Transcript of a Press Briefing by Masood AhmedDirector of External Relations Department
International Monetary Fund
Thursday, May 18, 2006
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MR. AHMED: Good morning, everyone. Welcome, including welcome to all the journalists who are watching through the Media Briefing Center.
Let me introduce myself. I'm Masood Ahmed, and I've taken over as Director for External Relations from Tom Dawson. For those of you that haven't got the spelling yet, it's M-a-s-o-o-d, A-h-m-e-d.
This is our standard fortnightly briefing, and we'll follow the same rules that we've followed so far, which is, first of all, to say that everything we say here is embargoed until the time that we fix, and today—let's fix the time now—it's for 11 o'clock Washington time. That's 1500 GMT, that everything we've got here will be embargoed. And that includes the two press releases that you picked up on your way in, and those press releases should also be up on the Media Briefing Center, for those who are watching through the MBC, again embargoed until that time.
Since this is my first press briefing, let me just start off by paying tribute to my predecessor, Tom Dawson, from whom I've learned a lot and who I know enjoyed a good relationship with many of you. I'm looking forward to working with you, and I look forward to having the same kind of close relationship and to use not only these press briefings but our regular contacts as a way of explaining to you how the IMF works, what it is doing, and to respond to any questions on our views on current macroeconomic issues.
We've been conducting these press briefings about seven years now, and my intention is to continue to conduct them at the same frequency, which is roughly every fortnight. The next press briefing we're going to have will be on June the 1st.
Let me start off, as is traditional, with a few announcements, and the first set of announcements I want to tell you about is travel by the Managing Director and other members of management. The point I want to make to you is that over the coming weeks, the Managing Director will be traveling quite extensively to try and consult broadly with the membership on how to implement the medium-term strategy that was endorsed by the IMFC, and—we're picking up some feedback—how to implement the strategy that was endorsed by the IMFC, and in particular, he's going to be traveling next week for discussions in Austria and in Malaysia and in Singapore. I'll come back to those in a minute. In early June, he'll be traveling to Australia, to New Zealand, then for the G-7/G-8 summit meeting to St. Petersburg and then to Armenia, where he will be meeting with a group of member countries represented in the constituency run by the Netherlands.
Now, next week, let me just point to two speeches the Managing Director will be giving. One of them is in Austria, where he will be speaking at the 34th Austrian National Bank Economic Conference, and in Singapore, where he will be addressing the Economic Society of Singapore on the 24th of May. And I point you to those speeches because those speeches will lay out the Managing Director's vision for taking forward the medium-term strategy between now and the September Annual Meetings.
I'll say a word also about travel by other members of management. In particular, I want to point to the First Deputy Managing Director Mrs. Krueger, who will be speaking at an OECD forum in Paris on May 22nd on creating jobs in the 21st century.
A couple of other forward-looking announcements. The IMF's latest six-month work program is going to be discussed by the Executive Board in early June. We will have a detailed statement, and I will be in a position to review the work program at a briefing with you in mid-June. And this work program will lay out in quite a lot of detail the road map that the Fund will be following to deliver on the expectations that came out of the Spring Meetings in terms of implementing the various elements of the medium-term strategy. So I'd encourage you to have a look at that work program when it comes out, and I'd be happy to brief you and answer questions on it.
Before turning to questions, let me just make one another announcement. You should have received as you came in a press release on a Committee of Eminent Persons the Managing Director has set up to look at the full range of options available and make recommendations for sustainable long-term financing of the IMF's running costs.
As you'll see from the press release, this is an eminent group to be chaired by Andrew Crockett, but it also includes seven other members: Mohamed El-Erian, who's president and CEO of the Harvard Management Company; Alan Greenspan; and Governors Mboweni of South Africa, Ortíz from the Bank of Mexico, Al-Sayari of the Saudi Arabian Monetary Agency, President Trichet of the European Central Bank, and Governor Zhou of the People's Bank of China.
I want to say that the purpose of this committee, as I said, will be to look at all of the available options for ensuring a sustainable and durable long-term financing for the running costs of the Fund, and some of you will recall that there was a press release a week or so ago which announced the decision that was taken by the Executive Board to establish an investment account to invest the Fund's current reserves. That was an initial step, and this committee will look at other measures that could be taken to ensure sustainable financing for the longer term.
Let me just clarify that this committee's work is to look at options to finance the running costs of the Fund, costs that pay for our core work of surveillance and technical assistance. It is not about how the Fund provides financing for its member countries; that is, the money that it actually lends to member countries. Those funds, as you know, come from contributions from the membership, chiefly in the form of quotas, and the Fund's current lending capacity is at an all-time high of about SDR135 billion, which is nearly $200 billion. So just to be clear about what the purpose of this committee is. It is expected to report back to the Managing Director in the first quarter of 2007.
So those are the announcements that I have to make. I would turn now to your questions. Please?
QUESTIONER: Over the past week, Turkish markets are in jitters over the rapid depreciation of the lira associated with the flight of foreign capital and rising inflation. What's happening there? Are you concerned over the future of the Turkish economy? Will Turkey miss key targets this year? And what should the Turkish government do?
