Transcript of a Press Briefing by Caroline Atkinson, Director, External Relations Department, International Monetary Fund

Washington, DC
January 6, 2011
Webcast of the press conference Webcast

MS. ATKINSON: So good morning and welcome and a Happy New Year. I’m Caroline Atkinson, the Director of the External Relations Department at the IMF. This is our regular bi-weekly press briefing, and as usual the content will be embargoed until 10:30 Washington time, 1530 GMT.

Just a couple of brief announcements at first: This coming Saturday, the 8th of January, the First Deputy Managing Director, Mr. John Lipsky, will be at the American Economic Association meetings in Denver. He will deliver remarks on the United States and the World Economy, and we will be making those available online and letting you know about the embargo and so on.

And then on January 25, I wanted to let you know that we will be releasing the quarterly updates for the World Economic Outlook and Global Financial Stability Report in Johannesburg, South Africa. And that’s part of a program that we began last year of releasing these updates with the Economic Counselor, Olivier Blanchard, and the Financial Counselor, José Viñals, giving a press conference outside Washington in a key emerging market or financial center. Last July they did that in Hong Kong and in January we’re pleased to say that we’ll be doing it in Johannesburg, South Africa. And the Online Media Briefing Center will be used again so people who are not in South Africa can also ask questions and so on.

Then a couple of days later in Washington, on the 27th of January, Fiscal Affairs Director, Carlo Cottarelli, will be releasing the quarterly update at the Fiscal Monitor, which looks in more depth at fiscal issues.

So I’ll turn now to your questions.

QUESTIONER: Yesterday in the India Article IV update, there was mention about the inflows of capital, if it continued to be a problem. I think there was a suggestion of currency intervention and macro-prudential measures. Do those macro-prudential measures include capital controls?

MS. ATKINSON: Well, perhaps I can step back a bit and say that as we pointed out in the piece on two-speed recovery, a number of emerging markets are facing substantial inflows of capital at the moment as their economies are recovering and growing rapidly. And these are in part a good sign. It’s a sign of strength and some of the inflows are structural and will be accommodated over time and help to promote investment and growth in those economies.

But when they are very sudden or countries fear that they might be temporary, there’s also a concern in some countries about what that might do to the macro-economy. There are a range of different measures; as you know, yesterday we put out a paper and we’re going to be doing a lot of work on that this year—what’s the appropriate response for countries? Their exchange rate appreciation is one obvious one. Reserves accumulation you mentioned can be an appropriate response. There’s fiscal contraction and especially when countries are concerned about the impact of flows on their financial system, macro-prudential controls to strengthen the banking system’s use in particular and financial systems and intermediation of these flows can be important.

Capital controls are a little bit in the eye of the beholder, but capital controls are certainly a part of the toolkit. Some capital controls are more focused on macro-prudential measures; others are more focused on, for example, shifting the length of the maturity of inflows as they’re taxing short-term and encouraging longer term flows. So these are all part of a range of measures that countries may consider.

QUESTIONER: So just to clarify, I’m still dissecting all of that complexity. That is one of a tool that you might mean by macro-prudential measures. You mentioned a number of others, but what does the IMF mean specifically when they say or what are the other tools within that toolbox for macro-prudential measures?

MS. ATKINSON: Well, there’s quite an extensive range of possibilities that we can call macro-prudential measures. A macro-prudential measure is anything that is aiming to strengthen your financial system. It can be capital requirements and so on. Some of those in particular are aimed at an issue of surging capital flows from abroad. So I think I’d bore you even more if I went into that, you know, the different definitions.

What I’m trying to suggest is that the range of measures that countries may take, some of which are particularly focused on the way that capital comes into the countries, on whether it should be taxed if it comes in on a short-term basis, and some are particularly focused on well, if a bank gets capital, an inflow of foreign exchange, should it have higher reserve requirements so that it’s in a better position to pay that capital back if it needs to go. So these are all a part of the toolbox of measures, and some people always said capital controls, macro-prudential controls, there’s kind of a fine line between them. I don’t think that really matters. I think the point is to see what the purposes of the measures are. Are they going to strengthen the economies? Are they going to lead to good use of the capital and stronger and sustainable growth going forward? That’s more important than the nomenclature.

