Transcript of a Press Conference by IMF Managing Director Dominique Strauss-Kahn on the Outcome of the G-20 Leaders’ Summit
November 12, 2010November 12, 2010
MR.STRAUSS-KAHN: Well, good afternoon. I guess you have had enough with press conferences, so let's make it short. I promise to be short, if you promise to be short in your questions.
My feeling is that this G-20 is probably the first G-20 of the second phase. The first phase was the phase in the crisis, and the second phase now, even if we in the IMF believe the crisis isn't over, is a phase where most people have the feeling that the crisis is over and that changes a lot behavior.
In the first phase, cooperation, which is the goal of the G-20, was mandatory. And, the second phase, which is now happening, cooperation is voluntary. And, of course, it doesn't go as easy as in the first phase.
The preparation of the G-20 was okay, in my view. The Korean chair did great. The FSB (Financial Stability Board) delivered what has been asked of the FSB in terms of regulation, still there is a lot to do, as you know, in terms of the supervision on which the IMF is insisting a lot and crisis resolution. But I have told you this many times already, but at least as far as regulation is concerned, the FSB has delivered what was asked. And, I think so did the IMF, which was asked in the preparation in the run up to this G-20 to deliver in many fields, on surveillance, and you know, of course, you know all this because it happens during when time goes by, so it is not news, but I think it is useful to wrap up all what has been done with the G-20 (summit) as a deadline.
There was surveillance, the fact that the FSAP becomes mandatory; that we created the spillover report that are going to concern five big, systemic countries--countries is not a good word because the euro zone is part of the five.
In terms of a financial safety net, which was one of the requests and one of the challenges which has been put on the plate of the IMF, we delivered also with the creation of a system of multiple FCLs (Flexible Credit Lines) and the creation of the PCL (Precautionary Credit Line). Of course, I will elaborate a little bit more about this later. And, of course, in the last weeks we delivered on the third thing, which had been asked of the IMF, which is quota and governance reform.
So the preparation in my view was fine. We also delivered on the Mutual Assessment Process. We said in Toronto that for Seoul we will have a breakdown by country of the MAP. That is what we did. And so I think that everything was on the table as was expected.
But, of course, it is a bit more difficult to organize cooperation when most of the people around the table had the belief, I think probably a bit too optimistic, but had the belief that the crisis is over. Certainly the climax of the crisis is behind us, but that doesn't mean the crisis is over. And from many points of view, we still are facing the consequences of this crisis.
So the idea, which is probably at the root of the MAP, is that there is a win-win solution that makes everybody better off. There needs to be, of course, a high level of cooperation. This idea is floating around, and everybody agrees with the idea, but it seems a bit difficult to put into place.
In some other fields, cooperation was good. I have in mind trade, for instance. And I have seen a step forward made by the biggest stakeholders toward the completion of the Doha Round. You know it is a kind of mantra in all the meetings of this kind to say that we call on everybody to try to complete the Doha Round in the next six months. I have heard this for years. But this time I think there is a little change, with the big players deciding that probably time has come where we can try to wrap up.
So, what is in front of us?
There is clearly a strong discussion among the members of the G-20 on the kind of policies to put in place. You will remember the discussion which took place in Gyeongju among the finance ministers about the story on the cap on current accounts. The discussion has evolved. And I think that the idea of defining guidelines which will take more into account than a single cap, which will take more into account the situation of different countries, the specifics of the different countries, is a better idea of course, it is open more to discussion. So the Seoul Action Plan, which is both policy but also a process, contains this fact that in the coming six months, let's say in the first half of 2011, we will provide indicative guidelines that when adopted, could be measured and used for maybe the second half of 2011.
The last point, which in my view is interesting, is that in this debate, because the G-20 was more a G-20 of debate than a G-20 of conclusion, the idea that there is a need to make other steps. I will just tell you why I say others, other steps in terms of reform of the international monetary system, is now an idea which is, well, I won't say shared by everybody, but making progress. I say other steps because in my view the FCL and the PCL already represent some change in the international monetary system. It is not just new lending instruments, it is a change in the view you may consider your reserves and reserve accumulation.
So it is a small step, but the idea that we could make a bigger step, especially considering diversifying global reserves, is something that I think has some steel.
