Transcript of a Press Briefing by Dominique Strauss-Kahn, IMF Managing Director, John Lipsky, First Deputy Managing Director, Caroline Atkinson, Director of External Relations
November 15, 2008Washington, DC, Saturday, November 15, 2008
|Webcast of the briefing|
MS. ATKINSON: Thank you very much for coming. I'm Caroline Atkinson, the Director of the External Relations Department. Just to explain, I know that there are others of you listening through the webcast and so welcome to you also. We have the Managing Director, Dominique Strauss-Kahn, and the First Deputy Managing Director, Mr. John Lipsky, ready to answer your questions following the summit. We also have a press release issued shortly after this event. Thank you.
MR. STRAUSS-KAHN: Thank you, Caroline. A few words. I know this afternoon there have been a lot of conferences, so you may be a little bit tired. I'm going to say a few words in English first, and I know there are some French journalists here so I will make some comments in French also. I will limit myself to English and French. Maybe there are other languages presented in the room, but then it will be too difficult for me.
You've probably already seen the communiqué so I'm not going to go through it page by page. I just want to tell you how important some points seem to me. The first one is that this meeting obviously has been a very significant meeting for two reasons. The first one has to do with the people who attended the meeting. It's one of the first times in world history when you have more than 20 heads of state or heads of government of the biggest countries in the world meeting today and trying to solve problems. I think this initiative has been a very good initiative, and as you know, it will be followed by another conference of the same kind three months from now with work inbetween. And I think it's a real renewal in the governance of the world economy and the world financial sector.
The second reason why this meeting has been very significant has to do with what has been agreed, both on principles and also on the action plan. Moreover, a very important discussions took place yesterday evening during the dinner at the White House and again this morning in the general meeting about the macroeconomic situation and the way to get out of the crisis. Obviously everybody had in mind that we have two problems to fix. The first one is that we're still in the crisis and we need to find a way out. The second problem is that we want to reform the system to avoid a crisis like this one to happen again.
On the first point, I think I felt that most of the prime ministers and the heads of state who were there at the dinner yesterday clearly understand the fact that the crisis is not over. In fact, the forecasts of the IMF we just released 10 days ago-which are rather pessimistic forecasts-have still some downsides and so nobody knows exactly how 2009 will be. But there's a little chance of an upside and good results. So action has to be taken. It's certainly the worst economic situation that the world has known or contemplated over the last 60 years and so it's absolutely necessary to take action.
I think everybody recognizes following the IMF analysis that there is some room for monetary policy in different parts of the world, not everywhere. In some places, some regions, a lot has already been done, so to ease the monetary policy is not very easy now. Look at the United States for instance where the rate of interest is 1 percent so you don't have a large margin to move. But in other parts of the world obviously there is some room to do things.
Another traditional tool is trade policy and I think that there has been during the meeting a very strong commitment for trying to complete the Doha Round before the end of this year, and again during lunch, different heads of state committed themselves very strongly to this goal.
But monetary policy, trade policy, all that is not enough, and recovery will not come on its own. So we have been advocating for weeks now that fiscal policy has to be used. Inflation is on average close to zero in the world today. There is some explaining that we may have a risk of deflation. So there's no risk to use the fiscal policy. If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it's now.
So our calculations are that the multiplier is one. What does that mean? It means that if you have a coordinated action with 1 percent of GDP of increases as a fiscal stimulus, either an increase in spending or a decrease in taxes, then the result will be 1 percent of additional increase in growth. One percent is one percent. That's the multiplier. That's a lot. It's often argued that when you have a fiscal expansion of 1 percent the result on growth is less than 1 percent which is true when this action takes place only in one country. But when you're considering a coordinated action plan, then the result may be much higher and that's why we here in the IMF are arguing for weeks that it was time for coordination.
What we need is more than 1 percent, we certainly need at least 2 percent, and some of the heads of government were arguing even that we need more than 2 percent. But you know in the IMF we're very conservative so 2 percent seems to me the right target. What we're trying to organize is this coordinated action plan to have a boost in growth starting from a [global] fiscal stimulus of 2 percent [of world GDP]. Some measures have already been taken by some countries, and we are looking for a result of an increase in growth of also 2 percent.
Of course the question is not only the amount of the stimulus, but the nature of the stimulus. You can do it less and more effectively, and there is no one size fits all in this matter. It depends upon the country, it depends upon what has been done in the past. One thing that is absolutely sure is that we need to argue that effectiveness of such measures is directly linked to the speed with which the spending will finally have an effect on the real economy. And the fastest way to have an effect is to consider vulnerable populations having low income and increasing the safety nets and increasing their incomes because this income will be spent very rapidly. You can also act through other channels like building infrastructure or these kinds of things which may be very useful. But it takes much more time to have an effect on the real economy. So we're going to work on this. We're going to work with different countries. Some have already launched an action plan on the fiscal side, some didn't, and so we're going to work in the coming weeks and months with the countries asking us for some comment, some advice, on how they should implement this kind of stimulus.
