Transcript of a Press Conference by International Monetary Fund Managing Director Dominique Strauss-Kahn with First Deputy Managing Director John Lipsky and External Relations Director Caroline AtkinsonIstanbul, Turkey
Friday, October 2, 2009
|Webcast of the press conference|
MS. ATKINSON: Good morning, and welcome everybody to this live and on-the-record press briefing. I have on my right the Managing Director of the IMF, Dominique Strauss-Kahn, who does not even need a nameplate, and then the First Deputy Managing Director, Mr. John Lipsky, to his right.
We are going to open with short remarks from the Managing Director.
And are you all right with the photographs there?
And then we will turn to questions. I would like to open the questions with global issues, and of course we will take some questions on Turkey after that and other countries. Thank you. Mr. Managing Director.
MR. STRAUSS-KAHN: Thank you, Caroline. Good morning. I would like to start with thanking the Turkish government and the Turkish people for hosting this Annual Meeting in Istanbul even if sometime it is a bit moving (laughter), and also I would like—you know there have been two disasters in Asia, and I would like to express my sympathy to the people of the countries which have been hit—Indonesia, Vietnam, the Philippines, Tonga, and also Samoa Islands.
Let's start this press conference. The first point, obviously, which is not big news but needs to be reminded, is that the global economy has turned the corner. You have probably attended the presentation of the GFSR and the WEO, so you know everything about the figures, and I am not going to be boring in repeating these kinds of things.
The point I would like to emphasize is two things. The first one is that I am still very much concerned about rising unemployment. Growth resuming is one thing, and of course it starts with that, but it does not mean that the crisis is behind us. The fact that growth is coming back is the first good news, but we still will contemplate rising unemployment for months and months, and of course it casts a long shadow over the recovery.
The second remark is that even if our preferred scenario is that we will have growth resuming progressively and that 2010 will be a year with positive growth at the global level, there are still some risks, and we cannot avoid underlining those risks.
Let me just mention two of them. The first one will be a premature withdrawal from the stimulus which has been put in place, both on the monetary side and on the fiscal side. If growth is coming back, it is mainly because of the fiscal stimulus, which has been implemented following the advice of the IMF by all the countries having some fiscal room.
Now it does not mean that it is time for implementing the exit strategy. Of course, we have to think about it, we have to prepare the exit strategy, but it is not time to implement it, and if some had the temptation of implementing their exit strategy too early, this situation could harm the recovery. I do not believe [it is] the case, and I was very much heartened by the consensus by Finance Ministers in the G-20 in London and then by heads of state and government in Pittsburgh, all of them understanding perfectly that it is not the time to implement those exit strategies, but it is always a risk.
The second risk is that we still need to fix the financial sector, and of course problems in the financial sector may be harmful to the recovery and wither on the vine.
The first point is that even if there is some risks, we can control them, and certainly we are in a different situation compared to the one we had six months ago during the Spring Meeting.
My second point is that this Annual Meeting takes place in a defining moment in global governance. As you all have noticed, we have experienced unparalleled economic cooperation during the last 12 months. It never happened in the world, in history, that at the same time following the same goals such a large set of countries implement the same kind of policies following the advice of a multilateral institution with the results at the end.
So, again, it is always the same thing when you have something good, you are scared that you may lose it, and I was a bit worried that after the apex of the crisis we may have the consensus forces vanishing and each and every country coming back to its own domestic and political problems, which I can understand from the heads of state and government, they have other questions, domestic questions.
So far it did not happen, and on the contrary, what happened in Pittsburgh was the very firm will of the different heads of state and governments to go on using the G-20 as a body to organize economic cooperation, and this is the reason for the so-called framework that we tried to build with the IMF as the machinery to make it working so that the G-20 will become or will stay the main governance body for economic and financial questions dealing with the end of the crisis and after the crisis with some other questions concerning the kind of growth we are going to have, the sources of growth, solving the imbalances, and many other problems that we will have in front of us after the crisis.
