Transcript of the Press Conference on the 2005 Annual Meeting of the IMFC with Gordon Brown, UK Chancellor of the Exchequer and Chairman of the IMFC, and Rodrigo de Rato, Managing Director of the IMF
September 24, 2005
September 24, 2005
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MR. DAWSON: Good afternoon, ladies and gentlemen, and welcome to the closing press conference for the IMFC meeting. To my far right is Rodrigo de Rato, Managing Director of the IMF, and to my immediate right is the Chancellor of the Exchequer and Chairman of the Committee, Gordon Brown, who will have an opening statement, and then we will be happy to take your questions. Again, if you would observe proper etiquette and identify yourselves and your affiliations.
MR. BROWN: I want to report on a successful meeting of the Committee this afternoon. When we met here in April, oil prices had reached a nominal high of US$55 a barrel. Since then, heightened by the impact of Hurricane Katrina and other factors, the price of Brent has increased and peaked recently at just under US$70. As a result, oil prices have doubled since last year and they have trebled since 2002.
We met today at a time of greater risk for the global economy, facing the highest sustained oil prices for a quarter of a century. It is a measure of the success of anti-inflation policies that the increase we have seen in oil has not resulted in a return to the stagflation of the 1970s, and today the Committee was able to welcome the continued global expansion, which we expect to continue. However, we acknowledge that downside risks have increased not only with the oil price but with global imbalances, and the emerging risk of protectionist sentiment and the possibility of tighter financial market conditions.
At today's meeting, all the members recognized that oil producers, oil consumers, oil companies all have their part to play in working together to stabilize the oil market, and today we agreed a number of actions to deliver that enhanced stability. First, we welcomed the action by members of the International Energy Agency and oil producers, including OPEC, to increase supplies and to continue to increase supplies to the market. We called, secondly, for further investment both now and in the long term, particularly in refining capacity, and for efforts to create a favorable investment climate for the future.
Third, we stressed the importance of policies to promote energy conservation, efficiency and sustainability, including through new technologies, alternative sources of energy, and addressing subsidies in oil products. I personally look forward to the World Bank initiative on this specifically for developing and emerging market economies, which will involve billions in loans available to these countries.
Fourth, the Committee also encourages a closer dialogue between oil producers and consumers, and emphasizes the importance of improving oil market data and transparency so that markets work better.
Fifth, we also agreed that, because poor countries and poor people should not be left defenseless against oil price shocks, that the IMF should stand ready to provide assistance to help members, especially in poor countries, deal with these price shocks. The IMF is setting up a new window and we call on countries to contribute to help address shocks in commodity prices or through natural disasters.
We have just ten years in which to meet the Millennium Development Goals, and today the Committee emphasized that the international community must now follow through on its renewed commitment to provide additional resources, just as developing countries we emphasized again, must put in place the policies, including for transparency and tackling corruption, for sustainable growth and poverty reduction in their countries.
We reaffirmed today our commitment to the proposal to cancel up to US$55 billion of multilateral debt for highly-indebted countries, and I am pleased to report to you that in its meeting today, welcoming firm commitments that were made yesterday by many countries on additional finance, the International Monetary and Financial Committee was able to say this: Agreement is now reached on all the elements. The Managing Director has informed the Committee that he will now call the Executive Board together to complete its approval of the arrangements to deliver debt relief by the end of 2005. That means that the historic process of completing the debt write-off that started many years ago has ended today with this agreement that all the elements have been resolved and the Managing Director will call the Executive Board together to complete the approval of the arrangements to deliver debt relief by the end of 2005, and I welcome the help that many countries have given in bringing us to this point.
We also said today, following a meeting with Pascal Lamy, the Head of the WTO, that a successful outcome of the Doha round on trade remains of critical importance for both poverty reduction and for global growth. Serious challenges remain in reaching agreement at the WTO meeting in Hong Kong in December. Following our discussion with Mr. Lamy, the Committee called on all countries to ensure progress on an ambitious trade liberalization with the urgency that the timetable now demands. We say in our communiqué that this must include increasing market access, especially for developing countries, significantly reducing trade-distorting domestic support, eliminating all forms of export subsidies in agriculture, and making significant progress on services, including financial services and on intellectual property.
