Transcript of a Press Briefing with Christine Lagarde
November 4, 2011Cannes, France
Friday, November 4, 2011
MS. LAGARDE: Good afternoon. Bon jour. Hope you had a good time and enjoyed the weather.
What I thought I would do is give you just a quick snapshot of what is my takeaway from Cannes and then if you have questions that you'd like to ask me, if there are issues that you'd like clarification on or points that you want to underline, I'll be very happy to take a few questions and then the leave the floor and the podium to somebody else.
From my point of view, certainly the Cannes meeting has been very productive because I go away with a bag of work. There are lots of good measures that have been decided, lots of announcements made, a lot of task force setup, but from my perspective I look at the short-term issues and look at the long-term issues.
In terms of what needs to be done in the coming weeks, clearly the IMF will continue to do its work in Europe in particular in the Euro Zone and we will continue to have discussions with Greece for instance. We expect the current unfolding and we hope completion of the current political crisis to restore sufficient clarity so that we can continue the relationship on a normal standing. In relation to Italy, we were very pleased to receive a request from the Italian authorities who have decided to enlist the expertise and the know-how of the IMF to conduct a fiscal monitoring of Italy on a quarterly basis with appropriate publication of our findings. This was so on the basis of a list of many commitments made by the Italian authorities to the Euro partners on October 27. I think the purpose of the exercise is for us to come independently as third parties based on our expertise of such situations to verify and attest if that is the case that the Italian authorities and Italy in general is doing what it said it would do.
In terms of longer-term projects, I clearly have in my bag the support of the G-20 to submit to my Board very shortly actually a new financial facility which is going to be a Precautionary Liquidity Line. A Precautionary Liquidity Line is intended for countries, any country, that is solid on its feet, that has good policies but that is suffering an external shock as a result, for instance, of the crisis. It is typically a country outside the Euro Zone, probably outside Europe as well, but which as a result of currency variations, capital flows or significant movement in trade is suffering a liquidity crisis. It's a shorter-term facility than any other facility that we have, it's for 6 months, and I will be proposing it to the Board later in November.
The second longer-term takeaway from Cannes from my perspective is support given to the Fund to continue its surveillance mission and to develop its surveillance mission. Surveillance means checking and alerting in a public matter on certain sectors or on certain consequential effects, I'm here thinking about our spillover effect analysis, and to do so not in the traditional way in which the Fund operates—bilaterally, the Fund and one of its members—but the Fund and several members of the Fund and all the financial sectors. Here the G-20 has said good job, please carry on. It's an important mission and we would like you to really continue and develop this surveillance. I will be submitting again to the Board of the IMF in early 2012 specific proposals concerning surveillance.
On the resources front, I go away from Cannes with an unlimited no-cap, no-floor, no-ceiling on resources. The members are saying we will do whatever it takes in terms of resources so that the IMF is fully equipped in case of crises, and I take that as a reaffirmation of the role of the IMF in case of crises. I know that some would have liked to see big numbers on the board. That would have looked one and one could have compared numbers. I think that under the present circumstances and given the degree of uncertainty and the degree of volatility, it's not bad to not have a limitation and to have a unanimous commitment of the membership. Those represented in the room, that's only 20 of them, and our membership is much broader than that. It's 187—and to have their commitment that the resources will be available. I've heard many times around the table G-20 members say how critical the IMF's role is and how much it has to be strengthened going forward.
Just a couple of more things that we do, have done and will continue to do:
One, on financial regulation: We do surveillance in the field of financial regulation and we have cooperated nicely with the Financial Stability Board whose new president I welcome, Mark Carney. And we will continue to cooperate and we will continue to do our surveillance in a very independent way because we are not bankers or regulators or supervisors. We are independent from the fields and we will continue to do so and to take our views on what is working and what needs to be strengthened. For those of you who follow me, you will remember that I did in late August indicate that banks and European banks in particular needed to strengthen their capital. This is something that has been approved by the European Union members at their meeting on October 25 if I recall, and that's a good thing. I do believe that more needs to be done in the field of financial regulation. Particularly when it comes to implementation, we need to be very cautious about the inconsistency of implementation around the globe when it comes to financial markets and financial actors.
