Transcript of a Press Briefing by Caroline Atkinson, Director, External Relations Department, International Monetary Fund

February 3, 2011

Washington, DC
Thursday, February 3, 2011
Webcast of the press conference Webcast

MS. ATKINSON: Hello. I’m Caroline Atkinson, the Director of the External Relations Department. Welcome to our regular bi-weekly press briefing. As usual the briefing is embargoed until 10:30 a.m. Washington time or 1530 GMT.

I just have one announcement before we turn to your questions and that is that next week on February 10 in the run-up to the G-20 meetings the IMF is going to hold a panel discussion on strengthening the international monetary system, and Managing Director, Dominique Strauss-Kahn, will have opening remarks. We have other panelists who are experts in this area: Fred Bergsten of the Peterson Institute, Kemal Derviş from Brookings, and Tim Adams, former Under Secretary of the Treasury. This will be open to the press. We will be sending out media advisories soon. It will be here in the building. And the event will be focused on discussing what changes are needed to make the international monetary system more stable. And it’s, as you know, part of the run-up or it’s set in the run-up to the G-20 meetings. And it will be coincident at the same time we’ll be publishing a paper that, a Board paper, on the role of the SDR in the international monetary system. So that’ll be next week.

So please ask your questions. Identify yourselves as usual and your affiliation. And we’ll also, of course, be having questions online.

QUESTIONER: I have a question on the G-20. Last week French President, Nicolas Sarkozy, laid out his proposals, and he talked in particular about capital controls. He said that he was in favor of a code of conduct for capital controls and how countries could regulate them. Is it consistent with the IMF’s views?

MS. ATKINSON: The IMF as you may know has a pragmatic approach to the issue of capital controls. We have recently had a Board paper issued on capital flows, which also talked about rules of the road and so on. We see a number of countries that are faced with potentially destabilizing capital inflows now, and there are a broad range of measures that can be taken. And capital controls are part of that toolkit along with macroeconomic policies, reserve accumulation and macro-prudential controls. So we really see a case-by-case approach to which measures countries should take. And we’re, of course, working with the G-20 on how this issue should be taken up in going forward.

QUESTIONER: You know, all eyes on Egypt. Just interested in what assessment the IMF has made so far of the economic impact on the country. The last Article IV talked about many things they had to address. You know, now they’re going to have a lot more to address it seems. I’m just wondering what sorts of preparations are being made here for when the banks reopen in case there’s a run on the currency, you know, capital flees, and so on. What’s being done here about this in preparation?

MS. ATKINSON: I’m afraid I’m going to be rather dull on that. Of course, we’re following the developments in Egypt very closely. We are extremely upset about the loss of life and injuries that there have been and deplore the violence. We have said earlier that -- and for some time -- that in Egypt, as in other countries, there has been this issue of high unemployment, especially amongst the youth. And it will be important for the government, which ever government it may be, to focus on that challenge and also on the need for inclusive and broad-based growth. I’m not going to get into what specific plans or work that we might be engaging in now. I think that it’s too early to know how the situation is going to be resolved.

QUESTIONER: [I understand] it’s a situation that’s in flux. The discussion of this whole early warning system and analysis like that, I’m just wondering whether you think this is a potentially systemic problem that’s developing there - with the Suez Canal, oil, et cetera- or whether you feel it’s something that’s going to be contained within that country. And maybe they’ll need a loan or something like that to make sure they’ve got enough cash.

MS. ATKINSON: I think we just don’t know yet how the economic situation will develop because it’s not yet clear how the political situation will develop, and that’s obviously not our expertise. We’ve seen some impact already on fuel prices and on food prices, both of which are, of course, important, and especially food prices can hurt the poor and vulnerable. But those impacts will be temporary provided that the, you know, that the turmoil is temporary. It will really depend on how things unfold. And the economic impact will be impossible to assess until one has a broader idea of how the politics are developing.

