Transcript of the International Monetary and Financial Committee (IMFC) Press BriefingWashington D.C. October 11, 2008
|Webcast of the briefing|
Youssef Boutros-Ghali, IMFC Chair
Dominique Strauss-Kahn, IMF Managing Director
John Lipsky, First Deputy Managing Director, IMF
Masood Ahmed, External Relations Director, IMF
MR. AHMED: Good afternoon. I would like to welcome you to this post-IMFC briefing with the Chairman, Mr. Youssef Boutros-Ghali; the Managing Director, Mr. Dominique Strauss-Kahn; and First Deputy Managing Director, Mr. John Lipsky. The Chairman and the Managing Director will make some opening remarks and then we will take questions.
With that, let me turn to the Chairman.
MR. BOUTROS-GHALI: Good evening, ladies and gentlemen. The IMFC has held its 80th meeting today. I have been elected Chairman. I received the trust of the membership and I was very grateful for it.
Now, the meetings of the IMFC this year are being held in a climate of severe stress of the financial system. Therefore, the resolve of the membership was to concentrate on action and concentrate on decisions that would affect our ability as a world community to address the crisis we are in.
The IMFC focused on results, given the quality of the situation. The first essential element of the discussions throughout the day was endorsing the G-7 plan of action. The IMFC and, therefore, the entire membership of the IMF, represented in its members has endorsed the plan of action that the G-7 has issued a few hours ago yesterday and, therefore, this is a commitment by the international community that, because the crisis is global, the solution cannot be local. The solution has to be global and it has to have the support of the entire financial community-developed and developing countries.
Issues such as coordination and consistency were essential among the discussion. There is a resolve in the international community that this crisis will be resolved, that no tools will be spared to address its ramifications.
The second issue was emerging markets. Emerging markets have suffered recently in the last year or so from increased food and energy prices. There is concern that the financial crisis may have a fall-out on them. In this situation, the membership signified its resolve through the Fund, because of the multilateral nature of the Fund, and because the resources that the Fund can command, to assist these countries should they need assistance.
The Committee members also called on the Fund to take the lead in providing emergency instruments and emergency funding to any of the countries that may need assistance. Whether emerging or otherwise, the Fund can command substantial resources and therefore stands ready to assist any country that should need assistance.
Finally, the Committee emphasized that, because of the multilateral nature of the Fund and because of the presence and the resources, both human and financial, of the Fund, that the Fund should take the lead in initiating discussions with other institutions, with other participants, with other parties, G-20 and others, to draw the necessary lessons from the present crisis so that, one, it does not repeat itself; two, we can have established warning systems so as to avoid a repeat of any subset of this crisis at all; and three, develop the policy principles by which we can address either the crisis itself or the fall-out from this crisis.
Again, the mood in the IMFC was a mood of resolve, of unity, of focus, and of a decision by the membership that this requires cohesion and that cohesion has been achieved today.
Other issues were discussed. They are available in the attachment of the communiqué. Thank you very much.
MR. AHMED: Thank you very much, Chairman. I would like to ask now the Managing Director to add his opening remarks.
MR. STRAUSS-KAHN: Thank you, Masood. Good afternoon. I want to just tell you how sorry we are to have kept you waiting so long, but these days are special days and you never know how long meetings will last.
As Mr. Boutros-Ghali just said, the meeting today had a sense of gravity and determination. I have been attending a lot of those meetings ten years ago when I was the Finance Minister and last spring as the Managing Director, and I must say that this meeting was different from the previous one.
As you know, the Fund has asked for weeks, if not months, for more coordination for action, arguing that in such a crisis, coherence and coordination was something which was absolutely necessary, that it was impossible to look for domestic solutions, that all this ends with a beggar-thy-neighbor policy, and finally action taken in some countries without coordination with other countries can hurt more than it helps.
So, I think it is so important that the first coordination took place today when in the IMFC emerging market economies and low-income countries agreed with the principle and the action decided by the G-7 yesterday, meaning that the first coordination between advanced countries and the rest of the world is now on track.
Yesterday, at the G-7 meeting, when we were together drafting the communiqué, the idea that there was an absolute need not only to agree among ourselves, the seven Ministers, plus the World Bank and the IMF, but to go further and to make it possible today to have an agreement on the same principles by all the membership of the Fund was an idea that we had, but it was not obvious that we could succeed. So, I am very happy for this first big success of coordination.