So bottom line, the time where we had G-20, where everybody was afraid enough to go in the same direction at the same moment is probably over, and that is good. Because it means from some point of view that we are not anymore at the apex of the crisis, but it is bad, because it doesn't help to build cooperation. And that is the real challenge for the G-20 looking forward. If the G-20 wants to remain the main forum of economic governance and maybe beyond economic question, we talked about climate change, bio-diversity, things like this, but mostly economic governance, then the G-20 needs to be a forum, which it has been, but also place where everybody constrains himself to find cooperative solutions, and that will be a learning-by-doing process. This first summit of the second phase showed that it won't be that easy, but I'm rather optimistic that in 2011 much progress will be made, which will show the G-20 is able to play its role.
So having said that, I am happy to answer all your questions, or at least those on which I know the answer.
QUESTIONER: Mr. Managing Director, is there a sense on your part that some of the toughest decisions about how to define the imbalances and how to fix them, have in essence been deferred, and what role will the IMF play in defining and proposing what they call preventive (inaudible)
MR STRAUSS-KAHN: I won't say they're deferred, but maybe because of my bad English I don't understand what deferred means. I would say it is a process that it will take more than one meeting to be done. I don't think we can say that it is a problem that has been put aside, is what you mean by deferred, and limited timeline and not knowing when the thing will be done, but I won't say that. But, what is true is that it is a complicated problem where in our view, the IMF view, we need a quick answer, but obviously in the country's view, we can wait a little and work a little more to try to have this correctly defined, and so it hasn't been deferred, but it will take a little time to establish. That is the role of what we had to provide to the working group in terms of indicative guidelines. So, it doesn't change that much the timeline, because if the decision had been made today that absolutely for, I don't know, April we have to provide this, it wouldn't be that different. However, we will have to do that work, discuss with the membership, and come back somewhere in the first semester.
QUESTIONER: What are the other indicative guidelines? What are some of the other indicative guidelines that the G-20 and the IMF are considering to measure the external imbalances? And, in your MAP, that you covered today, there was an indication of frustration that countries haven't published or made progress on the acceptable (inaudible)... Was there a call by certain countries for the IMF not to publish the country by country analysis the IMF produces?
MR STRAUSS-KAHN: I'm not sure I had a call by any country to publish. So, I think the question of publishing was something which was a concern for everybody. But, finally, the reasonable solution has been accepted and it is the one we were proposing is that it has to be published. I think it is for this point of view, from this point of view it is a precedent because now it will probably be very difficult not to publish each exercise. I think that is very good. Why this reluctance? For the reason you say. Because the process, the G-20, the MAP process is really a G-20 process. It is not an IMF process. And, the G-20 has to learn how they want to deal with this. They invented this in Pittsburgh. It was just an idea. It becomes a dry run, a model in Toronto. Now we have the first real run, and the country says okay, now we have this tool, but we don't know exactly what we want to do with it. I won't say that is not correct. We know what we want do with it, but we don't know exactly how to do it. We need to learn to use this tool, which, of course, let's be candid, the fact that it is a kind of a surveillance tool. It leads to policy action, but at the beginning it is a kind of a surveillance tool that allows a global view on what is possible, and what is going on. And, it is always the same thing. Everybody agrees since the beginning of the institution that you need to have a surveillance process, that you need to have the IMF have the information, so on, but at the same time, countries are not so happy when we come and finger point some problems.
We had the same kind of reaction with the early warning exercises. You will remember everybody from an intellectual point of view is asking for early warnings. Now, when you make an early warning exercise and you say this country, these countries are at risk, then the policy makers of the country concerned are not so happy. So it is exactly the same kind of reaction. It is just unavoidable. Countries are sovereign entities, they want to have their own policy, at the same time they understand that more and more in the globalized world they need to take into account the spillover, the interaction and they cannot act independently. The tool to do this is to use the IMF as the place where you can discuss, as providing the analysis, it doesn't mean that it goes smoothly. It will be very surprising if it goes smoothly.
QUESTIONER: On the indicative targets ....
MR STRAUSS-KAHN: The idea started, you will remember, with this simple, maybe too simple, but, you know, simple is good because simple is easy, and on the other hand, it is sometimes too simplistic. The simple idea of saying we should cap surpluses and deficits figures which was floated, was 4 percent. The problem appears clearly and rapidly that, well, it is difficult do, itself easy to do, because it is everybody understands what it means. It is difficult because 4 doesn't mean the same thing for all countries. Four percent surplus is not the same thing for an oil exporter or for a non-oil exporter. Of course not. A 4 percent deficit is not the same thing for an emerging country for which the deficit is correct, when financed my capital inflows, and for a developed economy. So, the idea comes, okay, that's 4 percent, but you have to vary a little this target, depending on the state of the economy, the nature of the economy, and then the more you think about it, the more you make it more complicated, more realistic, but more complicated, and at the end of the process, you reach something which is very close to the MAP, which is an analysis of what future of the economy can be taking into account what the others are going to do and see if it goes in the right direction or not.