QUESTIONER: Following up on Egypt, the IMF is known to step in when, especially in situations where banks are reopening and there is fear of capital flight. There is a new Finance Minister in place. Has the Fund been in touch with him? And what sort of support could -- if you look down the road as the political situation starts to stabilize, what kinds of things would or could the Fund potentially enter into discussions with Egypt? What would be your immediate [response] to move in to stabilize the economy?

MS. ATKINSON: I think that presupposes that we know what kind of instability in the economy there may be. [For that] we have a normal range of tools. We can give economic advice, and we would be ready to do that as soon as the situation is clarified. As I mentioned, we have a range of tools. [We have a range of advisors]. We’ve recently been in Egypt and had some advice at that stage, as I said, focusing on the need for broad-based and inclusive growth and measures to tackle unemployment. And so I’m sure that, as things become clearer in coming days, we can tell you what we’re doing, but at the moment, like many other people, we are mostly monitoring.

I have another question [related to Egypt] online “Do you think that developments in Egypt will have a negative impact on Israel’s economy?” Again, for the region it’s also premature to make projections about the economic impact, where I think that will become clearer once the political impact has become clearer.

QUESTIONER: Has there been any contact between the IMF and the Egyptian Finance Ministry since the Article IV mission that was pre-protest was in Cairo?

MS. ATKINSON: The aforementioned mission was sort of almost contemporaneous with protests. They just got back last week. I don’t have anything for you on whether we’ve had contacts. I think there is an issue of just who is in charge of what right now. We’re watching and following things closely, and we’ll be ready to help.

QUESTIONER: I’ve talked with you about the food price increase, and we’ve seen a lot of inflationary pressures, especially in Asia, you know, mainly due to food prices, in Indonesia, Thailand, South Korea, and so on. What would the IMF advice be on policy measures in this regard? Can you see this situation on food price inflation spiraling quite dangerously? These countries are also dealing with high capital in flows and so on.,

MS. ATKINSON: On food prices, it’s obviously a big problem, particularly because a larger proportion of the incomes of the poor are spent on food. So they’re particularly hard hit by any increase in food prices, and that’s true for the low-income people in particular economies and then for the low-income countries in particular. The producers of food are not so badly off when the food price rises, so it’s a complicated issue. But in general, higher food prices are obviously a problem.

There is a bigger issue on a somewhat different issue with regard to inflationary pressures. And in some emerging market economies that we are seeing and they are seeing some inflationary pressures just from the strength of demand. So it’s the downside of the positive aspect, which is that their economies have been growing very rapidly. And we see that a number of countries have taken steps to raise interest rates and try to address inflation in that way. Of course, food prices affect overall inflation, but they can go up and down without necessarily feeding through into long-term inflation. So it’s a different issue.

QUESTIONER: In 2008 the crisis was fueled by several things, but right now the World Bank, for example, yesterday said they’re seeing more, more demand, consumer demand, in large emerging economies for things like sugar and meat, not so much grains, but really there seems to be quite a shift. The question isDoes twill the volatility and the increase continue for a while? Is it a permanent fixture or just something temporary?

MS. ATKINSON: That is, indeed, the important question. Clearly, early on in this food price increase it was supply related. There were weather related shocks to crops and wheat and so on. So I think that this issue of a [secular] shift in demand was present at the time of 2008 as well as now, so it’s always hard to sort out what is an underlying [secular] shift. But when there’s volatile price, that’s usually because of some supply considerations which include this time the fact that there were quite low stocks of food, different from the case in fuel where there are quite high stocks. We’re doing some work on this issue that will be coming out in the World Economic Outlook in the spring to try to try to disentangle these effects.

QUESTIONER: Aside from the measures that have already been taken, -- you mentioned two -- are there any other measures that you would recommend, particularly in these demand-centered areas to moderate this volatility in the commodity prices that we’re seeing the inflation?

MS. ATKINSON: No, I think the main lesson from experience is that curbs on exports can be damaging or can lead to further price food spikes that can be destabilizing. But as I said, I would separate out somewhat the issue of the short-term spikes in food prices or increases in food prices from overheating pressures in different countries. And on the latter, there are different measures that depend on the country’s circumstances. Some countries may be planning fiscal measures, others may be planning a mix of fiscal and monetary, and in some cases an exchange rate appreciation is appropriate to help curb demand. So there can be a range of measures that will be helpful also in supporting the rebalancing in the global economy given the two-speed growth recovery that we see.

