Thomas C. Dawson
Thomas C. Dawson

Thomas C. Dawson Transcripts

Argentina and the IMF

Brazil and the IMF

Ecuador and the IMF

Iraq and the IMF

Turkey and the IMF

What does it mean?
Exchange Rate

Arrangement

Investment

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Transcript of a Press Briefing by Thomas C. Dawson
Director, External Relations Department
International Monetary Fund
Thursday, July 31, 2003
Washington, D.C.

View this press briefing using Media Player.

MR. DAWSON: Good morning, everyone. I am Tom Dawson, Director of External Relations at the IMF, and this is another of our regular press briefings. Before I take questions, I would just like to remind everyone that the Executive Board will go into its annual recess for two weeks starting at the conclusion of business tomorrow. Therefore, I expect to hold the next press briefing in three weeks rather than the normal two, given the recess. Media Relations will still be open for business, and you can feel free to call them, but we do not have any particular press events planned for that period.

There are going to be some items remaining on the Board agenda for tomorrow, and I will indicate what some of them are. And I should also indicate that we are going to try to be a little more forthcoming in terms of indicating when countries are scheduled for the Board going forward. I think you can expect every two weeks I will be giving an indication of what I know. Again, the schedule sometimes shifts a little bit, but I think in the interest of more transparency, we are going to try to give you a little bit of information. But I would just note, if something slips there is not necessarily a policy reason for it. Often, it can simply be travel schedules of the Executive Director or management involved.

But, in any event, the latest review of the Turkish program is scheduled for tomorrow, along with reviews of the existing programs with Ecuador and Croatia. The Croatian program is a precautionary arrangement.

As far as Turkey goes, I expect that we will probably have a press conference call with a member from the team or from European I, about to become European Department, following the Board's review tomorrow. And we will let you all know when that is set up.

Now I think we should open the floor to questions.

QUESTIONER: I have a question about something that I believe is part of the discussion with Argentina and may become part of the discussion of a new arrangement with Brazil. And it has to do with the way you account for certain expenditures in the budget that both Argentina and Brazil are saying those are investments, those are not atypical outlays in the budget, and should be counted in a different way.

I know that this discussion started with the previous government in Brazil, and I do not know if it involves only those two countries.

Is there anything you can say about it?

MR. DAWSON: I certainly have noted in recent weeks in the context of Latin America this issue arising again, which is—sometimes it is the view that infrastructure investment perhaps should be accounted for separately.

I think what is important is that the accounting approach taken be transparent, to the extent possible be comparable among countries, and, if not totally identical among countries, be able to make it comparable.

Obviously the judgment on spending issues also has to do with what the burden is on the country for arranging financing for it, because ultimately our work with countries is to assure that they are in a sustainable financing situation.

As you indicated, this is an issue that has come up over the years. I believe it was Minister Serra, I think, who raised it in the previous Brazilian Government, but it is come up for decades that I am aware of. So it continues to be an issue, and I think the important thing is we address these in a transparent fashion so we can see what the burden on the government's finances are, because ultimately that is what one of our major goals is, to assure the government that it is financing. If markets will finance something, that is an issue. If they do not finance something, it does not really matter precisely how it is accounted for.

QUESTIONER: Just a comparison to try to understand this. For instance, if I buy a house, I have an expenditure out of my personal budget. But the equity value of my house is part of my total worth, net worth.

Now, is it difficult to apply it to countries? Because that is, I think, the basis of the argument of those countries, that, you know, we--

MR. DAWSON: Well, it is a question of also how easily can you liquefy the value of that house or can you tap that or securitize it. I mean, that is the issue. I know the Statistics Department and Fiscal Affairs have looked at these sorts of issues in the context of manuals for standard procedure, and I think we can update you on this issue. And I think it is not—it is not surprising that this issue continues to come up because there are people, you know, and there are views, perfectly responsible views, on what priorities for spending should be and how different kinds of spending should be accounted for. This issue exists in the United States. There was a big political debate in recent years on that issue with the administration at the time calling certain spending investments as opposed to spending.

So I suspect this will be a continuing issue long beyond the

time that any of us are involved with this issue. But I certainly do recognize the issue has come up again, and it is something that we are quite willing to discuss with the authorities in the individual country cases, program or otherwise, because it comes up with regard to, for example, G-7 countries and how they account for prospective debt burdens, you know, accrual versus cash accounting. These are all the kinds of issues that make accounting so much fun.

QUESTIONER: Can you give us an update on Argentina? And, also, are you worried with the pace of the reform agenda in Argentina?

MR. DAWSON: The mission is ongoing, will be there for a while, a couple weeks, I would guess, maybe even a little longer. We are on the track that I had indicated earlier in terms of working quickly. There is a fair amount of work that needs to be done. There are issues on the structural agenda as well as the traditional macroeconomic criteria. And the goal is to try to have an arrangement. As I have indicated on many occasions, sooner is better than later.

