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

January 28, 2004

Transcript of a Press Briefing by Thomas C. Dawson
Director, External Relations Department
International Monetary Fund
Wednesday, January 28, 2004
Washington, D.C.

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MR. DAWSON: Good morning, everyone. I'm Tom Dawson, Director of External Relations at the Fund. This is another of our regular press briefings. As usual, it will be embargoed until 15 minutes after conclusion, and we'll set the precise time then.

Several announcements. On Monday, the Executive Board met to bid farewell to Shige Sugisaki, the IMF's Deputy Managing Director, and the Board expressed their deepest appreciation for his unswerving dedication and service to the Fund.

For your information, the next IMF Survey will include an interview with Mr. Lorenzo Perez, the IMF's senior advisor and head of the mission to Iraq, on the IMF's involvement in Iraq. And the Survey will be posted on the website Friday afternoon, and we can provide a text version for those interested tomorrow.

The Managing Director will be participating in an IMF-sponsored seminar on "The Euro Adoption in the Accession Countries: Opportunities and Challenges," to be held in Prague on February 2nd and 3rd. He will be there on the 2nd. Media Relations Division can provide you additional details on the conference. The conference is not open to the press, although the Managing Director's speech will be made available, and there will be, I believe, a press availability by the Managing Director on Monday and also a wrap-up press session on Tuesday of the conference.

In addition, our Deputy Managing Director Agustin Carstens will travel next week to Tanzania where he will meet with the authorities on February 2nd and 3rd to take part in a regional seminar on the role of IMF in low-income countries, and he will also travel to Mali on the 5th and 6th where he'll meet with authorities and take part in the meeting of the Steering Committee of the AFRITAC West. Some of you may remember that the AFRITACS, or African Regional Technical Assistance Centers, were set up as part of the IMF's Africa Capacity Building Initiative launched in May of 2002 in response to calls by African leaders to help strengthen domestic capacity in the design and implementation of sustainable poverty reduction strategies.

David Hawley can give you more information on this trip. I believe David will be going on the trip as well.

You may notice by his absence Mr. Murray this morning. Mr. Murray is taking a media training class. We have this for IMF staff, and I believe we've come to the conclusion that Mr. Murray maybe needs a little bit of a finishing course. So he's sorry he missed it this morning.

I think with that I will open up to questions. I would just note the reason we are doing this on Wednesday is I'm actually leaving on a trip this evening, and so we needed to do the briefing prior to my departure. I expect we'll be back on our regular every-other-Thursday schedule the next time. Any questions?

QUESTION: What is the latest that you've got on Argentina on the Board briefing today, and also if there is a mission to Buenos Aires planned any time soon.

MR. DAWSON: On the latter question, I am not aware of anything planned at this point. Of course, since we have John Dodsworth as the senior resident representative there, sometimes it's a bit of an existential question as to whether there's a mission or not because he is a Deputy Director of the Department. But he's actually here in town, not surprisingly, for the Board meeting, which, as you say, is taking place today. It will be starting later this morning. When we have a result, we will as usual communicate that, and then in hopefully short order thereafter have out a press release. But I understand people will be interested in the Press Release, and we'll get it out as soon as we possibly can.

QUESTION: I'd like to ask you about the mission to Georgia, if you have the dates already.

MR. DAWSON: I don't have the precise date, but it will be early February, and we will, again, let you know a little more precisely. We don't always give the exact date, but it will be early February to discuss a new three-year arrangement with the leadership.

QUESTION: Okay. For a change, I wanted to ask you about the U.S. The dollar and euro situation. Do you see any signs of central bank's involvement in this in terms of them maybe rebalancing their assets?

MR. DAWSON: I don't think it's the purpose of these briefings to be talking about either central bank actions or the other subjects you raise. I mean, our views on the pattern of imbalances and the adjustments that have been taking place are reasonably well known. I think as I was asked at the last briefing, it's reasonable to expect the Managing Director will be attending the G-7 Ministers conference, which is the end of next week.

MR. DAWSON: Mr. Murray has shown up. He must have failed.


QUESTION: There's been this persistent rumor about the Arab capital leaving the U.S. Have you seen anything to confirm or deny that in U.S. Government statistics or in Arab government statistics—

MR. DAWSON: We do publish regularly the statistics, and we see the regular statistics published. I would just direct you to look at them yourself. I'm not aware of the facts. You know, I read many of the same things you read.

QUESTION: How are discussions going with Ecuador? I believe they're in town. And second, if the meeting in Prague is next week and you're leaving this evening, is the MD going somewhere between now and then that we ought to know about?

