Transcript of a Press Briefing by Thomas C. Dawson, Director, External Relations Department, IMF
March 13, 2002
by Thomas C. Dawson
External Relations Department
International Monetary Fund
Wednesday, March 13, 2002
MR. DAWSON: Thank you. I'm Tom Dawson, the Director of External Relations at the IMF. I'd like to thank my colleagues from the Bank of England for making available their facilities here.
This is a bit of a departure for us - for the last two and a half years I have been giving a press briefing in Washington about every two weeks, but the travel schedules have finally gotten to a point where we have had to go for a number of weeks without a briefing in Washington and kindly the Bank offered their facilities. I would suspect we may be doing this a bit more often in the future. There is no reason for us just to have our briefings in Washington and indeed we are even looking at the possibility for dial-in or television transmission to some sites with the briefings in the future.
Our practice, which I would like to follow today, is the press conference is on the record. I would like to embargo for 15 minutes after conclusion or set the precise time when we do conclude, so that we can have a little bit of decorum in the room. I don't think maybe the Bank people will let you flee to buy off the story anyway with the security here! And also if you could please identify yourselves and your organization which will be particularly helpful for me for this group, while I know a lot of your organizations, I can't place them with your names.
I have no prepared statement, as I say I view this as one of our regular briefings where questions can be on whatever subjects you believe are of interest and of relevance to the Fund. I would note that next week Managing Director Köhler --at the end of next week-- will be in Monteray, Mexico, for the United Nations Financing for Development Conference. We do not expect some separate press availability down there, but it is a public event and I am sure a number of your organizations will be covering the conference. So that is all I have to say and would be happy to take any questions that you may have.
QUESTIONER: Will Mr. Köhler be meeting with the President Duhalde in Monterrey?
MR. DAWSON: It is my understanding that they will be seeing each other, I can't quite characterize the nature of the meeting, but I know that they will be there at the same time and I suspect that they will and when we have more information on that, we certainly will provide that to you.
QUESTIONER: President Cardoso of Brazil strongly criticized the IMF.
MR. DAWSON: I'm sorry, you didn't identify yourself.
QUESTIONER: [--inaudible--] President Cardoso strongly criticized the IMF a couple of days ago in relation to the crisis in Argentina, and the minister, the Argentine minister, said that this government was the last chance for a transition to the next election. So my question is why if it has been supported for a long time has failed and you resist to support [--inaudible--].
MR. DAWSON: Well, I think we in [inaudible] with the Duhalde government with Minister Remes Linicov. We have a fund mission, a large fund mission in Buenos Aires at this time. With regard to the recent history of the Fund in support of Argentina, the Fund did indeed support the Argentine currency board system from the period of 1989 until last Fall. It was a period in which there was a substantial degree of success. The period 1991 - 1997 was a period of real growth in Argentina; it froze at 7%, inflation was killed. There was clearly a point at which the system started running into troubles, a couple of years ago -- three years ago.
The Fund did continue working with the authorities to try to help them adjust their policies but they were and are their policies. The choice of the currency board-- the choice of any currency regime-- is a country's sovereign choice to make. You know the IMF was criticized in the Asian financial crisis for having a one size fits all approach that we told everyone to go in and float. One of the lessons that we learnt from there was to perhaps to be a bit more humble and understanding of country's currency choices, and that is what we did and obviously it did not turn out well at the end of 2001. But we were in a position we believe where we were supporting a regime that had had a great deal of support from the country, indeed some of the political difficulties in the country at the moment are from people who remember some of the successes of the currency board.
With regard to the present situation with the Argentine government, as I said, we are working very closely with them. It is a very difficult situation. We do not overlook or underestimate the social difficulties that you referred to in your question and they are indeed very very serious. As I have said in previous occasions, it is more important to get the policies adopted correctly than to necessarily get them done quickly. Quicker is better than slower, but getting the policies done correctly is the most important and that is the process we are under way - the present mission down there has been down there for about a week, it will be coming back towards the end of this week and reporting back. That was always the plan. This was not a mission that was expected to resolve an agreement. We made that public. The minister made that public, the [--inaudible--] President spokesperson made it public that this was a mission to go down to try to clarify issues, to get a fuller understanding of the program, but this was not expected to be nor was it a negotiating mission.
QUESTIONER: Can you tell me about the currency in Bulgaria?
MR. DAWSON: Well, currently the currency in Bulgaria has been quite successful as it has been in other countries. There is no such thing as the right or the wrong currency choice, currency regime choice, it is a matter of having the appropriate policies to support the currency regime. The difficulty in Argentina was the inability to follow through for example the so called zero deficit legislation which was an Argentine proposal. The Bulgarian authorities, much as some of the Baltic authorities, have a track record of being able to follow through on the policies necessary to support the currency board and the Fund stands already to support countries in their choice of a currency regime, assuming that they have the policies that are appropriate for it.
