Transcript of a Press Briefing with the IMF Managing Director

April 16, 2015

Washington, D.C.
April 16, 2015

Christine Lagarde
Managing Director, IMF

David Lipton
First Deputy Managing Director, IMF

Gerry Rice
Director, Communications Department, IM

Webcast of the press briefing Webcast

Mr. Rice - Good morning, everyone, and a very warm welcome on behalf of the International Monetary Fund to the Spring Meetings and to this press conference. We are on the record this morning. I will ask you to keep your questions short, focused, and we will try and get around as many as we can.

I am very pleased to introduce to you this morning the Managing Director of the IMF, Madame Christine Lagarde. Just to Madame Lagarde’s right is our First Deputy Managing Director, David Lipton.

I think you all have a copy of the Managing Director’s Global Policy Agenda, and, with that, I would ask the Managing Director to make a few opening remarks and then we will get to your questions.

Managing Director.

Ms. Lagarde - Well, good morning to all of you. David and I are very pleased to be with you this morning and to start the Spring Meetings 2015. The little sign I am wearing here, by the way, is to indicate that we will be in October in Lima, Peru, where I know you are all very welcome by the Peruvian authorities.

In addition to the Global Policy Agenda, which I know you have seen, you also have seen our updated forecast in the WEO for those of you who have read it, and for those of you who have read it you know that we expect growth to be 3.5 in 2015 and 3.8 in 2016, so slightly better than last year. The good news is global recovery continues. The not so good news is that growth remains moderate and uneven.

Of course, there is a tremendous diversity of national economic trends and situations, especially among emerging markets. But overall we believe that growth is just simply not good enough, not good enough to reduce high unemployment still, not good enough to boost middle-class incomes, not good enough to drive poverty reduction. At these next Meetings in the next few days with Finance Ministers and Governors of Central Banks, we will be discussing how to prevent what I have called this new mediocre from becoming the new reality.

I would like to say that, to get it good, it needs to get better. What do I mean by that? To get better, what needs to happen is that growth be actually lifted and I am talking about today’s growth. When I say to get good, I am talking about tomorrow’s growth. So, I will address that in turn.

Lifting today’s growth. Our policy recommendation includes a package of demand support policies that is tailored to specific situations and that demand package policy includes, of course, monetary policy and accommodative monetary policy where it is needed, a tightening of monetary policy where it is possible, and smart fiscal policies adjusted to country specificities. But that is not sufficient. It tries to include also ways to deal with the financial stability risks emanating from super low interest rates, volatile commodity prices and exchange rates, and from the potential rise in the U.S. short-term interest rates that is expected in the near future. These financial risks have been rising and have been rotating.

What do we mean by rotating? Rotating from advanced economies to emerging markets; rotating from banks to the nonbank financial sector; and rotating from sovereign solvency to market liquidity. Stronger financial policies are needed to tackle these risks. As I said, to get good, it needs to get better. Here, I am really talking about tomorrow and what we call the growth potential, because we need to lift growth potential for the medium term. Our WEO explains that in great detail.

Potential growth rates are going down; we have revised downwards. This is in part because of changing demographics, and those are for the long run, as we know; lower productivity factors; and in some countries, the legacy of the crisis. To reverse this trend, we need some serious, in-depth structural reforms pretty much across the board and those structural reforms will have to be granular, adjusted to the diversity of the country’s specifics. They include the likes of labor market reform, infrastructure, trade, and investment in people. Implementing these reforms will call for strong leadership, and I come to my third point.

To get good, it needs to get better, and to get better, it can only be done together. International collaboration is essential to lift today’s growth and tomorrow’s growth. It is also essential for making growth more sustainable and more inclusive. We need to continue reforming the International Monetary System to make it more resilient, including efforts to better integrate fast growing emerging markets. Here I am clearly referring to our quota and governance reform, and also to the reform and the review of our SDR basket later this year.

We need to take advantage of 2015 as a special year for development. Global attention is focused on these critical issues, whether it is financing for development, whether it is sustainable development goals, or whether it is climate change. So, the IMF will be ready for these moments and thereafter, because those are long-term goals, and together with the membership in the next few days, we will be discussing all these issues.

Thank you very much. We are going to take questions under your monitoring, Gerry.

Question - Good morning. You have mentioned so many risks in the global economy. However, the IMF yesterday warned] about a super taper tantrum that might again have an impact on the global economy. So, we are talking about the brightest spot in this report that might really impose some risks to the global economy. What do you think of that and what do you think the message will be to the U.S. authorities in this case?

