Transcript of a Press Conference by Managing Director Horst Köhler with First Deputy Managing Director Anne Krueger and External Relations Director Thomas C. Dawson

September 19, 2003

Press Conference by Managing Director Horst Köhler with First Deputy Managing Director Anne Krueger and External Relations Director Thomas C. Dawson
September 19, 2003
Dubai International Convention Centre, Dubai, United Arab Emirates

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MR. DAWSON: I think we are ready to get started if the photographers could conclude, please. I would like to welcome everyone to the opening press conference by the Managing Director of the IMF, Horst Köhler, accompanied by the First Deputy Managing Director, Anne Krueger. This is an on-the-record press conference. The Managing Director will have a brief opening statement then we will be happy to take your questions. If I could ask those of you with cell phones to either turn them off or put them on mute so we will not be disturbed. I would like to now call on the Managing Director for his opening remarks.

MR. KÖHLER: Thank you, Tom. Ladies and gentlemen, welcome to Dubai. I am really glad to be with you here together with my colleague, the First Deputy Managing Director, Anne Krueger. Every three years we hold our annual meetings outside of Washington. I find this a good practice because it brings out clearly the cooperative, multilateral nature of our institution with its near-universal membership of now 184 countries. Holding our meetings in the Middle East has been long overdue. We start on Sunday when the International Monetary and Financial Committee of the Fund's Board of Governors will meet. Allow me to take you briefly through the agenda.

First we will discuss the outlook and risks for the global economy and financial markets. We meet at a time of rising optimism about the global economy. Yesterday Ken Rogoff presented to you our World Economic Outlook. It notes increasing positive signs in a number of regions. I look really forward to the discussion with members of the IMFC on how best to nurture this recovery and ensure a return to sound and sustained global growth. But this is no time for complacency. We know that uncertainties remain, requiring vigilance and decisive policy management, and achieving a balanced recovery and a return to sound and sustained growth urgently requires broadening our focus from the short-term requirements to the serious underlying problems that many economies continue to face. I expect that governors will focus on two risks in particular. The large global current account imbalances and the persistent high levels of public debt across many countries. I am sure that governors will also underline the critical importance of bringing the Doha Trade Round back on track.

Second, we will focus on strengthening IMF surveillance and promoting international financial stability. My report to the IMFC which you have received demonstrates that both our member countries and the Fund have continued to work hard and make progress. We are reinforcing surveillance, focusing more on financial sectors, international capital markets, and on crisis prevention. We are strengthening the framework of rules for the global economy in collaboration with public and private sector institutions by developing and implementing international standards and codes of best practice, and the quantum leap in transparency both at the IMF and in our members is providing more information to help markets function better.

Our discussions will focus on consolidating this progress and sharpening our available policy instruments. Increased global interdependence requires paying even closer attention to the linkages between countries and regions, and it requires evenhandedness in our surveillance because crises originate in mature markets as well as emerging markets. Our intensified work on financial systems and international capital markets, critical conduits of instability in recent crises, must play a central role in this process, and despite best efforts on the part of everybody, it would not be realistic to expect all crises to be prevented. Therefore, we will also continue to discuss our crisis management and resolution initiatives.

Third, governors will discuss progress in our work with low-income members. With the Millennium Development Goals and the two-pillar approach of mutual responsibility agreed at Monterrey last year, we have a shared policy framework, and with the PRSP, Poverty Reduction Strategy Papers, and the HIPC Initiative, we have the vehicles to take us to our agreed goals. Now is the time for steadfast implementation rather than reembarking on a search for new development strategies. In a rising number of developing countries in Africa and elsewhere, good policies are bearing fruit. These policies need to be sustained and reforms in many countries need to be deepened, particularly those aimed at strengthening governance and institutions, but I agree with Jim Wolfensohn, and I assume he made this clear to you, at least when we prepared ourselves for the meeting we discussed it in this sense, I agree with Jim Wolfensohn that more financing is also needed to support these efforts.

Ladies and gentlemen, holding our meetings in the Middle East will also allow us to focus in particular on economic developments and prospects in the region. On the whole, the region has weathered the difficult global economic environment well, and there has been progress in strengthening the foundations for growth in a number of countries, but looking ahead, I see a need for the region to accelerate its integration with the global economy, to reduce current high levels of unemployment and achieve more widespread prosperity. Key priorities must be to diversify economies by accelerating structural reforms, increasing the efficiency of public services, and improving the business and investment climate to foster private-sector-led growth. More transparency would be helpful to achieve these goals. The IMF is working with all its members in the region to assist them in this reform process, and on Iraq the IMF remains fully committed to continue to play its part in the critical reconstruction effort.