So, to answer your question, as I see it, but of course it is the work in progress, we will talk about this in a few months, but as I see it, the indicative guidelines are not only certainly the first motivation has to do with imbalances, but are not only focused on the imbalances, or, I will rephrase it, it is focused on the imbalances, but it has to take into account other elements of the economic policy, other kinds of surpluses or deficits, fiscal, for instance, on monetary policy, so on. It is a global appraisal of the way the economy of country X or country Y is doing, and what kind of consequences it has on the others, and see if it is in line with this upside scenario that we try to define or if it is not. So in my view, we see at the end how it is, but in my view, it is certainly focused on the imbalances, that is the starting point, that is what we need to try to resolve, but it will, of course, become more complicated, as I say, but it will need to take into account many other elements.
QUESTIONER: Two questions. One on the MAP. Do you expect (inaudible) country by country what they should do for China?
And the second question, it was mentioned that the (inaudible). Do you think the IMF is working on the (inaudible) ...
MR. STRAUSS-KAHN: On the first point, we already published a paper with remarks concerning the economic policy that has to be followed in the different countries. But, well, I expect, yes, but I'm not sure it will happen, again, it is a process in the hands of the G-20. It is not an IMF process. We provide analysis, they do what they want with it. I expect it will be possible to have what you are talking about, but it will depend on the G-20.
Your question was a bit biased, when you say including China, there is no difference for us between China and other countries. And, what will be done for a country will be done for another.
Now, maybe the G-20 will decide, I don't expect this and I don't hope it, that they don't want this to be published for any country. But, I don't think it will be the case. And so, I hope that if the analysis goes well, which I believe, then things can be published.
Second question, what is your question about Ireland exactly? We have, I have nothing special to say. The relationship with Ireland goes as previously. Of course, everybody knows the problem Ireland is facing, and everybody has seen the way the markets are reacting. But so far, I haven't had any contact with the Irish authorities during the last days. Even a week.
QUESTION: There is a line in the declaration about advanced economies, including most reserve currency, in particular to get their policies on the exchange rate. Can you mention how that would work in practice? That is, it is hard for (inaudible) or the Federal Reserve, or the U.S. Treasury would take account of problems in the markets, when it plans (inaudible).
Do you have any sense about what exactly that might mean, that commitment?
MR. STRAUSS-KAHN: It means exactly what you said, that central banks, but also fiscal authorities, will try to take as much as possible account of the spillover effect. That is why we need to have the spillover report being done, on what they do, when they're systemic countries, of course, [what the effects] are on the rest of the world. It is understandable that any policy maker is first and foremost concerned by his own economy. But, that is also an old fashioned way to look at economic policy, because we know that the spillovers are bigger than they were before. The idea, and the commitment is to try to take into account as much as possible the spillover effect, and I believe, yes, that the different monetary authorities, the different fiscal authorities, will have to be more aware, of the spillover report and be able to take action taking into account what are the consequences of their own policy, not only on their own economy, but on other economies.
MR STRAUSS-KAHN: What it means for each country and the way they will do it is not my business. ]
MR STRAUSS-KAHN: It is clearly understandable that we are the bad guys. We are asking for cooperation while people want to push their own economy forward, they will have, because they're clever people and trained people, all have in the back of their mind that what they're doing will backfire. Nevertheless, each and every policy maker is more concerned by his own economy. So, providing information, pushing, helping the process, which is supposed to create cooperation, building these indicative guidelines—indicative, but still when they will exist, they will have some force—is something which intellectually everybody agrees with. On the other hand, something on which everybody is reluctant, because they will say, okay, when I am the target, I won't like it. So, I spoke during these two days with almost all of the members … certainly all the most important, and they all said the same thing: Yes, we're committed to it, we'll do it, it is absolutely necessary. But I understand in their voice that they also say, okay, but it is going to be one more trouble. Yes, it is going to be one more trouble, but our belief is that this trouble is lower, smaller than the trouble of doing nothing and having the global economy with a different center of decision going in different directions. So, I think, as I said before, it is a learning-by-doing process. The first step, this summit is a first summit where leaders do understand, and the IMF at the same time does understand with the leaders, that we are no more in the simple world where we have to fight a crisis in a situation where … everybody was okay on the kind of policy to put in place. We are entering a much more difficult situation, much more complex, to analysis and then to handle, and it will take some time to build this.
