Transcript of a Press Briefing by Gerry Rice, Director, Communications Department, and Thanos Arvanitis, Deputy Director, European Department, IMF; March 12, 2015

March 13, 2015

Washington, D.C.
Thursday, March 12, 2015
Webcast of the press briefing Webcast

MR. RICE: Good morning everyone and welcome to this regular press briefing on behalf of the International Monetary Fund. I am Gerry Rice of the Communications Department. As usual, our briefing today will be embargoed until 10:30 a.m. That's Washington time.

A little bit of a departure at this morning's briefing. As you may know, yesterday the IMF announced a very important program of support for Ukraine. And I know that's of great interest to those of you in the room and also to our colleagues online. So we thought that it would be useful to begin this morning's briefing by having Thanos Arvanitis, who is the Deputy Director in our European Department and has been one of the leaders of our work in this area, to come and say a few words and then take a few questions.

So I'm going to invite Thanos to come to the podium. As I say, say a few words, take a few questions and then, you'll be stuck with me for the rest of the briefing because I'll come back and we'll pick up on any other issues that you want to do.

So we'll proceed in that way. Thanos, welcome and thank you.

MR. ARVANITIS: Good morning. And thank you, Gerry, for the invitation to come here and say a few words about the program as well as to take a few questions.

Let me start with a few words about the program. Yesterday, the Board approved a new program under an Extended Fund Facility (EFF) for Ukraine of about $17.5 billion. This is about 15.5 billion Euros. The program will provide more funding, more time, more flexibility and better financing terms for Ukraine. It will be supported by considerable additional sources from the international community.

On the Fund side, the program is front-loaded with $5 billion available immediately and 10 billion to be disbursed within 2015. The authorities have demonstrated a strong commitment to reforms. They have implemented, as you have seen, last week a set of prior actions that in many respects breaks from the past and tackles issues that were once considered taboos.

The authorities believe in this program as Prime Minister Yatsenyuk said on February 12th, "This is not a program for the IMF. This is a program for the Ukrainian people and these measures would be implemented regardless of whether we are supported with the Fund or not because they are needed for the Ukrainian economy."

From our side, the program is ambitious, is comprehensive. It tries to bring immediate stabilization to the economy as well as to lay the basis for sustainable growth over the medium term. And it tries to do this with the special emphasis on protecting the poorest groups of the population, trying to strengthen social safety nets, trying to gain support from the community in Ukraine to support the objectives of the program.

With this, I will turn now to your questions. Yes?

QUESTIONER: I'm apologizing, you all have actually answered this question but I had a bad phone connection when you answered so can I just clarify that the 5.5 percent contraction in GDP for this year, and the 2 percent return to growth next year, as well as the primary surplus or the primary balance is based, as well as the Debt Sustainability Analysis (DSA), is all based upon the ceasefire holding, correct?

MR. ARVANITIS: As we have said in the report, an essential assumption for the program is the non-intensification of the conflict. So what we have assumed both for the macro framework and, as you mentioned, the growth for 2015 and beyond, is that the ceasefire agreement holds, that the flare-ups that we have seen in recent periods do not repeat themselves and we think that with this the economy not affected directly by the conflict can start being delinked from the conflict.

We see that the economy, the private sector already started responding to some of the measures that authorities are taking and with the reforms in the program. The external financing that is going to be unleashed under the program and the reforms that the authorities are going to implement over the coming period; the economy is going to start reacting, responding to that. And gradually, by the end of the year, growth will start returning in Ukraine. That will become more sustainable in 2016. We expect the growth to return to about two percent in 2016.

And growth will become more broad-based in 2017 and beyond. The normalization of relations or the easing of tensions in the east will be welcome. Upside risk for the program that would boost prospects for the Ukrainian economy and we are heartened that the ceasefire agreement of February 12th has been holding on the ground.

