Transcript of a Press Briefing by Caroline Atkinson, Director, External Relations Department, International Monetary Fund

March 17, 2011

Washington, DC
March 17, 2011
Webcast of the press conference Webcast

MS. ATKINSON: Good morning and welcome everybody. This is our regular biweekly press briefing from the International Monetary Fund. As usual, the briefing is embargoed until 10:30 a.m. Washington time, 1430 GMT.

Before going to the other issues and to your questions, I'd like to express on behalf of the IMF our deepest condolence for the people of Japan facing the tragic developments of the past week.

Turning to other matters, tomorrow here at Fund headquarters we will be another in a series of meetings on financial stability with debt managers. The Managing Director will be giving an address. His opening remarks and a press release are expected to be made public. Next week, the First Deputy Managing Director, Mr. Lipsky, will participate in the China Development Forum in Beijing and will give a speech on March 20, which will be posted on our website. Later next week, on March 26, the Managing Director will be attending a meeting in Calgary of the Finance Ministers of the Americas which is happening simultaneously with the annual meeting of the Inter-American Development Bank. On March 31, the Managing Director will be traveling to Nanjing, China to participate in a high-level seminar on the International Monetary System that is organized by France, the chair of the G-20.

The Spring Meetings of the IMF and the World Bank will be held here in Washington on April 15 and 16. On the week of April 4, we will be releasing the background chapters of our World Economic Outlook and Global Financial Stability Report. Then in the following week, we will be releasing the forecast chapter of the World Economic Outlook, first chapter of the Global Financial Stability Report, and the Fiscal Monitor. All of these documents will be made available to the media under embargo and Media Relations will be issuing shortly an advisory with the details of all of those events.

Now let me turn to your questions, and if you could please identify yourselves and your affiliation.

QUESTIONER: Caroline, I was wondering if the IMF is concerned about the rise of the yen, and there is a G-7 conference call tonight to address some issues of Japan. But mainly everybody is looking at the yen and I was wondering if you think that the authorities should be intervening.

MS. ATKINSON: I have no comment on that. We don't tend to take too much account of short-term market movements. I would point out that after the Kobe earthquake there was a rather similar impact possibly due to repatriation or expectations of repatriation of capital to Japan where the exchange rate appreciated rapidly in the short-term, and of course one has to see what happens to market movements over time.

QUESTIONER: May I ask you to follow-up on Japan?


QUESTIONER: What sort of economic impact the earthquake is going to have on Japan? Does it seem to you like Kobe to be pretty short-term and will eventually jump back or do you think this is going to be a lot longer and more restrictive?

MS. ATKINSON: First of all, obviously the most important impact on Japan is the humanitarian one and the most-important policy priority is to address the humanitarian needs, the infrastructure needs and reconstruction and addressing the nuclear situation. We believe that the Japanese economy is a strong and wealthy society and the government had the full financial resources to address those needs.

As far as the economic impact, we and others are working on that and when we release our World Economic Outlook in April we will have updated forecasts both for Japan and for the world economy that try to take account of the impact. We will be looking to balance the expected impact in the short-term. There will obviously be an impact in Japan of a hit to industrial output. Looking ahead, that will be balanced to some extent by a longer-term impact of promoting growth with the reconstruction efforts. So it's a very complicated situation to analyze especially given that we don't quite know yet what the impact of the short-term will be and what the reconstruction needs will be over the longer-term.

QUESTIONER: What impact does it have on the fiscal situation or fiscal considerations? I am concerned about the Japan fiscal situation. How do you assess the situation?

MS. ATKINSON: Thank you. As I said, the most important policy priority now is for Japan to address the humanitarian and infrastructure needs from the earthquake, the tsunami and the nuclear situation, and the most important thing for fiscal space going forward is to revive the Japanese economy and get growth. We believe that right now the focus for fiscal policy should be on that, providing those short-term needs. We can see that at the moment bond yields remain stable going out over the long-term, and Japan has the financial capacity to meet the demands from the reconstruction and the provision of humanitarian assistance to those suffering in the regions affected by the earthquake and the tsunami.

QUESTIONER: After the Kobe earthquake there was over a period I think of two months a 20-percent rise or strengthening of the yen against the dollar. You said short-term. I'm not sure whether two months is short-term or not, but if the yen were to face that kind of strengthening given the potential impact on the economy and given the limited fiscal space and the debt issues, etcetera, if the yen were to face as it seems that it may the similar sort of strengthening, would at that point intervention be a recommended option?