Now, the Committee also discussed global imbalances. The Committee also welcomed the Managing Director's report on the Fund's medium-term strategy, and thanked him for the work he had done on the direction in which he was proposing to set the Fund, and the Managing Director may wish to say more about his own proposals. But today's meeting of the Committee of countries from all over the world shows that, when faced with unprecedented long-term global change, as well as short-term global risk, the world can come together to rise to this challenge and formulate policies on oil and on debt relief that are of vital importance to the future.
We have today recognized with oil that a global problem requires a truly global solution, with concerted action from oil producers and consumers alike to take steps necessary to stabilize the market. Faced today with the needless tragedy of poverty through the burden of unpayable debt in the world's poorest countries, the world has come together and, with a significant decision we have made today, we have endorsed proposals that will eventually end up with the World Bank, the IMF, and other development banks writing off up to US$55 billion of debt and, in this way, helping the poorest countries of the world.
MR. de RATO: You have seen the IMFC's communiqué and Gordon Brown as Chairman has clearly highlighted the main issues, so I would just like to draw your attention regarding some of them.
I am certainly very grateful to the membership — represented in the IMFC — for the broad expression of support today for my proposal for the medium-term strategy, which aims to strengthen further the Fund's effectiveness in an integrated economy, global economy. The IMFC in its communiqué said that it looks forward to specific proposals on the main tasks identified in the report, and that will be part of my next proposal on a working program to the Board in a few weeks. It also endorsed many of the report's priorities; let me mention some of them: strengthening surveillance at all levels — that is, global, regional, and national; adapting to the new challenges and needs in different member countries; making surveillance more tailor-made to the needs of specific countries; rationalizing the division of labor between ourselves and the World Bank; the importance of low-income countries; and last, but not least, ensuring that distribution of quotas reflects developments in the global economy and the distribution of the voting power helps to ensure that all voices are heard.
The IMFC identified several priorities for ensuring that the global economic expansion continues and in the face of increasing risks posed by high oil prices and the widening of the global imbalances. I agree with the Committee's call for further measures that will benefit the countries taking them, but would also help to narrow global imbalances, and for oil producers and oil consumers to take steps to stabilize the oil market. Most of all, I want to underscore the IMFC's call for further trade liberalization. The successful conclusion of the Doha Round will help to promote continued global growth, with both advanced and low-income economies standing to gain. I want to thank Pascal Lamy for his presence today at our meeting.
Finally, the IMFC gave us new tools for supporting low-income countries, endorsing the Policy Support Instrument which allows us to provide policy advice and support to members that do not need or want IMF financial assistance. It also strongly backed the creation of a new window to support low-income countries facing exogenous shocks. The Committee, as the Chairman just said, expressed firm support for the proposal on debt relief, and asked us to move ahead in an effort to finalize the details in the Board.
Debt relief alone is not enough to help us meet the Millennium Development Goals, but it provides a very important effort. We will need more and new aid, in any case additionality, and countries must help themselves also in pursuing policies that promote growth, and that is part of our policy in low-income countries. In that respect, also, I want to say that I see that the international community will need to muster additional resources to provide the mix of aid, debt relief, and program assistance needed to reduce poverty and support development.
We will take your questions.
QUESTION: Could I just address the questions to Mr. Brown and to Mr. de Rato on one of the elements of the strategic review dealing with sovereign debt defaults. Could I ask if the Argentina example, if that provides a precedent for dealing with future cases of sovereign defaults and, if not, if there is an alternative way.
MR. de RATO: First of all, as you know, the commitment of the Argentine government regarding its debt was part of the program that was approved in March of 2004. The debt effort was completed in March of 2005, with a substantial amount of creditors joining the proposal, but also a part that is not small of holdouts. The position of the Fund since then has been clearly that allow Argentina to move forward but, at the same time, it needed to have a strategy for those holdouts, and that is, of course, something that the Argentine government would have to propose. As part of my proposals in the strategic review, it is certainly to consider that the lending into arrears policy of the Fund that was defined more than a decade ago should be part of the review that we should do in different policies.
QUESTION: When you were saying that agreement has been reached on oil arrangements, on debt relief, that, as I understand it, refers to debt owed to the IMF. Did you also discuss debt owed to the other financial institutions?