QUESTIONER: So if I may just follow up on that so that you don't have to say it's speculative, the U.S. State Department said yesterday that there had been violations of both the letter and the spirit of the ceasefire agreement already. So not speaking hypothetically but rather pragmatically, what are the consequences of a breach of the ceasefire? An intensification of the conflict as you say?Have you analyzed a scenario? Does that put the program completely off track?

MR. ARVANITIS: The program, as I said, is based on the assumption that the conflict is not going to intensify and that peace be restored in the region. Certainly the conflict is a major risk for the program. This is something that the Managing Director even yesterday mentioned in the staff statement that she issued.

We hope that the ceasefire would hold and it would lead to a sustained peace in the region not only for the economy but you know it has a terrible cost in human lives. It has a terrible cost in destruction of infrastructure. And of course, it has a big confidence impact on the economy. So we have made the program, as I said, under the assumption of non-intensification of the conflict.

We think that the projections in the program are fairly conservative. Five-and-a-half percent decline in 2015 with a gradual restoration of growth in 2016 and beyond. And as I said, a better outcome will be welcome for many reasons but also it would be a boost to prospects for Ukraine.

QUESTIONER: Just a follow-up on that question. How would we know if that condition is satisfied and how -- what would happen if it's not satisfied? So, for example, I'm just trying to think how that might play out. I mean, if you come to the first review in mid-June and the conflict has intensified, is that kind of when you would make the decision that okay, the condition that it not intensify hasn't been met therefore we're not going to proceed with the program? I'm just trying to understand how it might play out.

MR. ARVANITIS: As you have seen in the documents that we circulated last night, we don't have a condition on developments in the East. What we have in the program, we have targets, economic targets and as we move forward in the review, as always do in the programs we're going to reassess the achievement of these targets and that's how we are going to proceed as we do in all of our programs.

We have targets in the program and these are guiding us on how we move forward.

QUESTIONER: And just as a quick, sorry, quick follow-up. You talked about the process of delinking. I just want to be clear. Are you talking about the conflict regions essentially delinking from the rest of the country? Or are you talking about the economy –


QUESTIONER: -- delinking from the conflict? I just want to clarify what you mean by that?

MR. ARVANITIS: Of course, what I meant that in the regions not affected directly by the war, the economy would start picking up in those regions and it would lift the economy, Ukraine's economy up. And we've seen that already happening in the last few months, the data coming out from regions outside the conflict areas.

They saw that the economic contraction has slowed down. In some areas economic growth is returning and we think that this economic growth can become more widespread and lift up the whole economy in late 2015 and 2016.

MR. RICE: Perhaps we'll take one more question in the room if there is one and then, we will see if -- I'm going to check if there are any questions online and then, Thanos will have to go.

QUESTIONER: I just want to -- one of the other exceptional risks that you talk about or the risks of the program that you talk about in the documents is that that operation, you're assuming that it'll raise $15 billion over four years, $5 billion this year. Can you just talk about the potential consequences of falling short of that and whether the sense that you get from the Board or from other members of the international community is whether there would be willingness to fill in and fill in any financing gap that has caused by falling short of those goals.

MR. ARVANITIS: As you may have seen the authorities, the government has announced a presentation to investors tomorrow. This will be the initiation of the process of the debt operation. The authorities have announced this debt operation already about a month ago and the goals of these operations are as agreed with the authorities are listed in our papers.

Essentially, what the authorities and we want to achieve is bringing back sustainable debt, a debt that can be financed and a debt that is not bunched in a way that creates problems for Ukraine's debt-servicing ability in the coming years. I think both the government and I think also the investors understand that the sustainable debt is in the best interest both of the government and also of creditors that can gain more value from it.

Now, the authorities are going to be consulting with all creditors over the coming weeks. I think you would see from the authorities' presentation tomorrow, all the information about this and the scope of claims that will be included in the debt operation, it's up to the authorities and their advisors in order to reach high participation and make sure that actually the targets under the program are achieved. And at this moment, it's very early to say anything about how the process is going to unfold.

