Transcript of a Press Briefing by Masood Ahmed

Director of External Relations Department
International Monetary Fund
Washington DC
Thursday, July 6, 2006


View a Webcast of the press briefing.

MR. AHMED: First of all, as part of his program of consultations on the Fund's medium term strategy, the Managing Director will be in London on July 13th, where he will meet with authorities and with a group of people from civil society and other stakeholders.

Also, during the course of next week, Mr. Kato, the Deputy Managing Director of the IMF, will be traveling first to Singapore where he is going to be attending a high level seminar being organized by the government of Singapore and the IMF on crisis prevention in emerging markets. At the end of that seminar, on July 11th, there will be a press conference and a press release. For those of you who are interested, Media Relations can give you more information on that. He is then going to go on to the Philippines where he is going to have discussions again with authorities on their views on the Fund's medium term strategy.

That is all I have by way of announcements to report, so we can turn immediately to your questions. I would like to encourage once again those of you who are logged in on the Media Briefing Center, to please pose your questions and technology permitting, we will answer them right away. If not, I will make sure that we come back to you after the press conference.

Who would like to lead off? Please.

QUESTIONER: I would like to have an update on Turkey and your general evaluation of the recent volatility. Plus, do you have a general idea of when the Board of Directors could meet on Turkey? Do you still think it could happen this month?

MR. AHMED: On Turkey, first of all, I just would like to remind you and those who haven't focused on it of the press statement that was issued by the First Deputy Managing Director, Ms. Krueger on June the 29th, in which she gave our overall assessment of the current situation and prospects in Turkey. But just to reiterate, the point that I think we made in that is that we think that the authorities have taken strong action to address the impact of market turbulence, in particular, the 400 basis point cumulative increase in interest rates accompanied by more proactive marking up of liquidity through open market operations. We think these actions were necessary, given the imperative to both calm markets and to address the challenges on the inflation outlook.

We also believe that, going forward, we have every confidence that the Central Bank and the authorities will carefully assess developments and take whatever action is necessary to ensure both that the inflation outlook in the medium term remains contained and also to ensure that Turkey is able to capitalize on the strength of its fundamentals in terms of its medium term growth prospects. So, that is our current assessment.

In terms of the timing of the Board discussion, we are still looking towards a Board Meeting towards the end of this month.

QUESTIONER: I have a question with regard to the multilateral consultations. Can you share with us which country or area will be included in the spring work, when this is happening, and any other updates?

MR. AHMED: First of all, Kari, I would like to refer you back to the press release that we issued on June the 5th on the first multilateral consultations and just to remind you that, as we said in that press release, on this first multilateral consultation which is focused on the topic of addressing global imbalances, the five economies that are party to this are China, the Euro Area, Japan, Saudi Arabia, and the United States. As we said in that press release and as the Managing Director has said subsequently in a number of speeches, these economies were chosen for this particular multilateral consultation because either they have large current account deficits or surpluses and because between them, they account for a large share of global output.

So, their cooperative action can help to address the vulnerabilities that are inherent in the imbalances, and they can also, through their action, help to go a long way towards ensuring that these vulnerabilities can be addressed while sustaining global growth which obviously is the objective of the exercise which is how to address these imbalances while sustaining global growth.

The other point I want to make in terms of the process is that the process has now started the multilateral consultations. Discussions are underway with representatives of each of these economies. As I said at my previous press conference, our expectation is that this process, the first multilateral consultations, will take us through the end of 2006. This process of the consultations with the individual counties, with the group of those countries, and then finally a discussion in the Board of the IMF, so that all member countries can bring their perspective to bear onto this issue, will take us through to the end of 2006.

QUESTIONER: You already have the important Article IV consultation. What do you think the added value would be for this new multilateral framework?

MR. AHMED: As we have said in the previous speeches that the Managing Director has done on this, the focus of these consultations is to complement what is done in the individual bilateral surveillance process, which is to say the Article IV process, by looking at linkages and spillovers across these economies and also by looking for ways in which cooperative action by a group of economies or countries can address a particular issue of systemic interaction of global importance, which in this first case, is the issue of global imbalances. So that is, if you like, the value-added of this.

QUESTIONER: You mentioned how the Managing Director is going to the Philippines and traveling an awful lot, discussing the medium term strategy. What has been the feedback he has gotten? Has there been any negative reaction towards his proposals for the medium term, or is he basically going around briefing people and they are agreeing with it?

MR. AHMED: Just a factual correction which is who I said will be visiting the Philippines, Mr. Kato, the Deputy Managing Director will be traveling there next week.

The Managing Director, as you say, has been traveling broadly on the implementation of the medium term strategy and also to get the perspective of different groups of members, different members of the Fund, on the issues within the medium term strategy and the agenda going forward, particularly in the run-up to the Singapore meetings. Basically, the feedback that we have had on the implementation of the strategy so far has been very positive in terms of providing both an overall framework and a direction for the institution over the next few years, which of course was endorsed in the IMFC in the spring.

