Transcript

Transcript of the International Monetary and Financial Committee (IMFC) Press Conference

April 18, 2015

SPEAKERS:

Christine Lagarde - Managing Director, IMF

Agustín Carstens - Chairman, IMFC

David Lipton - First Deputy Managing Director, IMF

Gerry Rice - Director, Communications Department, IMF

Webcast of the press briefing

MR. RICE: Thank you very much. Good afternoon, everyone. Thank you for coming to this press conference on behalf of the International Monetary and Financial Committee. We are on the record today.

It is my pleasure to introduce to you the Chair of the Committee, Agustin Carstens, Governor of the Bank of Mexico. To his left is the Managing Director of the IMF, Christine Lagarde. To his right is our First Deputy Managing Director, David Lipton.

I think you have the communiqué already, so we will get right down to business. I will ask the Chair to make a few remarks, followed by the Managing Director. Then we will get to your questions, I would only ask that you keep them very succinct.

MR. CARSTENS: Thank you very much. Gerry.

First of all, I would like to say that I am really honored to follow Minister Tharman of Singapore as IMFC Chairman. He really left a great legacy in the institution, in the Committee, and it will be for me a real pleasure to build on his legacy. Of course, it has been an honor to work together with the Managing Director in moving through the agenda that is meant more than anything to strengthen the position of the IMF in the context of the International Monetary System.

Today’s discussion focused mostly on how to enhance growth and at the same time achieve financial stability. We analyzed the different areas of growth in the world economy where there is space for using different instruments, policy instruments to achieve growth, and in that sense the contribution of monetary policy and fiscal policy were addressed, and also the limits of those policies.

A lot of emphasis was done on the importance of infrastructure and structural reforms in particular. As a matter of fact, the macro dimension of structural reforms was reiterated and I think there was broad consensus that that was a key element to take into account as we move forward.

At the same time, it was recognized that even though very important progress has been done in producing financial stability around the world, there are some issues that have been created by, in some cases, the policies that in the first place had helped us get out of the most complicated aspects of the global financial crisis. These aspects will need to be dealt with by countries to strengthen their macro fundamentals and, at the same time, whenever appropriate, apply macroprudential policies.

We also had a very constructive session on financing for development. We had the presence of the Secretary-General of the UN; it was a first. I will let Christine elaborate more on these issues.

So, all in all, I think the discussion was very fruitful. I came out of this meeting with a sense of optimism. I think the fact that a lot of the discussion basically rotated around how to increase growth, how to increase growth with financial stability and not only discussing tail risks was, I think, a very good sign of the state of where the world economy is. So, I leave it at this and I give the floor to Madame Lagarde.

MS. LAGARDE: Thank you very much, Chairman. We at the IMF regard ourselves as really lucky. We have been lucky with the Chairmanship of Tharman, who has been tremendously helpful in chartering the IMFC through really difficult times in very agitated seas because he worked from 2011 until now, March 22, and he helped a great deal.

We are very lucky that he has been replaced with somebody as talented as Chairman Carstens. You will get to appreciate him, know him better. He brings to the job a wealth of experience, having been Finance Minister of Mexico—he knows all the colleagues in the room—being now Governor of the Central Bank of Mexico, he knows all the colleagues in the room and he has been in both positions. It, too, brings this background of love for the institution, as a former IMF senior staff member, and his great belief in multilateralism and the need to work together.

The second reason why we have been lucky is that we have been encouraged by the membership, which has very strongly endorsed our GPA, the Global Policy Agenda, that you have seen and which has been distributed to you about three days ago, great support for the agenda that we had laid out for the membership, and we received from the membership very strong endorsement.

We have been lucky again because for the first time ever in the history of IMF, the IMFC was addressed by the UN Secretary-General on what we regard as a pivotal year. 2015 is a year where not only we are going to continue to do the good work that we have to do in surveillance, in lending, technical assistance, training, in being always more focused on our membership needs, always rallying around the theme of growth, better growth, more inclusive growth, more sustainable, not as uneven, not as modest as we are seeing it. But we are also going to put our expertise within our mandate at the service of the three key Summits that are coming up.

