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Transcript of a Press Briefing by Thomas Dawson|
External Relations Department
International Monetary Fund
Friday, July 13, 2001
[Due to a recording error, the introductory remarks by Thomas Dawson, Director of External Relations, are missing from the transcript. His prepared remarks are inserted in their place.]
MR. DAWSON: Turkey has already accomplished a great deal under its program. In particular, it has taken strong action on banking sector reform, fiscal adjustment, and bringing down inflation. These measures address ambitiously the core problems that led Turkey to seek Fund support in the first place. However, even while these important steps were being taken, politics in Turkey have fed doubts in the markets about the commitment of the authorities to stay the course of reform. The Fund urges the Turkish authorities to dispel these doubts and boost market confidence, by demonstrating unambiguously that the program has the full backing of all coalition partners. This, together with the support of the IMF, would be the best way to ensure that the people of Turkey can reap the full benefits of the strong measures that are being taken.
On Argentina, the staff briefed the Executive Board on recent developments in Argentina yesterday afternoon during the course of a regularly scheduled Board session. Such briefings, essentially for the purpose of giving information to Executive Directors, are commonly provided by staff. The program remains on track. We support the government's objective of dealing with a critical fiscal situation. The actions demonstrate a clear commitment, dedication, to try to tackle this problem. [End of prepared remarks.]
[Press conference in progress.]
QUESTIONER: On Turkey, there seems to be some give-and-take on who is responsible for interest rates staying high. With your statement today, are you saying that it's the politics that are responsible, and is there any idea of reformulating the IMF program to try to bring down those interest rates even more? And on Indonesia, there was an announcement today of a draft accord. Should we take that with some uncertainty as to whether there was an accord, or not? The word "draft."
MR. DAWSON: On the former, the markets determine the interest rates. I don't think there should be any about that, and the markets make an assessment of political, economic, and other factors, and that's how they made that judgment. I would note, actually, today, that rates seem to be heading back down in terms of the immediate reaction to the approval of the program yesterday. But it is quite clear that political uncertainty does feed into markets, and does have that effect on rates, and that's not a uniquely Turkish phenomenon. I think it's a market phenomenon.
With regard to the Indonesian situation, the mission is leaving Indonesia. There is a draft letter of intent that has been worked on. At the mission level, they have reached basic agreement with the authorities, but it is something that needs to be reviewed in Washington, and there may well be details that need to be worked out.
Anoop Singh, who spoke at a concluding press conference in Jakarta, indicated that our—and I'm quoting him here, courtesy of Reuters: "Our strategic objective has been and continues to be to complete the executive board meeting—which would be from a resumption of the program—well before the September meeting of the Paris Club." So we're on a track, hopefully, over the next two months or so, which would be able to lead to the resumption of the program. But we're not, we're not quite there yet.
QUESTIONER: You said that the Argentine program seems on track. I wanted to know, then, if the mission is leaving next week, and when it would conclude, and when we can expect the next disbursement?
MR. DAWSON: The mission is still scheduled to go to Buenos Aires, but I don't have a precise time on that, and in terms of when the next review will be, I don't have anything on that because that of course is contingent on the mission going, and the mission concluding its work.
Questioner: Just on Argentina, there is speculation about whether or not the shortcomings that they're facing this year, still, and meeting their debt repayments might necessitate some extra cash injection from somewhere. Would the IMF be prepared to perhaps more front-load its loan, bring forward some of the disbursements this year, if it turned out that Argentina did have problems meetings its debt commitments?
MR. DAWSON: I don't believe there's any consideration on that, that's the first part of the answer. Secondly, clearly, if they are able to implement the sorts of measures that they're talking about in this fiscal effort, that should reduce the likelihood of the scenario that you paint.
QUESTIONER: Many analysts repeatedly warn of a possible domestic debt rollover default risk in Turkey. Do you see such a risk?
MR. DAWSON: The markets, as I say, seem to have responded positively to the board approval yesterday, and the continued implementation of the program, and I would repeat what I stated earlier. This has been a very strong program, quite well implemented, and I think if that becomes clearer, and the political support becomes clear, I think that is also not a scenario likely to materialize.
It's not my business to tout particular publications, but that salmon-colored financial daily that comes out, has a number of very interesting articles on Turkey, and on the strength of the program this morning, and I think that'd be worth referring to.
