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Argentina and the IMF

Brazil and the IMF

Indonesia and the IMF

Thailand and the IMF

Turkey and the IMF

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Transcript of a Press Briefing by Thomas Dawson
Director
External Relations Department
International Monetary Fund
Friday, June 22, 2001, 9:30 a.m.
Washington, D.C.

MR. DAWSON: I have a few observations to make before I take questions.

First, I guess we should take note that this will be the last press conference attended in person by Dietrich Zwaetz, who will be retiring and moving to Florida, as I understand. We will miss him. But, of course, with the advances of technology, he will be able to tune in on the briefing with our Web streaming regularly. With the existing technology, he can't ask questions, but I'm sure we can work something out.

MR. DAWSON: I have three notes to make. First, this week, Wednesday, Tunisia became the 49th subscriber to the IMF Special Data Dissemination Standard. Tunisia is the first country in the Middle East to subscribe to the SDDS, which was established in March 1996 as a guide for countries that have or are seeking access to international capital on the public dissemination of economic and financial data. SDDS information is readily available on the Fund website, and I urge you to visit the data standards bulletin board for the latest developments.

I know there is interest in at least two countries in the Western Hemisphere today, so I thought I'd have a brief comment to make to help you frame the questions that you follow up with.

With regard to Argentina, I must say she faces a difficult situation, not least because of a deteriorating external environment over the last few months. The package of measures announced last week by the authorities is directed toward rekindling growth and improving economic fundamentals through simplifying the tax system and combating tax evasion. The measures have enjoyed a positive domestic response. We believe that the objectives of growth which inspired the government actions are attainable. The IMF continues to support the authorities' efforts in that direction.

With regard to Brazil, I think there have been some more recent developments. As you know, the Brazilian economy has been subject to internal shocks recently, mainly associated with the energy crisis, and it has also been negatively affected by the slowdown in the world economy and has suffered effects from Argentina. As a result, the currency has been under pressure.

During this difficult period, Brazil has continued to perform very well under the Fund-supported program, and the staff have recently received all the required information to certify Brazil's compliance with end-March quantitative performance criteria. We welcome the action of the central bank of Brazil to raise the overnight interest rate by 150 basis points in light of the higher inflation and to help halt the slide of the currency and the announced plans to strengthen the country's capital account.

We also look forward to the announcement of tax reform measures, of measures to strengthen the Brazilian federal banks, and of efforts to improve the investment climate in the energy sector that we understand will be made shortly by the Brazilian authorities.

As part of the efforts to strengthen gross international reserves, the Brazilian authorities have informed IMF Management that they would like to make a drawing from the Fund of about SDR 1.5 billion or US$2 billion from the resources currently available under the existing stand-by arrangement. This drawing will be made later next week.

Thank you, and now I'll be happy to take questions.

QUESTIONER: Has a date been determined for a Board meeting to discuss Turkey [inaudible]?

MR. DAWSON: We have been planning for a Board date of end-June. We don't have a precise date yet. It may well slip a day or two into the following month, but the program is on track and progress, good progress, has been made. So as far as the Board date goes, it is still conceivable it will be the end of June, but it's possible it may slip a couple of days.

QUESTIONER: On Turkey, there were a number of conditions that have been met and a number of others which have not. Could you let us know which specific structural benchmarks have yet been met and which are yet to be met before this next [inaudible]?

MR. DAWSON: I'm not sure I can deal with the question in precisely that fashion. Let me go over where I think we are, and I think it should be reasonably complete.

As I noted, good progress has been made. There have recently been some deviations from program assumptions in some areas, such as the public sector wage settlement, and the wheat support price decision. The authorities have since taken measures to offset the fiscal impact of these decisions.

As the recent mission said in its concluding statement, there are important outstanding issues that needed to be resolved, and one of them was the passage of the tobacco law. And, therefore, we do welcome the passage--Turkey's efforts and progress, rather -on the implementation of the program and look forward to the implementation of the remaining measures.

I would also note the recently completed swap operation, and in the banking area, regarding the closing of Emlak Bank and bank mergers, we understand the authorities are moving along with implementation of those measures. And then I guess that's the guidance that I have on that point, so I think that's reasonably complete.

QUESTIONER: [inaudible].

