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Transcript of a Press Briefing|
By Thomas C. Dawson
Director, External Relations Department
International Monetary Fund
Thursday, June 19, 2002
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MR. DAWSON: Good morning. I am Tom Dawson, Director of External Relations at the IMF, and this is another of our regular press briefings. The ground rules are as usual. The briefing is embargoed until about 15 minutes after the conclusion, and we will set a precise time at that point.
The Managing Director, as I indicated last time, is traveling in Europe. He has a couple of appearances, I think in the Netherlands today, and then on to Germany.
Before I take questions, I would like to mention one special item for the External Relations Department. Juanita Roushdy, who recently wrapped up a 27-year career at the IMF, including serving as the External Relations Department Director of Civic and Community Relations, was just honored by Britain's Queen Elizabeth II for her extensive community service efforts. Juanita was named by the Queen a Member of the Order of the British Empire, or MBE, for the cognoscenti of British honors. I would like to congratulate Juanita and thank her again for all of her great community work. She founded Involve, a club of more than 350 staff members who volunteer their time at homeless shelters, schools, and elsewhere. She did a great deal to provide help for the homeless, provide computers and tutoring for local schools, and to help coordinate a host of fundraisers to address disaster relief in our member countries. She deserved this honor.
QUESTION: Do we have a Board date for the Board discussion on Turkey? Second question: there has been a fluctuation in currency. How do you evaluate it? Do you still think that the program is on track? What about the letter of intent? The Turkish Government has said that a new letter of intent was sent to you today. Can you share anything from this letter of intent?
MR. DAWSON: The Turkish economy has responded well to the authorities' generally strong implementation of the economic program. Inflation is well within the 35 percent annual target, and an economic recovery has started with the target for GNP growth of 3 percent for 2002 within reach. However, financial market indicators have worsened recently, mainly owing to political uncertainty. Full implementation of the program with strong political support remains key to the program's success.
Against this background, the Fund welcomes the decision taken by the Board of the Bank Regulation and Supervision Agency, BRSA, to intervene in Pamuk Bank and take control of Yapi Kredi Bank. The decision is yet another demonstration of BRSA's strong commitment to placing Turkey's banking sector on a sound footing. It marks a critical step in the recapitalization exercise of the private banking system, which we expect to be completed by end-August. A healthy banking sector is needed to meet the financing needs of Turkey's businesses and help underpin economic growth.
Together with a range of other recent measures, including on public procurement, Turk Telekom restructuring, tax reform, and transparency in public resource use, this decision, again, demonstrates the Turkish authorities' strong commitment to their economic program. It paves the way for a meeting of the Executive Board to discuss the second review under the stand-by arrangement. I do not have a precise date, but we do believe it will be at the end of June, tentatively perhaps June 28th, which would release the new IMF tranche of approximately US$1.1 billion.
QUESTION: I understand that President-elect of Colombia Alvaro Uribe was here. I would like to know what he discussed, whom did he meet with, and what was discussed, such as if he wants more credit from the IMF.
MR. DAWSON: The President-elect of Colombia was indeed here yesterday and did meet with the Managing Director. I am not quite certain who else was in the meeting, but the meeting was with the Managing Director. And it was a get-acquainted session with the new Minister.
Of course, we are quite familiar with the designated Finance Minister as well, Mr. Roberto Junguito, who is a former Fund Executive Director, so that we look forward to a good relationship with the new government, but I do not have more in terms of what was actually discussed in the meeting.
QUESTION: Two questions on Argentina.
First, a quick one. When is the mission coming back and if you are expecting Lavagna soon?
And the second is: What is the reaction of the IMF to a proposal of Argentina of having a very short-term agreement in order to be able to pay the Fund what it owes to the Fund and to the IDB and the rest of the multilaterals?
MR. DAWSON: I will have to confess that I am not familiar with the latter part of that. Perhaps after I finish answering the first part, you can give me some more information.
We certainly are aware of the reports on the return of the mission and so on. Let me just make some general comments and then indicate what the path for the next steps would be, although we do not necessarily have precise dates the further out you get.
