Transcript of a Press Conference by IMF Managing Director Dominique Strauss-Kahn following the Group of 20 Finance Ministers and Central Bank Governors Meeting, Paris, France
IMF News, February 20, 2011
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- Transcript of a Press Conference by IMF Managing Director Dominique Strauss-Kahn following the Group of 20 Finance Ministers and Central Bank Governors Meeting, Paris, France
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- Published: February 20, 2011
Recovery: status and unevenness
- Recovery is "strengthening" due to measures over the past three years, and coordination of economic policy helped avoid a crisis "as big as the Great Depression."
- Recovery is uneven among countries:
- Asia doing well.
- Latin America doing well.
- "Even African countries" recovering faster than in the past.
- Forecast: "4.5 growth in Sub-Saharan Africa this year, same thing next year."
- U.S. described as "uncertain" and dependent on next quarters.
- "A lot of problems in Europe, and especially in the Euro Zone, where the growth rate is much lower than what we would like."
- Recovery is uneven within countries:
- Unemployment remains "still very high, especially in advanced economies."
- Inequalities are increasing.
- Concern that growth not translating into jobs undermines stable and sustainable growth.
- Recent events in North Africa linked to good macro indicators coexisting with high internal inequalities.
Risks and price pressures
- Warning about "overheating" or signs of overheating in some emerging economies: rising inflation, bubbles, real estate risks.
- Rising food and fuel prices compared to 2008: "we’re almost at the same level" with threats to vulnerable and low-income countries and people.
- Emphasis on need for strong action at national and international levels to address commodity price hikes and distributional effects.
Financial sector reform: progress and gaps
- Progress largely in regulation (e.g., higher capital standards, Basel III), but "not enough."
- Two key pillars lagging:
- Supervision: "The sub-prime crisis -- was even more a crisis of bad supervision than a crisis of bad regulation."
- Cross-border resolution: unresolved questions about which authorities (home or host) handle failing cross-border banks.
- Concerns about financial sector returning to "business as usual": bonuses persist; seeds of a possible next crisis are being sown.
- Fiscal consolidation remains a problem in some countries; deficits "still very important." Greece and Ireland cited as extreme cases.
IMF proposals and instruments
- Financial Activity Tax (FAT):
- Proposed at G-20 Toronto as IMF's version of the Tobin Tax.
- IMF proposed "two taxes" for technical reasons; aimed to raise revenue and curb risky behavior.
- Strauss-Kahn: "I don’t see those taxes implemented" so far; he is "very unhappy" but retains hope.
- IMF view: FAT "much more effective" than traditional financial transaction tax because it does not require all players (including tax havens) to be on board.
- Mutual Assessment Program (MAP):
- G-20 agreed on set of indicators for the MAP; IMF to provide technical support and run simulations.
- Expected gains from implementing "the right policies" as identified by MAP simulations:
- "2.5 percentage of growth in five years."
- "More than 30 million jobs."
- "More than 40 million people left out poverty."
- International Monetary System (IMS) reform and SDRs:
- IMS reform back on agenda; IMF central to discussion on exchange rates, reserve accumulation, capital inflows.
- SDR currently "a basket of currency, so far including the dollar, the euro, the yen, and the pound."
- Strauss-Kahn supports inclusion of the renminbi in the SDR but notes technical requirements:
- Currency size and use matter.
- "It has to be a currency which is freely valued by the market. And it’s not the case of the renminbi."
- Inclusion would require at least partial convertibility for the portion to be included.
- IMF has released papers arguing that "sometimes, after having used other tools, capital control can be the right thing."
Europe-specific recommendations
- Call for a comprehensive European plan to address crises proactively rather than ad hoc, last-minute interventions (Greece, Ireland examples).
- Urges European leaders to prepare and propose a comprehensive plan at the European Council "that’s going to take place at the end of March -- 25th or something like this."
- Notes difficulty in achieving multilateral coordination as perceived crisis urgency wanes.
Vision for the IMF and multilateralism
- Role played by the IMF during the crisis highlighted: early stimulus advocacy (January 2008), coordination of stimuli and monetary policy, resource provision, global analysis for G-20.
- Institutional vision: transition from "IMF 1.0 to IMF 2.0" achieved; next goal is "IMF 3.0" — broaden focus beyond monetary questions to "all financial questions," possibly involving long-term treaty changes and even a new name.
- Emphasis on the need for multilateral institutions in a globalized world to organize global economic interactions.
Notable Q&A points
- On timing/outcomes of IMS reform: progress likely but "the delay" is uncertain; foundations must be laid now.
- On FAT implementation prospects: Strauss-Kahn "doesn’t see it so far" but "I have hope."
- On renminbi inclusion and engagement with China: Strauss-Kahn has "many opportunities to talk with the ministers, the Vice Premier Wang Qishan, the Governor -- Governor Zhou"; favorable to renminbi inclusion contingent on convertibility and size/use criteria.
- On capital controls: IMF papers indicate capital controls can be appropriate after other tools have been used.
Transcript, Paris, France, February 19, 2011 — International Monetary Fund