Transcript of a Press Briefing By David Hawley, Senior Advisor, External Relations Department, IMF

Washington D.C.
Thursday, November 8, 2007

MR. HAWLEY: Good day. I am David Hawley, Senior Advisor in the External Relations Department of the IMF, and this is another of our regular press briefings.

I would like to start by announcing that in a couple of days we will be releasing two regional economic outlooks or REOs. The first of these will be launched tomorrow. It is the REO for the Western Hemisphere, and it will be launched with a presentation by Anoop Singh, the Director of the Western Hemisphere Department, at the Getulio Vargas Foundation in Sao Paulo, Brazil. On Monday, November 12, we will launch the inaugural REO for Europe with a press briefing by the Director of the IMF's European Department, Michael Deppler. This will be held in London at 10:30 a.m. at the Andaz Liverpool Street Hotel. The report will also be presented on Monday in Kiev with a video link to Moscow, and later in the week presentations will be held in Brussels, Warsaw, Belgrade, and Tallin. This is, as I have just noted, the first time that the European Department has produced such a regional outlook. The Media Relations Division has sent around a press advisory on both reports.

On other announcements before going to questions, I would like to mention that the Managing Director, Mr. Strauss-Kahn, will be making his first official travel shortly to South Africa to attend the G-20 ministerial meeting, which is scheduled for November 17 and 18 in Cape Town. And after that, he will travel to Geneva to participate in the 2007 Aid for Trade Global Review at the World Trade Organization on November 20 and 21. We will keep you informed of any press opportunities during these visits.

I would also like to mention that the First Deputy Managing Director, John Lipsky, will visit Vienna on November 19 and 20. He will give a speech on the 19th on global imbalances at the Conference on European Economic Integration. This is an event organized by the National Bank of Austria, and as part of this event he will participate the following day, November 20, in a press conference which is scheduled for 9:30 a.m. For information regarding these events, please contact the organizers, the National Bank of Austria.

Finally, let me remind you that the IMF will hold its Eighth Annual Jacques Polak Research Conference here in Washington, D.C., at the IMF headquarters, on November 15 and 16. The Managing Director, Mr. Strauss-Kahn, will open the conference on the morning of the 15^th. Pre-registration is required to attend, and you should have received an advisory from Media Relations on this. Stanley Fischer, the Governor of the Bank of Israel, and the former First Deputy Managing Director of the IMF, will as part of this conference be delivering the Mundell-Fleming Lecture.

Now let me turn to your questions.

QUESTIONER: Do you have any comment on the latest turbulence in the market? Wall Street fell yesterday, any general comment?

MR. HAWLEY: This is a position which is not related to a particular market development in the last 24 hours, but is a comment on the Fund's view of market developments recently. Developments in financial markets have made global growth prospects more uncertain, and, as you may know, overall we have modestly marked down our global growth projections for 2008. In the latest WEO we regard growth as anticipated to remain strong at about 4¾ percent. Nevertheless, downside risks to the global outlook have clearly risen. The principal risk going forward is that a prolonged disruption in the financial market conditions and a renewed weakening of asset prices could have a more severe impact on real sector activity.

QUESTIONER: Just to follow-up on that, is the market turbulence we saw yesterday part of this correction that's going on?

MR. HAWLEY: I don't have a specific comment on what happened yesterday in the markets.

QUESTIONER: When you say that prolonged disruption in the market, if I heard correctly, could have more impact on economies, are you talking on a global level or specifically about the U.S.? And do you have any comment on the impact on the European Economy?

MR. HAWLEY: The remarks I just made in answer to the earlier question were about downside risks in the global outlook, and since you have asked a follow-up, I should develop the argument that underlines this current view. In discussing the downside risks what we are observing is that large financial write-downs and elevated risk spreads, a renewed bout of market turmoil including a broad pullback from risky assets, cannot be ruled out, and credit conditions could become substantially tighter.

The U.S. economy has so far remained resilient despite the ongoing and deep housing market correction, as evidenced by the close to 4-percent growth in the third quarter. However, the drag from the housing market will continue, given that house prices are falling in many regions and inventories of unsold houses are rising, mortgage lending standards are tightening, and foreclosures are rising. Against this backdrop and the recent financial market turbulence, we continue to expect some knock-on effect on employment and consumption implying, as noted in the WEO, moderate U.S. growth of around 2 percent for both 2007 and 2008.

QUESTIONER: There was an article in the Daily Telegraph in Britain the other day saying that there was talk from the British government that they would like to see the IMF develop into a financial watchdog, and even going so far as to say that perhaps the IMF would be developing such a body and that even Alan Greenspan, the former Fed Chairman, could head that. Would you comment, please?

MR. HAWLEY: I've got no specific comment on that article, which I did see. I think the sourcing was unnamed. I think the Fund would prefer to see an officially developed position emerge before responding to this idea.

QUESTIONER: Since the announce in June on the new surveillance program, what steps has the IMF taken to develop this tougher regime?

