Transcript of a Press Briefing by Gerry Rice, Director, External Relations Department, International Monetary Fund

February 23, 2012

Washington, D.C.
Thursday, February 23, 2012
Webcast of the press briefing Webcast

MR. RICE: Good morning everyone, and welcome again to this press briefing from the IMF’s External Relations Department. I’m Gerry Rice, Director of External Relations at the Fund, and this briefing is embargoed until 10:30 a.m. Washington time. Let me just do a few housekeeping things and then move to your questions. First on the Managing Director, tomorrow and over the weekend, Christine Lagarde and our First Deputy Managing Director, David Lipton, will join the G-20 ministerial meeting in Mexico City. And I can tell you that we expect some sort of press availability for you on Sunday afternoon or evening, and we’ll give you advance notice of that. Our Deputy Managing Director, Min Zhu, our Financial Counselor, José Viñals, and our Western Hemisphere Director, Nicolas Eyzaguirre, all will attend a high-level conference on “Macro Prudential Policies to achieve Financial Stability” and that’s going to be on March 1 in Uruguay, Punta del Este. And again there will be a press conference at the end of that event on March 2, and we will be able to give you some advance notice of that as well. Our other Deputy Managing Director, Naoyuki Shinohara, on February 27 will address a conference in Arusha, Tanzania, on the East African community after ten years. This event will bring together various experts and policymakers to discuss the East African community’s accomplishments to date. A final note on the spring meetings to remind you that press registration for the spring meetings in April has opened. Please check out the Website for further information on that.

And with that, let me turn to your questions in the room.

SPEAKER: The question of the day is the participation of the IMF for the new program. As I’m sure you know, German Minister of Finance Mr. Schäuble said two days ago, and I quote, “that the IMF will participate in the new program for Greece.” He even mentioned numbers. He said, and I quote, “that the IMF has proposed a sum of 13 billion, plus the 10 billion that were not used in the first program.”

My question is do you agree with these numbers, and can you tell us how much money are you planning to give for the new program?

MR. RICE: Let me just step back for a second and come directly to your question and refer you again to the statement that the Managing Director, Christine Lagarde, issued just a couple of days ago on Tuesday. And just to remind on that, it was a welcoming of the agreements, the understandings reached in Brussels by the euro group at their meeting on Monday which we consider to be a major step forward and a strong package put together to help support Greece. As you know, it’s a combination of ambitious, broad-based policy efforts on behalf of the Greek government. And this is combined with substantial, long-term financial contributions from both the official sector and the private sector. We think that’s a strong package that can create space for Greece to make improvements in its debt sustainability and its competitiveness and ultimately to resume growth which is the goal that we’re all seeking.

Now in commenting on that, the Managing Director said the other day that on this basis, she would be prepared to take a recommendation for IMF financing to the Board and that this would be contingent on a couple of things, including prior actions to be taken by the Greek government and the securing of private sector financing under the PSI agreement that was reached in Brussels.

Now as she also said, we don’t have a specific number on that IMF financing. That is something that’s to be discussed with our Board, and she projected that that might be done around mid-March. But what I would also like to say is just to contextualize that if you look at the IMF’s financial commitment to Greece, it has been the single largest exposure to any country in the IMF’s history. It is the single largest exceptional access granted to any country. We are proposing that we will move from what has been a standard standby arrangement with Greece to an extended Fund facility, which means that the terms of our financial support for Greece will give Greece much more breathing space. The average length of the SBA, the standby as you know, is around five years. The average length of the EFF, the extended Fund facility, is around ten years. So the intention here is to give Greece much more breathing space again, time to implement the reforms to get back to competitiveness, to get back to growth.

Now I say all this just again without giving you a number, but hopefully giving you an indication of the strength of the IMF commitment to Greece. And on the number, we should wait for the Board discussion which again we’re anticipating somewhere around mid-March.

SPEAKER: To repeat the question, although you might not have an accurate figure, it is reported that IMF might contribute somewhere around 13 billion euros to the second batch of Greek package. So it might be a less share compared with the first batch, less than one-third or one-fourth of the first batch. So why does IMF decide to contribute, might contribute, a less share of the second batch? Is it because it has already got a very big exposure to Greece or it worries that the debt might go bad?

MR. RICE: As I say, we think what was agreed by the euro group, is a strong package, a major step forward with a lot of the elements set up to succeed. Again, I don’t have a number for you on the IMF financial contribution, but I think we can safely say that it will be a sizeable contribution. In making the decision, our management and our Board will take into account many factors, including our rules and regulations on size and special access and exposure and, of course, the risks that are there in the program. And they will take all these things into account and then make the decision.

