Transcript

Washington, DC
Thursday, February 11, 2016

MR. RICE: Well, good morning everyone and welcome to this press briefing on behalf of the International Monetary Fund. I'm Gerry Rice of the Communications Department. As usual everything this morning will be embargoed until 10:30 a.m. That's Washington time. Also as usual I'll begin with a few announcements and then take your questions in the room and colleagues on line.

Let me begin with management travel here at the Fund. Our Managing Director, Christine Lagarde, will visit the UAE, that's the United Arab Emirates, from February 22 to the 24th. The Managing Director will hold official meetings with the authorities of course. In addition, she will be making a speech at the Arab Fiscal Form, that's in Abu Dhabi, and then traveling onto Dubai to participate in the Global Women's Forum, that's on the 23rd. More information on that trip is available from our Media Relations Department.

Let me tell you that both Madam Lagarde and David Lipton, our First Deputy Managing Director, will be in Shanghai, China for the G20 Finance Ministers and Central Bank Governors Meetings. That's going to be on February 26 to 27. So this is the first in the round of G20 meetings. This year, the G20 is led by China of course. Our Deputy Managing Director Min Zhu will attend the Carnegie Endowment event on Low Income Countries and Their Prospects. That will be on February 18.

Let me finally mention that the press registration is open for what we consider to be an important event for us and for our Asian members, and that is the Conference on Advancing Asia, which is going to take place in New Delhi on March 11 to 13. And you'll find today on IMF.org the full list of panelists, the program, and there's a webpage for the conference. And if you'd like to go let us know, and we can give you further information on that.

I want to depart a little bit from usual practice by just reading to you a press release that we just issued shortly before this briefing. So I know those of you in the room have seen this, but for colleagues on line who may be catching up a bit, there was an important statement this morning from the Dean of our Executive Board, that's Mr. Aleksei Mozhin. He made the statement on behalf of the Board this morning on the Managing Director's selection process which is a process that I think you know has been underway. It's a short statement. Let me just read it to you and then we can take questions if there are any on this particular topic.

So here is his statement. "The period for submitting nominations for the position of the next Managing Director of the International Monetary Fund closed on Wednesday, February 10. One candidate, current Managing Director Christine Lagarde, has been nominated. The Board will now work in line with the process described in the Decision of January 20, including meetings between the candidate, Madam Lagarde, and Executive Directors. The Board's goal is to complete the selection process as soon as possible." That's the end of Mr. Mozhin's statement.

So just for context, again for colleagues on line who haven't been perhaps following it so closely, number one, you can find that statement now on IMF.org. Number two, you can find the decision that I just referred to of January the 20th also on line on IMF.org. That was a press release issued on January the 20th.

With that let me take your questions. QUESTIONER: Good morning. Firstly, with no comment on Madam Lagarde's abilities, is three weeks a sufficiently long enough term for the nomination of the head of the IMF? And secondly, markets in general -- I'm not asking you to comment on markets themselves, but generally, the sentiment that markets are reflecting seems to be far more dour than the IMF's forecast for 3.4 percent pick up in global growth. Do you think the IMF having been overly optimistic on global growth for years now is once again being too sanguine about the prospects for the world economy?

MR. RICE: Good. Let me take your first one, on the selection process. The nomination period, and this was fully described I think in that January 20 press release, is as you say was for three weeks. This was the same process that was followed the last time a Managing Director was selected, so it's the same amount of time. Within that period, you know, absolutely anyone is free to nominate. You know, that means any member of the IMF's 188 countries.

Nominations, any nominations can be made in that period. So it's open. I think our Executive Board, which determines this process and guides this process, and again reflects our 188 member countries, you know, I think they've made the determination that three weeks is a reasonable period, is an ample period, for nominations to come forward. So I don't really have much to add on that beyond what the Board has decided. There is quite a lot more explanation on the whole selection process on IMF.org. There's a Q&A, there's a fact sheet, and we've been communicating fairly openly on that.

On your second question, on -- I guess it's on the overall outlook and our view. As you know, we did update our outlook and our view a couple of weeks ago via the WEO Update and statements and a press briefing from Maury Obstfeld, our Chief Economist and Economic Counselor. And Madam Lagarde and others have been commenting in the interim. I would just kind of paraphrase, restate a bit what we said there, that global growth remains moderate, followed the unexpected weakening at the end of last year. This does reflect a more gradual pick up in emerging and developing economies while the modest recovery in advanced economies continues.