The next one is going to be in Addis Ababa. As everybody knows, no budget, no project. If there is no financing identified in Addis, it will be difficult to actually continue the work with sustainable development goals in New York, and then after that, at COP 21 in Paris, around climate change. So, we are going to work to that end and we are not going to dream about it. We are going to just focus on what we know best, which is how to use fiscal tools, how to mobilize resources. A lot of developing countries actually have a much lower percentage of resource mobilization. We can help them and we have the tax expertise on the ground deploying multiple missions to help the membership mobilize resources.

Second, we can also help our membership with judicious selection and good management of infrastructure projects and the financing of it. This is just a little teaser, but in May we will be releasing a publication that is fascinating, where we identify that pretty much every project is suboptimal in its selection, management, and can be improved by a margin of about 30 percent. That is another contribution.

The third one, we will put our tools and our analytical capacity to the service of inclusive growth, because if we want to reach those sustainable development goals, clearly money has to be invested in health, education, the inclusion of those that do not have access to either the financial system or to the job factor. And here I think of the underprivileged and women in general.

So, we are encouraged. Lots of issues to deal with, lots of problems around. But we have really received a strong endorsement. Thank you.

MR. RICE: Thank you. If you can keep the questions short, we will try to take as many as possible.

QUESTIONER: I want to ask you about the quota and governance reform. Was there before the IMFC Meeting a proposal of delinking both from governance, why doesn’t it come, and which one would be the answer that the IMFC puts on the table?

MR. CARSTENS: This was an issue that was discussed together in a joint meeting with the G20. The U.S. Treasury Secretary provided us an update on the status of discussions on U.S. ratification of the 2010 reforms. I would say that pretty much all the members expressed deep disappointment that the 2010 reforms have not been ratified in the U.S. and have not been implemented. Nevertheless, all agreed that the first best is precisely to have an early ratification of those reforms. Therefore, we urge the U.S. to get this ratification as soon as possible.

Mindful of the goals of the 2010 reforms, we all called on the IMF Executive Board to pursue an interim solution and basically all options are on the table. There was also the sense that all these interim solutions would be suboptimal with respect to the ratification of the 2010 reforms. So, we basically will be working on this two-tier approach with the expectation that the 2010 reforms are ratified in the U.S.

QUESTIONER: Two quick questions. China’s slow growth, should that be a concern for developing countries, African countries that are much exposed to China? What should these countries be doing, like Ghana, to minimize their shocks? Second quick one: Ghana has signed up to an IMF program. Is the Fund prepared to engage other developing countries who previously froze budget funds to release those funds that were frozen because the argument was that, unless you go into a Fund program, we are not prepared to support the country?

MS. LAGARDE: On China, we heard a very good report from Governor Zhou, who was representing China, who clearly indicated that there is strong confidence in growth continuing in China, certainly not at the level that China has had in the last decade but growth which is of a different nature, more quality growth with a migration from investment to consumption, which seems to be quite deliberate and supported by the authorities, with a clear identification of the areas of risk and the determination to address those risks, and confidence that that level of growth, which is at around 7 percent, and possibly a little bit below, is satisfactory given the status of development that China has now reached.

On the program that the Fund and Ghana have agreed to, it clearly will have a catalytic effect. When a country has signed a program, has negotiated the terms and conditions and agreed to what is going to be good for its development, it generally always triggers on the part of other bilateral institutions, of other bilateral lenders, financing that sometimes had been frozen or locked, pending negotiations. So, this is a typical result that we see from program conclusions.

QUESTIONER: Ms. Lagarde, you met with the Greek finance minister while he was here for the Spring Meetings and you agreed to speed up the process to conclude the review. Are you any more confident after this meeting that this will indeed happen? How do you envisage the conclusion of the process and what kind of flexibility can the IMF show? I know you have said that the IMF can be flexible.

