Transcript of a Press Briefing by Thomas C. Dawson, Director, External Relations Department, IMF

November 6, 2003

Transcript of a Press Briefing by Thomas C. Dawson
Director, External Relations Department
International Monetary Fund
Thursday, November 6, 2003
Washington, D.C.

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MR. DAWSON: Good morning, ladies and gentlemen. I am Tom Dawson, Director of External Relations at the IMF, and this is another of our regular briefings.

Before I take questions, I'd like to make a couple of announcements. The Managing Director will be traveling to Armenia, Tajikistan, Kyrgyz Republic, Kazakhstan and Russia the week beginning November 10th, leaving over this weekend, to meet with leaders and senior officials.

His visit, which reflects the Fund's continuing close policy dialogue with the region will focus on how to carry forward the strong cooperation between these countries and the Fund. Mr. Köhler's trip is designed to enable an exchange of perspectives on critical issues facing countries in the region and to discuss the economic performances and challenges, as well as issues regarding the global economy.

He is particularly interested in the views of officials regarding sustainable growth, poverty reduction and various regional cooperation initiatives, as well as the Fund's ongoing work on global and financial stability--economic and financial stability.

In Kazakhstan, Mr. Köhler will also speak at the `International Conference on the Occasion of the 10th Anniversary of the Introduction of the Tenge,' the national currency of the Republic of Kazakhstan.

Media Relations can provide you with details regarding the Managing Director's scheduled stops.

The Fourth Annual IMF Research Conference opened today at IMF headquarters. The two-day schedule of events has been posted on the Fund's external website, and I draw your attention there. This year's conference is focused on capital flows and macroeconomic cycles. Papers associated with the conference are also posted on the website.

At 4 p.m. today in the IMF auditorium, University of California at Los Angeles' Sebastian Edwards will deliver the keynote Mundell-Fleming Lecture on Current Account Imbalances, History Trends and Adjustment Mechanisms. Raghuram Rajan, our new Economic Counselor and Director of Research, will introduce Mr. Edwards.

At 2 o'clock tomorrow in the auditorium, Deputy Managing Director Agustín Carstens, will participate in a panel discussion associated with the Conference Panel on Capital Flow Cycles: Old and New Challenges. It will include Harvard Professor Jeffrey Frieden, Deutsche Bank Strategist Peter Garber and Morris Goldstein of the Institute of International Economics.

These events are open to the press.

At this point, I would be happy to take any questions.

QUESTIONER: This is about Turkey. The head of Turkey's Independent Banking Council resigned yesterday [audio break].

MR. DAWSON: On the last of your three questions, and I do not have any views on that. I am only aware of what I have read in the newspaper, particularly today.

On the resignation of the President of the supervision agency, he certainly played a key role in the work toward putting the banking system on a more sound footing, and we see a sounder banking system as one of the major accomplishments under the program. His dedication and highly professional approach were central to this important progress, but going forward we fully expect that the government will continue to respect the autonomy and the professionalism of the bank restructuring agency, BDDK.

We look forward to working with Mr. Bilgen, the new president of the BDDK, and expect we will have an equally productive working relationship with him.

With regard to the sixth review, at the moment we do expect that that could take place in late November. I do not have a precise date for you. When we do, we will let you know.

QUESTIONER: In relation to the agreement announced yesterday, number one, does the Fund have any projection as to whether Brazil will or not use the $14 billion or the $6 billion extra that have been discussed up to the moment?

And, secondly, the payments that Brazil has to make from 2005 onwards, apparently Ms. Krueger said in Brazil that the Board will have no problem in approving a new scheduling for those payments. Can we assume that this is a definite answer now?

MR. DAWSON: I would direct you, and I think you probably have both read her statement and have also taken a look at the press conference that she had yesterday with Minister Palocci.

In terms of drawings, the authorities have indicated that they expect that this program would be precautionary, and that is certainly the basis on which they are acting, and there is no reason to think that is not the case, given the strong performance of Brazil under the present program.

Indeed, the authorities have requested, in order to smooth out Brazil's payments to the Fund, to extend, by one year, payments of about $5.5 billion, and this does require Board approval, but management will be recommending that.

I think it is also--I would just note that this was an agreement in terms of the authorities expressing the direction in which they go, the staff and management support for it, and, as Ms. Krueger said yesterday, we do expect to shortly recommend the program to the Board. Again, when we have a date, we will let you know.

QUESTIONER: How did you see the Brazilian President's warnings regarding the agreement in Brazil? Ms. Anne Krueger was already in Brazil talking with Mr. Palocci. And President Lula, in Africa, said that Brazil did not know if it needed the agreement. I would like to have your opinion on this.

MR. DAWSON: Actually, the quotes that I have seen from the President I think are quite consistent with what was said in Brazil yesterday. In reality, and this is why I was making the point, the review actually will be completed and then the Board will take place.

And in terms of when there will be an accord, the agreement is when the Board approves it, which is after it is finalized with the authorities and then presented. So that would be in December, and I think that is what the President indicated. I know there was a bit of a flurry yesterday afternoon about that subject, but I did not see that there was a contradiction.