MR. DAWSON: Sure.

QUESTIONER: Today we are waiting for a constitutional court decision on one of the [inaudible] parties, [inaudible] parties' closure. What is IMF's understand if this party were to be closed? How do you think it's going to affect the implementation of the program? Do you think Turkey will be off track?

MR. DAWSON: We must wait for court decisions until they happen and see what the implications are then. So I don't have any comment at this point.

QUESTIONER: On Argentina, Tom, when you mentioned in your initial remarks specifically about the growth-oriented policies that have been introduced recently, particularly last week, I presume you're actually in particular referring to the new introduction of a dual tier approach to exchange rate and that Argentina is now going to seek to export its way out of trouble to a degree in an attempt to kick-start the economy again.

But what's the IMF view on this two-tiered system in particular? Because surely it represents if not the beginning of the end to the currency board, then a particular distortion in the convertibility system--

MR. DAWSON: I don't think I need to accept either the premise or the implications of your question.

QUESTIONER: Forgive my flawed way of presenting it then. What's your comment on the convertibility system of Argentina?

MR. DAWSON: First of all, we have looked at the measures announced, and the measures introduced do not constitute a multiple currency practice under the definition used by the Fund.

Yes, certainly the measures were intended to boost exports, and yes, indeed, certainly that is part of the growth orientation of the package. I would, however, note there are also other elements to it, including the government's intention to work in the area of tax reform toward simplification, reducing the number of taxes, and encouraging compliance and so on. So I think that's the context in which we look at it. It is a growth-oriented policy, but as I say, it is not something that we view as a dual exchange rate, a multiple currency practice.
Yes?

QUESTIONER: Tom, today a Bundesbank member said that it can't be ruled out that Germany will slip into a recession this year, and obviously the ECB has scaled back growth estimates for this year for the euro zone.

To what extent does the IMF think that Europe now is a risk for its global growth forecast for this year?

MR. DAWSON: We tend to look at this through the periodic WEO estimates. We, of course, are in the process of preparing the WEO for the fall. We don't have any changes in the forecast in the interim period between those. I'm not familiar with the specific comment that you quote from a Bundesbank member, so I don't really have any comment beyond that.

QUESTIONER: I want to follow up on what they call the expanding of the convertibility and inclusion of the euro. You said it doesn't constitute a double exchange type system. What is it, then? Because, in fact, Cavallo made it very clear that we are going to have one exchange rate for the trade and the other one for the rest of the economy. First question.

Second is there are fears that this is the beginning of the end of the convertibility and this will lead to a devaluation. How does the Fund react?

MR. DAWSON: I mean, I think we take the government's description and actions on face value. I would note-- I believe this has happened last night--that the parliament passed the modification of the convertibility law, which is more of a medium-term issue in terms of the addition of the euro into the basket. And, fundamentally, the reason that this is not viewed to be a multiple currency practice is that it works through the tariff system and it is not worked through the exchange rate system, and there are offsets, as we understand it, that are intended for it to be compatible with WTO obligations. So, of course, that is the first requirement of WTO to look at, but it's our understanding that this is not multiple currency practice.

QUESTIONER: What about the devaluation fears? How do you assess that?

MR. DAWSON: The government has made it quite clear--and I think the actions of the Congress as well have been quite clear in the same direction--that the existing currency regime is one that enjoys broad support, and we are, as I said in my statement, supporting the Argentine authorities and the Argentine people.

QUESTIONER: Again, on Argentina and the currency, in the staff report that came out this week, the IMF says that one of the concerns in Argentina is confidence in the convertibility plan. Are you concerned that this move will take away confidence in the market in convertibility?

MR. DAWSON: Well, as I noted in my statement, certainly the domestic response seems to have been positive. There was uncertainty in the international markets, but things seem to have calmed down. So I think I would leave it at where it is. But I think at this point, I think people understand what has happened there. That's all I have.

QUESTIONER: Tom, turning to Thailand, the central bank reserves are slipping, and there's some discussion in the market about perhaps Thailand availing itself of the new currency swap arrangements that have been established in East Asia. Do you think--does the IMF think that it is ripe for the currency swap arrangements to be utilized for the first time in Thailand's case?