We are on track as far as that goes, but we will keep you apprised of the status of the mission, and that is an issue in which I would encourage you in the time of recess to get in touch with us in the Media Relations office.

I should note for those of you who are particularly perverse, I will be off next week, but I will be around the week after that.

QUESTIONER: Last Monday, Mr. Köhler put a list of several reforms the new government will work in the period ahead. I wonder which one is a precondition to reach a new agreement.

MR. DAWSON: That is not the way that we approach our relations with countries. There certainly are issues, a number of issues that need to be addressed. I do not think I would view them or any particular one as a precondition. They are all important issues. Some issues can be addressed sooner than other issues. Some issues are more important than other issues. All—but we do not—we do not sort of go on it on a basis of we have to do just this particular issue. So the issues mentioned in the statement after the Board meeting I think are there, and those are issues the government has recognized and identified for themselves. And those are the subjects that the present mission is going to be discussing and that will be, I think, part of what is hopefully a medium-term program that is adopted.

I note also the phrase "medium-term program," which also indicates that issues that are identified do not all have to be dealt with at the same time or on the same pace.

QUESTIONER: Help me understand some of the amounts of money involved here. Yesterday Argentine Finance Minister Lavagna in an interview said that he would like to refinance, obviously, on a three-year basis, and that would involve refinancing $6.5 billion. My understanding is that would not include the money that comes due on September 9th, I think it is.

Could you just explain exactly what is being refinanced and at what term, on what--

MR. DAWSON: The purpose of the negotiations is to work out a program, and the new program will by its nature involve new lending that would, therefore, in effect, roll over or, as you may call it, refinance other lending. Those parameters have not been established as to what would happen.

What is known—and I do not have it right here with me, but it is available on the website—is what the pattern of forthcoming payments are. And we are quite open and explicit on that. And that is precisely one of the subjects of negotiation. The subject of negotiations include not only the policy measures, but also the lending, the phasing of the lending, and so on. So that is what the negotiations are about.

QUESTIONER: A follow-up question. Is there going to be any prior actions that will be requested?

MR. DAWSON: At this point I do not think I could say. I think we would have to see what the program—what they come up with. So at this point I cannot answer that question. I do not know, because they are in there. In prior actions—sometimes things are done while negotiations are taking place, so, therefore, they would not be prior actions because they will have already happened. So--

QUESTIONER: But sometimes you request those--

MR. DAWSON: That is right. And sometimes we do not. So I just cannot tell you that.

There has been in a number of areas progress being made throughout this period on structural issues. So those might have been things at some time that could have become prior actions, but they are not because the government has already done them. So I do not rule it out, but I do not think that is something that we are focusing on at this point.

QUESTIONER: A follow-up on that? What are some of those structural areas where progress has already been made?

MR. DAWSON: I was afraid you were going to ask me that.

For example, with regard to the launching of the bidding process for the strategic review of one of the banks, Banco Provincia, and also aspects regarding the capital requirements for banks. Those are two recent areas where progress was made.

QUESTIONER: Is there any concern on the IMF about the pace of the reforms in Brazil and the low expectation about growth this year in the country?

MR. DAWSON: I think we view the government's commitment and performance to have been quite strong, and I think that the program is clearly on track. I think the purpose of the program, of course, is to try to set the basis for growth, and I think that the perseverance by the government in their program should lay the basis for that and will be showing results.

I note, for example, that inflation expectations are down fairly substantially in Brazil, and I think that the recent actions by the central bank expressed—kind of validated that in terms of the cutting of interest rates.

QUESTIONER: I just want to clarify: on Argentina, are you saying that it is possible that the IMF would consider allowing Argentina to defer its loan payments until 2007? Is that--

MR. DAWSON: No, I did not come anywhere close to discussing any aspect of that.

QUESTIONER: Well, how about-

MR. DAWSON: I said there is an established pattern of repayments of the existing program that is on the Web that you can pick up. The present program is to talk about how to continue supporting Argentina. One of the questions was raised in the context of refinancing. Well, you know, you can use the words you wish, but the reality is that this program will ease the path for Argentina going forward.

How you want to describe that in terms of what pattern of payments will result at the end of that process, we do not know yet. That is precisely what part of the negotiations are about.

QUESTIONER: But that is something that could be a possibility.

MR. DAWSON: Well, if done in the context of lending—of lending as opposed to postponing. There is a slight exception on occasion when you switch from an expectations basis to an obligations basis. But that is not really what we are talking about.