Argentina continues to face a very difficult situation in which output continues to fall sharply and inflation is accelerating. The cost for the Argentine people is high and rising. The best way out of this crisis continues to be the adoption by Argentina of a sound macroeconomic framework consistent with restoring confidence, stabilizing the economy, and arresting the current slide into high inflation. For its part, the IMF continues to stand ready to support the authorities in achieving this goal.
The advance mission currently in Buenos Aires is focusing in its discussions with the authorities on the status of policies in areas that are crucial for a new program the Fund could support through a loan. I think we are all now familiar with these areas which are all in the government's own 14-point plan announced in April, in particular, a monetary program designed to control inflation, a fiscal program based on firm commitments from the provinces on the fiscal adjustment, a sustainable restructuring of the banking system and legal reforms, including the adoption of an insolvency law and repeal of the economic subversion law needed to restore the climate for investors, both domestic and foreign.
The mission is expected to stay in Buenos Aires for the remainder of this week and advise the authorities on how best they can carry forward their own reforms and programs in these areas. The mission will return to Washington on the weekend to report to management, and management will then determine, in consultation with the authorities, the next steps for moving ahead toward the negotiations for a program with Argentina.
We are maintaining, of course, close contact with the World Bank and the IDB, especially on the status of their support for the social safety net, which has become very crucial at this time of difficulty for Argentina.
I understand that there have been reports in the Argentine press this morning, building on the return of the mission, that the next step would be a visit of the Minister to Washington. I cannot confirm that at this point, but this certainly is part of the path that could be expected. I am quite certain that we will be in touch with the authorities once we have a chance to talk with the mission, and we will have information for you regarding a possible visit by the Minister. But I am certain there will be personal contact with the Minister even before that point.
Do you want to follow up on that second-
QUESTION: Yes. Apparently what they want to do is a very short-term kind of agreement in order to be able to repay the Fund and also to be able to access to the safety net. The World Bank and the IDB.
MR. DAWSON: I am really not familiar with that, and I think that, as my comment noted, the safety net is indeed critically important to help deal with the difficult situation in Argentina, and I think it is important for that reason and for other reasons to have a program.
I think a short-term program is not necessarily the path that I would expect to go, because I think the issues that need to be dealt with in the 14-point program, none of them are short-term issues. These are all long-term issues that need very careful and serious effort, and I think it would be difficult to see how it gets embodied in a short-term program.
QUESTION: Sorry. Has there been in the past these kind of short-
MR. DAWSON: I am not aware of one in this kind of a situation, no.
QUESTION: Can I follow up on that?
MR. DAWSON: Sure.
QUESTION: Just to follow up real quickly, you were talking about the likely path of the process of negotiations. Will that include a negotiating mission or another type of mission returning to Buenos Aires?
MR. DAWSON: As I implied in the answer to the previous question, it gets less specific the further out you go. We know as a fact the mission is coming back this weekend. We would fully expect that after the mission reports to management, there will be consultations with the authorities, presumably telephonically. The next step would be— in terms of what I understand the Argentine authorities' desire— possibly for the Minister to come up. The possibility of a negotiating mission going down there would be a step thereafter. Since we are not at the previous step, I do not think I want to be trying to give a timeline on a subsequent step.
QUESTION: Right, but that is what—that would be the subsequent step at some point?
MR. DAWSON: It could well be.
QUESTION: In other words, this mission is not the one that can negotiate the final-
MR. DAWSON: That is correct.
QUESTION: Two more questions on Argentina, if I may. One, you mentioned the sustainable banking system. It doesn't appear that depositors are willing to shift their deposits into the bonds, the voluntary approach that Argentina has sketched out. Do you think that the system that is in place now is sustainable?
And, secondly, do you think that it is right for the Argentine central bank right now to intervene and prop up the peso?