I actually had a question about Brazil, which as you may know last night announced a new measure, a macro-prudential measure, to strengthen the state of the banking system: “What is the IMF’s view on Brazil’s steps to increase reserve requirements to keep the currency from strengthening too fast?” and “Does the IMF have a comment on Brazil’s decision to impose a reserve or a comment on banks’ dollar-short positions to curb speculative currency trading?”

And again, we see those measures as macro-prudential measures aimed to strengthen the banking system in Brazil in the face of big capital inflows, and those can be an appropriate part of the toolkit.

QUESTIONER: Can you tell me about the IMF’s role in—I believe there’s a 16-member or a 16-economist board that’s putting together recommendations perhaps to advise President Sarkozy in his role at G-20 in terms of reforms to the international monetary system?

MS. ATKINSON: I think you are talking about the group chaired by Michel Camdessus, the former Managing Director of the IMF, and its relation? I don’t want to comment on the relationship between that group and the G-20 process or the French President. I mean, there is a report that they will issue, and we are not a member. There is not an IMF staff person as far as I’m aware that is a member of this board. The others are former policymakers, including sadly Tommaso Padoa-Schioppa who passed away in December. But the IMF is on a staff basis; we’re aware of the work that’s going on.

I have questions online about Pakistan, and there are a number so I’ll just go with all of them together: “The Pakistan government has withdrawn the increase in petroleum prices following the pressure of the opposition. I think this is a violation of the agreement between Pakistan and the IMF, and what will be the course of action on the part of the Fund now?”

Just to clarify that the action on energy subsidies, petroleum prices, was not a part of the IMF program. However, energy subsidies consume a large part of the budget. They’re inefficient and untargeted so that the bulk of the energy—of the benefit from the energy subsidy goes to higher-income individuals and large companies. So it will be important for Pakistan to release the money that it’s spending on energy subsidies to go towards social spending, education, health reform, dealing with the after impacts of the flood. That would be a better targeted use of spending.

And more generally, I have a question about whether the political unrest in Pakistan in any way jeopardizes its lending arrangement, which the IMF recently extended.

And indeed, the arrangement was due to come to an end at the end of last year, at the end of December, and we extended it for nine months so that it now will expire at the end of September. And that’s to give space for us to continue to discuss with the government the two further disbursements that are allowable under the program and that continues to be the case. What’s most important for our arrangement is the ability to discuss with the government, to agree with the government, on the measures that they’re going to put in place the economy can support.

And again, I have another question: “On Pakistan, what’s the IMF’s thinking after the assassination of Punjab’s governor? Is it realistic to think the IMF’s conditions will be met?”

And again, we are working with Pakistan. We continue to work with Pakistan to see if we can reach agreement on measures that the government can put in place to put its economy on a sounder footing.

QUESTIONER: The paper that was released yesterday on capital accounts and capital flows, is that to be understood as perhaps one of the tools that could be used by the G-20 in assessing imbalances and how to deal with them? The G-20 in Seoul, the mandate was given to the IMF to develop a toolkit broader than the current account measure, and I’m wondering if that is one of them, and secondly, can you deal or address how the development of those tools is going?

MS. ATKINSON: Just on the first issue, that is a paper that is at the beginning outlining a lot of analytical work about how to make our policy advice effective in this important area, and we’ve talked about that in capital flows. On the MAP more generally, I’m afraid I don’t have anything for you now. I’m sure we will have. There’s obviously a lot of work going on about what kind of indicators could and should be used and that work’s not ready yet. We’re just at the beginning of January, and there will be steps as the G-20 process goes forward.

QUESTIONER: Okay, so the IMF sees that paper, including the Managing Director, as something that is completely isolated from the G-20 process?

MS. ATKINSON: No, we see the paper that we released yesterday as a paper that’s describing what the IMF may do or begins a debate about, and the setup of the analytical work. As we’ve been discussing in the case of Brazil and other countries, these capital flows are of great importance for our membership. I think in today’s world, everything that we do is connected with the G-20 and things that the G-20 do are connected with us. It’s a globalized world. So I don’t think we ever do work that’s in complete isolation, one part from another. We’re a multilateral institution and all of our work is connected in some way.