QUESTIONER: Suppose the Argentines, in their wisdom, or despair, or whatever, come to the Fund and say, look, we've tried everything, nothing's working, the markets have clearly decided that we're not going to make it, we're just going to have to default or restructure the debt, or whatever you wan to call it, whatever term you wan to use, how would the Fund view such a development?
MR. DAWSON: I think that's a quite hypothetical question and I don't think you expect me to answer that.
QUESTIONER: But you said if they're able to implement the measures, they will be able to avoid the risk.
MR. DAWSON: No. Substantially reduce the risk. That, clearly, the announcement contemplates a very tough fiscal policy which would reduce the risk.
QUESTIONER: But my question was since you put an "if" there, do you have any concerns from the political side, whether the political situation in Argentina will enable or not the government to do that?
MR. DAWSON: Well, obviously, that is the government's primary responsibility to assess and work on that. I would, however, note in a positive commentary, that the former president, Alfonsin, last evening, came out in support of these "courageous measures", I believe he called them, and I understand as well there are meetings with governors scheduled for today.
QUESTIONER: I think the Argentine government has said that they cannot grow, which is obvious to the markets, and that they don't expect to be able to grow in the immediate future. And these auctions have become a real big problem for Argentina, and they need to auction, I understand, five thousand million before the end of the year, and the idea that has come up in Argentina is that they might come to the Fund and ask it to cover that money.
MR. DAWSON: I've not heard, and I don't expect anything along those lines.
QUESTIONER: Just so we're clear. On Argentina, has there been any discussion so far about augmenting the amount for Argentina?
MR. DAWSON: No.
QUESTIONER: And is that a possibility?
MR. DAWSON: I don't believe it's on the table, so I don't believe it's a possibility.
QUESTIONER: The board has met on Turkey, after ten days of postponement, and on July 25, we wait for another, a third payment from the IMF, and we also know that Mr. Kahkonen will be going to Turkey on Monday, and the payment should come soon after July the 25. Shall we expect any changes on this date, due to this ten-day postponement in this release of the second payment? Or does this have nothing to do with that?
MR. DAWSON: All of your premises are absolutely correct—not always the case with questions—and indeed, Mr. Kahkonen is heading back. I'm not aware that the board date has slipped. It is possible it may, but it would not be other than a minor slippage. My understanding in terms of the expectation for the next review is that it is on track. Whether it's delayed a few days is more likely to have to do with board scheduling issues than anything else.
QUESTIONER: How big do you think is the risk of "contagion" from Argentina and Turkey for other emerging markets such as Russia?
MR. DAWSON: "Contagion" is certainly something of a catchy word and I think one, in looking, you certainly see movements that have, to say the least, a degree of sympathy with other developments, and certainly, for example, Argentina and Brazil are clearly closely related. But as we look at the global picture and as we compare it with relatively recent episodes, going back, say, to the Mexican crisis, '94 or '95, and subsequently we do not see the signs of "contagion" in the context, in the meaning of the word that had existed previously.
QUESTIONER: On another subject, will anyone from the IMF be going to Genoa; right?
MR. DAWSON: I am not certain about that as a matter of fact. I think there is a particular focus on MDB reform, but we're not involved in that.
QUESTIONER: And in terms of what the finance ministers discussed in their preliminary meeting in Rome, they seem to be putting this "brave face" on the situation, saying that the fundamentals are good, that the global economy is not in danger, basically. Do you feel that they had a reason, or they had the right to say that?
MR. DAWSON: Yes. But I would also note, I think it is fair to say, and it hasn't really come up in the questions now, but I will interpret your question that way: There is no doubt that countries like Argentina, Turkey, Brazil, and others are in situations that are aggravated by the general slowdown in the global economy, and so in that context their difficulties should factor in that particular context, and I think the G-7 communiqué noted, indeed, the need for rejuvenating global growth, generally.
QUESTIONER: Can you clarify whether there's been any discussion between the Fund and Brazil about extending their current program, or any discussion about new funds for Brazil?
MR. DAWSON: As you know, Brazil does have a program that I believe extends until December 1st of this year. I have seen some press commentary out of Brazil in regard to that question, and we remain in very close contact with the Brazilian authorities, with the minister and the governor, and I'm not aware of any specifics, but we are in close contact with them and quite supportive of them.