And just a reminder, you mentioned one of those numbers, our growth projections as of the WEO update a few weeks ago for 2015 were 3.1 percent global growth, 2016, 3.4, 2017, 3.6. So we do see modest growth going forward. That said, we also said that risks are increasingly tilted to the downside. There has been a sharper than expected growth slowdown in China and other emerging markets, disruptive price shifts, and of course financial market volatility, further strengthening of the dollar, and geopolitical risks. And I think these are all factors playing into those downside risks, and indeed to the increased volatility.

And again, in terms of we've been calling for what we've called this policy upgrade to address these issues, and that upgrade consists of raising both actual and potential growth through a combination of demand, support, and structural reforms. They remain a key policy objective. We believe that in advanced economies, accommodative monetary policy remains essential and in emerging economies policy makers should continue reducing macroeconomic and financial vulnerabilities and rebuild resilience. This is obviously -- the outlook is something we're monitoring extremely closely and we will continue to update as we go along.

Let me take Ukraine. Good morning and welcome to you.

QUESTIONER: Thank you. So Madam Lagarde issued yesterday two statements regarding the situation in Ukraine. The second one was made after her phone call with President of Ukraine, Petro Poroshenko. So if I may, I have several questions on this issue.

In the second statement there is a phrase, we agreed on the principle of a roadmap of actions and priority measure to ensure prompt progress under the program. Could you give us some details about this roadmap?

MR. RICE: Okay. Well, maybe just step back a bit on your question. As you know, since the beginning of the program and the beginning of this current engagement with Ukraine, the whole issue of governance and anticorruption has been a central part of the program objectives. So that's the broad context for this issue. Again, as you may know, the Managing Director commented last week on the recent resignation of the Economy Minister and indicated that was an issue of concern. So I think it was against that backdrop of a growing concern here at the Fund, and I think also shared by some in the international community, that slow progress was made in improving governance and fighting corruption and in reducing the influence of vested interests in policy making. So, again, it was in that context that Managing Director Christine Lagarde made her statement yesterday, and stressed that without a substantial new effort to invigorate these governance reforms and fight corruptions, it was hard to have an enabling environment in place where the IMF program could continue and be successful.

So as you say, President Poroshenko and Madam Lagarde then subsequently had a conversation around that, and both issued statements. You've seen those. What I would say is that we remain engaged with the authorities on policies that are important to strengthen the economy and pave the way for the completion of the Second Review. That remains the objective. And following the conversation with Managing Director Lagarde and President Poroshenko, he, as he has said, reassured her of his commitment to reforms, including improving governance and fighting corruption.

Maybe just one final thing. I mean all of this is not to say that Ukraine hasn't made a lot of progress. The authorities have made important headway in stabilizing the economy. The budget deficit has been reduced, growth is slowly returning, inflation is coming down, while reserves have been increasing. So, again, there has been progress, I want to acknowledge that, but it is vital that Ukraine and its leadership accelerates and deepens the reform efforts to support the much needed transformation of Ukraine's economy.

You have a follow up?

QUESTIONER: Yes. Thank you. So there are a lot of people in the Ukraine who after the first statement had a feeling that IMF is ready to stop the cooperation with the Ukraine. After all, it was hard to see how the IMF supported program can continue and be successful. Is it correct that this cooperation can be stopped? And if it is not correct, when should we expect that the memorandum will be signed?

MR. RICE: Look, I just said and let me repeat. We remain engaged with Ukraine, and with the authorities on the program, on the set of policies that underlie that program, and meant to achieve what we share as a common objective, which is the return of sustainable growth and jobs to Ukraine and for the Ukrainian people. So we remain fully engaged. I want to be clear about that.

But again, and I won't repeat what I said earlier, you know, there are certain measures that -- where more progress needs to be made, and one of those areas, a very important area, was the one that was the subject of the statements on the discussion yesterday. That is governance and anticorruption.

So, further decisive implementation of these reforms is key. In terms of the -- I think you were asking about the second review and when it might be going forward. I don’t have a date for you on when our Board will take up the second review. It really, again, depends on resolving outstanding issues, and also on having more clarity about the status of the government and the coalition.

MR. RICE: On Ukraine?

QUESTIONER: Yes. It seems to me that to show decisive implementation on governance and anticorruption efforts, that requires not just simply passing a bill, but showing, say, some prosecutions, installation of certain members of the Board. Just a longer-term process than a few days can take. Would it be wrong to assume that what we are talking about is some sort of track record over the next couple of weeks, before the IMF has the type of assurance and clarity into the issues that you talk about?