QUESTIONER: If I can follow up on that, what was the hurry in announcing it, then?

MR. DAWSON: There was no hurry. Indeed, Ms. Krueger went to Brazil at the invitation of the authorities, and she was there, and it was the appropriate time to make the announcement. Had she gone and come back without an announcement, you would have had quite a different story. So I think openness and transparency, we find, is a good way to go forward.

QUESTIONER: Do you think the way Brazil has gone is what the Fund had suggested initially? I mean, was the Fund recommending this kind of program initially?

MR. DAWSON: We have made it very, very clear we were in the hands of the authorities as to the course of action they would choose, and indeed they came to a conclusion that this was the way they wished to go forward, and we were able to and happy to support them. Had they taken a different course of action, we would have judged that on its merits as well, but this is not something that the Fund--the Fund has made it very clear that we were respecting and awaiting the Brazilian authorities' judgment as to how they wished to proceed, and this was their decision, which we are delighted to support.

QUESTIONER: You said that you are delighted. Would the fund be delighted if Brazil, in the end, does not make of this the last accord and has to come back knocking on the door later on?

MR. DAWSON: That is highly hypothetical, and given the strong performance of the authorities right now, it is even less likely that I would fall to the bait of answering that hypothetical question.

QUESTIONER: What is the situation with the Dominican Republic? There has been various reports on that.

MR. DAWSON: Yes. As I think people understand, we were unable to conclude the first program review, and that was delayed last month pending further analysis of the economic implications of the government's decision to purchase two major electricity distribution companies.

The independent expert panel that is looking into this issue is making good progress, and its final report is expected by the middle of this month. Therefore, an IMF team will be returning to Santo Domingo later next week to resume the discussions for the first review of the standby arrangement.

QUESTIONER: Could you make an update for the situation in Argentina.

MR. DAWSON: The mission is I believe about to go down, unless I am mistaken, and I think that is sort of the status. I am not sure. That is such a vague question. I mean, the economic recovery certainly continues. The authorities are in discussions with their external creditors.

If there was something I was supposed to fall for in that question, identify it, but I am not quite sure what to say in terms of any new news in that regard.

QUESTIONER: Can you say what is going to happen with that contingency credit line? Is it basically dying at the end of November? Do we assume that is what happens or will there be an announcement?

MR. DAWSON: The Board is considering what will happen. It is certainly true that the facility is scheduled to expire at the end of November, and I think the expectation is that that is likely to be what happens, but the Board is looking at sort of how to address the differing views. There are many who believe that a facility of this sort is necessary.

The present facility has not proved as workable as originally desired. So we will have to address this--or we will address this--before the end of the month, but the expectation is that it would be likely to expire, and I think we will probably have some statement as to what this means in terms of our ability and willingness to serve our members who face unanticipated difficulties going forward.

QUESTIONER: It is a question on Bolivia. Minister Nogales was in town last week, and he talked to some IMF officials, and he also said in a conference that it is very crucial for the country to get international help between December and March to save the current government.

The question is what is the IMF disposition to aid Bolivia, and second is what Bolivia needs for getting that international aid?

MR. DAWSON: I think we have followed a flexible approach in supporting Bolivia, and we certainly recognize the difficult social and political situation facing the country. We have had ongoing contacts with the authorities and the current standby arrangement has been, and continues to be, designed to stabilize the economy.

We had a staff team in La Paz the 27th through the 29th of October to hold early discussions with the new government, and we have been adapting the program to the changed circumstances, trying to maintain economic and financial stability, while ensuring protection for the poor, and we continue focused in that regard.

Performance through September was, in fact, broadly in line with the program, and commercial and financial activity has been rapidly restored following the problems in mid October. We expect the Fund mission will return to La Paz in the near future to continue the third review of the standby arrangement, and we are in touch with other institutions, including regional institutions, because I think there is a broad feeling in the international community that the difficult situation facing Bolivia merits the international community finding ways to support, and we will do what we can in that regard.

We remain, to conclude, in close contact with the new authorities.

QUESTIONER: In the Turkish Government's efforts to privatize the state monopoly on alcohol and tobacco, especially on the tobacco section the bids were much lower or much worse than expected. Does this prompt you to be pessimistic on the future of Turkey's privatization efforts, as the government expects to collect some $4 billion from privatization next year?

MR. DAWSON: I will confess I am not briefed on that and will have to get back to you bilaterally.

QUESTIONER: My question is on Sri Lanka. With the political situation that developed yesterday, I was wondering what was the situation with the second loan payment that was due I think just after the budget of November the 12th?

MR. DAWSON: On the economic front, recovery has, in fact, been taking hold. The budget was under some pressure, but the government took remedial measures, and the performance has been quite satisfactory.

We certainly hope that the present constitutional uncertainty is resolved quickly so the confidence can be, which as I say has improved significantly in the last year, is not eroded. Because I think there has been hard-earned macro stability that needs to be maintained.

I do not have a date for the next mission or review, and I would have to get back to you on that.