So I very much also want to tell you that I hope that governors in the plenary meeting will reflect on each other's views. I have no doubt that in this way, reflecting on each other's views, listening to others, these meetings will strengthen the spirit of multilateral cooperation. This is what we need to build further confidence in the global economy. With this approach and this signal, I am sure these meetings will be successful and will further contribute to strengthening the recovery in the global economy. Thank you very much. This was my introductory statement. Now I am happy to take your questions.

MR. DAWSON: Please identify yourselves and your organization. The microphones will be brought around to you to speak.

QUESTION: I would like to hear your opinions about three recent suggestions discussed in Brazilian government to a new agreement with the IMF. The first is the inclusion of social targets, the second the possibility of using countercyclical fiscal policies, and the third, the exclusion of investments in infrastructure from the public deficit. And I would like to know if any of the views of the IMF on these issues has changed given the bigger flexibility shown in the Argentine agreement.

MR. KÖHLER: First, I would like to take the opportunity to make clear that we certainly are deeply impressed about the achievements President Lula and his economic team has made during these few months since they are in office, and you can see it in particular through decisive cuts in interest rates. I also would like to say that it is totally up to the government whether they want to continue a program with us or not. I do think the government has already built up a considerable amount of credibility, but if the government wants to talk with us about a successor program, we stand ready because we do think that Brazil deserves to make it a success story in Latin America and of course for the country itself, they deserve it because of the agenda of this president, and the IMF is committed to participate in this, and this also means that of course we are attentive to the inclusion of social targets. We had already been attentive in our last program. We have no hesitation to say, I have no hesitation to say we continue to give this attention and of course we have to put it in the context of macroeconomic stability.

Second, the idea of countercyclical fiscal policy, that is an interesting theoretical idea. As good economists we always are open to these ideas, but we should at this point in time concentrate on the pursuit of credibility, strengthening further credibility so that there is no confusion. Infrastructure investment, first Brazil needs better infrastructure, and we hope and we do think that this element can be incorporated in a possible successor program.

MR. DAWSON: Second row here.

QUESTION: Good afternoon. Some critics of the new agreement with the country that I think is going to be approved tomorrow at the Board say that the surplus goals are too low and too relaxed, and it is a bad example for our country. I would like to know your opinion about that, and of course I want to know if the agreements are going to be ratified tomorrow. Thank you.

MR. KÖHLER: Well, it will be discussed in the Board, and Anne Krueger will chair the Board. I think this is fair then to give the floor to her. It makes it easier to me to hand her this question.

MS. KRUEGER: The program does not set primary surplus targets for the second and third year. It commits the government to do what it anyway planned to do which was to reach agreement with its private creditors and to raise the primary surplus sufficiently so that indeed it can finance that agreement. So in that sense I fail to understand how the critics can know whether it is too low or too high when they do not know what that agreement is.

MR. KÖHLER : I would like to add a sentence, and this is that I do think it is a program which has a good chance to work and to help Argentina to find the way with stronger growth out of the crisis.

QUESTION: Mr. Köhler, I wonder if you could reflect on the prospects for success or failure of European Monetary Union at this point with France in flagrant violation of the Stability and Growth Pact, not seeming to care, and a country like Sweden with stellar European and economic credentials not seeming to want to be a part of it.

MR. KÖHLER: The European Monetary Union is a bold project, it is an historic project, and in my expectation and assessment it will be a successful project, but we need time to sort everything out, and that means that after only a few years of its establishment, at least I do think we should not have a kind of judgment it may not work or it may not work good enough. It is a process that people learn how to live in a monetary union because it is different to the situation before, and to the concrete question of the Stability and Growth Pact just now, I do not make a secret out of it, that I feel in this very situation the Europeans should demonstrate or should prove the logic and the substance of this pact through the implementation of strong structural reforms. The pact, as such, is in my view indispensable because a centralized monetary policy with decentralized fiscal policy is a difficult endeavor, and therefore the decentralized financial policy needs to have a coordination and disciplining framework, and this is the pact, and this substance needs to be preserved, and I have no doubt that the Europeans are going to preserve it so that based on this I am quite confident that the monetary union will be a success.

MR. DAWSON: The gentleman right here.