MS. LAGARDE: I think the flexibility that I referred to applied to the commitments and the undertakings by the parties in terms of what will contribute to the objective of the effort. In other words, the objective remains the same: restoring stability, assuring recovery, making sure that Greece can become sovereign in its financing and in its economic development. Those are the objectives, and they can be satisfied by different means. They will vary, depending on the political mandate that the authorities have had. The key question is to actually manage to fit the overall bill and make sure that the whole effort, the whole partnership hangs together.

That is what I meant by flexibility and that is what we have always demonstrated review after review after review. The meetings that I have had were productive to that effect, and both David Lipton and myself have had meetings with Mr. Varoufakis. What we very much hope, both of us, is not only speeding but deepening of the work. It is not a question of racing to the end. It is a question of doing all the work that needs to be done.

As I said at the previous press conference, the job of a finance minister, as both of us know, and of our teams, is to go deep into the analysis, pull out the numbers, assessing the efforts undertaken, making a few hypotheticals about what it will deliver in terms of growth, in terms of fiscal revenues or spending, and then move on.

QUESTIONER: Madame Lagarde, in your speech before the meetings you talked about the risk of a bumpy Fed exit. I am wondering what takeaways are coming out of this meeting on that. Was there any consensus on what sort of buffers or cushions or measures should be taken? I know the G20 communiqué mentioned capital controls. What sort of measures should be taken to cushion a Fed exit?

MS. LAGARDE: There are two things I take away. First of all, I think we all understood, because Chairman Yellen was very explicit about it, that not being patient does not mean being impatient. That is one which is extremely clear. Second, we also understand that there will be clear efforts and determined efforts to always communicate and help everybody anticipate the move, and a good understanding and appreciation of spillover effects of any policy.

As far as the emerging market economies are concerned, for instance, there are clearly different tools that can be used by the monetary authorities, by the fiscal authorities as well, in order to respond to potential volatility as a result of this gradual tightening of monetary policy by the Fed. I think what we have learned from the tapering tantrum that we saw in May and June 2003 is that countries have to have macroeconomic fundamentals as solidly determined and anchored as possible, and that they can use monetary policy in a subtle way, depending on what pressure they are, whether it is domestic pressure, whether it is external pressure. If everything has been tried, certainly recourse to some degree of capital control has been discussed in the past by the IMF and a policy decision has been agreed in that respect as a last resort tool.

QUESTIONER: Since Greece is a big topic, I just wanted to follow up a little bit more on that. I am wondering, first, if the IMFC discussed Greece at all as part of the talks about the sense of optimism in the global economy or in general, and also if you learned anything new or surprising, both of you, during the course of your meetings over the last two days about Greece.

MR. CARSTENS: The role of the IMFC is not to go deep into detail of country matters. Certainly, Greece stands out due to its importance, but I would say that the Committee basically endorsed what the different institutions are doing with respect to Greece and, in particular, the approach that has been taken here at the Fund. So, it is basically an endorsement of the actions that have been taken by this and the other institutions involved in the case of Greece.

MS. LAGARDE: We have not learned anything additional to what we did not already know or what we already knew. My hope is that we can really move, make progress, and be as positive and as productive as we can with the Greek authorities for the benefit of the Greek economy and the Greek people. That is really the objective. I have made sure, David has made sure, that we were a hundred percent available, always there when a meeting was asked on any day, including on Easter Sunday, and that will continue to be the case, but it has to be on all fronts.

QUESTIONER: My question to Madame Lagarde is relating to the reform of the IMF. As you mentioned at the beginning of April in the Atlantic Council, you still feel a little bit slow of IMF reforms since 2010. The U.S. is holding more than 15 percent of quota. So, in regarding of this, the AIIB may not take a similar regime. What is your point of view on this issue?

MS. LAGARDE: I do not think that I can compare the two institutions. I wish we were in the same business because maybe we would make money. The AIIB will be a bank, will finance infrastructure projects. This is not our mission. Our mission is financial stability. Our mission is rooted in three pillars. One is lending; we get our money back. The second one is providing surveillance assistance to our membership. The third one is capacity building. But we do not finance infrastructure projects as is intended by the AIIB. We plan on cooperating and working with the AIIB if our expertise, our knowledge, is of any help in order to boost those projects.