Secondly, to follow-up on the longer-term growth issue, one key difference between now and Kobe was the nuclear issue and that it's a very real possibility that the radiation makes it not just a local problem but a national problem. Under that circumstance, does the IMF have any concern about the fiscal issues that the IMF has previously addressed?

MS. ATKINSON: Going back to your point about fiscal space, we do believe that restoring the economy as quickly as possible to its full growth potential is the most-important contribution that policy can make now, and that on the fiscal side the focus should be on providing the humanitarian assistance, rebuilding critical infrastructure and of course addressing the nuclear situation. Japan has the financial capacity and resources to address that and that would be our recommendation that they do so. On your earlier comments on the yen, I am not going to go into commenting on future hypotheticals about which kind of response might be necessary.

QUESTIONER: It sounds like what you're saying, Caroline, is also that the IMF would be comfortable -- there have been concerned about the fiscal costs or about Japanese debt and it sounds like what you're saying is that the IMF would be comfortable with Japan spending a lot more obviously on this and maybe going on over a little bit or pushing its debt levels higher to be able to reap the benefits of rebuilding properly.

MS. ATKINSON: You mentioned debt levels, and of course debt levels are in relation to the size of the economy so that's why I'm stressing the importance of rebuilding the economy and that in itself contributes to the longer-term fiscal health of the country.

I think that this is obviously quite an extraordinary situation. It's the most-important impact now and considerations that we all have in our minds are about the terrible human suffering that this tragedy is involving. On the economic side, we do believe that what the Japanese government has been doing both on the monetary side to take decisive actions to ensure the stability of the financial system, to do what is necessary to meet the needs of the people affected by the crisis and then looking forward to rebuild the critical infrastructure is the appropriate policy.

Looking forward, having a stronger and better infrastructure over time provides more scope for growth. The fiscal issues as in many cases -- the appropriate response to the fiscal issues in Japan are also about having a medium-term credible plan. In this short-term situation the most important need for policy is as I said to address the humanitarian and infrastructure needs and to move to reconstruct and rebuild the economy to its full potential.

QUESTIONER: The G-7 is meeting today on Japan so there is concern. Do you think the Japanese economy doesn't need any help or any joint intervention from the G-7? Then I have a European question but maybe you want to wait until we move on.

MS. ATKINSON: On Japan, I don't mean to minimize the impact of the situation and I'm not going to comment on whether the G-7 is meeting or talking. It would be perfectly normal when something as dramatic and as considerable this occurs that the major partners would talk to each other, but that's a different issue from whether Japan has the financial resources to meet the fiscal needs of the situation.

QUESTIONER: Can you explain perhaps whether the Bank of Japan has more monetary space and how it might use that space if needed? Secondly, on the G-7, besides the obvious sort of aid assistance, military assistance, evacuating, et cetera, on the fiscal and economic side, what could the G-7 offer? I'm not asking you prognosticate what they will offer, but in terms as the G-7 bloc, what are their options?

MS. ATKINSON: On the first question, I think that the options that the Bank of Japan has to provide stability to markets and so on are pretty well known and they would involve doing similar things to those that they have already done, making sure that they provide liquidity where it's needed and so on to support economic activity. As far as you mentioned a number of ways in which other countries can help on a technical side and of course that help is forthcoming to Japan, and I don't want to speculate about what else or what the G-7 might do. I'm sure to some extent they're exchanging information. As I mentioned earlier, this is not an issue that is just limited to Japan. Obviously what happens to Japan, one of the world's largest economies, has an impact for the global economy and everybody will be trying to work out what that is and what's an appropriate response.

I'm going to take a couple of questions online. I know you mentioned that you had one on Europe that I'll come back to in a minute. I have one from Pakistan: “The government of Pakistan has taken a number of steps to improve revenue generation. Please update when the IMF is going to release the second-to-last tranche of $1.7 billion to Pakistan.”

On that I will repeat that we had a mission in Pakistan last month. We released a statement that is available about that mission. We welcome some of the expenditure and revenue measures that the government has taken and we agree I think with the government that fiscal consolidation in the current year and looking forward is of key importance to stabilize and provide a basis for long-term growth in Pakistan and we are remaining in close contact. We don't have a date for another mission as yet.

I have a question on Ireland: “Can you comment on several changes that the new Irish government has made to the program agreed in December including reversing a lowering of the minimum wage?”