Ms. Lagarde - I would not want you to go away with the idea that everything is a risk and there are no bright spots, because there are bright spots in the global economy as we see it. You will have heard that in our WEO we say that macroeconomic risks have declined. We still have risks, but if you look at a few bright spots you will see that the U.S. economy, for instance, is recovering quite strongly and we are seeing quite positive signs going forward. We are seeing that in Europe, the U.K. is clearly holding very strongly. The euro area is also showing signs of recovery and much better than what we had seen lately. Japan, coming out of a slight recession, is also forecast to be on the rise.

There are positive factors to explain that. Obviously the decline in the oil price, obviously the low interest rates at which those countries can finance and refinance themselves, all of that is helping. The exchange rate variations in a way are helping those countries that were most, you know, in the negative in the past.

Now, against that, it is true that emerging market economies are not doing as well as we had forecast initially and not as well as last year, slightly less, for obvious reasons. It is not as if it was a cohesive group where everybody is going down. Some countries are clearly slowing down more than others. Brazil, for instance, is flat and forecast to be slightly negative this year.

China is slowing down, and foreseeably so. I think it is a determined approach and policy determination. Russia is not doing well at all and is in negative territory, for obvious reasons, oil sanctions and the like of it. Low-income countries, on the other hand, are holding, with great diversity between those that have commodities and are suffering the backdrop of lower prices and those that are more on the import side of things and have had buffers and are holding better.

So, it is a mixed picture against which you have this financial stability risk on the rise, but it is not Armageddon. It is a risk that needs to be addressed, where policymakers can actually take decisions and where the first call of action is to actually have a solid macroeconomic set of policies in order to address potential volatility, which is clearly going to happen.

Question - Would the IMF ever countenance a delay in payments from the Greek authorities and what is your advice to the Greek government at the moment when they are desperately short of money?

Ms. Lagarde - You know, and you know that quite well because you are very well informed, payment delays have not been granted by the [Executive] Board of the IMF in the last 30 years. It was eventually granted to a couple of developing countries and that delay was actually not followed by very productive results. As you know, the IMF is rule-based. All options are available to all countries. It is clearly not a course of action that would actually fit or be recommendable in the current situation.

We have never had an advanced economy asking for payment delays. Payment delays are actually analyzed as additional financing granted to that country. Additional financing means additional contribution by the international community, some of which are in a much dearer situation than the country actually eventually seeking those delays.

Question - Madame Lagarde, when you were in Beijing last month, you said that the inclusion of the renminbi in the SDR basket is not a question of if but a question of when. So, I just wonder what kind of efforts or measures could the Chinese government take in order to speed up this process. Also, later this year, the IMF is going to have the five-year review of the SDR. What kind of changes are we likely to see after this round of review?

Ms. Lagarde - Well, I was actually asked properly and officially by the Chinese authorities to include a review of the current situation of the renminbi with a view to including it in SDR basket. As you know, the review takes place every five years. The next one will be before the end of 2015. The Chinese authorities know quite well what is desirable, what needs to be changed and improved in monetary policy and in the financial sector in China.

I believe that what the Chinese authorities have actually indicated in terms of liberalization of interest rates, in terms of the opening up of the capital account, in terms of deepening of the financial markets actually will naturally be conducive to an assessment of whether or not the renminbi is freely usable, which is, as you know, one of the key criteria. The other one is the export capacity, and I think on that one nobody has any doubt as to whether or not China fits the bill.

So, this is a process that we will embark upon, that we have begun working on together with the Chinese authorities. As I said, technical work needs to be applied to it on both sides, by the Chinese authorities themselves and they have announced it, and by us to just assess and determine whether that second criterion is actually met.

Question - My question is about Latin American economies. Latin American economies are now slowing down, in some cases decreasing also, and also facing inflation pressures with fiscal deficits. So, monetary policy has to choose between supporting growth or attacking inflation pressures. Also, in many countries, fiscal policy has no room to act. You were Minister of Finance, so how can you deal with this scenario, what to do first to attack inflation pressures, to improve the fiscal stance, to boost growth? Also, do you think the region takes advantage of the commodities boom price to improve its fundamentals and to avoid secular stagnation as it had in the 1970s?

Ms. Lagarde - First of all, I would like to deal with the stagnation issue, because I do not use it on purpose, not that I do not want to borrow from previous uses, but I think there is an element of being stuck in secular stagnation. I use “new mediocre” because I think that—I hope—it implies a sense that if policy decisions are actually courageously made and hopefully collectively discussed, there is a way out of this new mediocre so that it does not become that new reality that I referred to. I am not sure that I want to discuss Latin America as a whole because I think that each and every country has a particular situation of its own. It you look at Brazil, it is going to be different from Peru, for instance. If you look at some of the Caribbean islands, it is going to be different from Chile. So, I think it will vary, depending on the actual specificities of that country, whether it is a commodity exporter, by how much the commodities in question have seen their price lowered over the course of the last 12 months—as you know, oil prices have declined significantly more than other commodity prices—how they have built buffers in good times and whether they have acquired the ability to resist the current situation, which is clearly affecting many of them, you know, lower revenues from a fiscal point of view, lower growth more generally. It is also going to depend on the volume of debt that they are holding.