Now, the main point is the one which has been explained by the Chairman, namely that the IMFC, meaning our total membership, 185 countries, the IMFC is asking the Fund to take the lead in drawing the lessons, the policy lessons from the crisis and recommending effective action to restore confidence. That is very important because I think that because of its universal membership, because of its experience in financial crises, because of its capacity to have people all over the world in different countries, the Fund is a unique body able to do that. It was very useful for us to see this reaffirmed by the IMFC and the mandate given to do that.
Besides this, the IMFC has endorsed the decision I made a few days ago to activate our emergency procedures so that we will be able to act faster than the normal circumstances. As you may know, the crisis is not only a crisis limited to advanced countries, but it also hit a lot of emerging countries or low-income countries, and so we need to be ready to answer, and we are already answering to many countries asking for support.
To do that, we have a lot of resources which are available and the world must know that we are ready to help the countries which need some support.
In the meantime, we are going to develop new instruments. After having revised our Exogenous Shocks Facility a few weeks ago, we are going to work on a new liquidity facility which will help the different countries having some need in balancing their balance of payments.
I just want to end with one other word which I already said at the beginning of these Annual Meetings and I want to reiterate, and it is that this crisis is obviously a very big crisis, one of the most important, maybe the most important in the last decades. But we shouldn't forget the other crisis and the other crisis is the crisis faced by emerging countries, low-income countries due to the increase in prices of fuel and food. And even if we are just contemplating these days a decrease in the price of oil and the price of some other commodities, the level of prices at least for food commodities is still higher than the prices we could register one year, one year and a half ago, meaning that the bill for those countries as far as food is concerned, for instance, is still higher than it was before. And for many countries, namely mostly low-income countries, this bill is just unaffordable.
So, we already helped about 15 of them with our financing facilities, some others are in the pipeline. One of the problems I would like to underline, and I will stop after this point, is that during the food crisis, a lot of aid has been pledged by donors, let us say advanced countries and rich countries, but because the crisis put a strain on the budget, those countries are now reluctant to really provide the money. I would just urge these countries not to do that and not to cut those kind of expenses, even if I understand how difficult it is, because we absolutely need this money to help people to avoid starvation, malnutrition. Already tens of millions of children are suffering from malnutrition which will have consequences for decades ahead. So, we are in a big crisis, but don't forget the other one.
QUSTIONER: We have heard a lot of positive slogans yesterday and today; that is what some critics in the marketplace have called the statements. They have been asking what concrete actions are being taken from yesterday's statement or your statement today. What can you point to that will restore confidence in the market place come Monday morning?
MR. BOUTROS-GAHLI: I am sure from the discussions there will be a number of measures that will be in the coming days coming forward. But more importantly, the support of the entire financial community of a set of measures implemented, this is a crucial component for restoring confidence. We are all, 185 members of the IMF, we are all committed to the plan of action that was taken outside. This is an essential element for restoring confidence both in wholesale markets, for banking, etc., and confidence of the public, that we are committed to resolving this crisis and we are committed to the measures that developed countries will take to address it. That is not a small achievement.
MR. STRAUSS-KAHN: Well, I don't have a lot to add. What is very important is that take, for instance, the first bullet point from the communiqué, which says to use all available tools to support systematically important financial institutions and prevent their failure. That is a very important thing both for people working in markets and for simple citizens that no one is going to let an important financial institution fail. It can be done in different ways, depending on different countries; for legal reasons, historical reasons, it can be done in a different manner so it has to be left to the national governments to see how to implement this kind of thing when they didn't do it already. But the fact that all the governments are now committed to do that is a very, very strong commitment and I hope that the market will understand that.
QUESTIONER: Is it a concern for you that many industrialized nations might find it easier for them to inflate their way out of the current crisis? On another topic, in a presidential debate, when they were asked if the current crisis will affect their spending programs, the Democratic presidential candidate didn't think of anything other than foreign assistance. So, how much will it affect, in your opinion, foreign assistance to developing nations?
MR. STRAUSS-KAHN: Well, I will just answer the second part of your question and leave the first part for Youssef. My answer to the second part of the question is that I have no answer. I am not going to interfere in any kind of election. So, it is a good try, but you won't get an answer.