That for me is one of the big results of part one on how to find the way out of the crisis. By the way, another way to see that we are still in the crisis is not only to look at the forecast for 2009, but also to see the countries asking for support from the IMF. As you know, we completed in the last month a program with Hungary and a program with Ukraine. We will complete a program with Iceland next Wednesday at the Board. We now have an agreement for a Stand-By Arrangement, and as you know we're discussing with a couple of other countries. I hope the number of countries considered will not be too high because it reflects the problems of our membership, but unfortunately I'm not expecting that the countries will stop lining up in front of the IMF during the coming weeks. So probably we'll have some others to announce in a few days or at least in a few weeks.
The other part which is the part concerning the reform of the system and the ways to use to try to avoid to contemplate the same kind of crisis in the future, a lot of things have been achieved. First, on regulation and surveillance, as you know, building regulations is not the job of the IMF. We are not regulators. We are not supervisors. We can provide advice, we can provide some ideas, and that's why we're working with others in the Financial Stability Forum (FSF), but that's the work of a think tank like the FSF to provide elaboration on new regulations. Nevertheless, the G-20 found that it will be useful for the IMF to provide some specific input to this new regulation especially what concerns pro-cyclicality. One of the big problems of the rules, Basel II and other rules which have been created during the last years, is that they are cyclical. What does that mean? It means that the rules which are proposed work well when you're in quiet times, but as soon as you have problems the rules themselves increase the problems, and you know what that's about. Let's imagine that a rule like the rule concerning the subprime sector in the United States is clearly a procyclical rule. What does that mean? It means that you have a mortgage which is sized upon the value of the real estate you're buying. But if the market turns, if the price falls, then you have a problem because you may have the same income as before, be as able as before to repay your mortgage, but the bank is asking you something just because the price of the house is going down. So during that, the house-holding problem, the foreclosures increase the crisis, it increases the crisis because you have more and more households having problems, and also it increases the problem because you push more on the decrease of housing prices in the sector. So that's the typical kind of procyclical rule that we should avoid.
So to think about procyclicality as something we're in, why? Because our main job is about macroeconomics and macroeconomic cycles are linked in one way or another to this kind of procyclicality, so that's something in which we certainly will have some input. But what is most important for us as far as the changes in regulation and supervision are concerned is surveillance and what we call the FSAP, the Financial Sector Assessment Program, which is the way we go into different countries to see how the financial sectors behave if all regulation has been correctly implemented and if there are some vulnerabilities in the financial sectors. Until now, FSAPs are in a little more than 40 countries out of 185 countries of our membership. Of course we are not going to have an FSAP in very, very small countries. We've concentrated in big countries. But even in big countries we are not doing FSAPs everywhere, and it may surprise some of you to learn that among the countries of the G-20 we only realized 13 FSAPs. It means that seven countries out of this group of 20 countries being the leading countries in the world meeting in Washington to try to reconsider the financial sector don't have this kind of FSAP. That is that they don't have the assessment of the IMF of the quality of the implementation of financial regulations. [Clarification: As of end-October 2008, four of the G-20 countries had not completed an FSAP.]
One of the results of the meeting, and I'm happy about that, is to support very much this idea of the FSAP. Some of the members even go into the idea of having a mandatory FSAP. We are not there. They are not mandatory. We need to have an agreement with the countries. But certainly the number of agreements is going to increase because of this push of the G-20. So our role in surveillance is a role which will certainly increase. The problem for us to be able to do that is to have the resources, and that's another point on which a step forward has been made which is a very significant one. First on principle, the communiqué reaffirms very strongly the need to find the level of resources we need and everybody acknowledges the fact that with the globalized crisis our resources are probably adequate today but may be insufficient in six months from now and then we have to take this into account as soon as possible to be ready in six months from now, in eight months from now, if the crisis becomes more and more severe to answer increased demands of our membership. And not only the principle has been admitted, but as you may know, you certainly know, the first step has been done, a very significant one, by one of our members: Japan committed itself to an increase of $100 billion. So we've already increased our resources by $100 billion and many, I shouldn't say many, some members today already said that they are going to consider the same kind of process, but maybe not for such a big amount. The share of Japan is the second one in our membership so I'm not expecting that other smaller countries having a smaller GDP will be able to commit themselves for such an amount. But nevertheless, the door has been opened by Japan and I'm very grateful to the Japanese government to have made this first step and so I'm expecting that in the coming months we will be able to increase significantly our resources.