QUESTIONER: Can you say whether Brazil has asked for an extension yet of that program?
MR. DAWSON: I do not believe there has been any such request, but I think—as I say, if you take a look at some of the commentary coming out of Brazil, you will see that that issue has at least been raised.
QUESTIONER: Back to the G-7. Are you expecting any new message on the same line of the finance ministers from the summit on the economic situation, and do you expect a discussion on the IMF reform along the proposals of the United States?
MR. DAWSON: It's not my position to forecast what G-7 discussions are going to be. Certainly, IMF reform is regularly discussed, although it is my impression that MDB reform is a bit more of a formal agenda item for this time, but it would not surprise me at all if they continue discussing that.
QUESTIONER: Going back to the "contagion," there are other countries, like Paraguay, Uruguay, because they are part of Mercosur, they can be affected, and besides there are other countries in Latin America that can be affected by what happens in Argentina. Is there any assessment on their ability to comply with the IMF programs, or has there been any consultation with other countries about the--
MR. DAWSON: Well, we certainly are in active consultation with all of our members that are potentially affected by these various difficulties, so I mean, the answer is yes, we are in active, frequent contact. But I think, at this point, it's still a matter of observing how developments work.
QUESTIONER: You mentioned that there was a briefing by the staff to the board. Are you familiar with any of those discussions? Apart from the immediate situation, is there any discussion at the Fund about the medium- or long-term possibility for Argentina, because Argentina has been in recession for three years. All the approaches have failed. Have there been any reviews of the approaches to economic policy, or the economic plan in Argentina?
MR. DAWSON: Well, we are always looking at the short, medium and longer term, but I'm not sure what I have to go on in terms of providing to you on that, but certainly, while the immediate priority is dealing with the present situation, we need to keep in mind longer-term developments, and that's something that we do in fact discuss with the Argentine authorities, and have discussed with the Argentine authorities as well.
As far as the first part of your question, it was a briefing of just the sort of nature that you would expect, but it's not the sort of thing that I'm in a position to discuss here.
QUESTIONER: Looking at the countries which have suffered from financial crises in the recent past, it appears that most, if not all, have had either fixed exchange rates or currency boards, and that would include Argentina. In the discussions to come, would the possibility of actually floating the Argentinean currency come up?
MR. DAWSON: No, there certainly has been, and I will cite the two speeches given by the Managing Director and the First Deputy Managing Director back in January of this year, the issue of fixed versus floating, and the conditions under which each would be adopted, or easily sustained, is obviously an active subject that we do discuss.
I don't think it's quite true to say that the present difficulties are confined to either floating, or fixed situations. But that's obviously an issue that we look at. But, on the other hand, it's also quite clear that countries that follow tough policies can in fact sustain currency boards and other fixed arrangements.
QUESTIONER: Just on a more theoretical plain, which I'm sure you love to roam around, O'Neill has raised the possibility, well, his view, in a speech, that the IMF and The World Bank have reacted too fearfully to "contagion" and the whole concept of it. He believes that the mere whiff of "contagion" is enough to spur very big lending out of the IFIs. You've been around quite a few years yourself. You've seen a lot of these things. How do you view "contagion"? Is it really something that has been blown out of proportion, to actually leaven more money out the institutions?
MR. DAWSON: Well, I certainly think I've seen the word used in headlines far more than it has in fact existed. So I think that's a fair observation, but it also has in the past existed. But I think after having given you those two tidbits, I'll take up your option to not answer the question.
QUESTIONER: The assessment that Argentina is not going to be able to pay its foreign debts creates a kind of a crisis in Turkey, just the day before the board met, and the stock market went down, and so on and so forth. Does the Fund predict that the problems in Argentina, or the problems in Turkey will directly have effects on each other as they are facing serious fiscal problems?
MR. DAWSON: I think there is probably some evidence that, in the last couple of weeks there have been effects, but, on the other hand, it could go both ways. So I'm not sure that I would isolate any particular cause.
I mean, there are a number of factors in each of those two major cases, there are significant domestic issues that need to be addressed, that both sets of governments are dealing with. There is a global economy that needs to be looked at, and as markets assess each country's abilities, because both of these are significant countries in the world economy, and I would note, for example, the heavy weighting of Argentina in the emerging market bond index.