QUESTIONER: I just have a follow-up on negotiations. Is the Fund asking for any specifics, like a fiscal surplus equal to 3 percent of GDP? Are there specific terms like that or--

MR. DAWSON: This is a negotiation. We go down there with ideas. The government presents their ideas and back and forth, and I would be pretty sure that the ultimate program will involve, you know, both sides adapting their positions on a wide range of issues, whether the traditional macro indicators or structural indications. I mean it is not an approach in which there is a sort of a checklist and everything gets checked off. It is a process of not only negotiations but working with the authorities to see what can be done and how it can—how it can best be done. That was the context of the Managing Director's recent visit down there and the conversations we have had.

QUESTIONER: At the end of these talks, what would be the most satisfactory agreement for both the IMF and for Argentina's new government?

MR. DAWSON: Well, I mean, we have made it quite clear what our goal is: to work out a medium-term program that would allow Argentina to pursue its own agenda of economic reform and growth and be able to go forward and lay the basis, for example, for normalizing its relations with creditors going forward. So, it is quite clear what that goal is, and I think this is a goal the authorities indicated to us.

To give a teeny bit of history, if people recall, maybe two, three months ago, there was a question as to whether Argentina wanted a medium-term program or some sort of continued interim/rollover program, and the authorities indicated they wanted a medium-term program. I think it would be fair to say that this is a more ambitious agenda than the other approach, and we are happy to work with them toward that end.

QUESTIONER: A follow-up. So the negotiations have started already, right?

MR. DAWSON: Yes.

QUESTIONER: In earnest. How would you describe those talks so far?

MR. DAWSON: They have just started.

QUESTIONER: Accommodating?

MR. DAWSON: I would say they have just started. They are in earnest. I know they are in earnest because I tried to call someone in Western Hemisphere yesterday afternoon and I could not find anybody.

QUESTIONER: On Ecuador. You said the Board is reviewing tomorrow the Ecuador performance. Would you please give us some words in advance how Ecuador performed before this meeting?

MR. DAWSON: I think it is fundamentally a bad idea for me to talk about a country program the day before it is at the Board. There are so many different people I could get in trouble with, so let's--

[Laughter.]

MR. DAWSON: It could be authorities, it could be management, it could be the Executive Board, and it could be staff. So I think I will pass on that opportunity, and I can assure you we will have a statement tomorrow.

QUESTIONER: Same continent, Dominican Republic. Just what is the state of play of those talks? How advanced are those discussions? And what seems to be the outstanding issues here?

MR. DAWSON: The mission has just returned from Santo Domingo, and is trying to work out the implementation of the program. A reinforced strategy for dealing with the banking crisis was developed, including measures to offset some of the costs. A letter of intent is being prepared for consideration by management, and I do not have a sense yet of when the program would be discussed, but we would let you know in the spirit that I indicated at the beginning when it might be. The government's program to strengthen the banking system has been actively worked on, and when we have more in terms of a scheduling and an agreement, we will let you know. Agreement in terms of Board action is what I am talking about.

QUESTIONER: A recent report from the IEO was very critical of the program with Brazil in '98 and '99, saying that IMF failed to convince the authorities to devalue the currency, and also criticizing the pace of reforms and the political interests in pursuing the reforms by President Fernando Henrique Cardoso's government. I would like to know first why the IMF has not recognized these failures before.

And, second, will the conclusions of the IEO change in any way the criteria for the next programs and for the negotiations with Brazil?

MR. DAWSON: Well, first of all, I think you actually formulated that question quite well, because indeed this is obviously the Independent Evaluation Office, and it was, in fact, looking at this particular period in time where in the context of Brazil there was a fixed exchange rate system and a program that did not work, and that this was their report and their analysis of that period.

The IEO report has been, of course, discussed by the Board, reviewed by staff, and I think it is fair to say in all areas, not just in the context of Brazil, its views and opinions are going to be taken into account.

The reality is, of course, that many if not almost all of the issues raised in the IEO report have been raised elsewhere in some of our internal self-criticism as well as certainly by the not inconsiderable number of outside critics and observers of the Fund program.

So we are, as the Managing Director says, a learning institution, so I think the simple answer to your question is yes, but I would also qualify it by saying we have been learning and trying to incorporate lessons learned. I mean, lessons learned with regard to exchange rate systems are that there needs to be—you know, countries make a choice with regard to exchange rate systems and need to have the policy measures in place that can support the exchange rate system. And the Fund's approach has traditionally been to support, the country's choice of exchange rate system and work to adopt the necessary policy measures to support it.

The experience is that it did not work in the context of Brazil at that period in time, but Brazil has moved forward and I think has shown quite an impressive commitment to reform, and as I say, the program at the present is one that is very much in the context of a floating exchange rate system.

Now, whether that is a lesson learned by the authorities or by the Fund or by everybody is a lesson that somebody else can draw—or a conclusion that someone else can draw.