MR. DAWSON: Our views on exchange rate policy, I think, are well known, and the Argentine authorities made a decision on the way to approach the restructuring of the banking system, the unfreezing of the banking system. I think it is also well known that we would prefer a different approach. We are trying to work with them to see how their approach can be made to work. This is part of the way we do work with countries. And how that can be developed, we will see.
Certainly one of the difficulties is that under the approach that was taken, it is a somewhat longer period of time before you know exactly how depositors have chosen the individual instruments that they wish to have, and I believe it is 30 business days for that to take place. So we will have to see how that develops.
QUESTION: Well, how was your approach different? And what-
MR. DAWSON: Well, I do not think we need to go through that. The Argentine authorities have made a decision, and we are trying to work with them. This is the normal give-and-take. The authorities ultimately have the right to make their own decisions, and we are working with them.
QUESTION: And what are your well-known views on exchange rate intervention?
MR. DAWSON: That in this sort of a situation where you are needing to develop a strong policy framework, a floating regime is one that tends to have fewer problems and lead to less problems in the reserve area. But, clearly, development of strong policies would lead to an ability to have a floating system without the sort of volatility that presently is evidenced.
QUESTION: While talking about Argentina, you have not characterized how talks have gone. Have they been going well? Has progress been made?
MR. DAWSON: Talks have gone well. I think there has been a good discussion. As I said, as we have said previously, this was an advance mission, so we have been discussing the key areas, particularly monetary and banking system and other elements.
We may have a bit more for you when the team finishes later this week in terms of a wrap-up, but it is fair to say that the discussions are going reasonably well because we do anticipate that we will be moving on to another step, which is, as I say, some more communications in the next step with the Minister and, as they have indicated, a possible visit in the near future.
QUESTION: To get back to Turkey for a second, you just said and you just rightly observed that the financial indicators in Turkey have deteriorated due to political instability. Could you elaborate about the nature of this political instability? Is it the Prime Minister's health?
MR. DAWSON: No, I do not think I can or will elaborate. I think that is an observation that the markets have made, and the more one elaborates on that, one has to say it is 13 percent this, 14 percent, 15 percent that. I think it is fair to say that there has been that element, as I indicated.
QUESTION: You have been saying you will decline to comment on effects of possible election on Turkey and this is Turkey's matter. Do you still keep that view?
MR. DAWSON: That is correct. But it is certainly fair to observe that there has been an impact on the market because of these concerns—because of political concerns.
QUESTION: Tom, what is your understanding of how the Brazilians will use the funds that have been approved for disbursal? Are there specific things that they have to do or cannot do with this? What is your understanding of what they are going to use this liquidity for?
MR. DAWSON: Well, first of all, liquidity is liquidity, so it is to be potentially used and to provide support. I think they have publicly announced, for example, a planned buyback of the external debt, and they think that they need to have a strengthened arsenal to deal with the market volatility that they have been facing. So, as a consequence of that in completing this third review they made it clear, and formally the Fund approved that they would be able to draw on the program—in fact, are drawing on the program.
We have made it very clear, and I think the First Deputy Managing Director's statement yesterday as Acting Chair made it quite clear, that the Fund is strongly supportive of the Brazilian authorities' efforts. They have taken bold moves quickly, not waiting for developments to force them to act; rather, that they have taken the initiative. This is consistent with the way this Brazilian economic team has acted over the last three and a half years, and they now have their arsenal, as I say, fortified to be able to deal with what are difficult market conditions. But I would say that the initial reactions in the markets—it is hard to separate, you know, on a day-to-day basis—but the initial reactions on the markets show a degree of confidence in the authorities' ability and willingness to act, and that is the sort of action that markets tend to respect.
QUESTION: Just to follow up, would the Brazilians be able to use some of this for foreign exchange intervention? Would you be at all opposed to their using it for that purpose?
MR. DAWSON: Money is, of course, fungible. The net international reserves target has been adjusted, so clearly, the possibility of market intervention is there. Precisely which money is used for what gets to be a slightly theological question. But as I say, they have a demonstrated track record of being able to manage their exchange rate system reserves and so on in a very effective manner.