And this is my third point very briefly, that after the G-20, which took place a few days ago, this Annual Meeting is in charge of beginning to implement what has been designed by the G-20. The role really is now to shape a post-crisis world, and for this I would like to set up three principles on which I will elaborate later in this day at a speech I will make at the invitation of the Central Bank of Turkey, and the three principles are very simple. The first one is that we need a sustained international policy collaboration going on, which has worked during the last year, and I am convinced that we will have the same spirit of collaboration among the 186 members of the IMF during this Annual Meeting that we had 10 days ago in Pittsburgh. Of course, the quota reform which has been launched will help a lot. From this point of view, it is really a key reform. I do not know if you really measure how historic the shift is and whether it will be completed for January 2011 will really have what has been asked for a long time; namely, a legitimate institution where all the countries will be more or less but much better than today represented in accordance with their economic weight. So, first principle, going on with economic global collaboration.
The second principle is that we absolutely need to improve the financial stability, which means better regulation, better supervision, which means widen the perimeter of our surveillance and curb the excessive risk-taking attitude that we still see in most financial institutions. Again, from this point of view, the G-20 had that made a lot of steps forward, it has to be implemented. One of the big weaknesses of the G7—I was close to saying the late G7—was that not only it was a gathering of the most important countries in the world letting outside of the room the rest of the world, which is now solved, at least improved, with the G-20. But also there was no follow-up. Ministers, heads of state made decisions, no follow-up, boring communiqués, and then the next meeting six months later. What is going to change, I hope so, and I do believe it will happen, was the G-20 and the framework which has been implemented is that there will be some follow-up, and especially for the second principle, the one concerning new regulation and new supervision in the financial sector, the follow-up is the essence, of course. Making declarations is just not enough if you want to change the reality.
And the third point has to do with the IMF itself, and the idea that we need a more stable international monetary system including the IMF playing its role as the lender of last resort. We all know that the growth model will not be the same after the crisis. We all know that there's a big risk that the potential growth will be lower than it was before the crisis, and we all know that this has to do with the saving behavior in the United States on one hand, with a more domestic-led growth model in China and other emerging countries on the other hand. In a nutshell, it has to do with the so-called global imbalances.
But if we think about the global imbalances, we have to ask us why do we have countries with huge surpluses and other countries, of course, with huge deficits. And when you ask yourself the reason for those big surpluses and why countries are accumulating such big reserves, then you come to the idea that the lessons they draw from previous crisis, including the Asian crisis, is that you need to have big reserves if you want to avoid to be under the attack of any kind of speculation. So at the end of the day, imbalances come from building up big reserves, and building big reserves come from the fact that you are rightly afraid of being alone, facing speculation on your currency. But is there not another solution less costly, more efficient to avoid this? And of course there is one, which is a pooling of reserves, which is the role at the beginning which was in the mind of the founders of the IMF, with this institution as a lender of last resort, which may help countries to—which will push the countries not to be in a situation where they have to accumulate such big amount of reserves and may stay with lower reserves because they can rely on a pool, collective pool of reserves. So if we want—all these things are linked. If we want to find a new growth model, if we want to solve the imbalances, we need also to answer the question which is asked by those countries, how will I react to speculation? What do you offer me to be able to face problems on my currency?
So how can we build the credibility of the IMF, which is the obvious candidate for being this lender of last resort? How can we build financial credibility but also legitimacy to do that? Then we are back to the question of the resources of the IMF but also of the quota reform because legitimacy relies a lot, not only, but a lot on the question of quota. So you see all these questions are linked, and that is what we need now to start to discuss during this Annual Meeting and probably during others because it is not going to be solved overnight.
Is this a new mandate for the IMF? This is my last point, I will conclude with this. I do not believe. As I say, it was in the minds of the founders of the institution as was in the mind of the founders of the institution that this, the IMF has been built to solve and to avoid financial and economic crisis but not only financial and economic crisis, also do that for the sake of peace. We all know that the economic and financial instability, especially in low-income countries, but not only, may lead to social unrest, from social unrest to democratic problems and from democratic problems to risk of civil war or even foreign war.