QUESTIONER: [--inaudible--] is very inclined to reduce taxes in order to pull away some growth in the economics. Would the IMF go along with approval with this policy.
MR. DAWSON: Well, I think the Turkish program has enjoyed considerable success in its very early stages. Minister Dervis presented and has implemented a substantial and comprehensive plan including structural reform. I think the package -- the fiscal package that the Turkish authorities wish to develop - is in the first instance is their responsibility to prepare. They should bring it to us, but maintaining confidence of markets in a situation such as Turkey is very important and so whatever fiscal package considered would need to be assessed also in terms of what the market reaction is. So I think this is very much a question for the authorities to look at, but we have a great deal of confidence in Minister Dervis, confidence which has been rewarded in the past year and a half.
MR. DAWSON: Well, I-- by coincidence, it was only about a week ago, March 7, that we released the summary of our so-called Article IV Consultation on the U.K. Economy as well as the staff report on the economy. There is no doubt that the U.K. economy had a remarkable period of growth for nine years of sustained non-inflationary growth, the longest expansion in more than three years. In 2001 the U.K. economy's growth was faster than any other G7 economy and, despite the slow down in world demand growth last year, was 2.4%. We see no reason why this cannot go forward and public finances being sound and fiscal position having been strengthened significantly in recent years. So I think, I have had the opportunity to read some of the U.K. press coverage of the Article IV release and I think that one of the headlines that I saw contained the word "remarkable" and I think that is certainly a fair characterization.
MR. DAWSON: The situation in Japan is difficult, complex. The financial system is clearly in need of substantial --and corporate sectors are both in need in substantial structural reform. I think the efforts of the [--inaudible--] should be focused very heavily in that direction. I would leave it at that.
QUESTIONER: [--inaudible--] have come forward this year with proposals for procedures for declaring debt [--inaudible--] . Can you tell us if the IMF [--inaudible--].
MR. DAWSON: Well, the proposals from the Bank of England and from the Fund don't contain that element. [--inaudible--] for those who had dealt with him, was a person of no uncertain strength of view and of opinion and he was throughout 2001, ten months or so for which he was in office, was committed to the maintenance of the currency board. He was pursuing also a debt restructuring option which we continued to believe was a positive element and had the potential of helping them get out of their difficult situation as late as August of 2001 when we approved the last tranche of the fund. Our program contained provision for debt restructuring. It was our belief at that point that they were in a position to still be able to work out their problems so in the context that it might come up under one of these mechanisms, so we did not make that advice. Of course, things did --to be fair and to be fairly accurate-- things did unravel rather quickly in the period of October to November, but at the point which we were engaged in subsequent policy, we believed that the program had a reasonable chance of success.
MR. DAWSON: I think the linkage to the threat of global recovery I think would strike me as being rather not a likely linkage. On the other hand, the Fund's position of views on trade issues are quite well known. While the WTO has lead responsibility from an institutional point of view, the Fund clearly believes that lowering that rate in trade [--inaudible--] is the appropriate policy for our members to follow, there are obviously particular difficulties in the U.S. trade-in the steel sector with which I am not familiar. We have not had a recent analysis. We will be having the U.S. Article IV coming up, the consultation is just starting now, and will be happening over the summer. And I am sure the staff will have a view and the Board will have a chance to reflect on that coming in August. But Managing Director Köhler-I think if you review his speeches, you will see a quite firm advocacy of trade liberalization as the appropriate policy for both developed and developing countries and a strong view that industrial country protectionism is a serious impediment for the growth of many developing countries. That's not just a U.S. issue, that is a Japanese and European issue as well. So obviously it fits into that bigger picture.
QUESTIONER: [--inaudible--] as long as ethos was small, then the profit [--inaudible--]. Do you believe it is the option to solve the problem.
MR. DAWSON: I think in questions like this, for example, questions on the Japanese economy, the focus on exchange rate as solutions to problems is, I think, as a policy tool, I think is quite often exaggerated. And I think the Fund's position on those issues is quite often misunderstood. Lebanon is facing a very difficult economic situation because of the burden of very heavy, a very large public debt accumulated in the last 10 years or so, associated with reconstruction after the war. The interest on the debt has led to very large fiscal deficits, the financing of which is a major challenge. The authorities are trying to address this issue through a number of measures, fiscal adjustment, market reforms, privatization which you mentioned and they recently did introduce a [--inaudible--] with which the Fund had assisted them. We are still, we are in close contact with the authorities, they have not requested our assistance and if they did, we would be ready to consider the matter, but it is a very difficult situation and I think fiscal deficit is I think the very major concern I wouldn't focus just on exchange rates.
QUESTIONER: [--inaudible--] Is this a situation which worries you especially in emerging markets, banks and social change and competition?
