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Transcript of a Press Conference Following the IMFC Meeting by IMF Managing Director Horst Köhler and Gordon Brown, UK Chancellor of the Exchequer and Chairman, IMFC
April 20, 2002
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Participants:
Gordon BROWN, Chancellor of the Exchequer (United Kingdom) and Chairman, International Monetary and Financial CommitteeProceedings:
Mr. Dawson: Welcome to the concluding press conference of the International Monetary and Financial Committee meeting. As is our custom, the Chairman of the Committee, Chancellor of the Exchequer, Gordon Brown, will make an introductory statement. Managing Director Kohler will then make some statements, and we will be happy to take questions. I do ask that members of the press identify themselves and their organization when we call on them. Thank you.
Mr. Brown: Good evening. I am delighted to be here with the Managing Director, Horst Kohler. I just want to draw your attention to a number of decisions that were made by the International Monetary Fund Committee.
First, on the world economy itself, last autumn there was widespread pessimism when we met about the global economy, with fears of a global slowdown or even a global recession. Thanks to decisive action by policymakers around the world and the strengthening of international cooperation, over the last six months these fears have not been realized.
We agreed this afternoon that, since the Committee's last meeting, prospects for the world economy had improved markedly. Indeed, in our communiqué, if I draw your attention to paragraph 2, we say that the challenge now is for governments to help foster the global recovery that is under way. This will require continued vigilance and a further strengthening of medium-term policy frameworks, both to improve prospects for sustainable growth and stability and to reduce vulnerabilities. The Committee underscores the importance of stability in oil markets, at prices reasonable for consumers and producers.
So, I think you have found a Committee meeting today, with representatives from all around the world, that is more optimistic than before about the prospects for recovery while always determined to remain vigilant about the risks.
We also had a useful discussion on a second issue, that is reforms to the international financial system. We discussed measures that would be needed to step up the reforms to the framework of crisis prevention based on agreed codes and standards, and we are agreed on a number of ways in which the Fund could strengthen its surveillance role, including more comprehensive and candid assessments. We have encouraged the Fund also to continue to examine the legal institutional and procedural aspects of both the statutory and a contractual approach to crisis resolution.
I think the key point on which we are all now agreed is that individual proposals in this area of reform cannot be taken in isolation, that we are talking about a wider package of reform to create an international financial system for the 21st century that recognizes the new realities of open, not sheltered economies; international, not national capital markets; and global, not local competition. We are agreed that all governments, international financial institutions, and the private sector must accept their responsibilities to make this system work for both stability and growth.
Now, the third issue that we discussed was the next steps to be taken to ensure that the 2015 Millennium Development Goals can be achieved. We thank the Managing Director and, indeed, the President of the World Bank, for the work that they had put in to the success of Monterrey, and acknowledge the commitments made by the European Union and U.S. governments last month to increase development aid.
There is, I think, now an emerging consensus in our discussions that we must go further, that development assistance must be made available as a matching commitment to reform. We must, of course, ensure that all countries are committed to economic reform, good governance, and poverty reduction; but, if they are, they should not be held back from reaching the Millennium Development Goals because of lack of financing. We also agreed to monitor closely, and indeed that the IMF and the World Bank should review, the debt sustainability of HIPC countries as they moved toward and beyond their completion points.
On terrorist financing, we discussed the action we had taken to counter the abuse of the international financial system to finance terrorism and launder the process of illegal activities. It is our view that there should be no hiding place for those engaged in the funding of terrorism, and there should be no safe haven for those who support these illegal activities. The Committee is encouraged by the response of many countries to its call last November for all countries to ratify and implement fully the UN instruments to counter terrorist financing and to freeze terrorist assets, and to establish financial intelligence units to rout out terrorist finance in their countries. We are also pleased by the continued progress in the sharing of information between countries, and we welcome the close collaboration between the Fund and the Bank on this issue.
So, you can see that this was a successful meeting, which not only moved forward the process of reform and at the same time showed that the cooperation that has taken place within the world economy has been yielding results, but also laid the steps for us to go further and faster to meet the Millennium Development Goals while tackling the problem of terrorist finance
Mr. Köhler: It was a good meeting, also, from my perspective. We had again a very efficient Chairman for the meeting, good discussions. I think, Mr. Chairman, there was also involved appreciation for staff's work of the IMF and endorsement for the Work Program in the months ahead.
Mr. Dawson: Questions?
QUESTION: A fairly obvious question, Mr. Managing Director. Mr. Remes Lenicov made a presentation to the Committee and to you, I believe, in the past couple of days, and other members of the IMF, management, and staff. The situation is getting a bit more desperate down there even than it was before. Your statement today indicates that you are not particularly closer or close to resuming a program with Argentina. Can you tell us sort of where things stand?