So at the same time where the U.N. has been established, the idea that on the economic side you need some tools to promote economic stability, having in mind that this is a condition for peace, was exactly at the roots of this institution. So we are just going back. It is not a new mandate, it is just going back to our original mandate and to try to do what has been asked to us 60 years ago. That is the role that I see for this institution. Again, it is not going to be solved in a couple days, but we have to start now. Time is always the enemy of reform, and if we want to make steps forward, we need to start as soon as possible. Here in Istanbul, this Annual Meeting may be the starting point of a new IMF, and you may say later when you will be talking with your grandchildren that you were in Istanbul at this time. Thank you.
QUESTION: Mr. Managing Director, I wondered how you felt about, you talked about calming the speculation in markets, and I wondered how you felt about whether there was a tax, a sort of Tobin tax which might be used to calm that speculation, that perhaps that money could then be reused to help fund the IMF and the World Bank in their development activities.
MR. STRAUSS-KAHN: Well, it is a very old idea. When Tobin first wrote on this question, it was at the beginning of the 1970s, and the financial world was somewhat different, and even as soon as the end of the 1970s, Tobin himself was saying that his tax couldn't be used in the way most were proposing. So I do not think that the very simplistic idea of just putting a tax on transactions will work. For many technical reasons I think it is very difficult to implement.
But, on the other hand, considering that the financial sector is creating a lot of systemic risks for the global economy and that it is just fair that such a sector will pay some part of its resources to help mitigating the risks they are creating themselves. So having some money coming from the financial sector to create a kind of fund insurance or funding for low-income countries, which is something we are going to consider. I ask John Lipsky to elaborate a little if he wants. I have asked him to work on this and with our team, and we will prepare a report for the G-20 on this question. So it is not the over simplistic Tobin tax that has been advocated by some in the past, but having some special funding coming from the financial sector is something on which we are going to work. John?
MR. LIPSKY: I think that is adequate, but perhaps I will just add in the sense that we all accept the notion that deposit insurance should be funded from a tax on, a kind of tax on the banking system. Let's call it a mandatory insurance plan. Now we can see we need to look more broadly across the financial system, think more broadly than deposit insurance and ask the question, how should these potential mitigation costs be borne, and is it right to think about a burden specifically on the financial system more broadly? And, if so, how would we do that? How would it be more efficient? We think that is the question that has been asked by the Group of 20, and we think it is a very valid question, and we will be responding.
QUESTION: Mr. Strauss-Kahn, if you look back over the 50 years of the Fund, the IMF has never been able to discipline its largest member. Do you see that changing? Or for it to change would the United States veto have to be altered?
MR. STRAUSS-KAHN: First, if I look at the 65 years of the Fund, you may be right. If I look at the last 65 weeks, it may have been different, and from some point of view the way the different countries have followed the advice of the IMF concerning the stimulus is proof that it is possible.
What is the difference? Why was it possible this time? Just because I think we were right, and that is exactly what, again, our founders were asking us. The only tool, the only weapon, the only piece we have is the so-called ruthlessness of truth telling. If what we say is true, we are able to convince, and that is the way for us [to influence]. We are not a country, we do not have an army, we do not have legal rules to kind of force or to enforce any kind of policy that we may find appropriate. We only have one weapon that is a very strong one, which is to be right and to convince countries that they have to follow what we say. It is exactly what happened with the stimulus. So I am confident that if we are not wrong, and we should not be, then it will be possible to help countries to implement the right policies.
QUESTION: Good morning. My question has to do with rising unemployment in the west has affected Africa. It has affected remittances, and there's a massive decline. How can the IMF help developing countries, especially post-conflict countries like Liberia, in closing the gap? And in terms of currency, in ECOWAS there is no single currency. It is hindering trade. What advice can you offer?
MR. STRAUSS-KAHN: You are absolutely right in saying that African countries, including Liberia, are kind of an innocent victim of the crisis. They have been hit a little later than others because of the linkages with the financial sector were not that big, but they have been hit by the slowdown in growth through exports, remittances, as you just said. We can help those countries with three tools, three ways.
The first one is to provide, if needed and if asked, some policy advice, and Liberia is a very good example of a country with which we work very closely.