QUESTIONER (from Greece): If you don’t have any objection, let’s go to the European interests. What I would like to ask you, what are your expectations from the European leaders summit tomorrow to figure out a permanent solution on the debt-ridden countries?  In your last reports you had paid attention on strengthening of the EFSF. Do you think that this must be the heart of any solution will be proposed tomorrow maybe?

MS. ATKINSON: First of all, I want to make clear that I’m not going to make any predictions about what may or may not get discussed or decided or announced tomorrow. Secondly, I can just say that we do believe that a comprehensive plan to address the issues in Europe is important and that it would have a number of elements.

One element is a permanent financing mechanism, the EFSF, and the ESM that may come after it. Another element is on the financial sector, and the stress tests are an important element that needs to be credible. It’s not just a question of the transparency of the stress tests, but you then need to have a plan to provide the capital that may be necessary after the stress tests. And then finally on fiscal consolidation measures that are underway in many of the countries that are faced with debt problems and reforms to promote growth is ultimately a debt problem is one side of a growth problem and it’s important to promote growth, including in your country.

I have another couple of questions on Greece in particular online: “Do you consider extending the loans to Greece for a period of more than ten years?” And then another one: “Are you planning on stretching out Greek bailout loan repayment to 30 years?”

So just to clarify, we are considering—and I think we’ve said this before—Switching the Greek loan to one that would carry longer repayment terms, not immediately, but over time, I mean, at some point in the future. And that would make it like the Ireland loan, the Extended Fund Facility. The repayment terms on the extended fund facility are between four and ten years, so the loan is fully repaid within ten years, which is longer than our standard Stand-By Arrangement. We don’t have any facility that has a longer repayment period than ten years. That’s not in the Fund’s toolkit.

QUESTIONER: About Europe and the discussions that are taking place for the package, one is to lower the interest rates on the EU loans. Do you think it would be a good thing? And should they be brought back to IMF rates or be at the same level? And the other question is in other things discussed of having the EFSF bank bonds on the primary market. Would that be a good thing? What would be the impact do you think?

MS. ATKINSON: I’m sorry, but I don’t want to speculate on possible measures that might be included. I think this is for the Europeans, for Europe, to work out and come up with proposals.

There are a number of issues that are on the table, and we’ve seen in the past that the Europeans, European group, is able to come forward with solutions when there are problems in the eurozone. And that’s what we would expect them to do. I don’t think it’s helpful for me to comment on particular, possible aspects of what would be a comprehensive plan. 

QUESTIONER: You said that two things regarding Egypt, one that there was an issue of who controls what. I’m wondering does that doubt over control extend to their central bank and banking system?

MS. ATKINSON: No, I didn’t mean to imply that. I was just suggesting that the dominant issue now is really the political one. And obviously the economic ones are very important, partly because the tensions may relate in part to economics and partly because there will be economic issues to resolve going forward. But we’re not political experts. I just meant to imply that [the political issue] takes precedence.

QUESTIONER: But you’re comfortable that when the banks do reopen, people will still be able to withdraw money, that foreign investors will be able to leave if they want to with whatever capital they’ve got invested there?

MS. ATKINSON: I don’t want to speculate about what may happen because I just don’t know. I think that at the moment there is a central bank, there is a central bank governor. It’s just that at the moment there is a lot of uncertainty in Egypt so I don’t want to speculate about what may happen.

QUESTIONER: Just to make clear that the loans about Greece should be paid back throughout the period of ten years, not more than this period?

MS. ATKINSON: Just to clarify, we at the IMF do not have any way to lend money for a period of more than -- for a repayment schedule - of more than ten years. Our facility -- we have a standby facility under which Greece is currently borrowing- has a three-and-a-half to five-year repayment period. And then we have an extended fund facility where the repayment period is from four to ten years.