MR. HAWLEY: The surveillance decision of 2007 was the first full-scale review of a 30-year-old practice of the Fund and it focused in particular on bilateral surveillance, the annual analysis and discussion that the Fund holds with all its member countries. The follow-up is that this is now being put into practice, again, on an bilateral level, and as countries undertake their Article IV Consultation with the IMF, the conduct of that discussion reflects the surveillance decision.

QUESTIONER: At the IMF meetings, Rodrigo de Rato spoke about a 6-percent budget cut for the IMF. Mr. Strauss-Kahn last week mentioned that it had gone from 10 percent to now 16 percent, and he referred that it was something that came out of the G-7. Has this happened since the G-7? I don't remember 16 percent before.

MR. HAWLEY: Let me tell where things stand. You're right in noting that at the Annual Meetings the IMFC asked us to come back to the membership with specific proposals on a new income and expenditure framework by the time of the 2008 Spring Meetings. The IMFC welcomed the work that the Fund had already done in this area and that's the 6-percent cut in real terms over 3 years that you've noticed. But they made clear that this should be achieved within a new medium-term budget envelope while preserving the effectiveness of the Fund in fulfilling its core mandate.

Where we are at the moment is that management, staff, and the board are now actively engaged in a process that will deliver on this objective, but at this stage, there is no decision on an overall income or expenditure framework and, therefore, I don't have further information on numbers.

QUESTIONER: So the three years, was that from 2005 when the Medium-Term Strategy was...

MR. HAWLEY: The 6 percent over three years is fiscal year 2008, fiscal year 2010.

QUESTIONER: There is currently a bill before the U.S. Congress called the Jubilee Act Bill on Extended Debt Cancellation. The bill seeks to pass a law that would outrightly cancel the debt of more countries, countries that owe debt to the IMF, World Bank, and other institutions. I would like to know your comment on this bill. Do you think that Congress should get involved in issues like these?

MR. HAWLEY: [Noted the question would be followed up after the briefing.]

WRITTEN RESPONSE TO QUESTION: We do not have any specific comments to offer on this pending legislation. However, the Fund remains fully committed to the debt relief process established under the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative, which so far have translated into $87 billion in relief to 22 countries.

QUESTIONER: Mr. Strauss-Kahn met with French President Sarkozy yesterday. Do you know what the discussions were about?

MR. HAWLEY: I've got nothing on the contents of their discussions. It was a brief meeting I understand.

QUESTIONER: At the G-20 meeting, do you have any sort of idea of what his role is going to be? Will he actually deliver an economic update or anything?

MR. HAWLEY: He's been invited to participate in this ministerial gathering. Let's wait for the event to take place before answering that question more fully.

QUESTIONER: Can you clarify for me what the timetable on the IMF coming up with this best practices for sovereign wealth funds is? I was at an event yesterday where the OECD was participating and they were making the point that they are also involved in that, and I was kind of wondering if there was some sort of division of labor on how this is going to be accomplished, and is it by the Spring Meetings that you're expected to have something on it?

MR. HAWLEY: The situation is this. Sovereign wealth funds have been around for some time and they have been discussed in the context of the Fund's surveillance activities because they may have significant implications for the external and domestic stability of countries and these are central considerations of surveillance. What is happening at the Fund is that we are against the background of greater prominence of sovereign wealth funds, we are strengthening our surveillance to better gauge the implications of the existence of sovereign wealth funds. An example of this work is the annex on sovereign wealth funds in the Global Financial Stability Report.

The Fund right at the moment has an internal working group looking closely at developments on sovereign wealth funds and the policy issues they may raise. We are carrying that work forward, and we will keep you informed as it develops, including the division of labor with others.

QUESTIONER: Talking about the possible downfall of the global economy, you have explained to me about the U.S. pretty clearly. What's the IMF take for Europe? Do you expect also Europe possibly to suffer from this kind of earthquake of the markets, and also in the view of a euro that keeps rising?

MR. HAWLEY: The Euro area economy is still doing well, but real GDP growth is projected to moderate from about 2½ percent in 2007 to 2 percent in 2008, on account of the financial market turbulence. The risks to this outlook are on the downside, but over the short-term, continued financial market volatility is likely to have some negative impact. On the medium-term, however, external downside risks dominate, and include global imbalances and uncertainty in oil markets.

On the euro, our position is that it has been appreciating in real effective terms, but from a medium-term perspective, it still trades within a broadly fairly valued range.

QUESTIONER: Do you have any comment on oil heading up to the $100 mark? Do you have any comment on what the impact of that could be?

MR. HAWLEY: I don't have a comment specifically on $100 oil, but I can talk about the impact of the recent surge in oil prices. In our view, this surge has been catalyzed by heightened geopolitical risks and by bad weather in the Gulf of Mexico, but it also reflects increasingly tight fundamentals, including sluggish supply, greater than expected declines in oil field production, and continued strong demand growth from emerging markets, and we expect that prices will remain high and be volatile going forward. The output effects of higher oil prices, however, appear manageable, in particular to the extent that price rises have been driven by sustained strong demand growth from emerging markets, such as China, rather than supply shortfalls; the macro impact is likely to be moderate.

Thank you.

Our next briefing will be on November 29.