Second, we just issued, as you know, a big amount of SDRs which are helpful to rebuild international reserves of the countries, and for a country like Liberia it is especially helpful.
And, third, we are likely to help improving the financial situation of the country. For Liberia it has been done with debt relief one-and-a-half years ago, and for other countries it is now being done with a new kind of facility that we have created. Following the request by the G-20 in April, we have created a new facility, loan facility with a zero interest rate, which never happened in the past. We have been asked to be more concessional than we were, so we went until the limit, which is a zero interest rate. We are now in a position to lend $8 billion during the two coming years to low-income countries at zero interest rate and $17 billion from now on until the end of 2014.
Just to give you a figure, and I will go on to the next question, we will be lending in 2009 four times as much as in 2008 to low-income countries. So the demand is there when you have got the right instrument to answer this demand, and I think that the role we may play in low-income countries, including those in Africa, will be dramatically different from the one we may have had in the past.
QUESTION: Thank you. You just said that IMF is going to be a facility for the G-20 to implement the decisions of the G-20, and we know the G-20 adopted its global growth framework. How is this framework going to reflect on the mandate and the surveillance function of the IMF? And if we could put it more specifically, how are you going to deal with the RMB exchange rates under this new global growth framework? How are you going to do that? Thank you.
MR. STRAUSS-KAHN: I was expecting you to be more specific. Two remarks. Something which is very interesting in the last G-20 meeting is that the spirit of cooperation is not only true when you are talking about the stimulus and getting rid of the crisis. It also appeared when you were discussing, started discussing about the imbalances, and I was very much impressed, including by the Chinese authorities, and Mr. Hu Jintao was in the chair, that the will to try to solve collectively collective problems was very strong. It does not mean it will be simple. It does not mean you may not have some conflict of interest. It does not mean that the discussion will not be tough, but the idea that we need to solve these questions together, including the currency question, was I think very much reflecting the spirit of the meeting.
The second point is that my impression is that the heads of state and governments clearly understands now that what was in the past just the kind of boundaries between countries, the exchange rate, making the connection between one country and another country is something which is today much more complex. Part of the global problem which goes from currency to global imbalances to the reserves I was talking about before to global growth, and that we are not going to talk about currency in isolation from the rest of the problem. We have to solve the global problem of growth as a comprehensive question. So we certainly will have to discuss on this question on surveillance on exchange rate, and you know the position of the IMF, which is still that the renminbi is undervalued, but this is only part of a global problem and not a question which can be solved in isolation. I think that is a big step forward not only in the understanding but also in the possibility to solve the problems.
MR. LIPSKY: I just want to add one clarification on this. Of course this new G-20 initiative, this framework for strong, sustained, and balanced growth is not—the idea is not to supplant the traditional bilateral surveillance relationships of the IMF. That will remain strong and a fundamental function of the IMF with its global membership.
This is a new initiative to raise that conversation to a senior political level among the most important relevant economic powers to have a collective discussion of collective problems at a level that has not existed before. So it is to supplant and amplify the IMF surveillance role. Thanks.
QUESTION: Are you still worried for a small country in transition like Serbia is, especially, do you have some advice for a country who has a Stand-By program with the IMF and also has huge fiscal deficit? Do you have some advice for a government how to cover or how to back on track fiscal program? Thank you.
MR. STRAUSS-KAHN: Well, I do not have some advice; I have a long list of advice. And that is the reason for the SBA, especially in Serbia where we are working very closely with the government. I think that what we are doing is improving the situation, and I am rather comfortable with the different decisions which have been made by the government recently. But what is true for Serbia is true for many other countries. We have especially in Central Europe today a lot of countries having programs, different kind of programs, and I think they help a lot weathering the consequences of the crisis. That is true for Hungary, that is true for Ukraine, that is true for Serbia, all countries being different, having different political backgrounds, different economic situations, but nevertheless needing the help of the IMF.
So what I want to underscore is that we are no more in this idea that one size fits all and that the same program can be applied everywhere. It has a lot to do with the situation of the country. In your country, for instance, where the question of pension was so important and has such a political impact through some political parties directly linked to the pensioners, the problem is not the same as the question that we may face in Belarus, for instance, where a large part of the economy is still under the control of the State. So, obviously, we need to be more flexible and adapt our programs to the different countries.