MR. BOUTROS-GHALI: I endorse fully that answer. The first part, however, this is not a small crisis that somebody can wiggle its way out of. This is a systemic crisis and, therefore, it requires systemic measures. The decisions and the communiqué that you have in front of you signifies that the membership of the IMF is committed to systemic measures and they have endorsed measures that address the unfreezing of markets, address the guaranteeing of money markets, the guaranteeing of deposits, etc., that they go toward secondary markets. So, we endorsed the use of exceptional instruments. If you add the amounts of monies that have been put up by governments until today, they would easily cross over into more than a trillion, when we count what the U.S. has pledged for its own system, European Union, etc., is well beyond the trillion. This is not a small affair and, therefore, it is being met with seriousness and it is being met with measures that we think in the membership will solve this problem.
QUESTIONER: Last year, at this very event, Mr. Strauss-Kahn was not yet with us, but Mr. Lipsky you were and I brought up the issue of $416 trillion in the derivatives market, estimated value, by the BIS. I asked if you were alarmed or if the IMF was concerned. You seemed to suggest that you felt it mitigated risk; for the record, we have your statement. Is the Fund more concerned now with the state of the derivatives industry? Does it feel that it has a role in monitoring and surveilling it? Finally, is it going to make any suggestions for what should be done to rein in this derivatives market?
MR. LIPSKY: I refer back to our Global Financial Stability Report that began to chronicle concerns and risks that we perceived to begin building up in markets. It is clear that subsequent events have shown that, although in design these markets were intended to provide more efficient risk transfer, that for various reasons that I won't discuss today to keep the focus on the IMFC, that we have suffered failures of risk management, regulatory weaknesses that have become apparent. The downside risks that we had been concerned about have emerged and need to be dealt with in a very serious way.
QUESTIONER: (THROUGH INTERPRETER) I have a question in French for you, if you would answer in French, please. Do you envisage the measures contemplated sufficient and will they re-establish confidence?
MR. STRUASS-KAHN: (THROUGH INTERPRETER) Well, the measures adopted by the G-7 are very vigorous, as was expressed by the member countries of the G-7 with the IMF and World Bank there attending. They were totally in support of stimulating financial action to guarantee what had to be guaranteed, to recapitalize banks that needed it; in other words, all means available should be used, given the gravity of the situation and the need to implement exceptional measures. Agreement on that was total. Even more important is the fact that the Fund pleaded for coordination, explaining that its coordination could not resolve all because there could be decisions taken by some with some kind of negative impact on others. That was the G-7 decision. But today 185 members of the IMF took them into consideration. So, everyone agrees with regard to the IMF as to the measures to be taken and the direction to be taken, and these will produce decisive decisions in the coming weeks.
QUESTIONER: Mr. Strauss-Kahn, one of the central concerns for the markets is banks' access to funding at present, and I wondered if you could give us your view of whether the steps taken by the G-7 statement and other statements by your members add up to an adequate solution for this, problem and if you do believe that they are an adequate solution, can you explain why and how.
MR. STRUASS-KAHN: First, I think you are right. The main question today is funding. That is absolutely right and even if a lot of decisions have to be made in other directions concerning guarantees, concerning recapitalization, all this kind of thing which are essential, too, the problem of funding is the first problem.
My answer to your question is yes. I think that what the G-7 yesterday and the IMFC today has endorsed is to accept and to support a different way, because there is a different way to do it which has been used by different countries to try to restore the necessary funding. It is true in the United States, it is true in the U.K., it is true in the Eurozone by different means. So, even if the instruments are not the same, the tools are not the same owing to different histories and a different way to act, what is essential to see here is that in the coming days, what I expect is that the reaction by the different institutions will be positive enough to unfreeze the different markets and to restore the necessary funding.
QUESTIONER: I just want to ask, we have seen the major economies scrambling to bail out their financial institutions because they have enough liquidity to cover up this crisis. What about the developing countries which have barely reserves to cover a few months of imports? Did the major economies offer to the IMF or propose to the IMF to shore up their shares in the IMF to help the IMF meet these emergency needs in this crisis?
