Transcript of a Press Briefing by Masood Ahmed, Director, External Relations Department, IMF
October 5, 2006Director, External Relations Department
International Monetary Fund
Thursday, October 5, 2006
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MR. AHMED: Good morning and welcome to our regular briefing. As usual, we will embargo this until 11:00 here which is, say, 1500 GMT.
As always, I will encourage you to identify yourself and your affiliation, and I also want to encourage the people on the Media Briefing Center who are watching and participating through the web to send in questions.
I only have one announcement to make which is to let you know that we are now resuming operations in our Middle East Technical Assistance Center in Beirut. As you know, we had evacuated our staff temporarily to Washington, and I am pleased to know that they are ready to go back, given the normalization of security conditions there and the resumption of regular operations at the airport. There is a press release on that which we will make available to you and which we will post on the web.
Let me now turn to any questions that you have and please identify yourself.
QUESTIONER: It has been now, I think, actually two weeks since the end of Singapore, and I want to know how you are looking to proceed on the IMF vote reform. How is that going to move ahead now and into the next stage? Then I have a follow-up.
MR. AHMED: Well, as you said, it is now two weeks since we were at Singapore, and at Singapore, as you remember, we had the endorsement, the overwhelming endorsement of the membership to go forward with the program. The next step in this is to begin to work on the different elements. Just to remind you of those elements, we want to work on developing, putting together an amendment to the Articles that would deal with the increase in basic votes; we want to work on how to strengthen the offices of the Executive Directors that represent those countries; and we want to work on the quota formula which will then guide further increases. Work on all of these is now beginning, and our expectations are, as we were asked to come back hopefully in a year's time which is to say by the Annual Meetings of 2007, with enough progress on all of these fronts with a view, again, to taking all of these decisions no later than the Annual Meetings of 2008. The Managing Director will be reporting on progress at the IMFC meetings in the Spring.
In going forward in all these areas, the key for us is that we need to not only do the technical work but, as we did in the six months preceding Singapore, do broad-based consultation with all of the membership, so that whatever proposals we come up with are proposals that have the broad support that will enable us to go forward in the same way that we did in Singapore. So, when we have a work program discussion at the Board in about a month's time, that work program discussion will lay out specific milestones between now and next Spring. That work program document will be released to you on the web site shortly after the Board discussion, and at that time, I will be able to give you more detailed milestones between now and next Spring as well.
You have a follow-up?
QUESTIONER: Yes, I do; the issue of how to put together the formula, I mean I know people at Harvard and elsewhere have been working on something, their own way of doing this and working closely with the Fund. Who is going to put that together? How are you going to get agreement on that formula? Are you going to bring in all these different groups and look at that?
MR. AHMED: I think in the end, we will need to have a proposal that goes from the Fund Management. The Managing Director will put forward a proposal, and the Board will consider it. How we get to that proposal is, as we have done in the previous phase, we will draw upon all the work that is being done outside and indeed we will be doing work inside. So our view has been that if people are working on this outside and they have perspectives that we can draw on, that is something we would be happy to build on. But in the end, the proposal has to be one that is put together because, as I said, in a month's time, when I come back with the work program, that will be a time when I can give you more specific milestones on the way.
QUESTIONER: I have a question on Ecuador. I wonder if you could comment on the investment climate there. Do you think that this decision about the American company, Occidental, in May has hurt investment there? Also, if you wouldn't mind to give the Fund's opinion on this new oil fund that Ecuador has set up to manage those resources. Thank you.
MR. AHMED: Well, three points then: First, I think on our view of the investment climate in Ecuador, we have been discussing with the authorities in our conversations and our consultants with them the need to improve the overall investment climate. As you will recall, in the Doing Business Report that is produced by the World Bank this year, Ecuador ranks pretty low in the international comparison on business climate. In particular, I think that report highlights a need to have more consistent and clear policies to reduce policy uncertainty, to try and work to reduce the cost of credit, and to consolidate macro stability and to tackle corruption. So these are all issues that have been identified in that report, and I think our view is that this is an important area for policy going forward.
In terms of the impact of the decision on Occidental that you are referring to, I think it is early now to say what impact this is going to have on investment climate in the oil sector, but the general point that we have been making in this area is that decisions that governments make need to factor in not just the immediate consequences but the longer term impact in terms of investment climate and additional investment.
On the oil fund that you asked about, we support the basic goals of the fund which are to safeguard certain oil revenues to finance high return projects in the oil and energy sectors. More generally, the advice that we have been giving to the authorities in this area is that we think it is prudent to use the oil fund, in the case of Ecuador, to reduce expensive external debt and to build a cushion that would help safeguard against unforeseen eventualities. The other point that we have also made, though, is that we encourage the authorities to avoid a proliferation of many oil funds because they reduce transparency and introduce budget-free rigidity. So there is a need to make sure that when you have a fund that you don't end up with too many earmarked funds.