Nevertheless, you have some constants, and one of these constants is that in most cases you have huge fiscal deficits that you need in one way or another to reduce. So at the same time we are asking for maintaining the fiscal stimulus to be, to go slowly on implementing the exit strategy. At the same time, we know that in some countries we need to define with the government a track, which makes it possible with enough time, but nevertheless in a credible way, to come back to more sustainable fiscal situation.
MS. ATKINSON: Thanks. I am afraid we only have time for a couple more questions. I will take one on the corner there. The microphone is coming.
QUESTION: Thank you. Do you believe that the decision of Argentina not to accept a mission to accomplish an Article IV is in contradiction with G-20 mandate and your own advice for more collaboration among countries? And do you believe that this resistance comes from the past experience between the country and the IMF? Thank you.
MR. STRAUSS-KAHN: How do you know that Argentina does not want an Article IV? How do you know that your country does not want to have an Article IV? I had recent conversation with the Finance Minister, Mr. Boudou, and the President, Cristina Fernandez, and I think that we are making very nice step forward, so my hope is that in the near future we will be able to resume relationship, normal relationship with Argentina. So it may be the last time you are able to ask this question.
QUESTION: I am going to ask about the shoe incident.
MR. STRAUSS-KAHN: What is the question? I have no idea of the brand.
QUESTION: We already know that. It is Nike. American made, yeah. That is a conflict, isn't it?
Well, I actually had a few words with Mr. Lipsky at his very first day here, and I asked him about how Turkey can make a great opportunity from these meetings, and he told me that you should tell your opportunities to the world, these great opportunities. Do you believe Mr. Lipsky made our point by the shoe incident? Also I am asking Mr. Strauss-Kahn, please, don't you think the protestors should find a cleaner way or something different to throw?
MR. STRAUSS-KAHN: Well, you know, I am not sure it is so interesting, but I am a university professor, I am used to having some students demonstrating. I am not surprised. As I said yesterday, I find the Turkish citizens much more polite than the French ones because they wait for the end of the conference, and the French would have started at the beginning.
QUESTION: [Through translator] I have a question to Mr. Strauss-Kahn. Before you came to Turkey, Mr. Ali Babacan held a meeting here, and he said that he will not hold any talks with you with regard to an IMF Stand-By Agreement, and then the Turkish Prime Minister said we will either have a yes or a no to the agreement. During the talks, or your general talks here, do you have intentions to discuss any issues with our Prime Minister, with the relevant minister? Will there be any negotiations or discussions during your stay here?
And in Turkey, we have had a discussion on the independence of the central bank in Turkey. What do you think on this issue?
MR. STRAUSS-KAHN: First, I must say I am very sorry, but I am totally unable to answer your question in Turkish.
Ali Babacan was right, we were discussing with the Turkish authorities for a long time, and we decided that it was inappropriate to go on in this discussion during the Annual Meetings, so we will resume discussing after the Annual Meetings.
You know, the IMF is a kind of cooperative institution. We do not have deals with countries where they do not want it. When they feel that they need the IMF, we are ready to help. If they feel they do not need our help, the IMF, it is fine for us. The IMF is not a bank, and even if John was in his past life a former banker, we are not looking for customers.
So the Turkish economy is doing rather well, I mean in this global environment, which is not good. The recent decisions made by the government and announced a few days ago are, in my view, going in the right directions. So I am rather happy with the situation in this country. We will see in the future if there is some need for some support, I mean financial support from the IMF. Technical support is already working and will go on, and we will see if it is necessary to do something or not. There is no rush about that, and so it was certainly better to take the time of the Annual Meetings for the Annual Meetings and not for bilateral relationship.
MS. ATKINSON: Okay, thank you very much. I think that is it. And just to invite you all back for the press conference after the IMFC when you will have another chance to ask the Managing Director some questions with the Chairman, Mr. Youssef Boutros-Ghali.
MR. STRAUSS-KAHN: Thank you.