Both we and the authorities are looking forward to a consultative process, high participation and eventually the program goals to be achieved to restore sustainability in Ukraine's external debt.

MR. RICE: I see that we -- it's a related question online. The journalist is asking does the debt operation assume any form of restructuring Russia's loan to Ukraine of $3 billion?

MR. ARVANITIS: The government tomorrow would explain the process of the debt operation. They are going to be talking to all creditors to try to find the best options and terms that would meet the objectives of the program. The precise claims are going to be decided to be included in the debt operation are going to be decided by the authorities and their financial advisors. I think, at this moment, the important part is to have a consultative process, a process that can be supported by all creditors because a sustainable debt is to the benefit both of Ukraine and to the creditor community.

MR. RICE: Thank you, Thanos. Last question on Ukraine, thank you.

QUESTIONER: It's on Ukraine, yes, but I heard a lot of comments today that you are very optimistic, they use the word extremely optimistic about Ukraine. And as I heard, they say that we heard the same things in 2010 about Greece and after five years Greece is in disarray as you know. Can you comment on this?

MR. ARVANITIS: This is a very realistic program. I think as the Managing Director already stated on February 12th, this is an ambitious program. It's a comprehensive program. It's certainly a program that has risks. It is a program that is difficult in some respects for the authorities but it is an absolutely necessary program. The authorities understand that it is a necessary program to bring back sustainability and growth into Ukraine. And the projections in the program are very conservative.

We have been careful to have conservative and realistic assumptions reflecting the particular risks that the Ukrainian economy at this moment is facing and we think that with sustained and strong implementation of the program, the targets of the program are achievable.

MR. RICE: Thank you, Thanos. I'm going to take, this is the last question.

QUESTIONER: So do you feel, if I understand correctly, that this restructuring is making the chances of the Ukrainian program to succeed better than say in the case of Greece? Thank you.

MR. ARVANITIS: This debt operation is a part of the entire financing package for Ukraine that the international community is putting together. This includes the IMF financing. It includes considerable financing from multilateral and bilateral creditors. And those include support from the private creditors. And all of this support together with the adjustment efforts of the authorities and the reforms that are going to be undertaken over a four-year period, we are very confident that it's going to restore high growth for Ukraine.

MR. RICE: Thank you, Thanos, very much.

MR. ARVANITIS: Thank you, Gerry. Thanks for the invitation.

MR. RICE: I appreciate your time in this very busy period for you.

MR. ARVANITIS: Thank you.

MR. RICE: The embargo is to be clear, 10:30 a.m. Washington time. And look, I'm going to not take further questions on Ukraine. I think we tried to be helpful this morning bringing Thanos to the room.

If there are follow-up questions, we can arrange for Thanos and the Mission Chief Nikolay Georgiev to be available to you later today, okay? So I'm going to move on from Ukraine to the other business.

Let me begin in the usual way and then, I'll come to your questions. Travel by the management of the Fund and major events, the Managing Director, Christine Lagarde, tomorrow March 13 will be in Egypt for Egypt's high level economic development conference. The Managing Director will then travel to India next week for a meeting with the Indian authorities and other outreach events.

Following India, she will be in China. That's from about March 19 to 23, 23rd. And again, among other things, she'll be meeting with the authorities and participating in the China Development Forum.

Our First Deputy Managing Director, David Lipton, will attend the ASEAN. That's the Association of Southeast Asian Nations finance ministers and central bank governors meeting in Kuala Lumpur, Malaysia. That's from March 19 to 21.

And let me mention the Fund and the central bank of Central African States will host a conference on financial inclusion in Brazzaville, Congo on March 23rd.

And head's up that media registration for our spring meetings is open. Spring meetings are April 17 to 18 and with that, let me turn to your questions in the room.

QUESTIONER: I've got a question on Greece. Can you please clarify what are the issues that are under discussion in Brussels? What is the target and what are your expectations? Who is going in Athens and what is the timetable from now on? I mean, for the completion of these discussions.