MR. DAWSON: In terms of official travel, no. There's just some internal scheduling and meetings here in the Fund, which is what gives me the opportunity to get away tonight. The Managing Director will be in the meeting in Prague on Monday, and that is the only official travel that he has.

And there was another part of the question?

QUESTION: Ecuador.

MR. DAWSON: Ecuador, yes. The staff did indeed meet yesterday with Minister Pozo and the central bank president, Yepez, to continue discussions for the second review, and the authorities indicated they are interested in obtaining an extension of the current stand-by arrangement through end-2004. The discussions will continue during a staff mission to Quito in February. I don't have a precise time, but we will as usual let you know.

QUESTION: I wanted some clarification of procedures. Because the first review was postponed, had the Argentinean Government sent a letter or a note to the IMF saying that they will go forward in any of the conditions, with any specification of negotiations with the creditors on tariffs or—

MR. DAWSON: There certainly are a number of communications between the authorities and the Fund management and staff in the run-up to the meetings. I mean, we are on the schedule that was laid out in Dubai in terms of the program and in terms of the sort of initial dates when reviews would take place. This particular review taking place today or concluding today, to use Fund-speak for a Board meeting, was a bit delayed. The next review, as noted in the Letter of Intent, is in March. So in that sense of the word, I don't see that there are changes in schedule, if that was part of your question.

In terms of actual measures that the government may indicate that they are undertaking, as I say, the communications are at issue. I did see one report out of an Argentine paper this morning about that. I was aware of the issue, but I was unaware of any particular communication.

It's not clear to me that this would be discussed or reported on from the Board meeting today. When we have the report on the Board, it will kind of give the state of the play and of the program, and then in due course I think the authorities typically approve the release of the documents for the Board. So I think I'd have to leave it at that.

The particular report that you referred to this morning was news to me, and I frankly have not had a chance to look at it.

QUESTION: Regarding Turkey, has Prime Minister Erdogan had meetings with any management? And can you give us a readout on that? And when are you expecting Turkey's review to conclude?

MR. DAWSON: I believe the Prime Minister will be meeting with management this afternoon, late this afternoon, and in terms of the state of play, as you know, we had a mission there recently and there will be an additional—a follow-on mission, as it were, in February.

The mission, just to recap for people, the mission that recently concluded, which was for the first stage of the seventh review, concluded on the 21st of January, and I believe we had a statement at that point.

To summarize, you know, the mission assessed the budgetary outlook and measures required to compensate for the cost to the budget of recent increases in the minimum wages as well as for lower-than-expected tax revenues. The mission also worked with the authorities to develop a timetable for structural reform over the balance of the program and focusing in particular on steps needed to expedite reform in the banking area.

QUESTION: My question is on the Dominican Republic. You released a press release some days ago this month, and I would like to know what are the sticking points between the IMF and the Dominican Republic Government?

MR. DAWSON: Well, I'm not quite sure that that's quite the way I would describe it. Management has, in fact, recommended that we proceed with the first review. The revised program is designed to address the deviations from the program that did emerge soon after the initial approval of the stand-by arrangement. And the revised program seeks to strengthen the fiscal program, providing more stable monetary involvement, work toward ensuring a foreign exchange market free of administrative interference, strengthening the situation in the electricity sector where we're working with our sister institutions, as well as continue the process of banking reform.

In recent weeks, significant progress has been made in implementing this agenda. Congress approved the 2004 budget. That does strengthen public finances. Monetary policy has been set to ease pressures on the currency and reverse the trend of rising inflation. Steps also have been taken to unify the exchange market and ensure that it operates free of the interference I referred to. And at the same time, the authorities have been in touch with the Paris Club.

QUESTION: A couple of days ago, the IMF announced that it had reached the latest phase with the Government of Nicaragua so Nicaragua could have its foreign debt reduced in the framework of the HIPC Initiative. I would like to ask you if you can tell us what type of mechanisms the IMF has in place to make sure that Nicaragua is going to keep in this trend so it won't be back, you know, to the troubles of the past, especially since the President of Nicaragua, the last time that he was here in Washington, he referred to the case of Bolivia as one of the—that his government wants to avoid. He was saying basically that Bolivia failed after gaining-entering in the HIPC Initiative.

MR. DAWSON: Well, you know, follow-through is obviously important. I think subsequent to the President's visit here, indeed there were a number of public, shall I call them, observances of the completion of the HIPC process in Managua. In fact, I saw news reports on it last week, including the participation of the Fund representative. So I think the authorities have indicated clearly their satisfaction—more than satisfaction, pleasure with having completed the process.