So, now it is the question of how do we take forward the various elements? In the immediate future, the elements that we are particularly focused on are the issue of how do we take forward a strengthened role in surveillance, and on that, the issue of multilateral consultations is one dimension of that. The Managing Director has been briefing authorities and other groups on that and getting their perspective. The second issue has been the one of how do we take forward and develop a mechanism to better address crisis prevention for emerging markets, and again on that, there have been some initial discussions. Finally, the issue that we have focused on very much in the run-up to the Singapore meetings and on which a lot of these discussions have focused is how do we move on the question of improving the governance of the institution by addressing quotas and voice in the context of the Fund, and again, on this, we have had a lot of positive feedback but also very constructive suggestions on how better to take it forward. That process is now underway.

QUESTIONER: I was wondering if you could give us an idea of what the IMF's view of current Euro Zone interest rates and inflation levels are?

MR. AHMED: As you know, we are not in the business of commenting on, if you like, movements in the interest rates every month. What I can refer you to on that is the statement that was issued at the end of the consultations on the Article IV process and the press statement that was done at that time, which I think was about three weeks ago, and we have nothing new to add on that.

Any further questions?

QUESTIONER: Could you confirm that an IMF mission is underway in France and will be shortly in Italy?

MR. AHMED: Yes, as I have indicated previously, I think that our plan is, and the government authorities have already announced this, that there is going to be a staff visit which going to be during the third week of July, which is to say the week beginning July 17th.

QUESTIONER: With regard to the multilateral consultations, again, the G7 nations have been inviting China, Saudi Arabia, and other countries with large current account imbalances so far. So what would be the difference between these G7 meetings and this multilateral framework of yours?

MR. AHMED: First of all, I should point out that this particular focus on multilateral consultations that the Fund is doing has two important dimensions to it. One is that the Fund is a universal membership institution. All countries, 184 countries in the world are part of the Fund and are members of the Fund and have an opportunity to contribute to these discussions.

The process, as I indicated before, that we have set out to address this issue of multilateral consultations is one that brings together a small group of countries that are important for a particular issue of systemic importance. In this particular case, the first one is going to focus on the issue of global imbalances. It then has built into it also an opportunity for the entire membership represented in the Board of the IMF to have their perspective on the issue. They will also have a chance to express their perspective on that issue.

The second point I want to make is that we see the countries or economies that will participate or that will be directly party to any of the multilateral consultations to be those that are most relevant to that particular issue. So, there is no notion of a fixed group of countries that will always be party to a particular multilateral consultation. If and when there is a second multilateral consultation, and there has not been a decision yet on whether or when that will take place, but if and when there is a second one, the countries who would be party to that would be defined by virtue of those that are most relevant to the issue that second multilateral consultation would address. I think that is, if you like, the second point I want to make.

The final point I want to make is that we see this as complementary to discussions that are taking place all over the world in various groups on issues that are of importance to the international economy. As you say, the G7 has important discussions on this. The G20 has been discussing these issues. We think all of these fora provide very valuable and useful opportunities to have a discussion on issues that concern us all.

I will come back to you. You first, and then I will go to Jimbray [ph].

QUESTIONER: Just a quick follow-up to the questions on the medium term strategy: With the suggestions that the Managing Director has been getting as he goes around the world, is there a plan to put together a second medium term strategy at a later time, incorporating some of these ideas, or how would these proposals he hears, if he is interested in them, how would he move forward with those suggestions?

MR. AHMED: There is no plan to put forward immediately in the near term a second medium term strategy. We now have a medium term strategy for the institution. It has been endorsed by the Board. It has been endorsed by the IMFC. What we have is a program of implementing its various elements over the next three years or so. The consultation process, the feedback process, and the incorporation of that feedback will be reflected in how we design and take forward the implementation of those different dimensions in strategy.

So, to give you a very concrete example, one of the elements of the medium term strategy is to address the question of governance and voice in the institution. We are now in the process, as the Managing Director was asked by the IMFC to come forward with specific proposals for the Singapore meetings on how to take that issue forward. The consultations he has been having is getting advice from the different parts of the membership, getting their perspective on how they see this particular dimension of the strategy should best be addressed, and that will be reflected in the proposals that he will be bringing forward at the Singapore meetings.

Similarly, on other aspects of the medium term strategy, consultations are now underway, again to get input and perspective which will then be fed into the way in which we put together the proposals to implement those different dimensions of the medium term strategy.

The proposal is not that we should now come up with yet another strategy. The proposal is that we need to implement the strategy that has already been endorsed by the IMFC. But, in designing the implementation of that strategy, we need to take on board and to listen to, and that is what the Managing Director is very committed to doing, to listen to the perspectives of different parts of the membership.