What is important, I think, and that is for me the success of this summit, even if it appears struggling and fighting, is that everybody says: Yes, we have to do it. They are all reluctant, but they all say yes, we have to do it, so that is the important thing. Now we will see after six months, after one year, after two years if we're all together able to give some flesh to this around the bone, to give some reality. Forget about the metaphor—to give some reality to this process.
Tell me, what is your problem? Forget the metaphor. What I was saying is that the challenge will be to see in the coming six months or one year, or one year and a half if we are able to give some reality to this idea that everybody has to cooperate, that everybody agrees that they have to be cooperative, and everybody is reluctant to do it because no one wants to abandon part of its sovereignty.
I know this process by heart. That is, I won't say exactly, because times are different, history is different, but that is the kind of process we had in the European Union since the beginning. There is nothing new. You try to build cooperation, everybody understands the reason for that, for the European Union probably it was different than the need for cooperation today, but in both cases it is a need of working together. Everybody agrees, but everybody says, okay, that is more constrained, and I don't like it—the problems are difficult enough without this constraint, why should I put on top of that the constraint of cooperation. It is exactly the same process that we had over time in the European Union. It took a long time in the European Union to solve this problem—if they're totally solved today. I only hope, and I think it is possible, that in the G-20 it will go faster because we pushed by the reality of the global economy. That is why, having a European at the head of the IMF is finally a good idea.
MR STRAUSS-KAHN: You know, frankly, it is difficult to answer, because I hope it will have a lot of impact. But we still don't have the guidelines, so you ask me not only what will be the guidelines, but when we have the guidelines, what kind of impact we will have. We think we will have them, they will have impact, and they will force everybody to behave. You were talking about the case of the Germans. The case of the Germans is very interesting because the Germans today are in the situation of the French 20 years ago, when the Germans were asking for a cap on fiscal deficit. And the French were saying, we are sovereign, we don't want to have the stability pact because the stability pact is a kind of a jail, and finally, the French accepted, because the Germans were right. Now, they are in the opposite situation. They don't want a cap on anything because they are themselves having a large surplus. But, they understand that at the same time they need, and they say it, to rebalance the surplus, the situation within the euro zone, and I think they will work in this direction. So history is repeating itself. Year after year, decade after decade, and experience from the past will be helpful. That is funding our, building on this experience from the past. I will tell you, don't write too fast. Things are not going to happen in one day, being fantastic or being a disaster, from one meeting or two meetings. It will take time. The building is a long process. Again, I hope it won't be as long as the building of the European Union. But, it will take one year, two years, for the G-20, we just emerged from the crisis, and worked very well during the crisis, in the cooperation, to learn to work on cooperation after the crisis. It will take time. But, I think the step in Seoul is an important step, a step forward, a very positive one, because everybody is committed to do something, even if they all are reluctant and all fighting on, I won't say the details, but on the way to do it, because they all have in mind “What does it mean for my own economy?”, which is just fair. The elected leaders, they are accountable to their people, and they must have in mind what the consequences for their own people, at the same time they understand they're global leaders and they have to take into account the reality of the global economy. And this conflict, in the head of each and every leader, is what you see, but I'm really confident that this goes forward.
Good. I told you everything I know. I can just repeat myself now. Or contradict myself.
QUESTIONER: In your view, does quantitative easing count as currency speculation?
STRAUSS-KAHN: There are a lot of different views on this. What is sure is that the U.S. economy is in a very uncertain situation, and accounts for—it depends on how you make the map—but between 20 and 25 percent of the global economy. Everybody will be better off if the U.S. economy goes better, everybody will be worse off if the U.S. economy doesn't go better. And so, the question is not that much, is quantitative easing a kind of manipulation, the question is it at the end useful for the global economy or not. I don't know any policy that has only advantages. They all have advantages and drawbacks, the stimulus was absolutely necessary, still has a lot of drawbacks in terms of increasing the debt, it was not a reason not to put it in place. This question of quantitative easing is a problem which is a problem for the U.S., put but also that we come back to the spillover effect, for the global economy. For the global economy, for some, let's say many emerging markets, the question is the, for instance, capital inflows, and the value of the dollar. On the other hand, if it helps the economy to recover, it is a positive effect. Then the discussion is, what effect offsets the other. I still believe it goes in the right direction, but it doesn't mean it doesn't have drawbacks, it does have drawbacks.