Nicaragua is a country with whom we enjoy a good relationship, not only through the HIPC process. We will continue through our normal surveillance process being in touch with them. But I think part of the process is when one recognizes that this is a worry, that itself has its own curative effect in terms of making sure that the policies are maintained. And as I say, take a look at the commentary just last week in Nicaragua on the program and the sort of sense of confidence.

I would also note some reports this morning on the prospects for the region in terms of growth prospects for this year. So things, in fact, are looking pretty good in terms of higher prospects for growth really pretty much throughout the region.

QUESTION: A follow-up on that?


QUESTION: You announced a 4-point-something billion dollars debt relief for Nicaragua. The Russians cut the Soviet debt to Nicaragua by 90 percent in—I guess in '96, if I'm not mistaken. Now, do I understand this arrangement correctly that they will have to cut the remainder of the debt also, like—

MR. DAWSON: I will have to refer that to our gurus on Paris Club as well as in the Western Hemisphere Department. I would note, however, I believe that the earlier deal that you referred to stemmed in part, at least, from military debt. So I'm not quite sure how that got reconciled with Paris Club. But it's a good question, and I look forward to finding out the answer as well.

QUESTION: I would like to know which is the opinion of the IMF about the recent monetary policy decision in Brazil and if the decision of interrupting the trend of lowering interest rates can jeopardize the prospectives of growth for this year.

MR. DAWSON: Well, I don't think it's appropriate me certainly to comment on individual actions of the Policy Committee. But I would repeat, as I have indicated earlier, that performance under the stand-by arrangement has been quite strong. In December, we approved the 15-month extension of the program through March of next year, augmenting the program by 4.5 billion SDR, as well as shifting the repayment of some 4 billion under the existing program.

The authorities have indicated and continue to indicate that they view the arrangement now as precautionary, and, therefore, they didn't draw on the Fund's 5.6 billion that were available at the time of the review. Inflation is declining, and the government is gearing monetary policy toward achieving the year-end 2004 target of 5.5 percent. Consumer price inflation for 2003 wound up at 9.3 percent, which is in line with the Fund program and below some earlier estimates. Exchange rate has been appreciating. I can testify to that since I was there on vacation earlier in January. And the impact of the 10-percentage-points cut in policy rates that has been undertaken in the second half of 2003 is now beginning to be felt and transmitted to the economy.

So I think we would look at it as there being signs of a nascent economic recovery. Industrial output has improved. Labor market conditions are improving. And market expectations are that Brazil will grow at around 3.5 percent for 2004, and we think that the conditions are present for this to actually take place. So I think things are very much on track.

QUESTION: [inaudible].

MR. DAWSON: Yes. That's not a Fund forecast. That's market expectations. But we think they're reasonable.

QUESTION: In Davos recently, Anne Krueger said that there are [inaudible] steps about Argentina, and I would like to know what are those steps about Argentina.

MR. DAWSON: Well, quickly, I believe the reference was to, a number of public commentaries by some—by creditors, private creditors, and that I think she was making a reference to that in particular.

QUESTION: In today's newspaper, there is an article that says that there was a letter sent from Lavagna—

MR. DAWSON: That's what Anna was asking me about. It was news to me. So if I have anything for you, I'll get back to you. I did not know anything about that.

QUESTION: Okay. And [inaudible] waivers, that Lavagna asked for waivers to the IMF. Is it true?

MR. DAWSON: Prior to the Board meeting, I don't think it is appropriate to be getting into that issue. But, again, in the fullness of time that is something that does get discussed when we report on the discussion and then when the documentation is released, as the Argentine authorities have been doing.

QUESTION: Is it possible that today even if the Managing Director recommended they approve the first revision, that the Board will not approve the—

MR. DAWSON: Well, it is the obligation of the Board to consider the Managing Director's recommendation. But it is up to the Board to make that decision. So, you know, we will have an answer for you later today.

QUESTION: Just a procedural question. The $3 billion payment that Argentina is scheduled to make in—I think it's mid-March. Does that fall under the first review or the second review? In other words, does the country have to complete the second review before making that payment?

MR. DAWSON: No, the payment obligations are without regard to what the current payment obligations are. So they have a schedule that is set forth, and that is not affected by what the—

QUESTION: Right, but would it be rescheduled if the second review has not—

MR. DAWSON: No, no. The payment obligations are payment obligations. That's a set schedule. The things that are affected by Board reviews are new money. Obligations are obligations.

QUESTION: Right, but will the new money cover that payment under the first review?