And secondly, why does the IMF oftentimes delay reviews, and bundle reviews together? In this case it is not, you clearly said the second review. Why is it not bundling several reviews together?

MR. RICE: Just on your last one, just for clarity. We are focused on the policies that will allow for the completion of the second review, and that's our focus at the moment, the second review. So at the moment we are not looking at that bundling. And on your first question, I think Madam Lagarde was pretty clear in her statement that -- Let me just see if I can quote from her here. But she said, "Without a substantial new effort to invigorate governments' reforms and fight corruption, it's hard to see how the IMF-supported program can continue and be successful"

So I think she was pretty clear on that. And then following that statement the conversation took place with President Poroshenko, and he reassured her of the government's commitment to these kinds of reforms. So I think we should just let that play out then, and see what happens.

QUESTIONER: Now we go to Greece.

MR. RICE: Good morning.

QUESTIONER: Good morning, Gerry. Last Thursday, Ms. Lagarde made an important statement. I can say that she had an important message about Greece. She said, and I quote if you let me, "I have always said that the Greek program has to work on two legs, one leg is of significant reforms, and the other one is debt relief. We would proceed on that view, significant reform, debt relief. If the pension reform cannot be as significant, substantially, deeply reformed as needed, it will mean more debt relief on the other side."

Can you tell us what Ms. Lagarde's message is? I think the other is the Europeans. What is the message for Europeans, and to the Greeks of course? And if I'm not wrong, it is the first time that she's sending a strong message to Brussels.

MR. RICE: I don’t think it's the first time that the Managing Director of the IMF has sent a strong message to the European partners in the program, and to the Greek authorities. I think what Madam Lagarde said, and what you correctly quoted is -- I mean, I think it's fairly clear. I think it's a balanced message. She's said it many times before, we've said it many times before. It's about the program standing on what we've called the two legs of the reforms, and then financing, debt relief on the other side.

So, you know, I think she was describing that calculus of the reforms on one side, and the financing and the debt relief on the other. And you know, there's a tradeoff between the strength of the reforms, and the debt relief, that Greece and its European partners can agree on. Even with strong reforms, we have said, Greece will need significant debt relief to ensure debt sustainability.

And the corollary of that, if reforms are weaker, then more debt relief could be required, and I think Madam Lagarde said that too. Again, the risk of repetition, we've said, it has to add up, the program has to add up. We can work with a combination of reforms and debt relief, but what we need to see, is overall a credible package of policies, and debt relief for our staff to recommend the program to our Board. I think it was pretty clear but that may help.

QUESTIONER: It is very clear. And I have another question, she told us on Thursday also, what you said, but it needs to adapt, and the pension system needs to be reformed. The tax collection system needs to be improved so that the revenue comes in, evasion is stopped, and debt relief by the other Europeans must accompany this process. So, again, there is a message here, and if you can tell us what is the message, exact message.

MR. RICE: Again, I think, pretty clear as you’ve quoted it. Madam Lagarde was actually speaking in the context of a question about the -- Is the IMF requesting excessive fiscal consolidation, and what she said was, the IMF does not want to see excessive fiscal consolidation. In fact, and we've discussed this in this room over the years. You know, over the span of our engagement with Greece, the IMF has been the one at the table, you know, arguing for a fiscal adjustment path that is more supportive of recovery in the short-term, and more realistic in the medium term.

So I think what she has been reiterating was that, you know, to achieve that we need the package of realistic policies. Pensions are important to that, but as she also pointed out, and again, we've been saying this for many years, the tax system is a very important part of this as well, particularly on the issue of tax evasion, and the issue of trying to ensure that everyone pays their fair share, so that the burden of adjustment does not fall on low-income, poor people. And we think that’s very important.

And again, to go back on what I said on the first question, those kinds of reforms need to be accompanied by adequate financing, and again, we've been the ones at the table saying, and debt relief, and it's the two legs, and it has to add up, I'm sorry to be repetitive on that, but it's a fairly balanced message and consistent message over time.

QUESTIONER: Good morning. Given the volatility we are seeing in markets today, and really to start the year. Looking ahead to the G20, does the Fund see the need for some sort of global coordination to deal with the market turmoil that we are seeing, particularly on the issue of exchange rates?

