Transcript of a Press Briefing by David Hawley

Senior Advisor, External Relations Department
International Monetary Fund
Washington DC
Thursday, December 14, 2006
View a Webcast of the press briefing

MR. HAWLEY: Good morning, ladies and gentlemen. Welcome to one of our regular briefings by the IMF for the media. I am David Hawley, Senior Advisor in the External Relations Department. I would like in particular to welcome journalists who are joining us through the Online Media Briefing Center. If you have questions, I would be grateful if you could put them in now, so we get the chance to turn to them during the course of the briefing.

This will be the last briefing before the end of the year. Before taking questions, I would like-if I may-to make a few announcements, principally about forthcoming travel by management. Mr. de Rato, the Managing Director, will travel to Libreville, Gabon, on January the 9th, 2007, and to Yaoundé, Cameroon. In Gabon, Mr. De Rato will attend the inauguration of the Central African Regional Technical Assistance Center, or AFRITAC. He will also meet with the leadership in Gabon as well as with heads of state from the region. In these meetings and discussions, Mr. de Rato will be laying emphasis on the IMF's commitment to engage with its low-income country members as underscored most recently in our Medium-Term Strategy. Discussions will also cover how the IMF is working with countries in the region to strengthen their institutional capacity where this is needed. When he travels on to Yaoundé, he will be meeting, of course, the leadership in that country, and he will participate in a roundtable meeting with representatives from the government, civil society, and the private sector, labor unions, and the donor community on the challenges facing Cameroon following the debt relief that it has received. A second seminar which will take place at the Regional Central Bank, the Bank of Central African States, will focus on regional financial sector issues. In the latter meeting, participants will include senior government officials, bankers, and the private sector.

The First Deputy Managing Director, John Lipsky, is in Rome today, where he is participating in a seminar which is co-hosted by the Bank of Italy and brings together senior officials and representatives of academia and think tanks from Europe, Africa, and the Middle East. This seminar is discussing another aspect of the Medium-Term Strategy, in particular proposals to strengthen the IMF's surveillance activities and to make them more effective.

Mr. Kato, one of the other Deputy Managing Directors, will be in the United Arab Emirates on December the 18th and 19th. He will be in Dubai on December the 18th to participate in a regional press seminar on the Middle East and the IMF, the title of which is Cooperation for Development. He will then proceed to Abu Dhabi where he will meet senior officials and participate in a joint Arab Monetary Fund-IMF Institute high-level seminar on Institutions and Economic Growth in the Arab World.

Finally, let me anticipate another event that will involve the Managing Director. As you know, he has made a point of briefing the media regularly on developments of the Fund, and currently this would include updates on the Medium-Term Strategy. He looks forward to briefing the media here at headquarters early in 2007, most likely in mid-January. We will give you more details of that closer to the time.

With those remarks, may I take questions.

QUESTIONER: I was wondering if there is an update on a search for a replacement for Mr. Rajan?

MR. HAWLEY: I have got nothing further on that.

QUESTIONER: Is there any timeframe we are looking at? He will be leaving at some point in the next...is it the end of January?

MR. HAWLEY: Yes, he is leaving fairly soon and we will make an announcement, I am sure, in due course.

QUESTIONER: I know you are saying the MD is going to brief us in mid-January, but could you tell us when the next discussion is going to be quotas and what is the process going forward on that one?

MR. HAWLEY: You may be aware that the Executive Board had an informal seminar on this issue earlier this week, in fact, on Monday. This was an opportunity for the staff to bring Executive Directors and thus the membership up to date on their work on quota formulas. This was a seminar only, not a decision-making session. It is the start of a number of opportunities that the Board will have to discuss this issue.

I don't, at this stage, have a date for the next discussion, but there is no change to the timetable on the package of reforms of quota and voice that was set out in Singapore. If you will allow me to remind you, that is a two-year program that calls for the IMF to complete its work before the Annual Meetings of 2007 and by no later than the Annual Meetings of 2008.

QUESTIONER: Could I have a follow-up?

MR. HAWLEY: Sure.

QUESTIONER: Not on quotas, but yesterday, Germany was speaking about risk issues regarding hedge funds. We haven't heard much from the Fund on what it sees or if it does see hedge funds currently as risks. Paulson has raised this as well. The ECB has done this. So there is a growing concern. Where does the Fund stand and how does it think it should be handled going forward?

MR. HAWLEY: Let me give you a sense of our position. The Fund sees the hedge fund industry, which is a $1.3 trillion industry, as an established investor group and a constructive influence in promoting efficient market behavior such as by increasing liquidity and improving price discovery. Unlike the situation following the failure of LTCM a few years ago, information now gathered by hedge fund counterparties such as major banks and brokers and thus transparency itself has improved. Risk management standards, therefore, have risen which makes for an enhanced market discipline.

However, market discipline may not always be sufficient to monitor hedge fund activity effectively or to ensure financial stability. Indeed, this may be the case today as demand for hedge fund capacity generally exceeds supply and investment banks and prime brokers aggressively seek profitable hedge fund businesses.

So, we at the Fund support regulatory efforts to improve risk management practices of the regulated banks and brokers including the reporting of all necessary information. Regarding hedge fund oversight and regulation, the IMF staff has proposed such as, for example in the GFSR, our Global Financial Stability Report, that an indirect approach may be the most efficient and effective means to monitor hedge fund activities by national authorities and supervisors. This, I would note in conclusion, is an approach that has gained acceptance among the U.S. and U.K. supervisors and regulators.

QUESTIONER: From what I am gathering from what you are saying, there are some concerns, but you don't see it as a problem.

MR. HAWLEY: Well, I can only repeat what I said. We regard it as an important established investor group where market discipline has improved, and as I say, we support regulatory efforts to improve risk management practices.

QUESTIONER: Do you have anything on reports out of Pakistan for calls for the devaluation of the rupee?

MR. HAWLEY: Yes, I think you are referring to media reports, and this gives me an opportunity to clarify what the Fund's position is.

Most recently, in the IMF staff report for the 2006 Article IV consultation, which was recently published on our web site, there was the observation that there had been a 10-percent real appreciation of the rupee since the end of 2004. This was mainly due to somewhat higher inflation in Pakistan than in its trading partners. In fact, as is further explained in the staff report, the evidence of overvaluation is mixed and depends on the methodologies used. Accordingly, the IMF staff has only advised the Pakistan authorities to pursue policies consistent with avoiding further steady appreciation of the real exchange rate over the medium term in order to maintain competitiveness.

I am now taking an online question, if I may, from a journalist who asks whether the informal seminar on Monday that I mentioned was different from a previous quota issue discussion in September.

Yes, it was a separate event, as I say, that gave the Executive Directors the opportunity to hear from staff about their work in this area.

Thank you, if there are no further questions. As I say, this is our last briefing of the year, so it remains for me only to wish you all very happy holidays, and we look forward to seeing you again at these briefings in 2007.

Thank you.



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