Transcript of a Press Briefing by Christine Lagarde, Managing Director, International Monetary Fund, at the Conclusion of the Group of 20 Finance Ministers and Central Bank Governors Meeting

Moscow, Russia
February 16, 2013

MS. LAGARDE: (In progress following remarks thanking the Russian authorities) …with unemployment outrageously high in many countries and clearly all policies should be aimed at restoring growth and creating jobs. There are key commitments of the G-20, including a commitment to establish fiscal plans. You will see that in paragraph 3 of the communique which I suppose you have received. And prominently, the G-20's adoption of exchange rate language that is common to all members and that is clearly a policy commitment on their part.

There has been a lot of talk about a currency war and we have not seen any such thing as a currency war. We have had currency worries, not a currency war. We have not seen confrontation, but dialogue, deliberation, discussions, and clearly this G-20 Moscow meeting has been extremely helpful and productive in that respect. I will clearly engage you to look at the paragraph in the communique that deals specifically with that issue of common language concerning exchange rates.

As far as IMF-specific items are concerned, we have been really heartened by the support extended by the G-20 for our institution, the IMF, including for the work that we have been doing under the integrated surveillance decision, under the spillover reports, and on the work that we will be developing going forward that deals with sovereign debt in general, looking at those sovereign debts from multiple perspectives. This is work that is underway and that we will continue doing and on which we will deliver in the course of 2013 for the G-20, as well as for our own institution.

Lastly, the IMF governance reform was extensively discussed by the G-20 members. These are only 20 out of the 188 members of the institution, but they have a significant voice given their size, and they have clearly showed signs of renewed commitment in view of the results that were developed by the Executive Board of the IMF late in January. We have goals and we have delivery targets that will take in parallel the quota review and the quota formula review, with hopeful delivery of results before the end of 2013, and with clear support from the G-20 and the G-20 Russian presidency, in particular.

With that I would welcome any questions that you have on any particular matter.

QUESTION: -- will you comment on your concern by fiscal imbalances in the United States or fiscal worries in the United States and Japan? How confident are you that they will be overcome?

MS. LAGARDE: There is a clear understanding on the part of both the U.S. authorities and the Japanese authorities present with us on the occasion of this meeting that the fiscal agenda is critical. What I mean by fiscal agenda is clearly the medium-term goals that have to be identified, that have to be supported broadly in those countries, and that need to be specific and detailed enough in order to eliminate as much as possible the uncertainty that goes with a lack of agenda, so that there is that political determination of the authorities.

QUESTION: There is also a very divided U.S. political scene at the moment going back into another self-inflicted division. Are you confident that the problem can be overcome as the Obama administration eases itself into a second term?

MS. LAGARDE: There will be debates about sequestration, there will be debate about the long-term fiscal plans of the U.S. authorities, and our position has always been the same. We need to have the anchoring of a medium-term fiscal consolidation plan on the part of the U.S. economy. What we also acknowledge is that there has been quite a lot of fiscal consolidation over the last few years, and as scheduled without sequestration there will be fiscal consolidation which is desirable, not in excess but desirable.

QUESTION: One last question. Where is the happy medium for you then in terms of austerity versus any further stimulus? Because -- quite critical of some of the austerity measures taken in some parts of say Europe for example.

MS. LAGARDE: There has to be fiscal consolidation and it has to be at the right pace and it has to be country specific. It often has to go hand in hand with monetary policy and we have seen quite accommodative monetary policy in order to actually support and help the fiscal consolidation efforts. They cannot be a substitute for each other. They have to go in parallel and that's what we certainly hope to see with the missing element, if I might say, which is this medium-term anchoring that is needed in those countries.

QUESTION: -- in the past you've called for even a more accommodative policy in Europe. Are you still of that view considering that the data we've recently seen that the Euro Zone is still mired in recession? And on IMF governance reform, are you in a sense frustrated if you get support but then when it comes to negotiating you don't actually see a whole lot of progress?

MS. LAGARDE: On the issue of an accommodative policy by the central banks, certainly what the European Central Bank has done in the last few months has been critical in order to restore confidence, clearly creating a shift in investors' expectations as far as the euro and the Euro Zone is concerned. There are no longer questions about the viability of either the euro or the Euro Zone. What we also noted is that there is some leeway, some room if you will, because of the weak economic outlook and subdued underlying inflation, and the interest rate in the Euro Zone is also clearly higher than in many other regions, including the U.S., the U.K. or Japan, and there is a system that is now in place but that has not been operated if you will, the OMT, which as a tool expands massively the toolbox of the European Central Bank but may have to be put to use at some stage. But I would regard the changes that have taken place in the last six months as fundamental and instrumental in restoring confidence in the zone.