You know, I will take Brazil as an example, and I am doing that on purpose because it is probably the one that has suffered the most in the last few months in terms of growth, in terms of revenue. Clearly, the policy that is applied is a combination of serious fiscal policy with anchoring the medium term, with determination applied to how they are going to deal with it. Certainly, what we see as a result of that in our forecast is negative growth this year but turning positive next year and onwards, as long as the medium-term anchoring of credible fiscal policy is properly adopted.

Question - Madame Lagarde, in light of the double shock of low oil prices and regional conflict, how uncertain do you see the outlook for the Middle East, and what would you identify as potentially serious spillovers of geopolitical tensions there?

Ms. Lagarde - Well, it is clearly one of the areas of the world where the geopolitical risks are high and where the spillover effects of both the lower oil price and the geopolitical risk uncertainty can be combined to actually give a very concerning forecast. But it is also an area where I would not put all countries in the same camp, because you have those that are oil exporters that are clearly taking a hit as a result. Within that group you have those that have solid macroeconomics and eventually buffers, and those that do not and have exhausted their buffers, which are in a much dearer situation.

You have oil-importing countries, and there are quite a few of those. Those that we have in a program at the moment, for instance, the likes of Jordan or Tunisia or Morocco, are not doing badly. They are struggling and it is hard for some of them, but they are not as affected in terms of growth and growth potential as the other ones.

So, again, our recommendation is to adopt very solid macroeconomic policies going forward, to draw on buffers for those that have buffers, you know, eventually in the form of either sovereign funds or significant reserves, but it is the geopolitical risks in this part of the world as well as in other parts of the world are clearly creating a background of uncertainty.

Question - Just a question on the likes of Nigeria and other oil-producing countries on the continent. We have seen [a number of African countries being impacted negatively because of the fall in the oil price. Dollar strength has also been creating havoc. What kind of reforms would you suggest to these countries, where right now it is not that evident in terms of impact but it could be very bad, a very bad story down the line. 

On Greece, with regard to the relationship that you have with Mr. Varoufakis, does he know that there are not going to be any payment delays available to the likes of Greece, and are you concerned about a Greek exit, because most economists that I speak to say that it is a big probability?

Ms. Lagarde - On the issue of those eight African countries that are oil exporters, some actually benefit and some suffer as a result of the dollar appreciation, benefit because you get dollar pricing for the oil that you export and it sometimes compensates a little bit the decline in oil prices, but drawbacks as a result of the fact that quite a few sovereigns and more so corporates have actually borrowed in dollar-denominated loans, which is creating a difficulty there. They have to keep a tight ship and try to really be very cautious with their public spending.

We still continue to recommend that any subsidies that are being paid out of fiscal resources be phased out to the maximum possible extent. It has been the case partly so in Nigeria, but more needs to be done and, you know, as quickly as possible if it has not been engaged. A diversification of their economy, which has been often much talked about but where not much has been done, is clearly of the essence.

Now, on your second question, it is certainly an issue that we are concerned about, the liquidity situation of all our debtors. As you know, Greece is one of our debtors so we are concerned about that. We have been able to express and explain the policy of the IMF in terms of payment delays and give the precedence and history about that to Mr. Varoufakis.

Question - It is another Greece question, but it is obviously such an important issue for the Fund at the moment.

Ms. Lagarde - It is such a big world out there.

Question - I know, but it is just clearly very important for the Fund and I think that is the point really of my question. You have talked about the precedent of those advanced countries asking for a delay.

Ms. Lagarde - There is no such precedent.

Question - Excuse me, the lack of precedent. Sorry. But are you able to say definitively that you would not grant it? Second of all, it has always been said about the Fund that it is one of the safest places through which to lend money; you do not lose money when you lend through the Fund. Are you worried that this episode is undermining the Fund’s capacity to say that in the future?

Ms. Lagarde - Well, I can assure you that management will do everything it can to make sure that lending to the Fund is actually the safest lending route that anyone can adopt. That is my determination and it is our determination.

Question - [And my first question?]

Ms. Lagarde - I think my second response actually addressed your first question.

Question - In your remarks you talk about exchange rate movements and in the latest World Economic Outlook it says that if large exchange rate movements continue, it will reignite a currency war talk. China’s Premier Li also warned that he thinks the major economies should coordinate to avoid a currency war. So, as the Federal Reserve’s next move is uncertain and other central banks are still trying to strengthen their accommodative efforts, should we be worried about a potential currency war.