MR. BROWN: The issues are similar. Before we came to the meetings, there were really three issues and perhaps a fourth that remained to be resolved. The first was on conditionality, and there is now a general agreement about the conditionality that we are proposing. The second was on uniformity of treatment as far as the IMF was concerned, and we have accepted the proposals of the Managing Director about how we would resolve that issue. The third, and possibly the most important one, was on additionality, that the funding of these proposals by the major countries, by the major donors, should be guaranteed over the period of time in which these proposals had to be implemented. We have the statement last night by eight countries from the G-8 showing how they would preserve the principle of additionality without affecting the finances of the IMF and the World Bank.
Then there was a final issue, because of the oil challenge, that the new shock facility should not be harmed by the work that we were doing to relieve debt and that is why we set in place arrangements for contributions to a new trust facility for the window that will help countries deal with oil shocks, commodity shocks, and natural disasters. So, as we came to the meetings this weekend, there were these three issues and the oil issue to be resolved. These issues are now resolved. The Committee's communiqué in paragraph 12 says: We welcome the approach discussed in the IMF to ensure that the IMF resources will be used consistently with the principle of uniformity of treatment, so that issue is accepted. It stresses the importance of ensuring that the IMF's capacity to provide financing is maintained and, therefore, welcomes G-8 countries' commitments to additional resources, so that issue is dealt with. It emphasizes that countries benefiting from irrevocable debt relief should demonstrate sound policies and high standards of governance, and that is the conditionality issue that has been resolved. Then we go on to say: Following this agreement now reached on all the elements, the Managing Director has informed the Committee that he will now call the Executive Board together to complete the approval of the arrangements to deliver debt relief by the end of 2005, and I believe that that completes what has been a long process of persuading each other about what is the best means of helping debt-ridden poor countries, and I believe that the same principles that have been adopted today will be those that will inform the discussion in the Development Committee for World Bank debt tomorrow, and I look forward to a successful conclusion of their discussions as well. But having said that agreements have been reached on all the elements, the Managing Director for the formal approval will call together the Executive Board and that is what he has said he now proposes to do to complete the approval of the arrangements.
QUESTION: In paragraph 2, the Committee is concerned about the increasing risks to the global economy. Can you say a bit more about what the concerns are about the possibility of tighter financial market conditions?
MR. BROWN: As you have seen, interest rates have just gone up in America. I think that the main set of issues that were concerning us today, if I may say so, were that global problems in the oil markets demanded global action, and we feel that the plan that we have put forward in the communiqué that includes increased investment and greater transparency, the shock facility for the poorer countries, greater investment in energy efficiency and alternative source of energy, as well as the increased production and increased investment in refining capacity, these are the measures that people were looking to this meeting for, and I think people will be reassured that the world community is taking seriously the long-term as well as the short-term issues raised by what has been happening in the oil markets. We have not only a shared analysis of the problem, but we have a clear set of proposals that we believe can now be delivered to improve the situation. So, I would say that that was the main focus of paragraph 2 and of our discussions on the global economy.
QUESTION: Under the new uniformity of treatment agreement, how many countries will receive debt relief or will be eligible to receive debt relief, assuming they meet the other conditions, and how much money are we now talking about; what is the cut-off?
MR. BROWN: I think the overall sum is not substantially affected. I gave the figure, taking the World Bank, IMF, and African Development Bank together, of US$55 billion. The Managing Director has put proposals to the Executive Board, which we have commended today, and that will be the subject of the detailed arrangements to be cited once the final meeting is called in the next period of time.
MR. de RATO: The proposal to address the uniformity of treatment will be to use the income threshold, and there could be as many as 37 countries eligible; some of them we will have to see in the future regarding the enhanced HIPC Initiative. Some of them might not be interested. So, we cannot give you a figure of countries; we will have to work on the proposal and talk to the countries.
QUESTION: Secretary Snow yesterday kind of washed his hands and said the U.S. is doing what it needs to do to address the imbalances. Is that your assessment, or do you think the U.S. also has additional efforts to undertake to help on that issue?
MR. de RATO: I think we have said clearly in the last Article IV consultation that the U.S. has to address its fiscal imbalances in a structural manner, not only by the increase in revenues that can be more tied to the cycle, but also in a way that will guarantee that the U.S. will be able to face some of the medium-term challenges regarding aging and health that we envision. As I said this morning in my speech to the Governors, the U.S. has certainly decreased the fiscal budget this year with a very important rebound in revenues. Nevertheless, going forward, and to achieve a substantial reduction of the deficit, we think that the strategy to reduce expenditures quite ambitious even before the new needs derived from the natural disasters that have affected the country. So, we see the need for increased revenue through tax reform that will increase the tax base and, in that respect, we think that the committee of people appointed by the President to study the new tax system in the U.S. could be a very good opportunity to discuss the simplification and increase of the tax base in the country. We see certainly there will be merit to reinstate some of the figures that include the revenue-sharing system to increase fiscal discipline. That is what we have proposed and I have mentioned this morning in my speech.