My final point which is a little bit unusual for the IMF, if you have seen the communiqué you will note at the end of it that in terms of governance, the G-20 members call for international institutions to work cooperatively together with a particular focus on the social consequences of economic policies. Here there is a clear match, a clear bind between the IMF and the ILO to make sure that the macroeconomic policies and the macrosocial policies actually work in parallel and that if growth picks up, it's not a jobless growth but one that increases employment around the economies that are concerned.
That's really what I had to say in terms of my takeaway from Cannes. I'm still convinced, as I have said at the annual shareholders' meeting or Annual Meeting of the IMF that if countries take collective, bold action there is a recovery path—a narrow one, but there is a recovery path in the face of an economic situation that is currently in a dangerous phase where we have this adverse feedback loop, this vicious circle, between rather anemic growth, financial weaknesses, and lack of political decisiveness.
While I witnessed in a last couple of days a determination by the G-20 members to act together, and if you want one proof of it, it's one of the documents that they have signed up to today to which the IMF has contributed a lot, and that is the Mutual Assessment Process. It's an exercise that they have conducted for the last couple of years now which is completed with an action list for countries to do certain things. You will see it. It is very specific. It names the countries. It says who is going to do what and was done on the basis of a very solid macroeconomic analysis that related to each of those countries in the G-20. So that's a commitment to act. As is often the case, the reality will have to be demonstrated. Yes, I'm coming to your questions. You're not interested in what I'm saying are you? You just want to ask your questions.
We just have to continue to be very careful about whether those good intentions, those commitments, are followed by actual delivery and action. Now I'm sure there are questions.
QUESTIONER: I heard what you said very convincingly about the absence of a big figure in resources for the IMF. Indeed, there have been quite a few advances and quite a lot of process at this G-20 meeting on a number of points, but there are also high expectations regarding maybe a redoubling of the resources of the IMF. Would you say that the absence of a figure is somewhat maybe a failure that would fail to convince the markets because we keep having very negative reactions in the financial markets today and all this week actually almost? Thank you.
MS. LAGARDE: First of all, let me say with the resources that I have at the moment that are available; I can perfectly well face requests by member states. And I take a lot of comfort from the fact that all G-20 members are actually committing to give whatever resources are necessary for the Fund to respond adequately in case of crises, and I think the communiqué refers to in case of systemic crises. I don't want to be mistaken. Yes, to play its systemic role. I don't think that you've had the communiqué. But it says, "We will ensure the IMF continues to have resources to play its systemic role." What is the systemic role? It's precisely to restore stability when countries are in difficulties. So I think that not as a “cheque en blanc”, not as a “carte blanche”, but it's a strong commitment. I have to be able to play the systemic role that the IMF is called upon to play, so they'll do what it takes. Whenever is there half a failure, I regard it as half a success. That's my frame of mind. You might not like it, but that's the way I was built.
QUESTIONER: Two points. You mentioned this Precautionary Liquidity--
MS. LAGARDE: Line. PLL.
QUESTIONER: —and afterward also the unlimited resources that the IMF will have. Could you explain to us the link with the current EFSF architecture and how the IMF is looking for that? We've just heard that the next meeting about it will be in February which is quite late.
The second point about Italy, it's not clear to me what the IMF will really check in Italy because as far as I understood, the Italian government is engaged in doing several reforms which are not already passed in parliament. So what will you really check in Italy? Thank you.
MS. LAGARDE: Let me get back to your first point on the EFSF.
First of all, as you know, I think nice lady you need to collect the microphone back from whoever has it. If it's on the floor, it needs to be picked up. Do you have it? Somebody has taken it. The boys are keeping the mike. I see. [Laughter.]
On the EFSF, first of all, the Fund already is a partner with the EFSF. When you look at Greece for instance, the EFSF engages in the program, finances it and the IMF finances it too. So we are already in partnership with the EFSF. The IMF—now some of you are thinking she's evading the question. Here we go. The IMF lends to countries, not to legal entities, so the IMF would not lend to the EFSF, would not join in the EFSF. The IMF lends to countries. So if the EFSF is called upon to intervene in a particular country, the IMF can partner with the EFSF on the particular venture in which the EFSF is engaged.