MR. DAWSON: Under the first review—

QUESTION: Or will it come under—

MR. DAWSON: No, that would be the second review. Anne is telling me I'm right, but I think I'm right also.

QUESTION: How is the sort of tit-for-tat between the Argentine officials and IMF officials, particularly with Anne Krueger, affecting the relations with the IMF? I mean, every time she makes any kind of comment, there is multiple reactions from Argentine officials highly critical of the IMF, and her in particular. Is this—

MR. DAWSON: We have our job to do, and we continue working on it and doing it. And one of the consequences of a world in which there is more transparency is views are expressed and reactions given more than they used to be. So it's just simply a fact of life.

QUESTION: I have two questions—the first one on the G-7, the second one on Italy. On the G-7, by the fact that this is your last briefing before the meeting, about the short reference to the dollar, could you give us any preview of the items that Mr. Kohler would raise at the meeting?

MR. DAWSON: The Managing Director is invited to attend and to participate in the meetings and—in this case, the U.S., I guess, is the host. And so he will be making sort of the presentation that he does usually on the global outlook. But I don't think I can go beyond that. And part of your question was sort of implying the agenda for the G-7 meeting itself, and that is certainly not our responsibility.

Now, with regard to Italy?

QUESTION: On Italy, yesterday in an official statement, the Governor of Bank of Italy, Mr. Fazio, quoted an IMF document with a highly positive appreciation of the control exercised by the Bank of Italy on the financial markets, Italian financial markets. Is this document—does this document exist? And could you confirm the highly positive appreciation?

MR. DAWSON: I would have to—I was not aware of that report. I think I would have to check to see what document was referred to. The 2003 Article IV consultation for Italy was made public, so it may well be that he was quoting from that. As I mentioned the last time, the consultation document noted that staff emphasized the need to strengthen transparency and consumer protection in financial services.

I also noted that this issue is going to continue to be discussed in the context of an FSAP, financial sector assessment program, that has been requested by the authorities and is planned for early next year, as well as during the 2004 Article IV consultation. But in terms of what he was referring to,an initial guess might be the Article IV, but I really don't know and will have to take a look.

QUESTION: It's not the Article IV.

MR. DAWSON: Okay. I'll have to take a look. Two more questions.

QUESTION: Could you give us an update on where the IMF review of Iraq is? The debt sustainability report, is it due soon? And is that one of the issues that the Managing Director is likely to discuss at the G-7 meeting?

MR. DAWSON: On Iraq, we are continuing our contacts with Iraqi officials. We expect that an Iraqi delegation will visit Washington after it participates in the G-7 ministerial meeting in Boca Raton, and the delegation will meet with Fund staff to initiate discussions on policies that could eventually form part of a program that could be supported by the Fund. And then follow-up meetings are scheduled for late February in the region, and I think that's where it is.

In terms of the debt sustainability, which was the other part of the question, I don't have anything new for you on that. That is obviously something we continue to work on.

QUESTION: Just as a follow-up, could you talk a little bit about the delegation that's going to be—

MR. DAWSON: That's all I have. It's my understanding that they will be in Boca, and then they will be coming up, here up to Washington after that.

QUESTION: It's a general question, but it comes up in the context of Argentina. When the IMF sets a budget target with a country in their program—in Argentina's case 3 percent of GDP, I think—they also in the Letter of Intent usually put, I guess in Argentina's case a peso figure, a dollar figure for what that amount would be expected to be at a certain forecast. If growth is exceeding the forecast for Argentina, does the IMF expect the dollar, the nominal figure to rise? Or is that something that is left for future review?

MR. DAWSON: Well, overperformance in terms of growth tends to lead to higher revenues. I think you were making reference to the primary surplus. And so that is, generally speaking, a welcome event, although in some cases governments may have needed expenditures that they need to make. But if the question is whether this is adjusted—it's not adjusted—there's no sort of automatic adjustment mechanism in general in a program. When it comes time for the government to set targets—and I make it clear these are the government's targets—that tends to be done more on an annual basis. If there's underperformance, of course, that's a different question. But, clearly, the performance of the Argentine economy in terms of growth and performance under the numerical targets has been quite strong, much stronger than we and many others had anticipated.

QUESTION: [inaudible] on the growth, do you think that it is still a rebound from the prices? Or do you think that the growth now is for good?

MR. DAWSON: I think I'd rather leave that for the legions of economists who detect and decide what is structural, what is cyclical, what is fundamental. It is certainly impressive. I think we'll leave it at that and lift the embargo at 10:15. I look forward to seeing you all in a couple of weeks. Thank you.


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