MR. RICE: Let me just try to cover most of the ground. What I can tell you is discussions with the authorities on the review of the Fund-supported program have begun. Some of those discussions took place in Brussels yesterday and they are to be complemented by technical discussions in Athens.

The Brussels meetings actually have now ended and will resume once the technical work in Athens is completed. These are joint discussions between the three institutions and the authorities. You asked and I'll tell you, Rishi Goyal led the discussions for the Fund in Brussels. Eva Petrova, Rishi's Deputy, Eva Petrova, is leading the technical discussions for the Fund in Athens.

As you know, regarding the Fund's overall relations with Greece and as we have said before, the IMF has a program with Greece until March 2016. Five reviews of that program have been completed. To complete the sixth we would need agreement with the Greek authorities and the European partners on a set of policies that could help achieve the program goals of stability and growth.

So in terms of the issues being discussed, you know, it's the same broad set of issues related to the program's objectives. And as I said, discussions have begun as I've described. Does that cover what you were looking for?

QUESTIONER: Certain policies but yes.

MR. RICE: You know, we won't go into detail of what the ongoing discussions are about but those are the broad parameters.

QUESTIONER: So the economic minister of Greece, Mr. Varoufakis said, and I quote, "That the head of missions are not welcome in Athens anymore." He said that the head of missions. I mean

MR. RICE: Yeah, I didn't catch that.

QUESTIONER: -- are not welcome in Athens and he said that sometimes they are going to meet with technical teams, only with technical teams in Athens and the technical teams are going to be at the hotel next to the ministry and all this stuff.

I wanted your comment on this, first of all and also, they are talking about a new agreement with the institutions, with Troika. I don't know how you call it anymore. What is this new agreement if you can tell us?

I heard you before saying that the program is there till March 2016. So did anything change and I'm asking you again, the mission is going to go to Greece like before or something change?

MR. RICE: Yeah, you know, as I say, the Fund as we have done now for some time, we stand ready to help Greece. We remain flexible as we have done to help Greece. We've been looking forward to initiating the discussions to move the engagement forward. That has now begun and I described the structure of that.

So you know, we think it's a positive step now the discussions at least have begun. In terms of where those discussions are going, I think as I've described, it's the program objectives and you have seen an exchange of letters, public letters between the Euro Group, the IMF and the authorities in recent weeks. And I think they, you know, the information there as to what the discussions are about and the time line, I think all that information is there.

QUESTIONER: So Mr. Goyal is going to go to Athens soon as I heard as I understand.

MR. RICE: As I said, Michael, Rishi Goyal has been leading the discussions in Brussels and Eva Petrova, his deputy, will be leading the discussions in Athens, the technical work in Athens.

QUESTIONER: Good morning. Not specifically to Ukraine but more broadly about the Fund's policy, should we now view the Fund's new modus operandi on debt restructuring that a program is given assuming voluntary participation and high participation by the creditors before there has actually been any discussion with creditors or negotiations with creditors on whether it -- there is any desire for restructuring?

And secondly, is it normal for the Fund to carve out areas, regions of growth in a country in say an Article IV or other bailouts where growth is not performing as well as one would hope to fit the target?

MR. RICE: Yeah, it's not a -- just to correct, it's not a new procedure or whatever the term you used it's not new. It's actually standard practice for the IMF and we can come back to you if you wish on precedent and examples and so on. So it's not a new way of proceeding.

I really don't have much to say on carving out different regions and programs and so on. If you wish, we can come back to you on that but don't have for you on that.

QUESTIONER: Gerry, on her trip to China, will the Managing Director be having any discussions regarding potentially including the won and the SDR basket? There were some statements out of Beijing today by a senior Chinese official saying that they are having those discussions and they seemed optimistic. Is that on her agenda?

MR. RICE: Yeah, I'm not sure what the actual discussions will be but maybe it will help if I just sort of set the issue a bit in context, the issue that you're raising.