MR. DAWSON: I was not aware of that speculation, so I don't really have anything to answer on that, and I would, you know, have to look into that. But I was not aware of that, presumably media speculation, because I certainly haven't read it in my own briefings.

QUESTIONER: On Argentina again, Tom, folks within the building here told me that Claudio Loser advised Minister Cavallo against these particular measures in April at the Spring Meetings, and that the Fund was not notified of the specifics of the last batch of measures that were taken until just moments before they happened. I was wondering on what basis can the Fund say that they support these particular measures since they do seem to run counter to what you tell people publicly. Also, why has it taken a full week for you to comment on the Argentine measures if indeed you are actually supportive of them?

MR. DAWSON: Well, first of all we do not comment on private advice and discussions that go on between the Fund staff and the authorities. With regard to we taking time before making comments, we did indeed need to take a look at what the measures were, which we have done.

The Fund Board, for example, was briefed only yesterday on the measures. So I think this is the timing that I would have normally expected. It's conceivable that we might have put out a statement last night, but since the briefing was this morning, it seemed appropriate to wait until this morning.

And there was another part of the question that I'm not trying to forget, but I--

QUESTIONER: I was just wondering if this is the type of advice you would tend to give people. If Argentina is a country where confidence is important, is this shaking confidence in markets? Even if you don't believe it, the markets believe this is a dual currency regime. If it's not that, it's a protectionist measure. It's not good for Brazil, it seems to be sort of a negative move for the rest of the region, so [inaudible]--

MR. DAWSON: Well, I think that is a rather downbeat assessment of it all. I have seen in a number of the publications this morning positive reactions within Argentina, and there have been supportive reactions from around the region. They have a very difficult situation and the authorities have proven themselves quite resourceful in adapting to the sort of difficulties that they have had in recent months.

Want to try again?

QUESTIONER: Do you see a coincidence that within days of these measures, this sort of turmoil that we saw in the currency market has led Brazil to have to draw on its stand-by arrangement...

MR. DAWSON: Well--

QUESTIONER: And also you say that markets reacted well to it. Well, Argentine--the bond swaps sort of went down four points on the move, so it seems clear that at least international markets reacted badly--

MR. DAWSON: Well, indeed, the markets were caught by surprise, but I think things--as I indicated also-- things have calmed down since them. And I did indicate in my statement that the difficulties facing Brazil do include the effect of Argentina as well. So, yes, there is clearly a regional effect.

QUESTIONER: Again on Argentina, I'm sorry, but I just want to be clear on this. In your opening statement, you said you support the government's efforts to spur growth. Are you saying that this measure in the IMF's assessment will spur economic growth in Argentina?

MR. DAWSON: We believe that it can, yes.

QUESTIONER: That this measure will--

MR. DAWSON: Yes, we think that they can help them achieve their growth targets. They are not the only elements of the program, though.

QUESTIONER: On Turkey, concluding the talks in Ankara, Mr. Kahkonen, the IMF's Turkey mission chief, mentioned four points, and they included the passing of the supplementary budget, the tobacco market law, the closure of a state bank, and appointing officials to the higher board of Turk Telecom. Three of them are finished, and just we are waiting for people for the telecom.

Are you specifically waiting for this to announce it specifically for a Board meeting?

MR. DAWSON: No. We are waiting for it, but the Board date could be set without regard to that, but also it is something that needs to be done. So we are not--the reason a Board date has not been set does not have to do with that particular measure. But that measure is still important and is needed for the discussion.

QUESTIONER: Is it a precondition still?

MR. DAWSON: It is.

Yes? We have to wrap up pretty soon.

QUESTIONER: Does the IMF plan to move on the Web some of its conferences as the World Bank did for the Barcelona conference? And does the IMF think that this is the right way to match the anti-globalization protests?

MR. DAWSON: I am not aware what our plans are on Web casting of conferences generally. We have no particular plans for any of ours at this point. I think the Bank's action for continuing the Barcelona conference through a Web cast is really quite innovative, given the particular nature of this conference, which had a reasonably select academic orientation. But at this point we don't see any implications for us. But I think it was a practical solution to a difficult situation.

QUESTIONER: How will the energy crisis affect the goals in the agreement between IMF and Brazil?