MR. RICE: You know, I think I wouldn’t want to preempt what the G20 will discuss, and you know, we'll have an opportunity to, perhaps, to discuss this a bit closer to the time. But I would expect, of course, that the volatility in the markets right now, the uncertainty that I talked about earlier, regarding the outlook, I would imagine would be a priority issue for discussion at the G20, but I wouldn’t want to speculate on whether they were going to get into the issue that you just raised, but I think that will certainly be the overall issue that the G20 will be focused on in Shanghai.

QUESTIONER: And as a follow-up. Does the Fund have a position on the health of the European banks? The financial stocks have been hit pretty hard to start the year. There's questions about nonperforming loans in Italy, there's questions about the Deutsche Bank, and whether -- essentially whether it's solvent. At this point does the Fund see any serious risk to the European banking sector?

MR. RICE: Well, as you would expect, as you know I won't comment on individual institutions, individual banks but, you know, just putting things into context just a bit and coming to your question. There's been a general decline in equity prices in Europe, but also more globally. There has also been a decline in share prices of financial institutions in Europe but, again, in other regions as well.

The Europe bank share prices has declined more than overall equities and we see many possible reasons for this, including weak economic data, heightened concerns about profitability, and the continuing drive of legacy problems, such as elevated NPLs. In fact our Financial Counselor, José Viñals, I think spoke with Bloomberg this morning about some of the issues, and we would refer you that. I think it was a useful statement.

Coming to your question, and to the extent that the recent sell-off reflects deteriorating prospects for European banks, the decline is indeed a concern. The European recovery is a recovery but it remains weak, and a robust banking sector is required to support investment and economic activity. Policies should focus on incentivizing banks to repair balance sheets. At the national level, NPL resolution, that’s nonperforming loan resolution, could be encouraged through a combination of tighter supervision, improving insolvency frameworks, and facilitating markets for distressed debt. That’s at the national level.

At the European level, providing clarity on the responsibilities for system-wide financial stability and completing the banking union by establishing a common deposit insurance scheme, and providing a fiscal backstop for the Single Resolution Fund, would lower risks across the system.

So, again, José Viñals said a bit more than this, and gave a bit more detail and color on this today, in talking to the press, so you might want to look at what he said on the issue, too.

QUESTIONER: Just to follow up on the question, if you have any particular concerns about the Greek banks that just in the last days, they lost a significant amount of their market value, just a few months after their capitalization.

MR. RICE: What I can say on the issue on the Greek banks is that we note the increased turbulence in global markets, which, together with domestic uncertainty in Greece has resulted in increased volatility in Greek bank stock prices in recent weeks but we should not forget that the fundamentals of Greek banks have been recently strengthened through recapitalization of the banks in accordance with a comprehensive assessment, and you know, we talked about that previously here.

Looking forward, it’s essential that these

fundamentals be further enhanced by putting in place the necessary financial sector policies to address non-performing loans resolutely. These will be key to restoring the health of the financial sector so that it can support the economy and long run growth.

QUESTIONER: And just another question, please. If you can tell us, what is the state of the negotiations with the Greek authorities and do you have any date for the return of Mrs. Velculescu.

MR. RICE: I didn’t get the last part.

QUESTIONER: If you have a date to give us about the mission?

MR. RICE: Oh, okay. So the status is, on the Greek program, that the mission chiefs of the respective institutions had a first set of productive discussions and exchanges of views with the authorities.

That was last week and then they returned to their respective headquarters as had been planned. So what’s happening now, in the meantime, technical work is continuing on the assessment of recent developments and the authorities reformed plans. Depending on progress at the technical level, the mission will resume in due course.

I do not have a date, a specific date for you for the mission return but that’s the status at the moment.

I will -- I am going to take a couple of questions online and I’ll come back in the room. On Sri Lanka, he’s asking can we please comment and provide context for the reported request from the government for a new IMF program to which I can say that indeed, the authorities have expressed interested in a Fund supported program as one option to address the balance of payments, pressures that they face. We are considering the options and that will depend on our assessment of macroeconomic vulnerabilities, the nature and size of balance of payments needs, and government policies to address those vulnerabilities.

What else can I say? A technical mission to review recent developments and options for reducing the size of Sri Lanka’s 2016 budget deficit concluded February 5^th. We published the statement that day and the issues I’ve just described, they will be worked out in a future negotiating mission that could take place in late March or early April, that’s on Sri Lanka.