I mentioned earlier this May publication that will be released shortly. Very interesting work, how to really get the best out of the renminbi or SDR or U.S. dollars that are invested in infrastructure projects. If they are well selected, if the procurement process is good, if it is efficiently run, you can get a lot more, and that is what this publication would indicate.

QUESTIONER: Going through the communiqué, I was reading the policies that you suggest to increase or to promote growth: fiscal stability, financial stability, implementation of structural reforms, productively and efficiently execute public and private investment. Mexico has been doing a lot of these things and still growth is not yet there. I mean, some say that 3 percent is not bad, but a lot of that growth depends on the U.S. So, what else do the Mexican authorities have to do in order to promote stronger growth in the short term?

MS. LAGARDE: I can give you the standpoint of the institution and then clearly Governor Carstens has his own view, I am sure. First of all, I would say that 3 percent growth is not bad, considering. I remind you that global growth on average, including all economies from advanced to low-income developing countries, which are the fastest growing ones, is 3.5 percent, so it is slightly below average growth and is driven by strong external demand. The fact that Mexico is sitting on the border of the United States, which has been doing quite well and which is in a very tight relationship with that country from a trade point of view, from a foreign direct investment point of view, from a supply chain point of view, I think is probably going to help.

Second, I would mention that the many structural reforms that have been adopted over the last two years are expected to boost growth as they are implemented. So, they have gone through the parliamentary process and they are now, I suppose, going to be implemented and that is when they deliver growth.

Our forecast is higher than 3 percent. Thanks to those reform outcomes, growth is more likely to be in the range of 3.5 to 4 percent as a result. So, I think that despite the oil price decline, Mexico’s economy is faring quite well, as I said again, thanks to the very strong reforms that were decided and undertaken courageously in the last 18 months. Back in October, here, we had Mexico as one of the leading examples of in-depth reforms that have been adopted.

MR. CARSTENS: Well, you know my view on this, but I can say very, very, very briefly, and relating this to the discussion today, we went through all the different aspects of the world economy. Certainly, Mexico has been facing two important shocks. One has been the decrease in the price of oil. The other has been the volatility in the financial markets, in particular the strong overall appreciation of the dollar.

The bottom line is that Mexico needs to implement in a timely and efficient manner the reforms. We are encouraged because some of these reforms are already showing results. We have seen a very important decrease, for example, in telecom prices and that will have an impact on growth. In the coming two months, in May and June, there will be important results on energy reform that will establish the basis for the recuperation of the oil exploration and oil exploitation platform in Mexico, which has been one of the important contributors to relatively slow growth. At the end of the day, we cannot isolate ourselves from the rest of the world, and that also has been having an impact on Mexico.

I mean, all that is said in the paragraph that you read is being complied with by Mexico. Janet Yellen mentioned that the Fed decided not to be patient, but we need to be patient in further results to come in terms of growth for Mexico.

QUESTIONER: I am sure you agree with me that one of the major (inaudible) stalling development programs in the continent is the issue of continuity of policies. How confident are you that the incoming regime in Nigeria, the incoming administration, will sustain some of these programs/policies that are already in place?

MS. LAGARDE: Well, Nigeria is another country that clearly has suffered as a result of the oil price decline, because a lot of its resources and a lot of its economy actually relied heavily on oil as a major resource for the country. What we have observed in the last year, in particular, is a good fiscal policy with some tightening clearly, exchange rate depreciation in order to adapt to this external shock, and some use of reserve buffers. That has been essentially in a nutshell the policy mix that has been adopted by the Nigerian authorities so far.

Our sense is that it needs to be continued and that some fiscal consolidation needs to take place. We very much hope that the next budget will reflect actually the good policies that have been put in place in order to resist the external shock that Nigeria has received, like the other seven African countries that produce oil and which suffer as a result of the oil price decline.

MR. RICE: Thank you very much, everyone.