Two last points. Something in which the IMF is probably the unique institution is the way in which we are doing our early warnings. Early warnings are absolutely necessary to avoid crises, and forecasts in some way are part of this early warning. When we make forecasts it doesn't mean that the future will be exactly the one we predict, but it means that if something is done, that will be the future, but some policies can be implemented to change this future. So early warnings are useful if there is some action which is taken following this early warning. But forecasts are not enough and we need go further. We already have some case studies at the regional level. I don't believe in a thematic process which will give you a green light, a yellow light when it doesn't go that well, and then a red light when things are really problematic. It's too simple. The reality has to do with something which is more subjective, more complex, and which relies on regional studies of what's going on in this part of Latin America, this part of Asia, this part of Europe. What are the linkages between the countries, what the possible spillovers from one country to another one, and these case studies are really the early warnings we need. The G-20 communiqué underlined very strongly this need of early warnings and asked the IMF to make some efforts in this direction and it's certainly something we're going to do in the coming months.
The last point is the lead we've been asked to take in the lessons to draw from the crisis, but this has already been said by the IMFC one month ago and that's not something new.
So the real last point has to do of course with governance. A lot has been said in the last months about the reform of governance, especially the Bretton Woods institutions, and the system of the G's, the G-7, 8, until G-20, and I must confess that I've heard these kinds of speeches for years without any kind of changes. After the Asian crisis, for instance, a lot of people were arguing that the governance of the Bretton Woods institutions has to be improved which was right and provided some different kinds of reforms. We have as many proposals for reform that we have people speaking about this kind of thing. But after the Asian crisis it was a topic and nothing happened. Nothing happened, why? Because you're talking about this when you're in the crisis and as soon as the crisis is behind you, you have other things to do. You have other things in mind, and so you just forget your commitment to improve governance.
What is very special this time is that while we're still in the crisis the process began to move and to improve the governance. During the lapse of time between now and the next conference, which probably will be on this topic, mainly on this topic of governance, a working group will be able to collect the different proposals and to improve not only the Bretton Woods institutions-which is the least we have to do, we'll work in the future, but also the system of the enlarged system of the G's. Everybody agrees that the G-7 or G-8 is too small. Is the G-20 the right size for the future? Is it less? Is it more? There are lots of arguments in different directions, but all this has to be fixed and I'm hoping that in March or April when we will have the new conference then really change in the governance of the world-which didn't happen for 60 years-will be able to take place.
That makes a lot of outcomes from this G-20 meeting. And maybe if I forgot some John will correct me or some of your questions will make it clear that you want to stress some points and I'm ready to answer.
QUESTIONER: On this issue of the stimulus package, you talked about how the IMF is going to organize some kind of collective stimulus package. If you could explain that a little bit. How is that going to work? Which countries do you think need it?
MR. STRAUSS-KAHN: I didn't say the IMF is going to organize or that we have this role of general regulator that will organize it. What we say is two things. First on the analysis of the problem, we say a coordinated action plan is necessary and more coordinated means that if the governments are moving at the same time the more effective it will be. That's on the analysis side.
On the action side, we are ready to have all the governments wanting to have some work with us on what kind of stimulus they may have in their case. Some countries already have this stimulus announced. The case of China a few days ago is very well known. But there are some other countries considering this kind of stimulus and it is not my responsibility to announce this before the governments of these countries. They are going to do it themselves. But many countries are convinced that we need this and are ready to take a step forward. So the way to coordinate it is something in which we will be involved but it's not going to be organized by the IMF.
QUESTIONER: What countries do you think should have it?
MR. STRAUSS-KAHN: As I've just told you, I'm not going to make an announcement in place of the countries, but I want to answer your question candidly. Everywhere where it's possible. Everywhere were you have some room concerning debt sustainability. Everywhere where inflation is low enough not to risk having some kind of return of inflation, this effort has to be made.
MR. LIPSKY: Let me add just one note on that. Of course, what we don't mean is that everybody does the same thing at the same time. All the actions have to take into account the individual circumstances of the countries. What is needed is that we have action that is coherent and consistent and that's where our analysis and advice can be useful.
QUESTIONER: Thanks very much. It seems that the conference and the events over the past few weeks have enhanced the role of the IMF. With all of the extra duties and some of the extra money, is there significant room for hiring and expanding the IMF over coming years?
MR. STRAUSS-KAHN: We may work more without hiring new people, but nevertheless you're not totally wrong. As you know, the downsizing process which took place and is still going on has worked in such a way that finally more people have left the IMF than slots we have decided to suppress. So we already have some room for hiring new people and the total amount is something which looks like 100 slots. So we had the possibility before of having new resources. We already had the possibility to hire 100 new staff which will be very useful, which already has begun because we need to hire staff with new kinds of skills and that's also the evolution of the role of the IMF.