QUESTION: It is axiomatic that poverty anywhere is poverty everywhere. Poverty breeds terrorism, violence, and illegal immigrants to Europe and the developed countries. The policies are prescriptions for fighting poverty in developing nations, particularly Africa. Peoples and governments alike in these countries put the blame on the IMF and the World Bank for their failures. People find the prescriptions bitter medicine to swallow. Have you ever thought of revising your policies regarding the reforms in stumbling economies, are you going to enforce these policies with immediate effect or do you have a timetable for implementing them?

MR. KÖHLER: Well, let me first say that the IMF is well advised to listen to critics and critical comments because nobody is perfect, and even not the IMF, and the IMF is in a process drawing lessons out of experience and out of critics, and this is that we have initiated a broad range of reforms, change within the IMF, and I do think these reforms already bear fruit.

Second, related to the critics, specific critics, I was invited by the heads of state of the African Union at their assembly in Maputo, Mozambique, to give a speech, and this invitation would not have happened if these leaders would not have felt or would not have the idea that the IMF can be helpful. My speech was well received, and more important is that we have evidence that our advice related to macroeconomic stability works because in most countries in Africa where you see improvement in terms of growth, social spending, and also reducing poverty, those countries had programs which had been supported by the IMF. I do think therefore that we need to now implement this what I call a policy framework for fighting poverty, and this is the Millennium Development Goals where the IMF is committed to contribute; this is the Monterrey Consensus, which means that good policies from the countries themselves need to be supported, rapidly broader through better international support through in particular finance and trade, and we have also the operational vehicles to do this through our poverty reduction strategy process for debt relief and last but not least through technical assistance. The IMF, for instance, has in the last year established two regional technical assistance centers to work ambitiously where there is really a particular weakness, and that is the capacity, the administrative capacity in many African countries to implement reforms, and if these two centers which are planned as pilot projects work well, and I have a good feeling we are going to establish three further centers in Africa, so we are still far away from a satisfying progress, but there is now momentum, there is a concept we need to work together very hard, and I am sure it will also pay off.

MR. DAWSON: Out here in the third row here.

QUESTION: I want to ask you a question about IMF program in Turkey. Some authorities in Turkey mentioned about the possibility of ending the journey with the IMF after completing the existing program. Do you believe that without working with the IMF anymore Turkey may leave this strict financial coupling and will the fall in interest rates and application of TL form a risk against the health of the program?

MR. KÖHLER: Well, I do think that I should first express also related to Turkey my appreciation how they implemented the program, and indeed the program which is a tough one works. Interest rates are going down, the exchange rate is stable, it appreciated. Growth is strong in Turkey, and the inflation rate is now I think approaching 20 percent, which was the target. So all this has been achieved, and I think we should express our respect for the Turkish government, particularly now the new government.

It is our policy not to force countries to programs. If countries feel they can stand on their own feet, we of course try to tell them to do it if you have the self confidence. So if Turkey feels it could stand on its own feet related to market perceptions and market confidence, they have to make this judgment. We at any rate stand ready to talk further, to have a dialogue with Turkey how we continue this success story.

QUESTION: You just mentioned structural reforms in Europe. The Fund on many occasions again yesterday in the World Economic Outlook called on Italy to reform its pensions, in particular raise the retirement age, and complained about too many one-off measures. The government has just approved another budget with several one-off measures, and has put back the raising of retirement age to 2008. I was wondering if you could comment on that whether you were disappointed by this decision.

MR. KÖHLER: Well, I do think that in Italy there had been some remarkable reforms in the last years indeed, not least related to the labor market, to the pension system. I do think that it is not yet enough, but I see Italy, like France and Germany, in now a new mood of recognition that these three big countries in the monetary union must lead through structural reforms and should not be at the lower end of this process. If this happens and there is now a new momentum, I am all together not pessimistic about Europe and also not about Italy.

QUESTION: The IMF encourages transparency as it would lead or enable countries to be on the right path towards economic growth or reform. How would transparency in your opinion affect the UAE or an economy such as the one in the UAE?

MR. KÖHLER: Well, first I should say that United Arab Emirates are certainly ahead of the curve compared to many other Arab countries because they have now agreed to publish what we call staff reports in the context of our Article IV consultations, they have agreed to publish a financial sector assessment, and also they have agreed to publish a Public Information Note. So they are ahead of the curve and we appreciate it very much, and we do think it is in the interest of the UAE because markets are then better informed about the policy and economic data of this country, and better informed markets, investors have a better feeling to invest somewhere where they feel there is a location with transparency because this is a location with predictability.