MR. DAWSON: As I indicated in my statement, we recognize that the energy crisis has created some of the difficulties that the economy is going through at this point. I don't have any particular speculation as to what the impact is on the achievement of the government's program. But as I indicated, through end-March the targets had been met.

QUESTIONER: My question is on Moldova. The new President of Moldova recently made a statement that he believes that the IMF should take some responsibility for the advice it gave the previous government and for the dire straits in which the Moldovan economy is at this point. Basically he suggested that the IMF might write off some of the debts of the country.

My question to you, of course, is: What's your particular comment on this particular situation? But also in more broad terms, to the best of your knowledge, has there ever been an example where the IMF would take such a responsibility in a situation like that, or at least publicly admit that something with the recommendation was [inaudible]--

MR. DAWSON: As with an earlier question, I think I can challenge premises and conclusions.

With regard to the relations with the new Moldovan Government, I would note that we have indeed met with them, and they have expressed their strong desire to continue relations with the international financial institutions, especially the Fund, and made clear their intention to adhere to the memorandum of economic and financial policies signed by the previous government last November and approved by the Board in December. So I think that this is a slightly different orientation toward what their attitude is.

With regard to the Fund accepting responsibility for the advice that it gives, we do that. We are, I think, increasingly self-critical and open in that regard, and I would note, for example, the great volume of self-criticism that we engaged in in the wake of the Asian financial crisis.

QUESTIONER: A question on a different country, on Ukraine. Have you been in touch with the new authorities with what their plans are?

MR. DAWSON: Indeed, we have been in touch with the new authorities. I would direct you to the statement issued by the resident representative in Kiev yesterday, which I think I won't re-read. For those who do not have it, we can provide it to you. But I will also note that for those of you who have gone through my experience of being asked questions about sunflower seed exports is that the Ukrainian parliament yesterday cut the duty from 23 percent to 17 in an action that goes, as the Reuters report notes, goes towards satisfying some of the concerns expressed by the international financial community.

QUESTIONER: Tom, on Indonesia, any word on when there might be a possible mission date to Indonesia?

MR. DAWSON: No, we do not have a specific date at this point. The approval of the 2001 revised budget shows a good step, a good progress forward. The action on fuel price increases was courageous on the part of the government. The effort to provide safety net for those most adversely affected also was positive.

The resumption of the negotiations on the new letter of intent in particular hangs on the resolution of the issues regarding the Bank Indonesia law amendments. We have had some discussions with the new coordinating minister on this subject. So I would say that there have been quite good discussions, but at this point we do not have a specific date for a new mission.

QUESTIONER: Yesterday, Mr. Ramli, the Finance Minister, made a pretty eloquent statement in a publication I won't mention on why the law shouldn't be changed. Is that a concern to you when there are public statements from the government going against the IMF's advice?

MR. DAWSON: Well, I think that there are a number of views within the government, the Fund has its views, and this is sort of how the process works. So I think differing views is actually something always to be welcomed.

QUESTIONER: A question regarding Pakistan. To what extent the recent political developments could impact the ongoing discussions with the IMF?

MR. DAWSON: We are in the process of reviewing the new budget details that were revealed earlier this week. We do not yet have any reaction, and I do not have any information in terms of our views on political developments, although I would say that the initial reactions from staff on the budget, that it is in line with what we were expecting.

QUESTIONER: Would you address Yugoslavia, particularly the loan that was approved ten days ago for Serbia and Montenegro? The United States either abstained or was opposed to that. And what about the donors' conference that is coming up a week from today in Paris? And how are they doing in Belgrade on economic reform?

MR. DAWSON: I do not have anything on the donors' conference. That is something that we would be involved with, but it is not our lead, and I do not have any other information on that.

QUESTIONER: Is Mr. Fischer visiting Argentina?

MR. DAWSON: He will be there on Monday for a speech to the Argentine Bankers' Association. Yes, Monday morning.

Okay. One last question.

QUESTIONER: One final question about Mr. Fischer. How seriously did he take President Putin's offer?

MR. DAWSON: I think he was quite intrigued. I was with him at that point. I think he was quite intrigued, and I think he got a lot of good-natured ribbing. But I suspect Mr. Fischer may well have more than one offer to consider.

Thank you very much.


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