I would like to point to a statement that the new Irish government made earlier this month where they reaffirmed their commitment to the goals of the Irish program supported by the E.U. and the IMF, those goals of recapitalizing and improving the financial system, promoting fiscal stability and, most importantly, restoring Ireland to a path of sustainable growth and the government expressed its commitment to those goals.

We have just had a very short mission in Ireland and we issued a statement last night. The leader of our team on Ireland and the leaders of the teams from the E.U. and the European Central Bank were able to meet with the new Irish finance ministers on spending and revenue and listened to their views about the program. We will have a full-fledged mission in the first half of April I believe that will discuss all of the review issues in Ireland.

QUESTIONER: I wanted to hear the opinion of the IMF on the package in Europe reached at the summit. We have comments from President Trichet of the ECB saying it was not sufficient, some aspects of it, and I wanted to see if it was complete enough.

MS. ATKINSON: We welcomed the announcement from last Friday from the leaders of the Eurozone countries, and as we've said before, we believe that a comprehensive package and a comprehensive approach is needed to resolve the issues facing the Eurozone. Some important steps were taken and announced and we look forward to further progress later this month when the leaders of the entire EU are meeting.

QUESTIONER: I think many Japanese export automobile parts and electrical devices to East Asian countries like China and South Korea. Now I think Japan's economy has a problem that they cannot make their production. Do you think there is any impact on the East Asian economies for this issue? Thank you.

MS. ATKINSON: Thank you. Again you've pointed to one of the relationships that will be important and why what's happened in Japan on an economic basis is going to have implications for others and not just Japan. It is again extremely difficult to know how short-term that kind of disruption will be and a lot depends obviously on how quickly the production issues can be resolved, on how quickly power can be restored over the long-term and the infrastructure can be rebuilt. This is one of the reasons I'm afraid why there is so much uncertainty. I think again I want to distinguish between the short-term impacts which are clearly disruptive both in Japan and to others trading with Japan, and then the longer-term impacts which will be different as reconstruction gets underway.

QUESTIONER: To follow-up on a number of things. Surely, we have some idea that it will take a number of months to bring that infrastructure up. We have some idea about how long the power is going to be off, at least a certain percentage in the limited-term. We don't know the longer-term. Then based on that knowledge, should we not have some idea about whether this will at least as much as we know at this point weigh on Asian growth?

Secondly, on the yen, it's head record strength against the dollar, the yen's implications on the Japanese economy and you're recommending return to growth as quickly as possible. Surely, the IMF has some thoughts about whether it's a concern or not whether the yen is too strong. It always makes comments on the Article IVs on that. Finally, on Europe, you said you look forward to more progress at the end of the month. What progress do you think? Where is the gap missing?

MS. ATKINSON: I'll start with the last question. We welcome the important steps that were taken last Friday and as the leaders said, we look forward to a final agreement or further progress at the leaders' summit later that month, and I don't want to speculate what the elements that may be agreed to by all of the leaders. There were already important steps agreed to last week.

On Japan, I think there is a lot of uncertainty actually. I'm not sure that anybody knows quite when the power situation will be resolved. What we do know is that there will obviously be an impact in the second quarter of 2011. The impact in the first quarter given that we're at the end of the first quarter, indications are that growth had been quite strong earlier in this quarter so it's hard to know quite what the quarterly impact will be in the first quarter. One would expect the main impact in the second quarter or maybe the third quarter. Obviously that will have spillover effects. But we have seen before that there can be quite a quick recovery in economic terms from these disasters depending on the speed with which reconstruction can begin.

So you have to balance the longer-term impact from reconstruction with the shorter-term impact of the hit to output and there is a tremendous amount of uncertainty. This tragedy in Japan has the three elements, the earthquake, the tsunami and the nuclear situation which means that there is a lot of uncertainty now. I think what's the most important thing to focus on is helping those people who have been displaced, addressing their humanitarian needs, focusing on rebuilding the critical infrastructure which has been damaged and also infrastructure that is needed for Japan and for Japan's future growth and I think that's what the Japanese authorities are focused on.

We do indeed comment on the yen and on exchange rates. We always take care to nest that in a view of the medium-term fundamentals of the economy, not on a short-term basis of what's happened in a short period of time. And of course, there are even uncertainties right now about where we are in the medium-term, where we are in the fundamentals so that I'm not going to comment on the short-term impact or short-term changes in the yen right now. Thank you. I think those were your three.