QUESTION: Sir and madam, if we have to judge for the recent times it seems the stability periods are the link between crises. So in the context of the optimistic scenario that the World Economic Outlook offers to us which will be the -- I should say that most probably think we have to watch on terms of crisis prevention, to mention three aspects basically, current account imbalances, debt, and trade issues, which in your opinion will be the most probable thing to watch?

MR. KÖHLER: Yes, you gave the answer. I could add on this, where we possibly should give the most attention is the spirit, the mood of multilateral cooperation. We need to understand more than ever that in a world of growing interdependencies, not just economic interdependencies, social interdependencies, health interdependencies, that means political interdependencies, of course terrorism is something which is interdependent in the world, we need to understand we are sitting in one boat more than ever, and therefore at the end we can only gain together, all parts of the world, all regions if they cooperate they will lose all together if there is a process of finger pointing, isolating countries or just pushing with pressure to decisions. We need to have a further strengthening of the climate of dialogue, inclusive dialogue and cooperation. This will work.

MR. DAWSON: In the front row.

QUESTION: What are the second generation reforms you would suggest for the UAE, the reforms in the government, reforms of the institutional center and economic institutions?

MR. KÖHLER: Well, I am now not prepared to go in detail about the second or possibly the third generation of reforms. It seems to me that the UAE is in a good process to position itself as an attractive investment location of global importance. This is of course related also to the financial sector, and I in particular do think Dubai and the United Arab Emirates have something which possibly the Arab world needs more than anything else, and that is forward-looking self-confidence, that they have the skills, they have ambition, they should just move on and do something with self-confidence, and Dubai and the Emirates I think give this signal to the Arab world and to the world on the whole.

MR. DAWSON: Down here in the second row.

QUESTION: It seems that the agreement between Argentina and the IMF, the second or third year depends on the results of restructuring the debt. What will happen with the program if the negotiation fails? Is there any kind of Plan B?

The other second question is the opinion of the IMF of the bonds linked as they grow, are they one of the options that Argentina is going to offer to its creditors?

MS. KRUEGER: I guess the first part of the question is somewhat easier in that we do not have a Plan B in part because it is very much in the interest of Argentina and its creditors to come to agreement. We know that both sides will be dealing in good faith, they will see where the Argentine economy is, and I think there is no doubt that they will come to some kind of positive agreement. Obviously that agreement has to be within the feasible set going forward, but I think the Argentine authorities are well aware of what that is, I think the creditors are well aware of what that is, and I think there is optimism on both sides that they will reach agreement. Quite clearly when you are negotiating something like that I do not think that necessarily they will reach agreement the first time they talk to each other necessarily, and I do not think it should be taken as bad news if there is some negotiation for a bit.

But on the other hand, I find it very difficult to imagine a circumstance where agreement would not be forthcoming over, say, the first three, six months, something like that period. There is, of course, always in debt restructuring an agreement in principle, and then there has to be the follow-through in terms of particulars, so to say that there is an agreement is not the same as to say when the whole thing is done. That I would expect to be more like the middle of next year on normal terms.

As to the length of bonds, we do not as yet know what the additional offer of the authorities is going to be. They have said they will let it be known here in Dubai sometime early next week. We have not seen it. We know that the government has been considering the bonds linked to the growth of real GDP, and I think it is a question as to whether the markets will find those attractive or not. The best way to find out is to see how much they are taken up.

MR. DAWSON: In the first row.

QUESTION: Mr. Köhler, just a couple of questions about your very interesting statement on economic developments in the Middle East and Europe if you could clarify. You talk about the need to deal with high unemployment, you talk about the importance of having more widespread prosperity, you talk about improving the investment climates. The first question there is what about trade, what about the Middle East region's stance on trade? One of the least globalized and most closed markets internationally. Most of the Arab countries do have strong barriers to trade and investment. What is your policy prescription about trade?

The second part, the flip side of that is, these are strong policy prescriptions you are offering for the Middle East region on a number of issues. If these are followed, if the unemployment is tackled in a serious way, if there is more transparency, if the trade issue is dealt with, is that also a way of getting at the roots of terrorism, meaning poverty and social injustice, in your opinion?

MR. KÖHLER: Well, first, we do think you are right, that the region is less open to trade, and it should therefore move to liberalize trade in two directions, to the global economy but also within the region. There are still impediments or obstacles to trade within the region which I feel is absolutely for me I cannot understand why. So this is trade. I do think they are well advised to open up further.