Mr. Köhler: I had a personal meeting, and the Minister came to the luncheon of the members of the IMFC. From my personal meeting with the Minister, I can tell you that it was a very good meeting, a very open, frank discussion. There is recognition clearly that the mission under the leadership of Anoop Singh had made progress in Buenos Aires. I strongly reiterated to the Minister that the IMF is committed to conclude on a program—there should be no doubt about that—but, of course, that this conclusion needs to be built on a sustainable approach to the issues; here, with me and at the luncheon, the Ministers had been quite clear. I do think it was clearly a step forward. The Minister has, of course, to go back to Buenos Aires and to report to his President and, of course, work further.
QUESTION: The measures that the IMF explicits to Argentina seemed to be clear. How clear are the social costs of some of the measures, and the social consequences of some of them?
Mr. Köhler: I think there was no one, neither in the bilateral meeting with me nor, of course, even more so at the Ministers' lunch, who was not aware and was not concerned about the social problems in the context of the adjustment and turmoil in Argentina. You may know that and, if not, I am telling you, that from the beginning in the IMF's approach there was always a strong element for what to do for social alleviation and to alleviate hardships for this part of our approach, the World Bank and the IDB is in the lead; Mr. Wolfensohn confirmed this at the luncheon. So, certainly we can't promise that this is a very comfortable process, but there is attention and awareness that there has to be also a response to this part of the difficulties.
Mr. Brown: Could I just add that I had lunch when the Argentine Finance Minister presented his experience and case to us. Mr. Wolfensohn and Mr. Kohler were both present, and there was a discussion of the social effects of what was happening in Argentina. The whole basis of our discussion was how could we help Argentina get back to growth and get back to a situation where the standards of living of its population could improve. As you can see from the communiqué, we said that we acknowledge the steps being taken by Argentina to address its difficult economic situation, and urge the authorities to move quickly to reach agreement on a sustainable economic program.
I did also have a discussion as part of the G-7 meeting this morning, and you may see from the G-7 communiqué that we supported the IMF on the work it is doing, and said that the situation in Argentina is of serious concern. Reforms of the fiscal framework encompassing the provinces, establishing a monetary anchor, and improving the bankruptcy and economic subversion laws will all help to restore investment and growth, thereby raising the living standards of the Argentine people. So, the whole basis of this discussion was how the international organizations and individual countries can put ourselves in a position to help Argentina restore their standards of living and, indeed, the stability and growth of the economy.
QUESTION: Mr. Managing Director, if I may ask you about the Japanese economy, and especially your own comment on Japan earlier this week. Minister Shiokawa told us yesterday that the IMF's World Economic Outlook and your own comment on Japan earlier this week were based primarily on media reports, which he said were not necessarily very accurate. Now, after hearing directly from Minister Shiokawa today, do you still stick with your comment on the World Economic Outlook, or are you now more optimistic about the Japanese economy?
Mr. Köhler: I think I can repeat what I said in the meetings, what I said in my speech given to the National Press Club, and that is that the Japanese economy is a point of concern not only for Japan but also particularly for the region in Asia, but also a wider concern for the global economy, but that there are encouraging signs of a possible bottoming out, particularly in industry. The Minister himself made clear that this is no reason for complacency, but that they have a clear view of what kind of structural reforms they need to implement. This view does not differ from our view.
We need to be candid in saying that, in particular, banking restructuring, corporate restructuring, rapid disposal of nonperforming loans are indispensable; the Minister agrees with that. The Minister underlined that he appreciates that the IMF is working with Japan. Japan has joined us in the Financial Sector Assessment Program. I do think there is a clear work process, more awareness in Japan, so I don't think that we should be overly pessimistic about Japan.
QUESTION: [inaudible]...have suggested that it is time to resume the allocation of special drawing rights. The G-24 also made a proposal that the rich countries should allocate their portion of the [inaudible] SDRs into a special fund for development. I wonder whether you would comment on both of these aspects.
Mr. Brown: The first issue was raised by the G-24, but it wasn't possible to discuss that today. On the second issue, this is the proposal that some people, including George Soros, have put forward about the use of special drawing rights. This is a debate that will continue. I think, however, the important thing is that there are additional resources for the development of the economies and the societies of the poorest countries. Whichever way the money is found for doing that, it is important that we do more. I think we are encouraged by the fact that the European Union has moved its commitment for development aid to 0.39 percent of its GDP by 2006 and that the American government, just before Monterrey, announced a $5 billion plan to do more.