Last question. Three last questions and then we'll be over.
QUESTIONER: The MAP guidelines – how can you be sure that countries will implement them?
MR STRAUSS-KAHN: How will we be sure that countries will implement them? We won't be sure at all.
You know, again, I am happy when I see that people are expecting the IMF to become a kind of dictator of the global economy. It is a problem. But, that is not going to happen. That is not going to happen so we will define the guidelines with the members of the G-20, and then, when the guidelines will be adopted, we will try to give some information, and to provide as much analysis as possible on this, and then we will push the mechanics to implement what they themselves are asking the IMF to provide. But, we have no teeth, no police, no army to send to countries.
QUESTIONER: Do you realistically think that a country [will obey] the guidelines?
MR STRAUSS-KAHN: I rely on the very old Keynes formula, that the strength of the IMF lies in the fact that it tells the truth. The strength of the truth at the end is always enough to convince people to go in the right direction. It has been obvious during the crisis and the role we played during the crisis, with the stimulus, with the different lending facility, increasing our resources, has been done because we had no way to force countries do it. But we were right and they followed us. So, what we are going to do with this evolution of the MAP process and the indicative guidelines, is exactly the same thing. But, the precise answer to your question is, we don't have any way to force a country to implement the policy.
But, and that is the second part of the answer, we can imagine that there will be in the future, it will take time, an evolution of the Articles of Agreement of the Fund that have, those Articles of Agreement have been defined decades ago, when the main problem was the current account problem. Today, obviously, the question is not only the current account problem, but also the capital account problem, and so we may envisage, we may look forward with this idea that the Fund could have the same legal tools in terms of the capital accounts that it has in terms of current account today. But, that is a long process, you know, changing the Articles of Agreement is something which will take a long time.
So, it is something that is reasonable to look at, and it will be in line, and logic, with what we're practically doing, but we cannot wait for this to happen before we do the work, which has been asked of us, because it may take years.
So, I said I will take one here and one here. Please.
QUESTIONER: I have two questions. You said that the Doha Round (inaudible) ...
MR STRAUSS-KAHN: When did I say that?
QUESTIONER: (Inaudible) that the adoption of the idea of global safety net, but (inaudible) ...
MR STRAUSS-KAHN: Yes, on the first point, I don't have a decisive proof. It is just a feeling. When I saw during the lunch with the leaders which was the moment when we talked about trade, the body language of some of them among the most important, especially among the two most important, I won't give names, it seems to me that well, things were moving, that the commitment for forward was not as traditional as usual. But, now, again, it is my responsibility, I take it on my feeling, I have no immediate proof.
The second point, on the western centric, yes, I think you are right. This story of the financial safety net started with discussion with Asian countries, especially the Koreans. The idea was that building on the success and the failures, both success and failures, of what the IMF did during the Asian crisis, the idea that something could be created that will consider more a systemic approach, and take into account different countries facing at the same time the same kind of problem, that we should work on that, this idea was an Asian idea. And so, that involved also working with the regional financing arrangement here, the Chaing Mai Initiative, as you know, certainly know, during the annual meeting we had the first meeting ever chaired by the IMF with all the regional financing arrangements being present. The EU for the ESF, the Arab Monetary Union, many others, and the Chaing Mai Initiative which was probably the most important, to have discussing with us. And, I attended part of this meeting, I couldn't attend all the meetings, because the annual meetings are really full in terms of schedule, but clearly everybody was on the same line. Very different from the Hong Kong line in 1998, when this idea of creating an Asian monetary Fund was floating, and the IMF very strongly against, saying we shouldn't accept something which will be regional, we are universal, or global institution, so on, the institution is very different, we have to work with global institutions as we did with Greece, for instance, with the Europeans, and in Asia it means working with the Chaing Mai Initiative, and to work with a regional institution like this, having a system which is a multi-country system, as we created for the FCL, as we are building it with the other facilities, is certainly something which will be useful and I think there is no shame. It is not wrong to say that it is the idea originated in this part of the world.
Last point. I said three questions and I lost the third one.
Okay. You have enough. Okay. Fine. Thank you very much.
QUESTIONER: Can you just clarify with Ireland, you had no contact in recent days, does that mean?
MR STRAUSS-KAHN: We had normal contact with the Irish authorities.