Your question is by having this new role and an enhanced role, do we need to have more staff? That's a possibility, but I'm not prepared now to go beyond what has been said two or three months ago, namely, to hire these 100 people and to come back to the size we decided when the downsizing process has been shaped.
MR. LIPSKY: To clarify in this regard, the new monies that have been given to us are not for funding the staff but are making resources available for our members, and that's what it will be for.
QUESTIONER: Could you please introduce the IMF's cooperation with China right now or in the future? Do you have any agreement right now?
MR. STRAUSS-KAHN: What exactly are you talking about? Resources or policy?
QUESTIONER: Maybe China plays what kind of role in this summit and maybe cooperation with the IMF in the future?
MR. STRAUSS-KAHN: China, along with some other big emerging countries, obviously played a big role in the summit and is expected to play a big role in the following one. There is no country more important than another one, but obviously countries that have a large population and a large GDP and big expectations in growth are countries which are asking to play a bigger role in a multilateral institution like the IMF, and it's just fair. So that's the case for China, that's the case for India, that's the case for Brazil and some others.
That's why I want to disentangle two different things. One thing is the influence and the role of a country like China in the IMF and as I told you it's going to increase and whatever the way which will be used to give more voice and more representation to emerging countries, China certainly will take advantage of this.
Another thing is the way we're discussing with the Chinese authorities on the right policy to implement and the view we have on the Chinese economy. I'm very happy to see that maybe as part of a result of this discussion, or almost partly as a result of those discussions, the recent shift from the Chinese authorities from an export-led growth model to a more domestic-consumption-led growth model is exactly what the IMF was arguing for months. So in this respect we're very happy with this new evolution, with this shift in the policy and I think that it will be very useful both for the Chinese economy and for the influence of China in the world economy.
QUESTIONER: I just wanted to find out what is the status of the talks with Turkey? Have you reached an agreement yet?
MR. STRAUSS-KAHN: I met with John Lipsky, we met together yesterday with Prime Minister Erdogan and Finance Minister Simsek. Obviously the situation of Turkey is a situation which requires some attention. We still have some disagreement on the size of the adjustment and the consequences of the adjustment which is needed by the Turkish economy, and following that, the size of the package and of the program that the Fund may finance. So we're still discussing with them, but I'm confident that rather rapidly it will be possible to find an agreement and this is certainly needed to stabilize the situation in Turkey.
Turkey has a great economy with great prospects, but it is also, as are many of them in this financial turmoil, being hit by the drying up of capital inflows. That has a lot of influence especially in those countries which were attracting a lot of private investment in the past and so we need to help them to get out of this bad situation. So that's the core discussion we have with Turkey, and I will just tell you I expect that rather soon we will have some results. Maybe John who is a Turkish specialist here can make some comment.
MR. LIPSKY: I think that the Managing Director has covered the main points of consequence. Of course the Turkish economy has been very influenced as well over the past few years first by the rise in energy prices and commodity prices, and now by the fall, but also by the weakening of demand in foreign markets for their exports. But the main point is exactly as the Managing Director states, the Turkish economy is one with great prospects and a great future and we have to make sure to ensure that that future is realized by helping to navigate and support the Turkish economy through the challenges of the current moment.
MR. STRAUSS-KAHN: I'm going to have a few words in French now for those who are most interested in my French comments. Maybe all of you.
[Press conference continues in French.]
MS. ATKINSON: Thank you. I have one last question which I think will be in English here, if you could say who you are.
QUESTIONER: Speaking of increasing the rates for the IMF, when you are expecting more countries to give money to the IMF, are you also considering to increase the representation in the organization? If you are, in what way? I know you mentioned it's different from voting rights. How to do it? Thank you.
MR. STRAUSS-KAHN: There are two ways to increase the resources of the IMF, and I'm happy with both. The first way is a general increase in the quota which means that you don't change the quota for different countries, but you increase what each percentage of quota represents as an amount of resources. That's the way which can be used, but it's a way which is a long way because it takes years to get 85 percent of the votes to approve this kind of decision. Yes, this may be too much, but at least months, maybe 1 year. So we can follow this route, but it cannot be the only one.
We have to go faster. So to go faster we need to have an agreement directly with some countries, but this doesn't change the quota. It's just a loan agreement, and for instance the lending agreement we just had with the Japanese, the $100 billion that I was talking about, this agreement doesn't change at all the representation of Japan. But I won't say it has no influence on the way Japan is working in the institution. So in this way, of course, the countries considering that they want to support the IMF's ability in doing that in different ways, including providing some resources, are gaining some influence in the institution.
MS. ATKINSON: Thank you all very much indeed and also to those of you listening to the webcast. Thank you.