SPEAKER: Some already talk about a possible third batch for Greece in coming years if the financial situation and economic situation there further worsens. So what’s your take on that?

MR. RICE: Well, I think I’d probably just say we shouldn’t get too far ahead of ourselves. We’re discussing now what the second program might look like. And as I’ve said, we think what was agreed by the euro group is a strong package. I think there have been clear commitments made by the Greek government, and clear commitments made -- and I think this is important -- by the member states of the eurozone to support Greece. And in particular, just reading from the statement issued by the euro group -- which I’m sure you’ve all seen that -- let me just read it because, again, I think it’s important. The euro group has stated in its communiqué, “We reiterate our commitment to provide adequate support to Greece during the life of the program and beyond until it has regained market access provided that Greece fully complies with the requirements and objectives of the adjustment program.” So, again, I don’t think we should look too far ahead of ourselves at this point from what clearly the stated commitment to support Greece over the long term is there.

SPEAKER: There is a euro group decision granted that Greece can exceed the goal of reducing the Greek debt by 2020 to 120 percent. Is there any IMF concern about the possibility that recession in Greece will last more than it was expected? And do you think that this could derail or make harder for Greece to reduce its debt and to achieve this goal?

MR. RICE: Well, the debt sustainability target is 120 percent of GDP by 2020; and that was, again, one of the big outcomes, I think, from the euro group meeting the other day. Look, we think it’s a strong package, but it’s contingent on implementation and there are risks. And I don’t think anyone is trying to say that those risks are not there. It’s important that all the different pieces would fall into place: the political commitment, the implementation, the rigorous implementation, the long-term financial support, things that I’ve already mentioned. It’s an ambitious program. It’s a difficult program and there are risks. But, again, we think that if all play their part and all the pieces fall into place, then this is a program that’s workable and that the debt sustainability target, which is your question, can indeed be reached.

It’s our job at the IMF to look at different scenarios, especially when you’re projecting out over almost a decade as to what might happen. So it’s important to look at different scenarios, but the target of 120 percent remains very clear. And, of course, we’ll have reviews as you know of the program on a quarterly basis, which enables us to adjust to contingencies as they might occur but the target again is clear.

SPEAKER: However, the decision is something that makes you very concerned about Greece.

MR. RICE: Well, again, the way I would characterize it is that it’s our job to look at different scenarios, and we do that, and we will take these into account as we go along. But we think this package can give Greece the breathing space it needs to implement the needed measures, which are difficult, and improve its debt sustainability and its refinancing need and ultimately improve its competitiveness and get back to growth. So we think this is a major step forward.

SPEAKER: There is a growing discussion coming from Germany about the possibility of postponing the elections in Greece, in order for the coalition government to undertake implementation of this transfer for the next crucial months. Would you support this idea by your side? I don’t think that you ask for this, but would you support?

MR. RICE: What I’d like to say on that is that we’ve seen in recent weeks encouraging signs of political consensus in Greece. And some of those signs were the parliamentary vote last week on the package of measures. We’ve had formal and public indications of support from all the leaders of the major political parties in Greece, and they have said that even in the context of the election and changes in policies, that these changes would be consistent with reaching the objectives of the program. So I think we can be encouraged by that. We’ve even seen, if you look at these things, recent opinion polls which show the majority of the Greek people want to remain in the eurozone and to do what’s necessary to do that. So again, I say all this just that these are encouraging signs. And in response to your question, I think what it says is we’re hopeful that these encouraging signs will continue through the election and after.

SPEAKER: We’re moving to the west a little bit. Any comment about the IMF about the recent reform of the labor market in Spain? Is it in line with the IMF recommendations?

MR. RICE: We’re still evaluating it, but it certainly goes generally in the right direction, the labor market reform. More broadly, as you know, Spain has over the past year been taking strong and wide-ranging policy actions, which we fully support.

Let me take a couple of online questions, and then I’ll come back to the room. There’s a question on Italy, “Why didn’t the IMF supervision on Italy start yet since the agreement on that was reached at the G-20 Nice summit?” What I would want to say on that is that this enhanced monitoring of the Italian economy is very much at the government’s own initiative, and really it’s up to the government to decide on the timing of that. So that’s where we are on that issue.

I have another online question on Argentina, and the question there is, “Can we know the reasons for the Board to decide to give 180 days more to Argentina to implement specific measures to align the CPI-GBA with international statistical guidelines?” And on that I would just remind that our Board met on February 1 and issued a statement, which is on our website, and I think I referred to that in a previous briefing here recently. And in that context the Managing Director will report back to our Executive Board on remedial measures on the CPI-GBA by September 6, 2012. And this is in terms of being given 180 days more, et cetera, I can say this is fully in line with our established procedures set forth in the Fund’s rules and regulations, and these are all available on our website.