QUESTION: Can I follow up on Brazil, please?
MR. DAWSON: Sure.
QUESTION: Yesterday on the statement, actually, there were some points made in relation to the Brazilian economy that I would like to get more details about, such as the need to reduce inflation, the need to reduce the borrowing requirements, and the need to reduce the share of the public debt that is contracted at floating rates or indexed to the exchange rate.
Can you give us some more of the view of the IMF on that?
MR. DAWSON: Well, I think those are all points that are reasonably self-evident, and they are also all points that the authorities agree with strongly, themselves. So I am not sure I can go into any more detail. There have clearly been concerns on the debt issue. There are concerns on inflation and so on. But, again, this should all be looked at in the context of the authorities acting promptly and boldly, and I think this is a repetition of what I think there is a common view of the authorities, of the IMF management, of the Executive Board of the Fund in terms of what needs to be done, where the areas of concern are, and the confidence in the authorities' ability to pursue what needs to be done.
QUESTION: Do you think Brazil has the ability to service its debt in the medium term?
MR. DAWSON: Yes, we do.
QUESTION: Tom, I am interested in the efforts to scale down the debt of the poorer nations of the former Soviet Union. Could you please tell me what has been achieved, how satisfied you are with the efforts, and what are the next steps?
MR. DAWSON: I am going to have to confess I have not updated myself on that, and we will need to get back to you. That certainly has been a concern in terms of the debt situation for these countries, and it is been a concern not only of the Fund but of the other international institutions. We will get back to you, and I think for others who are interested, I think we can provide some material as well which we can post. Sorry.
QUESTION: Yesterday when the announcement on Uruguay was made, Mr. Aninat mentioned the words "crisis in the region." Does the IMF believe now that there is an economic crisis in South America?
MR. DAWSON: No. I think the context in which that was said is a context in which, as I had noted as well, the case of Uruguay is indeed a case what is been going on in the region has had a particular effect, because of the geographical, financial, and other links of the country, particularly with Argentina, but not just with Argentina. So I think that is the context in which that is to be looked.
You can see in looking at the markets still a very considerable degree of delinking, as close as Chile and still within the region in Mexico, where indicators are quite different. So I think that is the context. It is an Uruguayan-specific vulnerability because of the nature of their economy and the nature of their banking system and so on to developments in the region. It is not a factor that has the same effects in other countries.
QUESTION: Besides Chile, Mexico, what other countries-
MR. DAWSON: The other countries, there are 20-some countries in the region. The are all in varying degrees of Fund programs or not Fund programs, needing programs or not needing programs. And I think the situations in each of the countries is dominated by the situations in each of the countries and not by the regional effects. And I think as you go through each of them, as you go through Colombia or you go through Ecuador or go through Peru, you will see the situation faced, and those are three countries getting increasingly close that are ones where the fundamental way of approaching the countries, looking at the domestic economic and political situation in each country and what needs to be done. And I think the factors facing the decisionmakers are primarily domestic, not international. And I think that is to be contrasted with what is going on in Uruguay where they are in some sense being affected by the developments elsewhere. And I think that is a very fundamental difference.
QUESTION: Is there any resolution regarding Ecuador? Would you update us on the country?
MR. DAWSON: The mission that returned last week did make progress in reaching understandings on the need to strengthen the program, but discussions could not be completed, primarily owing to a lack of measures to close the fiscal gap. Progress includes agreements in principle on how to modify the fiscal discipline law, to close some loopholes for off-budget finance spending, and assuring that revenues from the new oil pipeline will be used to amortize debt.
The authorities were very helpful in discussing the law and will draft amendments and regulations to implement these agreements. Sending these modifications to Congress would be a prior action for the program. There are other prior actions that would be involved as well.
The situation is more difficult on the fiscal front. Spending has increased even above what was contemplated in the original version of the program. The authorities have agreed to strengthen the primary surplus objective under the program, and we will work with the authorities in the coming weeks on the definition of the measures required to achieve this target.