MR. AHMED: Thank you very much. The first thing I should simply note is that there is a consultation mission in Turkey now, and that's been there since May 5. It's made good progress, and it is expected to complete its work early next week. So we'll obviously have more to say at that time.
What I can say now is that against the backdrop of recent volatility in emerging markets, including in Turkey, we, the Fund, welcome the authorities' continued commitment, which has been restated at the highest levels, to prudent macroeconomic policies and to the ambitious reform agenda which is set out in the program that the Fund supports.
The gentleman there, and then the lady over there.
QUESTIONER: This investment account, this $8.7 billion of reserves that the Fund is now starting to invest, that obviously doesn't include the value of gold-
MR. AHMED: Could you repeat that? That obviously doesn't include?
QUESTIONER: The value of the gold reserves of the IMF. What's the present value of those gold reserves?
MR. AHMED: It doesn't include the value of the gold reserves. I don't have the exact number for the value of the gold reserves, and I'll come back to you on that. But obviously the value of the gold does depend on the foreign price of gold.
QUESTIONER: Could you give us a bit more detail how this committee is going to work? Are they going to make a kind of audit of the running costs of the IMF right now?
MR. AHMED: The committee is only now beginning to come together, and the specific modalities of how it's going to work we're going to work out in the coming days, because obviously it's just been announced today. But the purpose of the committee is not to audit the running costs of the Fund. It is to look at the options of financing those running costs in a sustainable way over time.
We have a process for looking at what are the running costs of the Fund, and those are discussed in the context of the budget exercise with the Executive Board. And, indeed, as you know, going forward we're working over the next three years at a constant and then slightly declining real budget. But that's essentially a separate exercise. What this committee will look at is what are the longer-term options for addressing those running costs, which do not rely, as we have done in the past, primarily on the returns-on the charges paid by members who borrow from the Fund to finance those other costs.
QUESTIONER: The IMF has been warning about a possible reversal of the current high liquidity situation and easing of financing for emerging markets, and we have seen during the last weeks sort of a reversal in the stock market's and global market's aversion to risk. Do you think the easing situation for emerging markets is over? And do you predict more turmoil? How is the global economy prepared to react to that?
MR. AHMED: Well, the first thing is I should say that my predecessor had a good practice, which was not to comment on current market developments, and I want to broadly follow that.
What I will say on it now is that while the movements in markets have so far been orderly and they've been within the range of normal market fluctuations, what they do highlight is that they're going towards exactly the kinds of risks that have been stressed by the Fund and others that exist in what is otherwise a strong international economic situation, and the presence of those risks highlights the need for action to address them, including action in a cooperative multilateral framework of the kind that the IMFC has asked the Fund to take forward.
QUESTIONER: What does the IMF expect from and what does the IMF recommend to the new Italian government? And do you plan a visit, a mission to Italy in summer?
MR. AHMED: Okay. I'm just looking to see what the dates are of our planned mission to Italy, which I do not have in my head.
Well, what I can tell you now is that the last Article IV mission was completed in November of 2005, and there was a press conference. After that, the Executive Board discussed that in February of 2006. We're obviously in discussions all the time with the Italian government, but I don't have the date of a specific next mission. I'd be happy for Media Relations to come back to you on that.
QUESTIONER: What are you expectations from the new government?
MR. AHMED: At this point I don't have anything to add on that now, but I will come back to you on that.
QUESTIONER: With reference to your earlier answers about emerging market volatility, is your view also that the decline of the dollar, which has been a linchpin of what the IMF has warned about for many years is also orderly and within the range of normal fluctuations, as you put it earlier?
MR. AHMED: As we made it a practice not to comment about market development issues, we have an even stronger practice not to comment about exchange rate movements. And what I would encourage you to do is to look over to the speech the Managing Director is going to make on these issues. Obviously, he will take a broader view of the current economic conjuncture.
QUESTIONER: I wish you can comment on the IMF's own finances. There's this savings program going on to save money in the Fund itself. What are the goals of the program and what are the achievements thus far? Have you been able to find anything, any places where you can actually save money in the IMF?
MR. AHMED: When you say a savings program, you mean in terms of the running costs of the Fund? Well, I think like all public institutions, whether we are short of money or whether we have adequate income, we have a responsibility to keep looking at our costs to make sure that those costs represent the most efficient way to deliver on the expectations of the membership--not only the expectations in terms of the substantive outcome, but also expectations in terms of good management and prudent management of public money. So it's in that context that we continue to look at our budget.
If you look at our budget going forward, the running costs going forward, the fact that those running costs, as I said, are stable and then slightly declining in real terms represents the fact that we do think that there are ways in which we can deliver on our current expectations with a tight budget.
So in some ways, while the juxtaposition of the fact that we have a decline in income from lending and the fact that we are looking at our running costs at the same time creates a natural link, we need to look at our running costs and are looking at them simply because we want to be an efficient public institution.