QUESTIONER: And what about the interest rates? -- MS. ATKINSON: The interest rates are the same for those two facilities, and they’re the same for every country depending on how much they’re borrowing. We have variable interest rates that depend on the interest rate on the SDR or special drawing rights that is currently a little over 3 percent.

QUESTIONER: The Greek government bond have been falling. Do you consider that this a good prospect given tomorrow’s European summit? –

MS. ATKINSON: Again, I don’t want to speculate about tomorrow’s meetings in Europe. What I can say on Greece is that we have a team in the field now. They will -- they’re there for the third review. They expect to finish next week on February 11, and I am sure that they will make their findings, their preliminary findings, known at that time.

QUESTIONER: On Ireland, you’ve seen the stories of the latest political developments, and I want to know if that affects how the program is moving forward or are there any further discussions going on, [including] possible changes?

MS. ATKINSON: Well, the elections are later this month on the 25th, and we will have the formal review mission for Ireland. I think the first and second reviews might be combined and take place just after that. So that will be the time when we will know what measures the new government will be putting in place beyond the program which has already been enacted.

QUESTIONER: Could I just ask you how the Fund could approach this issue of a changed political spectrum in Ireland. You know, how does the Fund then tackle a program then? There’s clearly discussions and the Fund is always open to changes, but could you just give us a general feeling?

MS. ATKINSON: The general view is that we deal with the government of the country regardless of where it is on the political spectrum. And it was very important in the case of Ireland and some other cases that we’ve seen broad parliamentary support for the underlying measures under the program. We’re, of course, open to discuss -- we’ll have a broad framework for the best way to get Ireland’s economy back on track, aiming towards sustained and sustainable growth. And then within that framework, different governments would choose different measures, and we’re open to discuss those. We do, increasingly focus importantly on -- especially when countries have big adjustment programs -- on what they are doing to protect the more vulnerable to make sure that the socially needy are borne in mind with whatever policies are put in place.

QUESTIONER: Within these discussions do you also discuss targets or are those just not discussed? For example, the whole deficit target in Ireland. This is the big issue that the Labor Party has been bringing up –

MS. ATKINSON: The basic fiscal framework will, of course, be something that will be discussed. That’s one of the key elements of the program. I should also let you know that there will be a report published on Ireland, in a couple of weeks’ time that will be based on the technical missions that we’ve had earlier. So that will be something that will be available to you in the next few weeks. That will come before the next review, so in a sense it will be backward looking.

QUESTIONER: What kind of technical issues?

MS. ATKINSON: Well, it was a technical mission to see how things were going and check that the program is on track, that’s part of the extraordinary access policy.

I have one last question online, which is about Pakistan. The question is “Can you confirm that the IMF is accepting the delay in the reform general sales tax in exchange for the government raising other taxes, such as taxes on agricultural income, and what impact could this have on food prices?” What I can say about Pakistan is that we just had a small team there, and we’re working closely with the government to try to get the program back on track, which will involve obviously some revenue-raising measures so that they have the resources for needed infrastructure investment and especially after the floods.

QUESTIONER: One last question. I’d like to come back on the speech of the Managing Director in Singapore. His outlook was rather bleak and it came just weeks after your economists raised their prospects, their, assessment for economic growth in most of your member countries. Has something happened in between? Something that your economists didn’t know at that time and Mr. Strauss-Kahn knows now?

MS. ATKINSON: I think we coordinate sufficiently for the Managing Director and the Chief Economist. We’re talking about the same global outlook. The points that he was stressing were that there is a strong performance underway in emerging worlds, but a much weaker one in the advanced economies. Unemployment remains high and remains a concern. And as Olivier Blanchard said in the course of the update, this is a two-speed recovery, and some fragility remains. In particular, we need a rebalancing both internally in some countries and globally in order to have a strong and sustainable global economic future. So the Managing Director was looking at some of the issues involved in that.

Thank you very much. I should just say that we’ve had some questions on Botswana and Romania, which will be answered bilaterally. Thank you.


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