Growth and also based on trade I do think is the most powerful force against poverty, against social instability, and insofar or so against such elements of terrorism. I do think that you need always to look particularly carefully to the specifics of terrorists and terrorist groups, but in general I do think if the people, the majority of the people feel there is an improving process in living standards, they will go the way of orderly development, of transparency, of democracy because they all in the Arab world, like in the western world or in Africa, all people have the same objective. They just want to live in peace where they have a decent living for themselves and for their children. This is in the Arab world, which is not different to other regions. Therefore I think to bring growth and social improvement in this region will help a lot.

MR. DAWSON: We have time for two more questions here in the front row.

QUESTION: Given your peculiar relationship with Argentina, I do believe it is better to explain why do you support the agreement with Argentina, from the A-B-C. I mean this is one.

In relation with the stability pact, you mentioned that you agree with France, Italy, and Germany now in the matter of the structural reform. May I ask you what you think about the position of the three countries in relationship with the stability pact, the proposal to reformulate the pact.

MR. KÖHLER: I would call the relationship of the IMF and Argentina not a peculiar relationship. I would call it a relationship which went through many ups and downs, where both sides have all reason to reflect what went wrong and I include in this the IMF, but of course Argentina in particular has to go through a process to reflect on itself, on its society, on what are the root causes, what are the values of this society, and this is a process which will take time, and this will also then explain to you a bit why the IMF, we, management, decided to offer a medium-term program to Argentina so that we demonstrate also through this decision that we know it will take time to improve, and we help Argentina, we want to help Argentina because that is our mandate. We have to be to the service of our members. It is sometimes difficult to find out how we can best help a member, and this is particularly difficult in and with Argentina, but in this latest development I myself was in Buenos Aires, I talked to President Kirchner, I met with all groups in Parliament, with business people, with civil society, and I had the feeling that the country has the kind of understanding that now it is time for them to pull together and overcome the difficulties, and President Kirchner gives this feeling direction and concept. I do think this deserves support and the program, as such, in my view, includes all relevant areas of reform and change. It will have to be more detailed in the coming months and years, but it is obviously, in my view, a good start and an offer from our side to work together and look forward.

Structural reforms and the Stability and Growth Pact. The core problem of the Stability and Growth Pact in Europe was that in better times the big countries did not do their homework. That is the core problem, not so much the 3 percent threshold as such, the 3 percent threshold now is a problem because it coincides with low growth, almost stagnation in Europe plus this combination with global imbalances, I can admit here to you very frank that when we negotiated the Maastricht treaty in 1991, we thought about many things, but we did not make ourselves a concrete imagination about this kind of constellation. Three years of stagnation, loss, global imbalance, this was not in our concrete vision at that time. And this should also now help in Europe now not to only focus on the 3 percent. They should focus on structural reforms. They should demonstrate that through structural reforms the structural deficit is declining in their budget, but because of the particular situation now, they then should let automatic stabilizers work even if this would mean that they go beyond the 3 percent in a consecutive year.

MR. DAWSON: Last question right here, the gentleman in the checked shirt.

QUESTION: [Translation from Arabic.] I have two questions. First of all the indebtedness of the developing countries normally in annual meetings, this is amongst the issues under discussion, and I think that the Board of the Fund decided a little while ago not to discuss the matter. Why is that so? And what do you think about the write-off of the debts of developing countries? There are many criticisms in the Arab region regarding the prescriptions of the Fund, especially not taking due account of the social aspects and of the states of the poor. For instance, where in Egypt we have noticed an increase in poverty in terms of numbers and in rates as well as an increase in unemployment, what is the explanation for that according to you, sir?

MR. KÖHLER: First, debt issues as an element or debt relief as an element in a comprehensive strategy to fight poverty will be discussed at these meetings, and you will see in the report I delivered to the IMFC which is circulated to you, there is the element where do we stand with the HIPC Initiative, and I do think there is progress with the HIPC Initiative, but more has to happen. The IMF, I am personally committed to recommend topping up of debt relief in particular country cases where it is justified through policy and the circumstances. So there will be a discussion about this because it is an important element of the strategy to fight poverty.

To write debt off, and I understand you are coming from Egypt, you may recall that Egypt got a major debt relief in the early 1990s. Unfortunately Egypt has now still rising debt numbers, debt ratios in terms of GNP. I do think that debt and how to handle debt and how to contain debt is more first and foremost a matter of policies, and for Egypt I do think growth should be stronger, productivity should be stronger, and in this case debt would not be a problem. Therefore I give it back. Policies matter also in Egypt.

MR. DAWSON: Thank you very much.


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