QUESTIONER: I was wondering what the IMF's thinking is on last weekend's WTO talks in Geneva and whether the IMF might be sending any senior officials to St. Petersburg for the G8 summit.

MR. AHMED: The IMF's thinking on trade and on the importance of the effective and successful completion of the current multilateral trade negotiations has been articulated often, frequently, and forcefully, which is to say we strongly believe that it is important for the world and for the developing countries and really all parts of the membership to have a successful conclusion to the trade round. Like others, we are watching the process unfold; like others, we recognize that the process has, in the last weeks, been a little bit difficult; and like others, we very much hope that there will be an effort to try to bring this to a successful conclusion.

We see trade and the successful conclusion of the round but, more importantly, a fair and effective and rule-based multilateral trading system as being a critical component of both a globalization model network and also a critical component that enables countries to take advantage of the opportunities that a global economy can provide.

QUESTIONER: As a follow-up to the last question, are you sending somebody to the G8 summit, and in any case, what are your expectations, your wishes, from the G8 summit?

MR. AHMED: Management is not going to the G8 summit, but I just want to remind you that the Managing Director was at the G8 Finance Ministers meeting that took place in St. Petersburg four weeks ago. Our expectations and desires, if you like, are for an effective and successful summit.

There is one more question?

QUESTIONER: Thank you, sir, and I apologize for being late. It is sort of a follow-up to that because we will stay with Russia, obviously. I wanted to ask you for a comment on the decision of the Russian Government to float the ruble. How timely and appropriate is this step in the view of the IMF and from the point of view of the overall economic strategy? Thank you.

MR. AHMED: Thank you. I am sure you are referring to the liberalization of the capital account. Our view on this is that we believe, in this particular case, the liberalization of the capital account is an appropriate move, particularly in light of the strong balance of the payments situation in Russia. We think the elimination of capital controls by reducing restrictions in the economy will make possible a more efficient allocation of resources. We think that the risk of destabilizing foreign exchange flows, in this particular case, is limited, given the solid macroeconomic situation in Russia. We also think that the liberalization is likely to attract more foreign investment into Russia. I should add that we also believe that major increases in foreign investment will require, in addition to liberalization of the capital account, broad-based structural reforms that would lead to a better business climate.

QUESTIONER: May I raise just a point? If you have questions online during this briefing, I think it would be correct if you answer during the briefing, because if not, the people who are at the briefing are undercut in front of the people who aren't, and there is no reason to come to the briefing.

MR. AHMED: That is a good point. Actually, if we do have questions online, we normally do answer them during the briefing. Our policy has been to answer questions that do come in online during the briefing. At the moment, in fact, as you mention it, my technology is not working perfectly because the top part says, no questions posed at this time, and the bottom part seems to have a question on it, which I will read more.

As I say, I will read the question that we have here, which is a question on Peru, and I am just going to find for you, before I answer that, my reference. The question on Peru, which has just come in -- thanks for your prompting -- is the following: President Elect Alan Garcia is to take office by the end of the month. What are the IMF expectations on his government? This has been submitted by Nestor Ikeda of the Associated Press.

I think our view on that is the following: First of all, in terms of the economy itself, it is just worth saying that the Peruvian economy continues to perform well. As you know, GDP growth last year was near 6.5 percent. This year, it is going to be again near 5.5 percent. Inflation is low, well within the targeted band, and the fiscal deficit is small and manageable. Similarly, I think our view is the medium term outlook for Peru is favorable, assuming an orderly transition and the continued implementation of prudent policies by the new administration.

A staff team has just returned from Lima where it conducted discussions on the fourth and fifth reviews under the Fund-supported program. That team also had very positive discussions with President Elect Alan Garcia, and at the end of that visit, there was, in fact, a statement issued by the Director of Western Hemisphere Department, following the meeting he had. We continue to look forward to working with the new administration.

There are no other questions from the Media Center. One question from here?

QUESTIONER: Just to go back to the issue of the multilateral consultations, and you said you expect this process to go through the end of the current calendar year. What are your expectations for communicating what is actually happening at these consultations? Are we going to get periodic updates, and how much do you think you will actually say?

MR. AHMED: I think it is important that, as we conduct this process, we do so in a way that maximizes the opportunity to have the consultations amongst the countries concerned. We have these regular press briefings at which people, like today, will no doubt want to pose questions, and I will give you the answers on where things stand at the time.

The important thing for us in this particular instance is that we don't see that having a lot of proactive communication on where each step is in this process is necessarily useful to taking the process forward. The important thing for us is to be clear about the timetable, about the process which I have already outlined and I am happy to outline again, and about our expectations. When there are important events in the process, then I will, of course, take the opportunity to update you on those.

If there are no further questions, thank you very much. As I said, we are embargoed until 11:00.

We look forward to our next briefing, two weeks from today which is the 20th of July.



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