QUESTIONER: Just a follow-up. In this context, would the IMF consider more the political restraints? And I would like--

MR. DAWSON: I thought I almost made that point. I mean, clearly lessons learned—and you can see this in all of the countries discussed in this particular IEO report, but I think you will see it as a theme going forward, is to have a better understanding of domestic political situation, not only the context—not only what a country can implement, which is obviously, a very important consideration, but more broadly the question of ownership. And so I think ownership is a very important factor. And, indeed, in the past, sometimes the Fund has indeed wound up supporting programs because the government made a strong case that they could implement the program, and sometimes that has not proven to be the case.

On the other hand, sometimes it does prove to be the case. I mean, you only need to go back and look a year or so ago, skeptics about some of the programs we have now that people said were not going to work.

It is a difficult judgment, but certainly in the last—you know, pick a number—say, five years or so, the importance of taking these political considerations, including the broad concept of ownership, into account in program has been driven home. And I think that is one of the lessons from the IEO report.

QUESTIONER: Just to move into another part of the world, what is going on with the IMF and Iraq?

MR. DAWSON: There have been a series of missions to Iraq. We have had a monetary mission that was there a couple weeks ago. We have had a fiscal affairs mission there. We have got a staff member, as I think is understood, you know, semi-permanently stationed in Iraq. There are indeed some officials, Fund officials, who are either there or on the way there for some meetings that I think will take place tomorrow. We have been in regular contact with donors or potential donors for a possible donors conference, probably in the fall.

So there has been a lot going on. Middle East Department, soon to become the Middle East and Central Asia Department, is actively engaged in it. Just to give you an example of those two recent missions that I indicated, they have been working on draft legislation for a new central bank law, bank licensing and so on. The fiscal affairs group was in there looking at public expenditure management and development of a consolidated budget framework. So, the institution-building, regeneration work is underway.

QUESTIONER: I am not going to ask you about the Board meeting tomorrow on Turkey. But the U.S. side is waiting for the conclusion of the review to go ahead with the grant, $1 billion grant, which can turn into an $8 billion credit. Can you give us a sense as to what IMF is—you know, they are putting any conditions on that? How--

MR. DAWSON: You would have to ask the U.S. That is a U.S. question. We are certainly well aware of the United States' intentions because you look at it in the context of the country budget and the country programming. But that question's best addressed to the U.S. authorities.

QUESTIONER: Also on Iraq, as you know, the World Bank President, Mr. Wolfensohn, was yesterday in Iraq. Some media reports reported that he expressed some concerns about the fact that at this point there is no legal government established in Iraq. So my question is: What is going to be the approach of the IMF in this sense? Are you going to wait until a formal government is established? Or are you going to, you know, have some kind of informal contact--

MR. DAWSON: We are meeting in Iraq with not only the coalition provisional authority, but with people in, for example, I know, the central bank of Iraq and with people in the Finance Ministry and so on. So we are meeting with them.

You should perhaps ask the Bank for elaboration of President Wolfensohn's comments, but my suspicion would be it is a view that we have as well. If you get to a point where you have a formal relationship, you have to have someone to have a formal relationship with, i.e., a government, a recognized government. That is not, however—and I would stress this—not precluding us at this point in time from doing the sort of work that we are doing for institution building. And this is not—I would also note this is not a—it is not a common situation, but it is not a unique situation either in that we have had similar situations in the context, and particularly in the Balkans.

So we are, as I indicated a few weeks ago when a similar question came up, we are not under any constraints at this point for the kind of work that we are doing, the lack of an established, recognized government.

QUESTIONER: Tom, we know over the past few weeks there has been a lot of talk from the White House looking for partnerships, you know, to help rebuild Iraq. Has there been any indication that the IMF is being pulled in more than usual in this way in the past few days to help specifically with that?

MR. DAWSON: No, I think the nature of our work is quite understandable, and as I say, it is not common but it is by no means unique.

I should add, by the way, Afghanistan as another example where we did very, very similar work, and we are working, I would note, in the context of working closely with the World Bank as well as with the UN organizations, other international bodies, and governments. So I think this is part of what our job is, which is to help it be part of the international community in situations like this.

QUESTIONER: Do you think that Brazil should try to renew the agreement with you in September? The government has not decided yet if they are going to try to renew it or not.

MR. DAWSON: You know, this is fundamentally an issue for the Brazilian Government to decide. It is something we will obviously be and are talking with them about, and that will be something that will be determined in the course of time.

At this point, as I say, the Brazilian performance has been quite strong. We are happy to support them in this context, and we expect in whatever context we have going forward we will be supporting them. And on my vacation, I am not going anywhere near Brasilia.

Thank you very much.




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