Let me take one other online question, and this is on Egypt. "What measures did the IMF ask the Egyptian government to take to overcome its current economic problems in the context of current discussions?" There obviously we don't yet have a program with Egypt, so I wouldn't get into details of discussing specific measures. Egypt's economic situation remains challenging. Growth has stalled and this is hurting the Egyptian economy and the Egyptian people. In addition, foreign exchange reserves have dropped substantially, reducing the authorities' margin to maintain macroeconomic stability. In this context, our discussions with the Egyptian authorities are ongoing and we stand ready to support a home-grown program that contains the measures necessary to restore confidence, maintain macroeconomic stability and protect vulnerable households during the ongoing transition.

SPEAKER: I think the main question here is, if Greece can do it, if Greece can make it, because as the Germans are saying, Greece didn't implement the first program because some other people are saying it was very difficult. Even they say it was brutal. Why in your opinion can Greece implement this one that is more difficult than the previous one?

MR. RICE: As I've said here before I think it's a bit unfair to categorize it as Greece didn't do anything under the first program. I think there was significant progress in a number of areas, if you look at the fiscal deficit reduction that was achieved, if you look at the scale of the pension reform and so on. Why we have said we think this new package of policy measures and financing can succeed, is based on a couple of things. One, I think this package allows more scope for growth and competitiveness and it's tilted more in that direction rather than at the heavier emphasis on fiscal in the previous program. I think a second reason I would suggest is the strong political commitment or at least the indication of that that we have received which I mentioned previously. A third reason I think which again I mentioned previously, it's the combination of that commitment and the policy measures, with what was agreed in Brussels the other day which was this package of private-sector debt reduction and official-sector financing including the longer-term commitment from the Euro States which I just referred to. I think these elements and others give us reason to feel encouraged that again this program is workable.

SPEAKER: You mentioned the different scenarios. If this program is implemented, how quickly do your scenarios suggest Greece can return to growth? I know forecasting is difficult, but you must have some baseline and I was just curious as to a ballpark when that might be.

MR. RICE: What I would say on that is that clearly Greece is still in recession and facing a very difficult, challenging economic environment. Our current projection is that the recession would bottom out sometime next year and then, based on our assumptions on Greece, that the medium-term path would return to a realistic growth path. Not dramatic, but a realistic growth path. This again is based on assumption that all the pieces fall into place as I said earlier, the pieces being the implementation and the support package. So those are the basic assumptions and with those assumptions I think that's the scenario that we have in mind.

SPEAKER: Do you have some updates on the new lending resources for the IMF?

MR. RICE: This is an issue we would expect to be discussed in the context of the G-20 ministerial this weekend. I think it will be one of the issues that will be discussed. Just to remind, the IMFC and the G-20 have asked the IMF to explore options on increasing its resources and we've put forward some proposals in that regard which I think you're aware of. We've been encouraged I would say by the signaling from our members on the increase in IMF resources. We don't have the specific commitments or numbers on that, but I would say we're encouraged by the signaling. Again, we would expect this to be something that would be on the agenda for the G-20 ministerial this weekend.

SPEAKER: U.S. President Barack Obama said, when meeting Italian Prime Minister Monti in Washington, D.C. 2 weeks ago, that the United States might do whatever necessary to help cope with the Euro Zone debt crisis. Does that mean that the largest shareholder of the IMF will help to contribute a share of new lending resources for the agency or that it will not object to the stance of some key Euro Zone member nations that new lending resources can go to the general resources account?

MR. RICE: Again our membership has encouraged us to explore options on increasing IMF resources. What we've said fairly consistently is that given where the global economy is, we see the need to strengthen what's been called the global financial firewall to protect countries against the risk of contagion. Part of that firewall is an increase in IMF resources which we have said would supplement resources that the European authorities would put on the table. Discussions around those elements are ongoing and we'll await the outcome of that. Again I think it's something that's probably going to be discussed by ministers this weekend.

SPEAKER: I want to go back to the issue of the Greek elections. Do you think that the elections are going to be an obstacle for the efforts to implement the program?

MR. RICE: I'm just probably going to reiterate what I said earlier, and that is that we're encouraged by the degree of political consensus and the statements that have been made by Prime Minister Papademos and the political leaders in Greece, and they have said explicitly again that whatever the outcome of the election, the commitment to the basic parameters and objectives of the program will remain intact. Again, we're encouraged by those statements.