QUESTIONER: Do you see anything different in the new agreement between Brazil and the IMF? Because in Brazil the agreement was presented like something different, more flexible, but seems to have the same guidelines of any other agreement. I would like to have your comments on that.

MR. DAWSON: I might have to ask you in what sense that is. The program that the new government adopted at the beginning of this year is very much a program designed and developed by the Brazilian Government. It has shown quite a good deal of success in terms of the stabilization of many of the market indicators--the continued decline of inflation, accumulation of reserves, and so on.

It should therefore not be surprising that the continuation of the program is reinforcing the same policies, but I would stress of course that the Brazilian program is a truly owned program, and I think reflects the strong commitment and perseverance of this new administration.

As I say, it should not be a surprise if the program is building on the successes. I think I would be more surprised if there was a radical difference.

QUESTIONER: Two weeks after the Madrid Conference, could you update us on what the IMF is doing for Iraq. Does the IMF have today a team in Iraq?

MR. DAWSON: Golly, and I thought you were going to ask me about the Board date for the Italian Article IV. November 7th, so you do not have to ask that question.

In terms of our work with and on Iraq, I mean, we are continuing the general policy dialogue that started in May. We are continuing to provide and coordinate extensive technical assistance. We are working to help Iraq's efforts to achieve a sustainable public debt situation, working with Paris Club and non-Paris Club creditors, as well as participating in the International Advisory and Monetary Board that was activated recently to ensure that the development fund for Iraq operates in an open and transparent fashion.

In terms of the work, I mean, the work is still in the situation where it is being done either by meetings outside of Iraq, and both in the region, as well as elsewhere, and so I would [audio break] in the wake of the Madrid Conference.

I would also direct you to the statement made by the Managing Director in Madrid, in terms of the potential assistance from the Fund, starting with emergency post-conflict assistance, which is a particular program of assistance the Fund has, but then with additional resources potentially available over the first three years that could range from about $2.5 billion to $4.25 billion.

QUESTIONER: Last week, Jim Wolfensohn said that at least two-thirds of Iraq's debt should be forgiven. What is the estimate of what would the IMF be comfortable with or what would the IMF suggest would be a good level?

MR. DAWSON: I would say we are still in the process of collecting both information regarding the extent of the total obligations, as well as making an estimate with regard to what is potentially a debt sustainability, a level that would be sustainable, from a debt sustainability point of view.

That is something the Fund, it is traditionally the Fund's responsibility, providing an input to Paris Club and other groups of creditors to do that, and I think it would be inappropriate for us to talk about a particular estimate at this point since we are, at the moment, responsible for trying to get a better sense of the numbers on both sides, as I indicated--both the level of debt as well as the level that would be sustainable.

QUESTIONER: [Off microphone.] [Inaudible.]

MR. DAWSON: No, I do not, but I would encourage you to keep asking about this because it is something we are actively working on, but I would not expect a [audio break] to be engaged in, and as I said, I do not discourage you from continuing to ask about it because it is quite relevant.

QUESTIONER: Could you explain this word "potential" in Mr. Köhler's speech. Does this mean this loan is available to the present Iraqi Government structure?

MR. DAWSON: No. We have indicated that the amount of funding that is potentially available has to do with assuming agreement can be reached on a program. Initially, the emergency post-conflict assistance requires only a certain level of a program because it is, indeed, emergency post-conflict assistance.

Later on, the additional funding would take place under what we refer to as an upper credit tranche facility which requires a program. That [audio break] would increase and say we are not able to participate in recent quota increases.

Certainly, a lending program requires the authorities to have been recognized in the Fund, and I have indicated in previous briefings what the conditions are for that. It is a judgment by the Fund of that, and I repeat what I have said earlier; that we are not at a point where the fact that there is no representative of Iraq sitting as a Governor of the Fund, it is not a constraint to what we are doing at this point, and it will not be in the near future.

QUESTIONER: Brazil has asked, on the last round of negotiations with the IMF, $30 billion. Now, Brazil says that it is going to maybe use $14-, maybe not, and you said that the whole program has been owned by the Brazilian authorities. So it is logical and it was possible. Therefore, can we assume that the governments before were profoundly incompetent?

MR. DAWSON: No. Brazil actually has quite a strong track [audio break]. When they find that they need financial assistance from the Fund, they come with a very strong program that is proposed, and they work closely with the Fund, and their history is, I think of the previous program, one of rapid repayment when they no longer need the assistance.

I think it is exactly a model for this sort of relationship with the Fund, and it has nothing to do with comparing different administrations. It is the fact that I think there is strong track record of good economic management in Brazil that is I think exemplary.

QUESTIONER: Two months have passed since Argentina presented its debt proposal in Dubai, and it seems that there is no common ground with its creditors to start a negotiation. Is the IMF still going to be an observer or is it going to take action to push Argentina and the creditors towards a negotiation aiming at having an agreement in the middle of 2004?

MR. DAWSON: Certainly, there is no change in our position. We are not a party to the negotiations between Argentina and its creditors. It would be inappropriate for us to be so. So the discussions, as I understand it, are going forward, that is as it should be, and that is just where I would leave it.


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