QUESTIONER: I'd like to turn to the Middle East. The unrest is spreading, today in Saudi Arabia, in Bahrain, and of course Libya is in full scare. Oil prices jumped $3 today. Does the IMF believe that this is going to be just a temporary spike? When it starts getting into one of the major suppliers of oil, this is major disruption to oil when we're talking about Saudi Arabia. I was wondering whether you think that depending on if this goes much further and longer whether there is a more serious impact particularly with Saudi Arabia now involved.

MS. ATKINSON: I think, or at least I hope, that I have always said that again the impact of the oil price depends on how long prices remain elevated. The markets had been pricing in a relatively short-term spike. Of course, that can change. I'm not aware that it has changed yet, but if prices remain elevated for a period of time, that will have more of an impact on the global economy. Again in our World Economic Outlook forecast that will be released on April 11, we will most certainly be building in a higher oil price because we take the market price and market projections and that will have some impact on growth projections.

On the supply, I am by no means an expert in the oil market but I did notice that there were some recent estimates from the International Energy Association that commented that oil supply actually increased in February so that a lot depends on what happens to different producers and to the actual underlying supply. I believe it's still the case that the price increases are anticipating a shortage of supply rather than reflecting an actual shortage of supply, but of course this is a very serious issue.

QUESTIONER: I have a question on Afghanistan. The Fund has not been able to reach a standby agreement with Afghanistan and I was wondering what is the Fund doing to get to that considering there is concern generally about Afghanistan? I was wondering when the talks are going to be, who needs to do what and how soon?

MS. ATKINSON: We had a couple of missions toward the end of last year and then another in February and you're probably aware of the statement that we released in February. We continue discussions with the authorities with a special focus on the issues surrounding Kabul Bank and also on the revenue targets for the government, which may be needed to pay for the issues involved in Kabul Bank. As ever, if we manage to reach agreement on those issues then we could consider a new arrangement.

QUESTIONER: The Fund must be concerned because without a program you've seen the British saying that they're not giving money to Afghanistan until there is an agreement. I was wondering whether you think that those flows should continue or that it is important to get this program quickly so that money keeps flowing to the country.

MS. ATKINSON: As we said last month, the authorities are working on a comprehensive and credible plan. We do believe it's important given the size and importance of Kabul Bank that the authorities put in place immediate measures and they are looking into addressing the bank and we believe that that's an important element of a comprehensive plan that is needed to make sure that we know what we're dealing with in the country.

I have a couple of more questions online: "When is the next technical mission going to Argentina that is helping the National Statistic Institute on the national price index?"

I'm afraid I don't have a date for you on that. We have had one good mission and we expect that we will agree with the authorities in due course on a further mission, but we don't have a date yet and when we do we will certainly announce that.

I also have a question on Zimbabwe: “What is the IMF's view of moves by the Mugabe government to nationalize companies with parents in companies which have imposed sanctions on his government.”

I'm afraid I have nothing to offer on that.

QUESTIONER: I want to follow-up. I realize you don't have anything, but has a mission gone to Zimbabwe? I saw a report on that yesterday.

MS. ATKINSON: I am not aware of anything. We can update you if need be.

QUESTIONER: One issue on Japan. What exactly is the IMF's role other than analyzing and assessing the situation? There have been reports that the Fund could get involved in some way obviously on advising the government, not that I don't think that Japan has ever needed the Fund's advice like other countries, but I was wondering what the Fund see as its role? Has Japan asked for any specific advice or role for the Fund to play?

MS. ATKINSON: I don't think I have more for you than what I've said. Our role is the same as with any country, as you say, analyzing, providing advice and promoting multilateral discussions and considerations.

I have one last question online: “The Pakistan government has taken additional one-time taxation measures through presidential ordinance and so I think it will help to revive the suspended – it's not actually suspended – the standby arrangement of the IMF?”

I would say that those measures should help to contribute to the authorities' efforts to raise state revenue and control the fiscal deficit. Obviously that's needed to address still the issues for flood victims and to increase spending on poverty, health, education and infrastructure reconstruction. Then there are still the other underlying issues that I talked about.

QUESTIONER: I want to clarify. Japan has not asked for any assistance from the IMF and the IMF has not offered any at this point?

MS. ATKINSON: Japan has not requested any assistance from the IMF, not any financial assistance. Of course we are in touch with the authorities and offer our advice. Thanks very much.


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