There’s a question on the United Arab Emirates asking: “The IMF advised the UAE to slow the pace of fiscal consolidation. Big projects are on hold, jobs are being cut, can the country afford to consolidate at the slower pace in this climate as you suggested, and will such spending cuts affect growth?”

Well I’m sure these issues will be part of the discussions that Madame Lagarde will be having on her upcoming visit, but let me say, in the meantime, that we think fiscal consolidation should continue in order to ensure long term sustainability in the presence of likely persistent oil prices. However, it should be gradual to cushion its negative impact on growth.

Its composition should favor raising non-oil revenues and pursuing the implantation of subsidy reforms. Deficit financing should also avoid overreliance on government bank deposit drawdown that would lead to further tightening of monetary and financial conditions so it’s fiscal consolidation continuing but with care to its pace; it should be gradual and to its composition.

I am going to take one or two more in the room.

QUESTIONER: Yeah, just a follow up on the previous question. Does the IMF, as the global arbiter of exchange rates, whose core mandate is to help stabilize and prevent the exchange rate volatility, damaging exchange rate volatility. Does the IMF think that there is sufficient volatility in exchange rates globally now for world leaders to develop a comprehensive, coordinated strategy to tame, to calm exchange rates now, the volatility?

MR. RICE: You know, you’re right about the IMF’s mandate and of course, exchange rates is something that we are continually in discussion and engaging with our individual countries in the context of our ongoing surveillance.

It’s also something that we comment on in various ways, documents that we published, the wheel, of course on a regular basis, exchange rate assessment publications that come forth on a regular basis. So what I would say at this stage is it’s something which we are continually engaged with the membership on and of course, we are a platform for international cooperation and international coordination so, in that context, I think these discussions are helpful given what is going on in the global economy right now. Is there another question in the room?

QUESTIONER: (inaudible) to say that Mr. Thomsen met with the finance minister of Greece, if you have anything further to give us on this? They met in Brussels a while ago.

MR. RICE: You mean today?

QUESTIONER: Today, that’s the message. It’s from a colleague from Brussels.

MR. RICE: Yeah.

QUESTIONER: He is saying that finance minister Sakalotos met with Poul Thomsen.

MR. RICE: Yeah, so I have no information on that obviously because we’re in real time but what is happening in Brussels today is a meeting of the Euro Working Group so Poul is there, Mr. Thomsen is there.

I would imagine the finance -- and it’s not unusual that they might meet on the sidelines. I am not confirming that but it wouldn’t be surprising.

QUESTIONER: I have a question on Cyprus. Cyprus, as I understand, is a success story for the IMF. There is no doubt about this.

Can you tell us how this happened and also, according to the Cyprus News Agency, the president of Cyprus, Mr. Anastasiades, and I quote, said that the IMF and the World Bank are cutting out the detail and document study on the economic aspect of a settlement of the Cyprus issue. If you have, also, anything on this?

MR. RICE: I would again -- I mean I would like to qualify your statement. The success story of Cyprus, if that’s how we describe it, is a success for Cyprus, the Cypriot government and the Cypriot people. That said, it’s true, I think it’s a fair statement that Cyprus has done well in its program and its reforms.

We see growth in 2015, we see continued growth in 2016 and gradual improvement thereafter. In fact, we’re ready to conduct the tenth and final review of the program, if requested by the Cypriot authorities. The program is scheduled to end in Cyprus in mid-May.

Okay, so why has the progress been good? The public finances have improved considerably so they’ve demonstrated fiscal prudence, and they’ve also moved on other issues of structural reforms and so on. I mean, I think above all, they’ve demonstrated ownership of the program and commitment to implementation, if you’re asking me for the key aspects.

I would, however, want to just add that whilst there has been good progress, you know, sustained fiscal efforts will be needed in the median term to place public debt on a firmly downward path and those structural reforms that I mentioned, they need to be, again, continue to be firmly implemented to boost growth and jobs and that’s how I would assess it. Cyprus has done well indeed but needs to keep pushing on, no room for complacency.

QUESTIONER: I just have a quick follow up question. I apologize; I missed the subject of online question. Was that on Sri Lanka? Were you talking about Sri Lanka?

MR. RICE: Yes, it was.

QUESTIONER: Okay, thank you.

MR. RICE: Okay, good. Thank you very much for your patience. Thanks for your questions. We’ll see you in a couple of weeks’ time here in the room and online. Thanks very much.