MR. DAWSON: I mean our views on central bank independence, I think, are well known in our belief that central banks should be given the necessary autonomy to conduct what their business is. Their business is usually established by charter, once the charter is established they need to have the independence to pursue it. So that, it is both in Poland and in Israel, I mean these are difficult situations, obviously countries have their sovereign decisions to make in terms of the structure, but we think that other things equal with independence in effective central banking is well served with a strong framework that allows the banks to accomplish what the policy goals set for them are which do vary from country to country, but the better set and oriented to that approach rather than dealing with shorter terms and more political issues.
QUESTIONER: [--inaudible--] financial support to developing countries and for instance European countries.
MR. DAWSON: Well of course, it used to be that the Fund was criticized for having only one approach to countries. Remember this is the one size fits all criticism. We have criticisms similar to the President alleging some sort of a different standard as between in particular, for example, Argentina and Turkey. The situations in countries are in fact different and I can call for different natures of support and different kinds of policies, but I would note, for example and I think the Turkish reporters who are here I think would be able to test for example, under the current Turkish program, the adjustment in the primary deficit positive adjustment, in the surplus direction has been something in the order of 6 or 7% of GDP, where in the Argentine situation it was barely 1%. And I think as a consequence to that it is not unreasonable to therefore see why the Fund program has gone ahead in the substantial fashion with Turkey, as well as Argentina it has been much more difficult.
Now I should stress that's not saying we are not asking for a fiscal adjustment of that nature in Argentina. We recognize the social difficulties, we recognize the problems there, but the idea that there is a differential approach, I think you have to take into account what the differences are between the countries and the countries' situations and we tailor our advice for the circumstances of the individual country, but the Turkish adjustment program has been very very substantial and it wasn't so many years ago in the Brazilian program in '98 that I had also a very substantial adjustment. The Argentine situation is different. I repeat we are not asking for the same nature of adjustment, but we do in fact take into account the country's individual situations and there is an idea that there is a regional differentiation and I think this is just not the case, but I can understand the anxiety level of people. The Argentine situation is extremely difficult and we are all trying to work together to find away to assist them.
QUESTIONER: You were saying in respect to Argentina that it was more important to get the policies right than to get the policies done quickly. Does that indicate that there is some flexibility towards the government if it so has the right. If it has the right approach it doesn't necessarily have to implement it, particularly in respect to the criticisms the IMF has had about Argentina.
MR. DAWSON: No, I mean flexibility exists in all programs. The difficulty in Argentina is a situation of a country that is essentially going forward. Its borrowing ability is going to be very very constrained, its need with the forwarding exchange rate system to maintain the confidence of markets will be a very very important consideration. One does not expect miracles to happen overnight in terms of completed option of a program. On the other hand, substantial progress needs to be done to be able to demonstrate, not just to the IMF but to markets and indeed to the Argentine people, that the program is going forward in a sustainable fashion. So it is not a matter of requiring an adoption of a broad and sweeping program, but clearly in a situation as difficult as that of Argentina's, I think it is not unreasonable to expect that substantial measures would need to be in effect for international support and when international support is provided.
QUESTIONER: You mentioned that [--inaudible--] it is that that is actually scaring people in Lebanon [--inaudible--]. So what sort of help will you be offering if they ask for it?
MR. DAWSON: Well, they will be asking for the help and they would tell us the sort of help that they would want. I think I am not quite sure what you mean by the structural adjustment. If you look at Turkey, very substantial progress has been made. Spreads are down, confidence has been restored in the economy, that is the case in the neighborhood so to speak of the Fund helping a country with very substantial programs with rather big results. But it is fundamentally, I think if the premise of your question, one of the premise of your question is correct, it is fundamentally the country's decision, we do not impose our law, you do in terms of saying to a country you have to have a program or in terms of what the precise measures will be, it is fundamentally a choice for the authorities to make.
QUESTIONER: Can you bring us up to date on the IMF's policy for re-growth [--inaudible--] ?
MR. DAWSON: We have been working intensively in Afghanistan over the last couple of months. We had a large mission in Kabul in late January to discuss with the authorities immediate technical assistance needs, establish contact with the authorities and discuss currency and budget issues. We were working with them in particularly restoring the basic functions of the state in terms of budget procedures and functioning payment systems. We've had a mission there again in the last three weeks and a mission will be going back there next week to discuss the banking, currency issues and the fiscal situation. We have not a continuing presence but a substantial and recurring presence in Afghanistan. We of course participated in the International Donors Conference in Tokyo a couple of months ago and are working with other donors in terms of trying to marshal the sort of support that is necessary to help the Government in this transition, but they don't have any revenues coming out.
QUESTIONER: Can I ask another question about Argentina. How does this process work. [--inaudible--] ?