There are multiple ways of thinking about this issue and you will see in the communiqué that there are references to various mechanisms, the general resources of the Fund, the GRA. There is probably a reference to the trust which is a structure that captivates people because it looks a little bit like an SPV. The trust—something that is off balance sheets, that is separate in a way, and yet administered by the Fund, by the Board of the Fund. Then there is the administered account that operates differently from the general resources of the Fund. So all those are options that creditors can decide upon because they are at liberty to choose what channel they want to use. But as it stands, the EFSF, as I said, is a partner with the IMF and the IMF is in partnership with the EFSF, and it can be in as many cases as would be necessary. But our relationship is with countries.
Okay, you have the microphone and then you are kind enough to give it back to the lady.
MS. LAGARDE: Please. Yes, yes, I’m coming to Italy. I might be coming to Italy actually.
MS. LAGARDE: Because I’m invited. See? And I’m very pleased that I will be working with my colleague, Mr. Berlusconi, because our typical counterpart in that respect is the Minister of Finance and the Minister of Finance is the typical go-to person for the IMF. And we would go on a quarterly basis. This is what the invitation is for and I have accepted that invitation. And we will be checking the implementation of the commitments that have been made by Italy and the 15 pages commitment that it has made to members of the euro zone a couple of weeks ago. So it is the verification and certification, if you will, of the implementation of a program that Italy has committed to.
Now, there are lots of things in that program and I understand that the Prime Minister and its government are also looking at additional reforms, if necessary. As far as I’m concerned, you know, I might be laborious, I might be demanding, I might be rigorous, but I will be looking at the commitments that have been made to confirm—or infer if that was the case— the implementation. Okay?
All right, gentleman.
QUESTIONER: Just a quick follow-up on the previous question. Prime Minister Berlusconi said that he will just—and I think you’ve just confirmed that—not look at the merits of the measures, but just to verify that they’re being implemented. And the other thing that he said was, and I quote, the IMF kindly offered us some funds together with this verification process, and we refused because we thought it was not necessary at this time.
MS. LAGARDE: Well, the problem that is at stake and that was clearly identified both by the Italian authorities and by its partners is a lack of credibility of the measures that are announced. Therefore, to attest, i.e., confirm or infer, the credibility of those measures—in other words, their implementation—the typical instrument that we would use is a Precautionary Credit Line. Now, Italy does not need the funding that is associated with such an instrument. So the next best instrument is fiscal monitoring, which is what we have identified and what I have just explained: fiscal monitoring of the measures that have been committed.
And as far as the merits of those measures, Italy is like any other member of the organization under very regular review and Article IV of the statutes of the IMF. And under the Article IV review we assess the merits, the pros and cons of the policies that are implemented. So there is a nice complement between the fiscal monitoring and a typical, traditional Article IV review that we will continue doing, of course.
QUESTIONER: Just a brief follow-up on Italy. First of all, as I understood, so you didn’t offer any kind of financial aid to Italy.
MS. LAGARDE: Correct.
QUESTIONER: Okay. And second question is, when you will start your monetary commission, I mean, start it from January or whenever?
MS. LAGARDE: No, I expect that we can be on the ground and running before the end of the month, before the end of November.
QUESTIONER: Bonjour, Madam Lagarde. (Speaking French.)
MS. LAGARDE: (Speaking French.)
QUESTIONER: To what extent is this increase in the IMF’s resources subject to the approval of national legislatures? It seems to be a rather important point. In other words, the leaders have committed to do this, but do they need the approval of their parliaments?
And secondly, when you talk about having no cap on the increase in resources, does that imply that the IMF is moving towards being a kind of global central bank whereby it can issue unlimited amounts of SDRs? I mean, if it’s loans that have a cap, presumably?
MS. LAGARDE: The old banker dream is coming, eh? I cannot tell you what the parliamentary procedures are for the 187 members, but it’s clear that in many, many countries the increase of resources by members to the IMF is subject to parliamentary review, in some cases parliamentary votes, in some cases it’s an executive decision. It really depends on the country and the governance of those countries.
But in the recent occasions that we have seen of increase of resources, for some members it takes a bit of time. Interestingly, actually, some of the largest shareholder members have been able to approve, ratify, and go and take the process through quite rapidly.
But to give you an example, the increase of quota that was decided in 2010, which has to be completed by the Annual Meeting of 2012, there is still a long way to go. I don’t have 100 percent of this doubling of the quota. So, I’d like to see my money.
Second point was about the sort of large global central bank. No, I don’t think that we are there yet.