Obviously, there are relationships, but I don't think that that is a case where one looks particularly externally for the cause of the problems in either of the countries.
QUESTIONER: Has the IMF been in contact with U.S. Treasury, consulting with Treasury on how the international community should react to, or can help in the Argentina situation?
MR. DAWSON: We are regularly in contact, both through the Executive Board as well as through bilateral contacts with governments, but I don't think I'll go beyond that.
QUESTIONER: Has there been any discussion of a credit line from the U.S. Treasury?
MR. DAWSON: I have not heard of anything like that; no.
QUESTIONER: There were some reports that have come out of Argentina last night, suggesting that the Argentine government is going to seek a $5 billion loan from the Fund.
MR. DAWSON: I've heard nothing about that.
QUESTIONER: Mr. Köhler suggested Turkey needs to show unified political leadership for the success of the Turkish program. Do you think there is not a unified political support to the Turkish economic program?
MR. DAWSON: I think you could look at that salmon-colored newspaper today and see the leader of one of the political parties making precisely that observation. So I think political unity in whatever form of government is obviously important for successful implementation of programs. It's an aspect of what we call ownership.
QUESTIONER: When you ask what's going on, why the spreads are so high for Argentina, one of the most common things they tell you is that everyone fears that Argentina won't be able to pay down the debt. How does the Fund view this, I mean, given the fact that Argentina obviously has no chance to go out and borrow from--
MR. DAWSON: Well, I think I've already answered that question in terms of what the positive effect of these sorts of fiscal measures would be. I don't think there's any need to go beyond that. I think we're about running out of questions, or at least I'm winding up giving the same answer.
MR. DAWSON: Fiscal measures reduce the need to go out to markets, quite clearly, because this proposal is for quite a tough fiscal situation.
QUESTIONER: On Brazil, the other country. There were reports saying that the Fund would not be considering at this moment any more help for Argentina, but will be considering more help for the countries that could suffer from the "contagion," like Brazil, or others. Russia. Is this true? And second, would it be the CCL--
MR. DAWSON: Well, first of all, we do not see a generalized contagion of the sort that your question premises, and as countries are affected, either because of their own problems, or regional, or global problems, we certainly do look at how the Fund might assist them. That is in the present environment, not particularly the use for the CCL, because the CCL is more in terms of precautionary, somewhat further, an advanced, developed mechanism.
QUESTIONER: Can you confirm, was there any discussion of supporting the Euro at the finance ministers' meeting last week?
MR. DAWSON: I have no comment on that meeting, and we were not there in that sense of the word. So that's not my business.
QUESTIONER: Well, I want to make a jump to a very small country, Costa Rica, and the president of Costa Rica is visiting Washington this week, and his main concern is how this HIPC Initiative is going to affect the country, because Costa Rica is a creditor of Nicaragua. Is there any position by the IMF on how this kind of emerging market, Costa Rica is going to be treated into this--
MR. DAWSON: Now I'm certainly aware that the issue of developing country creditors within the HIPC context, countries such as Costa Rica, with their debt to Nicaragua, and others, is an issue. I have no up-to-date briefing on that, and we'll get back to you on that.
QUESTIONER: At the board meeting, when the Argentine situation was reviewed, did the question of the "contagion" effect of the situation there, was it discussed at any length? And what is the view of the staff at this point, of whether the global financial system is better able to withstand a, what shall we call it? a serious episode? I won't use the word default in this question, so you don't answer me with a hypothetical response. But is the view that the global financial system is better able to withstand that type of event than it was in, say, September of 1998?
MR. DAWSON: First of all, we do not discuss what is discussed in board meetings in the context that you were trying to get me to answer, but of course it is, as I said earlier, a full-time board, and it is regularly reviewing both country and systemic questions.
Now with regard to the latter part of your question, certainly, there are any number of indicators that show that the system is much better situated than it was previously, whether you talk about reserve levels, relative leverage of countries, financial systems that are stronger, financial systems that are much better understood, the entire transparency initiative that the Fund has been in the leadership of. So I think you do have a clear sense of a stronger situation and lessons having been learned from previous crises.
I think we can cut it off at that. Thank you.
IMF EXTERNAL RELATIONS DEPARTMENT