MR. BROWN: Perhaps I could refer to the debate in the discussion on this issue in the IMFC Committee today. When we met a year ago, we listed the things that each continent had to do to ensure greater stability and growth, and to deal with the imbalances. Today, I think we are in a better position in this one sense that we were able to welcome recent progress in recent initiatives to address global imbalances, and then we went on to say that we urge further action to promote orderly adjustment in view of the heightened risk to the outlook, and we said this includes fiscal consolidation to increase national savings in the U.S., greater exchange rate flexibility in emerging Asia, further structural reforms in the euro area, and structural reforms including fiscal consolidation in Japan. So, there has been some progress. Of course, the imbalances are affected by what has been happening to oil receipts and oil revenues, but we emphasized that we wanted to urge further action to promote orderly adjustment.
QUESTION: The Latin American countries are asking that the Inter-American Development Bank and the Caribbean Development Bank are included in the HIPC Initiative for debt relief. Why haven't they been included if the African Development Bank has, and is there any chance that they will?
MR. BROWN: I think all HIPC countries, whatever continent they are in, are included in this initiative. But the three banks or institutions that were originally part of the proposals are the IMF, the World Bank, and the African Development Bank. But a HIPC country in any continent is included in the proposals.
QUESTION: Given the poor outlook for growth in the euro area, does the IMFC think that, whatever its views about the medium term needs for fiscal consolidation, since the oil price rises the equivalent of a tax, perhaps an accommodation should be made in the near time on fiscal and monetary policy to assist the euro area out of the bad trough?
MR. BROWN: I think Mr. de Rato has great deal of experience in managing a euro area economy and I am a Chancellor in a European Union economy. I would say that the recent estimate from the central bank in the European Union about what growth is likely to be in the European Union of around 1.2 percent is clearly disappointing. It affects all countries as a result of that. But I would also say that the emphasis at our meeting today was on structural reform and the need to move faster and further on structural reforms to boost potential growth so, while there are issues of monetary and fiscal policy that are referred to in the communiqué, I think the greater emphasis was on the need to continue and indeed strengthen and deepen the pace of structural reform.
MR. de RATO: We see there is no alternative if Europe was to increase its growth potential than to apply its own measures that are in the Lisbon agenda and in the internal market proposals. Regarding fiscal and monetary policy, certainly we do not see any monetary restriction right now that is affecting growth right now in Europe. We have been of the opinion that the European Central Bank should keep all its option opened, but we have also said that right now there is no clear evidence that the monetary conditions are impeding growth in Europe. From the fiscal side, whatever we want to say, fiscal deficits are increasing in Europe and that is not increasing growth. So, we do not see that just by following that path, apart from the mistake that it will mean in terms of the important challenges that Europe is going to face very soon regarding aging populations. Even if you do not want to look at that, you want to disregard that — which would be a huge mistake — the fact is that in the last three or four years the budget in Europe has been increasing the deficit. So there has been an impulse through the demand of budget policies in Europe but, nevertheless, is not working. So I think that what Europe has to do, as the Chancellor has stated, is clearly to put forward a strategy for growth regarding structural reforms, and the agenda of structural reform in Europe does not have to be looked outside Europe. It has been said in Europe for many years in the Lisbon agenda and the completion of the internal market.
QUESTION: A question again on debt relief. Could you specify why you think this is a breakthrough because, reading the G-8 letter from yesterday, we see three countries with clear commitments for a certain time, including the U.K. and France, but definitely not for countries like Japan and Germany. Secondly, did you get other countries on the Board that are not G-8 countries but donor countries like the Netherlands or the Scandinavians or even OPEC countries? Where is the concrete progress in terms of money?