On the sort of gap between declared intention, in other words, reform the governance, implement the doubling of the quotas under the 2010 reform and the quota formula review and the quota review on the one hand, and on the other hand the difficulty in closing that gap, reaching agreement, coming to terms with the difficulty of defining criteria, aligning with the economic changes, is going to be hard work. It's going to be a process that will hopefully take us to the end of 2013 with results. I note that having in parallel the quota formula review and the quota review should by all accounts help in reaching closure of this gap.

QUESTION: Madame Lagarde -- let me ask it this way. The IMF is putting together a new framework for capital controls. As I understand it, under exceptional circumstances or under some circumstance some type of capital controls could be acceptable in the future. Would you say that there is an understanding in this between developed nations and developing nations that enlists developing nations to do their stimulus when it's necessary -- what we have on inflows –

MS. LAGARDE: First of all, what I saw in this meeting was not currency war. There were currency worries, no doubt about it and they were debated, they were discussed, there was a good dialogue on the part of everyone. What does the IMF do in relation to those exchange rate and currency issues? As you mentioned, we have done a lot of work on capital flows. Capital flows come and go depending on many factors and there are quite a few drivers of this come-and-go movement of capital flows. We have slightly amended our guidelines to account for a combination of macroeconomic policies and potential macroprudential rules in case of excess or abuse of capital flow movement . That's one thing that we're doing. We will be developing (operational) guidelines in the course of this year to really update and develop this new position that we have taken and which has been approved by the Board of the IMF.

The second thing that we do is this External Sector Report that actually compares and balances in many ways the various currencies around the world -- that takes into account both the currency rates and the current account balances and determines whether there is enough consistency and fair value if you will, which is work that we have developed in 2012 on a pilot basis and that we will develop yet again in 2013.

Our job is to identify excesses and abuses that can take the form of bubbles, that can take the form of excessive volatility, and frankly we are not seeing that at the moment, but it is something that we need to be attentive to, that we need to be alerted on and that is clearly based on cooperation. Again as opposed to division, we have seen cooperation on the occasion of this G-20, and this is very directly reflected in the communique language. I'm not going to expand forever about it. I think I have been quite explicit on this no currency war, currency worries, no division, cooperation, discipline and the IMF having to do its job on the capital flows review and guidelines and on the External Sector Report, which reviews the equilibrium if you will in the fair value of currencies.

QUESTION: If I may follow-up and let me put it this way. The IMF new guidelines about bringing about this equilibrium contributed -- so you didn't see the currency wars in this meeting?

MS. LAGARDE: Zero currency war. Okay? That's very simple. I have to say it again and I'll be happy to repeat it as often as necessary. The capital flows work that we've done over the last 12 months, which you will happily find on the IMF website, actually is leading to practical work in the form of (operational) guidelines. We will clearly do that. In the same fashion we will continue developing our external sector report and we will include the concept of volatility in our study and in our work.

QUESTION: The IMF quota report. That's what my question -- I wonder if you foresee any changes in SDR -- changes requires in connection with the IMF quota report? And if yes, what changes might be applied in that respect?

MS. LAGARDE: There are two things. One is the reform of the quota formula on which the (IMF) Executive Board has issued its report, its review report if you will, on time, submitted it to the IMFC, and now more work needs to be done because it does not deliver in and of itself a new formula. It delivers the building blocks and more work needs to be done. As a result of that there will be quota moves, if you will. I mentioned the quota review because the quota review might very well entail an increase in the quota, which would help in the process of reallocating among the various countries to reflect the changes of the global economy. As far as the Special Drawing Rights are concerned, I think that's a separate issue. The basket of currencies, the way they're defined, this is a matter that has not been discussed in the course of this G-20 and that is not sort of top of the agenda at the moment. Last question.

QUESTION: -- specifically mention the situation in Japan, isn't the G-20 kind of inviting the yen to fall –

MS. LAGARDE: There is one thing that has been discussed, it's not talking up, talking down, but talking together and there has been very much that determined, creative and disciplined approach among the G-20 members. I will give it like that because I think that's highly respectable. Thank you.


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