I think what the discussions must now revolve around is how we can make the existing commitments go further and how we can persuade other countries to be part of additional commitments. For ourselves, the United Kingdom, we have pledged to increase the amount of aid as a proportion of national income that is provided over future years. I think the issue really comes back to this: whichever system you use for finding additional money, whether it is special drawing rights as George Soros and others have proposed, or any other means, the question is that there must be a commitment from the individual members of the IMF and the World Bank so that they are prepared to make the additional resources available.
We discussed HIPC today and how we could move it forward. We said that in a number of cases debt sustainability does remain an issue, and we asked the IMF and World Bank to review the situation. So, we are aware not only about our long-term commitments that we have got to meet for the development goals of 2015 to be realized, but also that we must make sure that the HIPC Initiative-for which I congratulate the Managing Director in ensuring that 26 countries are now part of it-must be in a position to move forward to achieve its aim, which is that all the countries involved have a sustainable exit from debt.
Mr. Köhler: I would like to add to this that I think we should first appreciate the outcome of the Monterrey Conference on Financing for Development, which brought a pledge from countries for more financing. On the other hand, and this was strong point I reiterated in the debate/discussions today in the Committee, we should not lose sight of the fact that more important than official development aid is trade. I am constantly working on this point so that all this discussion about more finance, be it special drawing rights, be it Tobin tax, be it official development aid, there is a risk that the debate is distracting from the fact that more important than ever is to get the breakthrough for better trade, particularly better trade opportunities for the low-income countries, and that means two things: better market access, and a more rapid phasing out of trade-distorting subsidies in the advanced world.
It means also a second point, that the poor countries themselves can and should do more to exploit trade amongst themselves. There are a lot of impediments, also, so this is not just a one-way route. My basic point is that the historical obligation is now to make trade a vehicle for growth. I see this also in the context of these global imbalances that, on the one hand, capital accounts, particularly in Latin America, had been open relatively rapidly, but the trade expansion was not as rapid. The consequence is an imbalance between, on the one hand, debt service and, on the other hand, the possibility to earn the revenue for the debt service.
QUESTION: Two more questions on Argentina, if I may. One is, do you think that the bank holiday that was announced on Friday is going to help them get toward a sustainable program, and do you think that the government there has the wherewithal to deliver the kinds of reforms that you are asking them to in order to get the aid?
Mr. Köhler: The government has decided on this bank holiday, and I expect that they have thought it through carefully. I do think it was needed to do something, because they had been met with a bank run.
QUESTION: Another one on Argentina, I am afraid. What is the next concrete step? Do you plan to send another mission down there in a month or two, or will you have meetings again with the Minister if he comes back here?
Mr. Köhler: I expect our people to go to Buenos Aires in May, as soon as possible, middle of May. There has to be some technical work to be done, but I expect our people to be back in Buenos Aires in May to negotiate about the letter of intent.
QUESTION: I would like to ask Mr. Brown a question about the dispute over loans versus grants in IDA; that is not strictly IMFC, I realize. But the U.S. Treasury if you take all of the loans that go for things like HIV/AIDS, education, clean water, that is 21 percent. The Europeans refuse to go any higher than 18 percent. Is that a correct assessment of the differences between the U.S. and Europe and, if not, what is the gap and can it be resolved?
Mr. Brown: The issue is not simply about the proportion of money; the issue is about the overall sums of money not just in this round but in the longer term. I think a constructive discussion is taking place not just about percentages but about the allocation of resources for particular categories of help, but also about the long-term sustainable funding of IDA. These are issues that are being discussed in a perfectly friendly way, and will be resolved over the next period of time.
QUESTION: It seems that one of the most important points that Argentina has to deal with is this agreement with the provinces, that apparently the IMF wants assurance from each of the provinces to really agree on what they are promising to do. This, according to what I am told, will take time. It is not easy to negotiate one by one and ask them to do the agreement. How do you see the problem, because if they need to do that and the agreement is delayed, isn't there a possibility that the social and political situation can deteriorate more, and even the banking system could deteriorate more?
Mr. Köhler: Well, I think it is clear that from the root causes of the crisis in Argentina, the provinces and fiscal policy, financial policy of provinces have to be, from the outset, part of the solution. I do think that later, after the discussion at the luncheon with the Minister, that Minister Remes will report to President Duhalde that this fact that the provinces have to be part of the solution from the outside is a clear signal from Ministers of this Committee to Argentina. I expect that in Argentina there is enough of a sense of urgency not to be trapped in this debate what cost time, what not. The IMF needs to have a consolidated account about the fiscal situation in Argentina. This is possible, this is needed, and this is also the basis for our agreement at the end of a program.
Mr. Dawson: Thank you very much.
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