Again, just stepping back, the IMF's Board reviews the SDR valuation every five years unless an earlier review is warranted by global financial or economic development. So it's essentially every five years. So the last review took place in late 2010. And the next one is scheduled then for later this year in the latter part of 2015.

And then, the updated SDR basket would become effective January 1, 2016. So that's kind of the review schedule, okay?

Then the criteria for inclusion of a currency in the SDR basket, the selection of currencies for the SDR basket are based on two criteria and these were set out some time ago. They are namely the size of a country's exports and whether its currency is freely usable. So at the time of the last SDR review that was in 2010, as I said, the renminbi met the export criterion but it was assessed to not meet the freely usable criterion.

Since then, of course, there have been a number of developments regarding the RMB's international use and so, just to circle back, the upcoming review will take stock of these developments. So that's something that's going to be happening toward the end of the year as I said and I'm sure there will be discussions in various fora in the run up to that date.

QUESTIONER: Thanks, Gerry. Just want to talk a little bit about currency movements that we've seen in recent days and weeks. In the past, the Fund has said that it is concerned and Madame Lagarde has pointed to the possibility of dollar-denominated debt in emerging markets as a potential risk to financial stability.

I just wonder, given the recent swings that we've seen, are you looking at this issue again? Do you have any updated view on the risks out there from dollar-denominated, particularly, corporate debt in emerging market economies?

MR. RICE: Yeah. We look at exchange rates and external balances not in isolation but part of the overall evolving global economic financial picture. As you say, recently we've seen movements in currencies that are in large part would be expected in light of certain shifts in the global environment, namely the major decline in oil prices, the increased divergence among some of the major economies' outlooks for growth and inflation and the major differences in approach to monetary policy.

As you mentioned, clearly the U.S. dollar has strengthened. The yen and the euro have depreciated. We see that in the context of what's happening more broadly in the global economy. At the moment, we think the movements in the dollar are in line with the fundamentals but this is something we will be looking at just in a number of weeks' time in the context of the World Economic Outlook which will be forthcoming just before the Spring Meetings.

And then, a bit further down the line, we will have a very comprehensive set of in-depth assessments of external positions in which is called our External Sector Report. And that will be coming out around mid-year, somewhere around June of this year, to be expected.

QUESTIONER: Is the IMF confident that Greece can make the payments to the IMF due in the next few weeks in March as the economy is being as asphyxiated as the Finance Minister of Greece called it? And on broader terms, are you preparing for the option, the potential of a default of Greece?

I understand that the IMF funds cannot be disbursed before the full review is completed. Do you expect maybe the other institutions in Europe to be able to provide some liquidity to avoid such a scenario of a default?

MR. RICE: We have no expectation of default on repayment. The authorities have publicly expressed their intention to repay the IMF. Greece is current on its payments so that's all very clear. You know, on the position of the other institutions, I wouldn't comment.

It may be helpful just to remind what we need to complete the review which is you know the first step is to bring the policies in Greece back on track and then, as is the norm in all of our programs, including in Greece, completion of the review would require assurances that adequate financing is available as well as for debt to be on a sustainable path.

And coming back to the earlier discussion, we need to have more information, further in-depth discussions to establish a view on these matters. Yeah?

QUESTIONER: Is it outside the realm of discussions for Greece to move to a different currency by stay within the Euro for legal purposes?

MR. RICE: Yeah, I'm not going to speculate.

QUESTIONER: Well, the reason why I think -- if I may follow-up is because you all have speculated that Greece would not leave the Euro zone. So why is it appropriate to speculate on one scenario but not appropriate to speculate on another? I'm just asking whether as part of the discussions that one scenario that is being considered not as speculative but actual as a part of the discussions, whether Greece leaving -- obtaining a different currency but still staying within the Euro is part of the discussions?

MR. RICE: Well, you know, the fact is that Greece is in the Euro zone and we have no expectation that Greece will be leaving the Euro zone and I'm just not going to –

QUESTIONER: But I'm sorry, Gerry, that's not my question.

MR. RICE: -- engage in speculation.