MR. STRAUSS-KAHN: Well, first of all, we have all to keep in mind that for many, not all of them but for many emerging countries, the situation is much better than the situation a few years ago. They have accumulated reserves. Many of them have strong fundamentals, the policies which have been followed during the last years are the right policies. So they are not at all in the situation of those kinds of economies of 5, 6, or 10 years ago. Some of them may have a problem, and the liquidity problem is something that everybody may face. The Fund has been created not only for that but also for that, and we are ready to face the demand by these different countries when they will appear or the demand already appearing that we are in the process of dealing with.
So, the Fund has plenty of resources available now to be able to face all kind of demands, and if it happened, which I do not believe, that the Fund will be short of resources, we have a different way to increase these resources turning to our shareholders to go on with the process, but we are far from that. I am convinced that the available resources at the Fund are now likely to face the problems.
QUESTIONER: Mr. Strauss-Kahn, I wonder if you can give any indication at all of the number and size of the countries that are asking for emergency assistance and is this because they are suffering a reversal of private capital flows. Finally, when do you expect to activate the new liquidity instruments that you were talking about.
MR. STRAUSS-KAHN: Well, I have information on the number and size of the countries, but I won't give it to you. But I can answer the other part of your question. Yes, you are right. In many cases, the problem comes from the fact that the deficit and current account of those countries were balanced by important inflow of private capital and those flows of capital are drying up for reasons we can all understand. Moreover, some credit lines have also been cut because the banks are dealing with domestic problems and less interested in financing trade abroad and all those reasons create the problem which they are now facing.
So, it is obvious that the risk of repatriation of capital from many emerging countries may create problems and that's one of the reasons why those countries are now asking the Fund for support and we are already in the process as I just said, to help a couple of them.
QUESTIONER: The British government, as you know, Mr. Strauss-Kahn, has put in place a recapitalization program for its banks, but it appears that there are concerns this week that unless other countries rapidly follow suit, that could lead to damaging and destabilizing flows of money from other parts of the financial system in the West into the U.K. and an example of this sort of coordinated action not taking place that you have said is necessary. Do you think that's an issue and what should be done about it?
MR. STRAUSS-KAHN: I think it is certainly an issue and that is the issue of coordination. You noticed it yourself. But what I see is that all governments in Europe are committed to recapitalization and some recapitalization already takes place outside of the U.K. when you are looking at the case of >>, for instance, or the case of >>. So, obviously with different tools, different means, the different governments are dealing with this question and I think everybody today is committed to provide the necessary capital not only in looking to public capital and government funds, also looking to private capital and matching this private capital with the public funds, but the fact that the banks needing to be recapitalized will be recapitalized is something which I think is enshrined in the communiqué.
QUESTIONER: I was wondering, would you be able to tell us what policy actions Egypt has to take to prevent the spillover effects of the crisis, including getting the privatization program back on track and making sure the effects do not affect the poor?
MR. BOUTROS-GHALI: The spillover effect that we anticipate in Egypt is not of a financial nature. The banking system in Egypt is not as connected as other emerging markets to international money markets and, therefore, its financing is local and its investments are in local assets. It does not have any of the assets that are now value-impaired in the international markets. Therefore, the spillover effect will come from the spillover of the financial crisis into the real economy worldwide.
When the real economy worldwide will start slowing down, exports in Egypt will start slowing down and, therefore, we will have the repercussions of a global economy that slows down, which will get reflected in the Egyptian economy.
Fortunately, the reforms we have taken in the last four years have given a significant policy cushion in Egypt. We have a budget deficit that, although large, is in control and, therefore, stable, and does not get out of hand. The current account in Egypt is still in surplus. We will have a very solid base of growth that comes from domestic spending, domestic investment, domestic consumption spending, despite the fact that last year inflation has eroded some of that spending.
Finally, we have a strong base of foreign investment coming from the Middle East itself. And we do not expect the international financial crisis to affect the flows of these investments. So, all in all, we will have some spillover. They will come from the global economy that starts slowing down and it will depend on how much it slows down. Finally, we have enough cushion to be able to withstand the bulk of the negative effect of the spillover.
MR. AHMED: I am going to bring this press conference to a close now. I would like to thank you all for attending. Thank you very much.
[Conclusion of the press conference.]
IMF EXTERNAL RELATIONS DEPARTMENT
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