The strengthening of the primary fiscal surplus is necessary because the external current account is deteriorating faster than we had earlier thought, and inflation is not declining fast enough.
So I think it is a concern and remember, again, this is in the context also of a dollarized economy.
We are going ahead with the preparation of the Article IV consultation papers, but no Board date has been set.
QUESTION: Is there any time frame-
MR. DAWSON: I do not have a time frame for you now. We are continuing in discussions with them.
QUESTION: In the light of Uruguay and Brazil and even after you said what you said, is it fair to say that fiscal contraction from Argentina is growing?
MR. DAWSON: We have made it quite clear that the situation in Uruguay is to a great degree a result of the situation in Argentina. I think we see the situation in Brazil as having a number of other factors, including political factors. Undoubtedly, there is increased volatility in the markets, but the word "contagion" should not be used casually. If you look at contagion in the context of how it was used, you know, in the 1998 crisis, you do not see those sorts of measures at all in either a sense of spreading indiscriminately among countries or in the sense of correlation of spreads. Spreads are moving according to market developments in individual countries.
QUESTION: I just had a question regarding Brazil. How much funding is left after the latest disbursement? And are they under the stand-by or the SRF? And would the IMF be ready to increase financing to Brazil?
MR. DAWSON: There is about 750 million SDR left, which would be just a little bit less than $1 billion. But the answer to the second question is no.
QUESTION: If you could just follow up, you said there is no consideration being given to augmenting the program. But they have slightly less than $1 billion left. The program-
MR. DAWSON: Remember, the $10 billion that has been provided to them is being added to reserves, so it is not like the money has been spent.
QUESTION: But, nevertheless, they have less than a billion dollars once that money is gone through-
MR. DAWSON: That is entirely the wrong way to look at Brazil. Brazil is a vibrant economy with tens of billions of dollars in reserves, and to say that there is one billion left in the Fund program and that this somehow indicates something is just not the case at all.
QUESTION: I think the question is germane in the sense that, on the one hand, you said that Brazil has less than one billion in reserves on this agreement—
MR. DAWSON: I was asked factually how much is left under the program. That is what is left under the program. And I was asked whether consideration was being given to augmenting the program, and it is not being. The Brazilian authorities have a clear determination of what they wish to do, and every indication is that they are going to be able to do it. They have lots more than ten billion. They have all of their other reserves.
QUESTION: But if in the future Brazil decides to negotiate-
MR. DAWSON: We will deal with the future when the future is, but at the moment the Brazilian authorities are well armed, well fortified, and well motivated to go ahead.
QUESTION: Coming back to Argentina, two points with the discussions now: are there any specific proposals of the IMF, proposal or proposals, regarding the public banks, the banks of the government, the state? And, second, if there has been any progress regarding the so-called agreement with the provinces, because the position of the IMF is, with the exception of Buenos Aires, all the others, all the letters of intention are not actual agreements, are not details. So if there is any progress on that.
And the third point is: Does the IMF have any sense of a limit of how long this negotiation could take?
MR. DAWSON: It is important that the negotiations be concluded sooner rather than later, but it is important that they be done well and completely. So, I mean, we view this as a matter of urgency, but it is also a matter of making sure it is done correctly. And I think as everyone knows, it has been difficult to get a number of measures passed, the necessary political consensus developed in Argentina, so that it has clearly been taking longer than anyone would have liked. So, no, I cannot give you timing, but we view this as a matter of considerable urgency.
With regard to the provinces, I think our approach toward the provinces, certainly the expressions of intention were welcome, and we do view that as progress. The actual implementation is, however, something that is critical. But I would note that that is a point that is well contained in the 14-point program of the authorities themselves. So I do not think there is a particular IMF angle to this. This is something the authorities have indicated themselves.
And with regard to the public banks, to be perfectly frank, I do not have anything for you on that. We will see whether there is. I am sure it is a matter of discussion, but it is not something that has come to my attention.
[Whereupon, the press briefing was concluded.]
IMF EXTERNAL RELATIONS DEPARTMENT