QUESTIONER: The Indonesian central bank apparently announced this morning that they were about to re-endorse their debt. Could you confirm it and also confirm the amount of money it represents, apparently $3.2 billion, and could you comment on the impact this move could have on the financial position and strategy of the IMF?
MR. AHMED: We noted the same announcement by the Indonesian central bank, and we welcome this announcement as we welcomed the original decision by the Indonesians to prepay their debt that they owed to the IMF, and indeed we welcomed the earlier payments on it. The reason we welcome that is because we think that this repayment reflects the strength of the recovering Indonesia, reflects the strong balance of payments position, and we continue to look forward to having a close relationship and a dialogue with the authorities, not only on economic issues in Indonesia but also on economic issues in the region and in the world.
As to the amount, the amount is 2.2 billion SDRs or a little more than $3 billion, and I can get my colleagues to give you the exact figure if you are interested in it.
I have one question here from the Media Briefing Center from Bruno Ferraro Cortez (phonetic) saying:
The Brazilian Economic Minister has said that the current project of reforming the IMF might enhance the majority of the world's leading economies have in the IMF. What assurances do you offer that this is not the case?
This is going back to the quota discussion that we were having earlier. Well, I think, Bruno, the answer that I have is that in the discussions that have taken place, the point that has been made by all is that the twin objectives of this reform program are, first of all, to make sure that the relative weight of economies in the world is reflected better in their relative weight in IMF quotas, and that applies to a lot of emerging markets. It applies also to some other advanced countries. So, as we move forward, we need to make sure that that the weight of the economies is reflected better in the IMF quotas.
The other point that is important in this regard is to note that some of the larger advanced economies have already stated publicly that they will not be taking up all of the increases in their potential quotas if in the new formula their quotas go up. That, of course, means that there is more space for other countries to be able to have their quotas go up.
The final point that I want to make is that the other objective of this program is to make sure that the poorest countries, whose weight in the world economy is small but where the Fund plays an important role, also have their share in the quotas protected.
That is the agenda that is going forward. In the end, discussions on the formula and where we come out will be something that will be discussed in the Board, but I think the intentions of making the IMF more representative, the quotas in the IMF more reflective of the world economy today are something that everybody has bought into.
QUESTIONER: In response to a question yesterday, the President of the Federal Reserve New York expressed a lot of doubt that even with revamped voting formulas at the IMF, there was still nothing where he didn't expect with any reorganization that it would be able to influence the policies of the U.S. economy. At this early stage of reform, how much is it a concern that people are already starting to dampen down on how the IMF can impact an economy such as the U.S.?
MR. AHMED: I think two weeks after Singapore, as far as we are concerned, we are moving forward, not just on the quota reform proposals, but we are also moving forward on strengthening the work that we are doing on modernizing the surveillance function of the Fund. The surveillance function of the Fund, as you know, applies to all of our members, and we are moving forward on trying to strengthen the instruments that we have for crisis prevention. So, as far as we are concerned, we are moving forward on all of those fronts, and we are pretty optimistic that in all of those areas, the membership gave us a very strong mandate in Singapore to move forward.
QUESTIONER: I have two questions, the first one related to Italy and the second one to the international environment.
The first question, I suppose you took note that the Italian Government presented its financial maneuver last week. Does it match the IMF expectations, and if not, why?
MR. AHMED: Okay, and your second one?
QUESTIONER: The second one, the IMF center in Beirut is serving also Iraq. Does the IMF still have plans to open an office in Baghdad?
MR. AHMED: I think just first on the question for Italy, as you say, the revised target -- they have a 4.8 percent of GDP for this year -- appears to us realistic based on the developments to date. Indeed, we think that continued strong revenue growth, should it persist, would afford the opportunity to make even more rapid progress in reducing the deficit and the debt both this year and the next. As yet, we haven't had the opportunity to examine in detail the measures proposed in the 2007 draft budget or to discuss them with the authorities, but I can tell you that we are looking forward to doing that during the Article IV mission which is scheduled for November. I think after that mission, we will be in apposition to give you more considered views on both the budget and the prospects for next year.
On your second question which was about plans for Iraq, I think at the moment our plans remain that we are providing support and technical assistance to the authorities, but we don't envisage, we have no image of plans to open an office there if that is what you are referring to.