MR. BROWN: The issue after the G-8 was that the G-8 had put forward a series of proposals, but were these going to become proposals of the whole international community. The breakthrough is that we now have a set of proposals that are shared by the whole international community that can be voted by the IMF Executive Board and then, because the principles are similar, be dealt with by the World Bank as well. So, while the G-8 had made proposals that they would provide resources and had a mechanism for debt relief, the whole international community had to be brought on board. I said yesterday when people asked me that I thought it was in a knife-edge because there were big issues of additionality, of conditionality, of uniformity of treatment — the three issues that I mentioned only a few minutes ago — that still had to be resolved. And it was clear that some newspapers were writing, having had comments from individual Ministers and others, that it would not be easy to get an agreement today. We worked very hard over the last few days, as well as over the last few months, to try and bring people to an agreement on proposals. Now, additionality is important, because we wanted to do nothing that would impair the ability of the IMF and the World Bank to do the other work, that it is important for them in the interest of all countries to be able to do. So the statement by America, as I understand, is unique for an American administration to commit, over a very long period of time, 30-years, and to lay this before Congress with the hope of getting Congress' authorization and approval for it. We are prepared to do a similar process in parliament, as we said in our statement. I gather that France has made similar statements. Germany is just undergone an election and what will happen, of course, will be that this agreement would be ratified by the new administration when it is formed. Italy had a new Finance Minister coming to the meeting on the day, but the rest of the international community was satisfied that the additionality that was promised in these letters showed that the G-7 and the G-8 countries, in fact, were serious about providing both the resources and making sure that the deal did not affect the ability of the IMF and the World Bank to function, and that is why that issue was resolved today. Equally, the issues on conditionality and uniformity of treatment, as I have explained to you, have been resolved. We could have come here this week and find it impossible to reach agreement because there were detailed difficulties that had to be resolved. We now have what I said in the communiqué and just repeated agreement reached on all the elements and the Managing Director has informed the Committee he will now call the Executive Board together to complete the approval of the arrangements to deliver debt relief by the end of 2005. That is why I think this is the end of a process that has led to the historic completion of debt relief for these countries, and I believe that the same principles can inform the work of the World Bank tomorrow and that this is, therefore, a breakthrough that we can feel very proud that all the countries of the international community have felt able to sign up to.
QUESTION: I would like to put this question for you gentlemen. Everybody here seems happy because you are announcing debt relief for the poorest countries, but I am wondering if you are giving this the right message for the future. There are some middle-income countries, like Uruguay, that never missed a payment in 150 years and the countries almost breaking their backs to honor their commitments. Some people are starting to think that maybe the best deal is not to pay and go on default as some neighbors very close have.
MR. BROWN: I hope people will not draw that conclusion and they should not draw that conclusion. The issue of the moral hazard has been dealt with over many years, but the international community has effectively decided that, in the case of the highly indebted poor countries, the debts are effectively unpayable and that we should recognize the situation as it now exists. We should create a situation where these countries are able to plan for the future in a far more effective and successful way, free of that burden of both a bilateral debt and multilateral debt that had been built up, in many cases, 20 years ago.
I believe that the agreement that the international community came to on bilateral debt relief was the right thing to do in late 1990s, but I believe it is an important decision that we have dealt with the multilateral debt of these countries in all the deliberations we have had. But it is in no way a signal for people to be profligate, it is in no way a signal for people to ignore the conditionality that is attached to this. It is recognizing the reality and trying to build effectively for the future.
MR. de RATO: Well, I think that the Chancellor was very clear. I just want to say that the concept of poor countries highly indebted is a concept that the international community has accepted. It is a show of solidarity and the reasons are very clear. There are countries, as the Chancellor explained, in which the international community has come to the conclusion that the level of debt is impossible to face. They are also the same countries in which the international community is committed to alleviate poverty in the Millennium Development Goals. So, I think there are a lot of international commitments and understandings that I do not think can be viewed in the sense of countries not paying their debt because in fact these countries were paying their debt in many cases. The problem is that the international community understands that the alleviation of that debt will help achieve a substantial poverty reduction that will bring these countries closer to the Millennium Development Goals.
I have something to say. Mr. Tom Dawson here present is, as you all know, has been for the last six years the face and the voice of the International Monetary Fund, and he has announced to us that he is going to leave us.
MR. DAWSON: This statement has not been cleared with the External Relations Department.
MR. de RATO: But I am the Managing Director. I just want to say that this is his last press conference in the IMFC and I am sure that all of you will feel, like me, that Tom has made a great contribution to the Fund and has been a great professional in dealing with some complicated issues to make the institution better understood and increasing public support for the work of the institution and, with integrity, intelligence, energy and very good humor, he has done his job and I am sure that our colleagues here in the media in saying to you goodbye.