QUESTIONER: Sure, but if I may politely follow up this line of thinking, I mean, the mutual assessment process is done really at the behest of the G-20, so it’s an IMF process requested by the G-20. And this paper seems to—unless I’m inferring wrongly and that’s really what I’m asking, for you to show me where I’m wrong—could fit well into the G-20 mandate that was given in Seoul to the IMF. And so I’m just trying to understand whether this is something completely separate or could be seen as part of the mandate that was given in terms of developing a new toolbox?

MS. ATKINSON: Well, I think you’re absolutely right that the mutual assessment process is something where the IMF has been asked by the G-20 to give technical support, and some of our work is of that nature. But we also have a program of work that is through our Board. The paper we released yesterday was a Board paper. Of course, it should be consistent and will be consistent with whatever we do on the mutual assessment process for the G-20. I’m not sure if that gets to your question. I think you’re trying to find a sort of bright line where there might not be one.

QUESTIONER: Okay.

MS. ATKINSON: I hope that much of our work is useful to the G-20 collectively and to individual countries. That’s what we’re here to do, help them.

I have a question online about Kosovo. “On Kosovo, what are the IMF’s views on Mr. Thaci’s proposal to double public sector salaries and on the Counselor of Europe’s allegations that this once and seeming future Prime Minister was involved in organ trafficking?”

Just to say that we have an 18-month Stand-by Arrangement that was approved last summer. The first review would have been due after six months in December and is delayed whilst the government is working on a 2011 budget. And that’s all we have.

I have one more question online that is on Sudan, which is, of course, going to have a referendum on Sunday of dividing the country. “What has the IMF done on the issue of Sudan’s debts? How much would be passed to Southern Sudan and the possibility of debt forgiveness?” On Sudan, it’s obviously very important that there should be a peaceful and strong referendum. There will be a number of issues, which the country will be working out about how they divide their assets and liabilities, and that will be all part of it. I’m not sure that will be the most important given the other assets that they have to consider.

From Ireland: “With an election imminent in Ireland, opposition parties say they will renegotiate the agreement with the IMF in the EU to allow greater stimulus investment from the Irish government and permit negotiation on bank debt with senior bond holders. Might this approach succeed in varying the agreement?”

Well, there are, of course, a lot of hypotheticals there. We will be having a first review mission in February, at that time we will be discussing the program. We will be having frequent reviews during the course of the program to discuss issues with the authorities. I think that it makes more sense to think about what whoever is in power has as a policy once that has happened than to speculate in advance about how it might be.

QUESTIONER: I was wondering is the IMF watching the rising price of oil and its economic impact? I have been doing some research on this, and there are a lot of economists, oil economists, who expect the price to go over $100 and maybe a $120 a barrel, which is previous times when we’ve had oil spikes, we’ve had huge economic damage.

MS. ATKINSON: We are certainly watching this, and that’s the oil price increase and, indeed, the food price increases that have also occurred recently are an important concern. I don’t want to go into the speculation of what we tend to use for our forecasts, the futures market prices, because there aren’t other prices that are better in any projections.

I think what’s important on commodity prices in general is to think what the context is for any increase. So if increases are coming as a reflection of a stronger and growing global economy and energy demand, that’s a little bit different if they’re coming because of a supply shock. And there is also a differential impact. For example, especially oil importing and food importing, low-income countries may be particularly affected by commodity price increases.

As you know, we last year expanded our lending facilities for low-income countries and cut the interest rate to zero. And if there are unexpected shocks, of course, we will do our part, not that we are normally in the lead on issues of food and fuel prices.

So I have one more question online “What stage are we in working on Romania and what is the staff’s view of its economy?”

The next review of the Romania program—which will actually be the sixth review; they were one of the early programs to be approved after the crisis—will be at the Executive Board tomorrow, and we’ll issue a press release after that. So I don’t want to get into that at this point.

Thank you very much.



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