QUESTIONER: I was wondering if you could walk us through a little bit the process of finding a replacement for the First Deputy Managing Director. Who weighs in on this? How does it come about? How does the Treasury Department with the IMF come together? And what is the status of any search?
MR. AHMED: What I can say to you about that process is the following: The First Deputy Managing Director, as the other two Deputy Managing Directors, are members of staff now appointed by the Managing Director. However, their appointment, unlike the appointment of other members of staff, is subject to approval by the Executive Board. The Managing Director also consults with the Executive Board in terms of their views of the attributes and skills that would make for an effective Deputy Managing Director. That process is now underway, and I'm not in a position to say to you how far it's got to or when it is likely to come to closure.
QUESTIONER: I want to repeat part of my earlier question. As top IMF officials have said recently, despite some ongoing weaknesses and risks, Turkey has mainly been successful in its recovery program, supported by the IMF. Now, given the latest developments, are you concerned about Turkey?
MR. AHMED: I think our overall view on Turkey is the one that I set out in response to your last question. And as I also said, there is a mission in the field which has made good progress and which will be concluding its work next week, and at that point we have an overall, up-to-date assessment of our view in Turkey. I have nothing more to add on our view in Turkey at this point.
QUESTIONER: Is there already a short-list of the countries whose quotas will be increased in the first phase of the reform as proposed by the MD?
MR. AHMED: There is no short list of countries as such because the precise approach to how we're going to move forward on the discussion of quotas and voice, on which, as you know, at the IMFC, the IMFC asked the Managing Director, in consultation with the Executive Board and with the IMFC, to come forward with concrete proposals for agreement in September. That process is now starting.
There's quite a lot of work being done by a number of people outside the Fund. There's also work that Fund staff are doing, looking at different ways in which you can go about it. And there are various people who have produced lists, if you like, of countries that are over- or underrepresented, depending on which formula you use.
Precisely how it will go forward, if there are ad hoc increases, which countries would be the ones that would be part of that phase of ad hoc increases, what increases they would get, is work that has yet to be done.
I have now a question from the Media Briefing Center, and I'm going to read out that question first and then answer it, which is a question on Bolivia. It says: How does the IMF see the decision by the Bolivian government to nationalize its gas industry. Do you think this can negatively affect the investor sentiment towards all Latin America? This is from Brazil. So let me answer that question.
I think our response to that is that we think that the decision of the Bolivian government to nationalize the hydrocarbon sector has potentially far-reaching economic consequences. Over the next six months, negotiations will need to take place between the Bolivian government on the one hand and foreign companies and in some cases their governments on the other side over the specific modalities for implementing this new policy. This will include at least compensation for the nationalized assets, discussions on the compensation for the nationalized assets, the nature of new operating contracts, and possibly an increase in export prices to Brazil and Argentina. And our view is it is important that these negotiations lead to mutually agreeable arrangements that provide for a continued inflow of critically needed foreign capital.
I should also say to you that there is an Article IV consultation mission currently in the field, and both that process and staff here are monitoring developments, and at the conclusion of the Article IV consultation mission, we'll no doubt be able to say more about the current assessment that we have. Please?
QUESTIONER: What do you mean when you say that this could have far-reaching economic consequences? I mean, do you feel that the economy in Bolivia could be threatened by this measure? And if I may ask you a second question, also regarding what the previous reporter said on the quotas and the voice. When do you expect to have a proposal? I mean, what is going to be a timeframe for this process?
MR. AHMED: In terms of your first question on what do I mean by far-reaching economic consequences, what I mean to say is that in terms of how those aspects are handled could have an impact on the continued availability of domestic and foreign private capital to invest in hydrocarbon sector in Bolivia is an important part of Bolivia's economy, and that's why it's important that that the next phase of those discussions be done in a careful way.
In terms of your point about quotas and the process that we're going to have for taking that forward, at this stage what I can say to you is that there is, if you like, a little bit of an endpoint that has been set by the IMFC in the meeting last month because it basically asked the Managing Director to come back in consultation with the Board and the IMFC with concrete proposals for September. So there is, if you like, a bit of an endpoint on that.
Between now and then, there are a number of people inside and outside who are working on this, and at some stage this is going to begin to come together around both what is the nature of the actual process for addressing this, if there's a two-stage process, what would be the first stage, what would be in the second stage, and also then the sort of, if you like, the consensus building around that.
I'm not in a position to give you now a sort of specific timetable for getting between here and September. Again, what I would say to you is that this issue and the issue of how we take forward the strengthening of our multilateral surveillance and multilateral consultation will both be important issues that will be addressed by the Managing Director in his forthcoming speeches, including the one in Singapore, which, as I said, is essentially the first speech after the Spring Meetings that lay out the road map as he sees it between now and Singapore.
If there are no further questions, just to remind you that the embargo time both of this briefing and on the two press releases is 11 o'clock Washington time, 1500 GMT.
Thank you very much, and look forward to seeing you on June 1.
[Whereupon, the press briefing was concluded.]
IMF EXTERNAL RELATIONS DEPARTMENT
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