There is an online question on the Dominican Republic. "What's the status of the stand-by arrangement with the Dominican Republic?" What I can say is that the authorities and the Fund have agreed that the current program will come to an end in a few weeks and both political parties have said that they will favor a new program after the May elections. So I guess the bottom line is that we're keeping a close dialogue on this issue with the authorities and we will reassess the situation in the coming weeks. There is a further question which I think gets back to what was asked earlier, "What do you expect from the G-20 meeting in terms of allocating money to the IMF? Can we expect something concrete or are we not there yet?" I think what I'd like to echo again is that discussions this weekend at the G-20 ministerial I think will be an important step in this ongoing discussion on options for strengthening the global firewall and that includes resources for the IMF. I don't want to prejudge the outcome of this weekend's meeting, but it will be an important opportunity to discuss the issue of increasing Fund resources and I think it will be an important building block along the road.

SPEAKER: Let's go back to the political consensus in Greece. Would you encourage Greece to postpone the elections? The second one is if you have seen the new movement of the Greek people, and I've got a lot of questions from many Greek people asking whether the IMF is affected by this movement and how does it assess it.

MR. RICE: The question of elections is a matter for the Greek government and the Greek people. Timing and process is a matter for Greece. I've said already we're encouraged by signs of political consensus, so let me leave that there. On your other question, yes, we've seen the movement that you are referring to. I think there again we'd like to say this is a difficult moment for Greece. It's a difficult package of measures. We at the IMF certainly are very mindful of the hardship being faced by the Greek people, but as I've said before standing here, we have to keep our eyes on the long-term objective which is to get back to competitiveness, get back to growth, get back to jobs, increasing jobs especially for the young people of Greece many of whom are involved in the movement that you mentioned. So that's the goal. That's the main of the support to help to put Greece back on that path. I think we've seen encouraging signs from the Greek authorities, from the Greek people. I think what the Euro Group decided on Monday should be taken as a sign of acknowledgement of those efforts and the willingness to support their continuation. I can certainly say speaking for the IMF that we are very respectful of the efforts being made by Greece and by the Greek people and I can assure you we are doing all in our wherewithal to try and support those efforts.

SPEAKER: You talk about getting back to growth and competitiveness, but sharp, brutal, forced austerity in the middle of a downturn would seem to suggest this isn't really necessarily just about Greek competitiveness, it's obviously about financial system stability. It just seems that these sharp cuts, forced austerity, the focus is less on the Greeks and their competitiveness than it is just dealing with the fiscal side as opposed to the growth side. I know you said this package tilts more the other way, but the last several years if you take everything as a collective, it would seem that growth isn't the focus. I just don't know how those mesh together where growth hasn't been the focus, it's been protecting the banks in Europe and necessarily just trying to maintain financial stability at the cost of Greek growth.

MR. RICE: I don't agree with that, obviously, and I think that when you look at some of the elements of the package that are being proposed, I think there is no question of a definite emphasis on measures, structural reforms, that can give Greece the breathing space it needs to get back to growth. Again I think what's different from the past, and I've said it already here, we're seeing a huge, substantial reduction in Greece's debt burden. We are seeing a substantial long-term commitment, I referenced the statement of the Euro Group earlier, beyond the life of this program to support Greece. These are dimensions that are different. I think the political consensus and the commitments that have been made are significant. No one is trying to say this isn't going to be difficult or that there are not risks. There certainly are. But wages are out of line in Greece and the more wages can adjust the less employment will fall. So in a monetary union without exchange rate flexibility the only way to achieve greater competitiveness is through lower wage growth and higher productivity. That's why those kinds of measures are in the program. Boosting productivity means breaking down networks of privilege especially on the non traded sector, the closed professions, transportation, et cetera. Again these things are crucial to increase growth and increase employment. Fiscal adjustment continues to be necessary but it is not as deep in this package as under the previous program, so it needs to be smart so it does not snuff out the growth, snuff out the recovery. We think it's being set up in that way. And again we said this before, it needs to be done in a way that's fair, for example, that everyone will pay their taxes and in particular that the more privileged would pay their taxes. So I think all of these elements encourage that this program will indeed be able to allow Greece the breathing space it needs to get back to growth.

I'm going to take one more question and it's an online question. "To which extent is the IMF worried regarding the impact of rising oil prices on the world economy, recovery prospects given the tensions in the Middle East especially in Iran?" What I would say is the impact of an oil supply shock in the Middle East could be large if not compensated by supply increases elsewhere, and we have noted in some of our analysis previously, for example, if this were to occur that a halt of Iran's exports to OECD economies without being offset from other sources could trigger an initial oil price increase of around 20 to 30 percent with other producers of emergency stock releases likely providing some offset over time, so that's where I would end up on that question. Let me wrap up here. Let me thank you in the room and thank you online.


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