QUESTIONER: I'm not asking whether they should leave the Euro zone. I'm saying they should actually stay within the Euro zone but have a different currency at the same time in parallel.

MR. RICE: I get it. I get the question. I get it, I'm just not going to engage in the speculation.

QUESTIONER: Gerry, I want a clarification really. I mean, the head of the mission, Mr. Goyal, is not going to go to Greece anytime soon?

MR. RICE: I'm not going to give you any definitive detail on who is going where when. I can tell you what I know which is as I said, Rishi Goyal led the discussions in Brussels yesterday and I mentioned who's leading the discussions in Athens at the moment.

But, you know, it's not that unusual that personnel change during the course of discussions in any country. So it’s not necessarily a major issue if personnel changes from time to time in the course of discussions because that does happen. Okay.

Let me go online just for a bit. I'll take another couple of questions in the room. There's one question from Egypt asking does the IMF have any kind of talks with Egypt about a loan? And what stage are those talks?

There are no discussions with the Egyptian government about the financial support from the IMF at this stage. As always we stand ready to help Egypt. We just published an Article IV consultation report on Egypt and the Managing Director, as I mentioned earlier will be in Egypt tomorrow.

There is a question about Yemen asking, saying the World Bank has suspended its programs due to the situation. What is the status of the IMF's program and its estimate of impacts of the Houthi and Hadi standoff?

All I can say is we are monitoring the situation very closely obviously at this point and we will be in a -- we'll be able to say more once the political situation stabilizes just a bit.

QUESTIONER: I want to, if we could, Gerry, just come back to Ukraine but in the broader context of the Fund. Littered throughout the staff report and through the statements yesterday are references to exceptional risks. I'm wondering, with your vast knowledge of the Fund and its history, whether you can just put into context how unique the Ukraine program and the situation that you guys are facing there is now and can you think back to any comparatives in the past?

MR. RICE: Yeah. It's, well, maybe two points. We try to be always as candid as possible in our assessments and in our reports. And I think that, as you've indicated, I think this report is very candid and states the risks and describes the risks in the report that we've released to you. And Thanos Arvanitis, when he was here earlier, he also talked about the risks. So that's one of the things that the IMF does.

The second thing the IMF does, it's almost part of the core mandate of the IMF. We go into, by definition, very difficult situations. They are always difficult economically and they are sometimes difficult economically and then have other risks such as geopolitical risk or other risks. And there are many examples actually in IMF history of where the IMF has gone into a very difficult situation.

In recent memory, for example, the Balkans countries and the situation there but there are other examples which, if you want to follow-up, we can get those for you and give those to you. You had asked, it's not something we do as to relativize risk amongst different countries and how one would compare with the other but as you say and as the report says, the risks are there in this program and they are exceptional risks. And the program's designed in such a way as to hopefully mitigate those risks.

But again, as with any other program, it's something we will be actively monitoring and watching as we go along. That's why we have this process of reviews, quarterly reviews for programs. It's something that we can update and adjust as we go along.

QUESTIONER: Sure. I just want to clarify because there's been a lot of talk about whether the Troika would survive, will it be called the Brussels Group? Will it be called the Institutions or some other name? Crosby Stills Nash? I mean, from the Fund's perspective, has the way that it engages with Greece, in terms of its reviews, changed?

MR. RICE: You know, we have a process for our reviews that we've undertaken in every country and so, that has not -- our process for the Fund review and what would be required for the completion that review has not changed in terms of the fundamental things that we do.

As I mentioned, the discussions that are taking place in Brussels and in Athens are between the authorities and the three institutions. So the Fund has its own processes and its own program and that's very true in the case of Greece. We have our program, the Europeans have their program but obviously they are complementarities and it's important, those complementarities are really important.

So the discussions are taking place with the three institutions. I'm going to leave it there for today. I hope this was helpful. The embargo again is until 10:30 this morning. And we look forward to seeing you in a couple of weeks. Thanks to those in the room. Thanks to those online.

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