structural change cannot be a one-way street. There needs to be a two-way street of structural change, and this includes, of course, policies which continue, accelerating the preservation of energy in the industrial countries.
Mr. Dawson: Thank you very much.