MR. DAWSON: I mean we will not know what the nature of a new deal would be in terms of reference for that until we got to that point. The scenario that we are in, with the exception of the possible meeting in Monteray, was pretty clearly established when this mission went down. We indicated this was going to be an initial mission of substantial size and scope, not formally a negotiating mission. This was the desire of the authorities-- I mean if you go back and look at my last transcript at my last press meeting, it was the authorities' request that this was not the time for a negotiating mission, this was time for the sort of mission that we did send out and our expectation at that time and our expectation will remain that if the mission comes back and reports to management, to the executive board, and then the decision is made in Argentina and with the Fund. But it is an absolute requirement that the mission be invited, we don't show up uninvited, we are well behaved.
The next step could be a negotiating mission and it is a phase process. Negotiating missions, as I am sure many of you are aware, negotiating missions don't always conclude in one round as well, but it is a process that we are willing to go as quickly as the authorities may wish in assisting them. But we cannot, as I said earlier, underestimate and should not underestimate the complexity and difficulty of the situation, so it is not likely to be an extremely rapid process. Again it is better to do it quicker but it is most important to do it correctly.
MR. DAWSON: You just answered my question! I mean the fiscal situation including the relationship with the provinces is obviously a critical situation because the present situation is one in which it is not reasonable to expect a government would be able to finance itself by borrowings, but the financial system is clearly one where there have been serious stresses and the corralito is one of the aspects of it. The need to retain or regain rather the confidence of investors, both domestic and international are, I think an important factor.
I think we believe we will continue the foreign investment and domestic confidence in investment has a lot to do with getting Argentina back on some sort of a growth process. And I think it is clear both domestically and internationally that there is something of a crisis of confidence or that changes, precede changes in legal structures, contracts, which I think have affected adversely confidence, not just of international investors, but of the Argentine people themselves.
So it is a very complicated issue. Those other issues are not in a strict sense macroeconomic, but they are extremely important. I mean some of the earlier questions here have been `Does the Fund take account of social situations?', we clearly do in Argentina. And the concerns on legal regulatory structures is another example, something that is not strictly in our mandate, but we do have to take into account. So I can't give you a choice between the corralito and the provincial situations. In fact I think I am making it clear it is much broader than that. Even on the fiscal situation, it is just not the provincial issue. I mean progress has been made. The opening of the exchange market has been lesser than many might have expected, the partial reopening of the financial system has proceeded, but even in those two areas where there has been progress, there is obviously a lot more progress needed.
QUESTIONER: On the question of the exchange in Argentina. What's your impression of [--inaudible--] attempt to stabilize the currency [--inaudible--] level.
MR. DAWSON: It is a floating system and the currency. I haven't checked this morning, but I think it has depreciated to, substantially about 2, I think it is about 2 ½. I think under the present situation, a floating exchange rate regime is the appropriate one. They don't have the ability to use large amounts of reserves to defend a currency. So I think a floating exchange rate regime is appropriate in the kind of situation that they are facing. The ability to function without that system although [--inaudible--] would be strengthened. If they get to make progress on all of the other areas that I was discussing with the previous question. Maybe a couple more questions.
MR. DAWSON: I am actually aware that this is an issue in Brazil, yes. I mean we do, there are some international standards and conventions on how deficits are measured including primary deficit and I think if we do look at the composition of spending and I think composition of spending can affect judgments, as to sustainability of a particular path. But I think it is important for reasons of comparability and principle to maintain the same sort of set of approaches in terms of so you can broadly speaking, estimate impacts, but the composition of spending is important and that can have an effect.
QUESTIONER: [--inaudible--] investigations into corruption in Argentina. [--inaudible--]
MR. DAWSON: Well we do, we are part of the international work force as it were in terrorism and money laundering issues and we provide substantial technical assistance to countries in terms of strengthening their financial systems, standards and codes and so on. We are not a law enforcement agency. On the other hand the effect of our advice and technical assistance and so on is to help strengthen and to make more transparent systems. I am not sure that we have any particular expertise in the areas of under-investigation, but clearly issues of governance are always important, but I think I would just leave it at that.
QUESTIONER: Can you comment on the security in Egypt in line with [--inaudible--].
MR. DAWSON: Well, again, as I said earlier, I think that sometimes we lead too often with discussions of exchange rates as being somehow a policy lever. I think the authorities, the difficult shocks post 9/11 to Egypt including to tourism-we are supporting Egypt's broad strategy for addressing these problems which involve some use of their relatively comfortable official reserve position, some new external financing and exchange rate flexibility. In that regard we think Egypt has made good progress in terms of opening up its exchange rate system, making it more flexible. We think that flexibility would in fact be important to ensure strong recovery in balance of payments and address other issues and we look forward to the authorities continuing to move in this direction as the Prime Minister indicated in February to the meeting of the consultative group.
[End of press briefing.]