Ms. Lagarde - I think one of the missions of the IMF is precisely to orchestrate and help organize that cooperation between nations and between their respective authorities. This is very often what is happening here when they come to the Spring or Annual Meetings. There is renewed dialogue, discussions, in-depth discussions that happen very often behind closed doors, maybe much to your regret, but that is the way generally some authorities like to operate. We certainly intend to continue doing that.

When I said that we need to reinforce the International Monetary System, it is also as part of that process where we need to make sure that all countries can have the benefit of safety nets. We will be working on that, particularly with respect to fragile states and particularly in the context of this development agenda of ours which is, you know, common to all of us.

So, yes, there is that determination. I think it is part of our mission. We constantly look at our instruments. We certainly in our policy advice, whether as part of the Financial Stability Assessment Programs (FSAPs) or as part of the bilateral or multilateral surveillance work that we do with the authorities, we certainly engage them in that degree of cooperation that includes looking at the domestic effects of policies but being attentive to spillovers and spillbacks from the spillovers.

Question - Yesterday President Draghi said that the solution of the current impasse in Greece is entirely in the hands of the Greek authorities. Is that a view that you share, and what would be your advice to the Greeks?

Ms. Lagarde - You know, my advice has not changed. My advice is to get on with the work and the work needs to address both the short term and the medium term of the economy. The objective that we all pursue is to actually restore the stability of the Greek economy, but it is not done by a political, last-minute accord. It is done by actually looking at measures, committing to reforms, measuring what the outcome will be. It is the tedious work of Financial Ministers, wherever they are, and the lenders. So, certainly what I hope that we can continue doing at a faster pace and certainly more in-depth is precisely that exercise, that reforms can be implemented in order to encourage the Greek people and the Greek economy to be more stable, to be able to create jobs, and to move on.

Question - The Bank of Japan continued QE about two years. What do you evaluate the policies’ effect or concern for Japan and world economic growth? One more question is about AIIB. For developing countries to have sound development and sustainable growth, what is the key point of the way of Asian Investment and Infrastructure Bank (AIIB) finance?

Ms. Lagarde - On your first point about the Japan policy mix, because I think that they really go together and they were announced together, the key point in our view is that in addition to the accommodative monetary policy that has been conducted very resiliently and steadily, the other two chapters of the Japan policy mix be completely delivered upon. There has been one move on the consumption tax. We understand that the next one is firmly anchored in the law.

We also hope very much that the structural reforms that are so much needed to unleash the vast potential of the Japanese economy can be taken, can be delivered upon. I am here clearly thinking of the capacity of Japan women to join the labor market. I know there has been an increase recently, which is good. I think opening to non-Japanese labor forces might be a good idea to consider; I know how difficult it is. Clearly, liberalization and deregulation in certain areas in order to facilitate trade and to hopefully speed up the TPP negotiations would be very much welcome.

On your second issue on the AIIB, the proposal to have a completely dedicated institution that will focus on infrastructure on a regional basis is actually an attractive proposition. It is not that the region is short of needs; it is short of potential projects. So, that is a most welcome institution and one with which the IMF certainly is planning to cooperate with.

Question - Congratulations, Madame Lagarde, on another session.

Ms. Lagarde - It is not over yet.

Question - No, it is the beginning, but the beginning is always hopeful. In that spirit, President Putin today in Moscow said that the worst for Russia seems to be over, that the economy is picking up and the ruble is strengthening. So, my question to you is, what can Moscow do additionally to prove the IMF wrong in its pessimistic projections?

Also, you mentioned that lending to the IMF is the safest lending in the world. My understanding is that if reform does not decisively move forward, the other countries may have second thoughts about lending to the IMF. Some of those countries, like the BRICs, for instance, seem to have a lot already, a lot of money in the NAB, for instance. So, are you worried about that?

Ms. Lagarde - Well, first of all, I would not like anything better than to be proven wrong for any country where we forecast negative growth, because positive growth in any particular country is going to be helpful for the rest of the global economy because countries [are different] in nature and in characteristics, but they contribute to global growth. So, let us be proven wrong in that direction.

Russia is clearly an important partner of the IMF and one with which we are working steadily and which we very much count upon to ensure certainty, stability in the region.

On the issue of the strength of the institution, I think from a financing point of view, the IMF is strong. Whether it is based on its quota, or on its New Arrangements to Borrow, or on its bilateral loans, we have a lot of powder and dry powder to use just in case. But it is a case that the Quota and Governance Reform of 2010 has not been delivered upon, that we are still short of one major ratification out of this country, the United States of America. Under those circumstances, I can fully understand why some of the other countries are frustrated and impatient to see that reform actually implemented.

So, I am not only calling for action by policymakers to act together to make sure that, to get it good, it eventually gets better, but I am also calling on the United States to actually obtain ratification of that reform so that the institution can continue to be representative of the entire community as it evolves.

Mr. Rice - Thank you very much, everyone. We will see you later.


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