QUESTIONER: Masood, a question on Hungary, what are the implications for Hungary and the region after the recent turmoil there? Thailand as well, are you still watching the situation and seeing any setbacks or implications from that one as well? Number three, Turkey, what are the -- well, we might as well take the whole region.
MR. AHMED: This is going to be a country overview. All right, off we go, Hungary, Thailand, Turkey.
QUESTIONER: Then Turkey, you have a mission going there next week. What is the focus going to be? Is it going to be primarily on -- I mean there is concern about the inflation.
MR. AHMED: Right, let me do them not necessarily in the order in which you have asked them.
In the case of Turkey, as you say, there is a mission that is going there. It will be there from the 9th to the 20th, and this mission is going to have pretty wide-ranging discussions. They will cover some budgetary prospects and policies, the inflation outlook, implications for monetary policy management, tax reforms and measures to strengthen tax administration, preparations for implementing social security reform, and progress in further strengthening bank supervision and reforming the state banks. This review mission, therefore, gives us a range of things that we will be covering there, and as I said, that is going to be there from the 9th to the 20th. I expect at the end of the mission, we will have a statement and in that, we will be able to give you the early views of it.
On Thailand, what I want to say first of all, as you and we have all been watching, the reaction of markets has been relatively calm. Going forward, obviously, a lot depends on the political situation. Economic prospects are overall quite favorable. If the political situation remains stable, then our sense its growth, which is tentatively projected to be around 4.5 percent for this year and closer to 5 percent for next year, should remain on track. Inflation has also been falling following the early series of monetary tightening and is now comfortably within the Bank of Thailand's policy target range. The current account is expected to move into balance after last year's substantial deficit. So, on a range of fronts, I think the underlying fundamentals are good, but as I said, a lot depends, in the case of Thailand, on how the political situation evolves.
In the case of Hungary, I think we had been looking at the region in the context of the WEO, and we have also talked about it in the context of the GFSR. But the only point I want to make there is that the situation does vary from country to country. So it is important not to get too focused on the fact that there are some very important similarities in terms of background and history and institutions, but also the current situation does vary across countries.
QUESTIONER: I have noticed that in the last year, quite a few countries didn't allow the publication of the staff reports that were used for the Article IV Review. So I wonder if you could tell us the position of the Fund on this. Does the IMF encourage the publication of those reports, and why do you think that countries don't permit that they are brought to the public?
MR. AHMED: I guess the answer to your question is yes, we do encourage publication of those reports and, indeed, the whole history of transparency of our reports, of our documentation is that more and more country and policy documents are being published. If you look at the numbers, I think that there certainly has been an enormous transformation from 10 years ago when virtually nothing was published to now when something like 80 to 85 percent of our reports are published. I think there is also, year to year, an improvement in the numbers that are getting published.
I don't have the precise number for what was the percentage of staff reports on Article IVs that was published last year compared with the previous year, and I am happy to provide that to you, but the general assumption is that they have been moving forward. The trend has been that they have been moving forward.
In terms of why countries don't allow documents to be published, I think in the end, it is important that we do need their consent to publish these documents. In some cases, countries aren't yet as comfortable with making that information public, but the general assumption and the general trend has been to move toward more and more publication.
Any other questions?
I have another question from [Brazil] who has come back with another question on Brazil, which I will respond to before we close unless there are other questions. [The] question is that: The IMF has recently said that Brazil's growth expectation for 2007 is about 4 percent. Do the recent electoral results change anything?
I think our answer to this is that, as he has rightly pointed out, the Article IV consultation which was completed in May indicated that Brazil had solid macroeconomic management which provided a framework for stability and growth and noted the growth expectation of 4 to 4.5 percent that he has referred to. As far as we are concerned, we don't see any reason at all to change that forecast based on the recent developments there.
QUESTIONER: Masood, just for a bit of guidance, in Singapore, the Argentine central bank governor said that Argentina is going to be looking at going back to the Paris Club for restructuring its debt. If a country has not have a Fund program, how would it proceed with this, with the Paris Club? As far as I understand, when you term it as talks with the Paris Club, you must have some sort of program with the Fund or an endorsement of the Fund, but I am completely up for correction on that one.
MR. AHMED: I am not familiar with the precise case that you referred to, and I need to get back to you on the Argentine case. On the general point that you are making, which is that so far it has been the norm that when countries have had a Paris Club debt restructuring, that has generally been associated with either their being a fund program or some form of Fund assessment or endorsement, but the precise case that you are referring to, I am not familiar with.
QUESTIONER: But you are talking about assessment of debt, right? You are talking about a debt assessment or are you talking about an economic assessment?
MR. AHMED: An economic assessment, yes.
If there are no further questions, thank you very much. As I said, embargoed until 11:00, please.