QUESTIONER: You say that Italy’s problem is one of credibility. Is it your expectation or hope that the dispatch of IMF people to Italy soon will, on it’s own, help sort of bring down the, you know, 6.5 percent rates they’re paying right now?
MS. LAGARDE: It’s one of the probably best ways to have an independent view substantiated by long-term expertise to verify that promised measures are actually implemented. We’ve done that in many, many cases around the world, under programs, under bilateral negotiated arrangements with countries. We do it with our independents, which I’m very keen on. We do it on our own, even if we were to work in parallel with, for instance, the Commission that does review work also pursuant to the agreement that they entered into on October 27th. But the IMF does it on its own under its responsibility and it’s the IMF credit that is also a little bit on the line in the way in which we assess the reality of the implementation, and we will be guided by that aspiration to good quality, independent, third party, expert review.
QUESTIONER: Thank you very much. I just want to pick up on this. What will be the IMF’s goal posts when it is actually verifying what Italy is doing? I mean, whose goal posts are you measuring it against?
MS. LAGARDE: What? Gold past?
QUESTIONER: The goal post? Goal post?
MS. LAGARDE: I do synchronized swimming, dear. I don’t play football. [Laughter] You’ll have to find another analogy for me.
QUESTIONER: How will the IMF exactly verify that Italy is keeping to plan? Is this according to the measures –I mean, and will it publish what it finds?
MS. LAGARDE: Yes?
QUESTIONER: I mean, the countries that the IMF has monitored that has never published what—
MS. LAGARDE: Okay, I’m happy to read for you the communiqué because it’s a point that was very important to me because I don’t want to be dispatching a team of experts who are going to spend time reviewing the adequacy between the 15 pages commitment of Italy to their euro partners and actual implementation, that is, you know, vote of bills in parliament, implementation regulations, and decrees when necessary, and implementation. And I think that it says very specifically—if I can find the sentence for you, it refers specifically to public quarterly reports. So, it will be published.
QUESTIONER: Thank you. Can I get back to the question from our Chinese colleague about the trust fund that is being explored? One of the discussions when you were in Brussels was whether non-EU countries would be able to contribute in some ways to help out Europe. It seems like this trust fund would be the vehicle for that.
In your discussions here over the last two days, have you had any feedback from China, from some of the other current account surplus countries, whether they’re interested in participating in such a trust fund or in another vehicle to help out the euro zone?
MS. LAGARDE: You know, my mission is to serve the entire membership, the 187, so I have to be mindful of everybody’s request and everybody’s situation and everybody’s needs, which is why the precautionary liquidity line is intended for the crisis bystanders, those that would find themselves in liquidity shortage or crisis and need access to a liquidity line for a short period of time. That’s just to give you an example. I’m not trying to evade the question.
What I’m here to do as well is to provide the structure, the vehicle, the media on which—not the media in your sense—but the support from which members, donors, creditors, when their nations, governments want to engage the funding. And, as I said, there are several vehicles: the general resources, the administered account, and the trust fund, which is a bit of a separate vehicle under the auspices of the Fund.
It will be for members to decide exactly how they want to do it, whether they want to do it, how much they want to put in it. As far as I’m concerned, from an IMF point of view, the statement that there will be the appropriate level of resources so that I can continue to play my systemic role is what really matters most to me. The rest is going to be relationships between parties really.
QUESTIONER: I know that you’ve said that you have received willingness from your members that there will be support for your recourse. You’ve said there’s no specifics, but there’s no limit, there’s no ceiling. But do you expect to get solid commitments from emerging market countries—I know you touched on this, but I wanted to follow up—solid commitments from the likes of Russia, China?
MS. LAGARDE: I’ll read you the sentence because that’s what really matters at the end of the day; it’s the words and the commitments that they stand for. “We will ensure the IMF continues to have resources to play its systemic role to the benefit of its whole membership building on the substantial resources we have already mobilized since London 2009,” and so on and so forth.
QUESTIONER: When do you think you might get something more specific?
MS. LAGARDE: So, it is a commitment by the 20 members to provide the level of resources that is necessary and adequate so that the Fund can play its systemic role. No cap, no floor, no limitation. It will be a fact of what is needed for me to continue to do what they have asked me to do: surveillance, support, lending, when necessary. Okay?
QUESTIONER: When will you know what’s needed?
MS. LAGARDE: Thank you very much.
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