Transcript of a Press Briefing by Rodrigo de Rato, Managing Director, IMF

June 9, 2004

Managing Director, International Monetary Fund
with External Relations Director, Thomas C. Dawson
Washington, D.C., June 9, 2004

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MR. RATO: Good morning. I believe that it was almost a month ago that I had the chance to and the opportunity to address you just when I had been named to succeed Mr. Horst Köhler. And today I want to have my first press conference after--this is my third day on the job. I hope and I will continue my predecessor's tradition to seek regular meetings with you.

I had the opportunity on Monday, what was I think my first action, to address the staff and to once again insist that I'm deeply honored to have this opportunity to lead this institution. I'm aware of the important challenges we have ahead of us, but I'm completely convinced that with the backing of the membership, the staff, and the management, we certainly will be able to give our member countries what they're asking from us, which is essentially that we contribute to the well-being of the citizens of those member countries. And certainly one of the best ways to do that is to provide high-quality, independent macroeconomic policy advice and stand ready to help when our members need our financial support.

The goals of this institution are in some cases the same over time, but the organization is changing to adapt to the new circumstances and also to learn from past experiences. We will continue doing that. This is `a learning institution', as my predecessor defined it, and I have taken the reins from Mr. Köhler, which I want at this moment to not only recognize his very important leadership in the Fund, but also his success in his new job as President of the Republic of Germany. And also I want to thank Ms. Anne Krueger for her leadership during her three-month tenure as Acting Managing Director.

I have had, of course, meetings with the Board and with the staff, and I'm meeting with the heads of the departments to be able to establish the short-term priorities for the next few months, starting by preparing the autumn meetings that will take place, as you all know, in the month of October.

In these first decisions, I also have taken plans to travel to certain parts of the world. I will start next with travel to Japan, China, Singapore, and Vietnam. I look forward to meet with the leadership of these countries and to hear from them what are their visions of those countries regarding the Fund, but also the evolution of their economies and their participation or their--what they are--their implications for the world economy at this moment. I also am planning trips before the autumn meetings to Africa and to Latin America.

I will be visiting [on] Friday Mr. Horst Köhler in Berlin, and I will have also the opportunity to have a conversation with the Minister of Finance, the German Minister of Finance, Mr. Hans Eichel. And I will have also a meeting in Madrid on Monday, going to a conference that was already established in Banco de España. I will have also the opportunity to meet there with the Minister of Finance of Spain, Mr. Pedro Solbes.

You all know that President Bush has proclaimed Friday a national day of mourning in the United States for the death of President Reagan, and I want to say in the name of the Fund that we respect our host country upon the death of the former President Ronald Reagan. The IMF offices in Washington, D.C., will be closed on that day, too. And I have proceeded to send a letter to President Bush regarding our respect to the figure of Ronald Reagan, of President Ronald Reagan.

Those were the things I wanted to tell you, what are going to be my immediate plans, and I am open to your questions.

MR. DAWSON: Yes, go to the microphone.

QUESTIONER: Good morning. Sir, with high interest rates now, or maybe sharply high interest rates now a probability in the United States, and with gasoline--higher gasoline prices a reality, and according to some, a reality that's here to stay, I would like to have your assessment of the economic outlook, how those things in your view will impact the world economy, and if you had some advice for countries highly indebted, really vulnerable to those changes in the world economy, such as mine, Brazil, if you would have any advice on how to face this new reality.

MR. RATO: To begin with, I will say that our assessment for the evolution of the world economy is under review right now, so it will not be finished until, I believe, the end of the summer. But I can tell you that we don't see downward risk right now. So that although it's true that the price of oil that we are predicting today will be in the realm of $5 higher than we predicted a few months ago, the evolution of the world economy in some areas and the demand in the world economy will more than compensate that effect. So we are looking and we are seeing a clear recuperation of the world economy, and the prediction that the Fund made of a growth of 4.6 [percent], we don't see a risk that will be revised downwards.

QUESTIONER: As you know, the Argentinean Government has presented an offer to the creditors for the restructuring of the debt. I would like to have your opinion on that, and also if you foresee any problems with the third revision that is going to start soon with a new mission to Buenos Aires.

MR. RATO: The Fund considers that [inaudible] or the accomplishment of an agreement with all creditors is one of the steps that the Argentinean authorities have to complete to leave behind the economic crisis and have Argentina completely integrated into international financial markets. That's why, as you all remember, the question of the negotiations of the debt was included in the program and the provision that the negotiations will be sustained in good faith.

I'm sure--I have spoken with Mr. Lavagna about it--that the work of the Argentine Government goes in that direction, and we are very much interested that those negotiations are completed so that that step of the normalization of the Argentinean situation can be a fact.

In the overall view of what the Fund believes the Argentinean authorities have to accomplish to leave behind the crisis, we recognize clearly that the evolution of the Argentinean economy has been better than expected, that the management of the monetary policy and the fiscal policy has been good, but we also see that the progress in certain areas has to--we have to keep working at it. To mention a few of them, it will be the fiscal agreements with the provinces, the closing of an agreement with all creditors, the strengthening of the financial system, and the final design of a legal and administrative environment that will be helpful for private investment.

Those are issues that are, of course, contained in the program, and the IMF mission, who will go in the next few days, will work with the Argentinean authorities to see what is the degree of progress that has been obtained in those areas and how we should proceed in the future.

QUESTIONER: I'd like to go back to the concern about oil prices because Mr. Rajan actually has expressed some concerns from the IMF about that. My question is: Should countries, both in emerging markets and industrialized countries, take any particular measures at this point to prevent against further oil price--a further rise in oil prices?

MR. RATO: First of all, as we have expressed in previous moments and members of the Fund are expressing, a large part of the increase in oil prices is related to demand. So it's related to the growth of the world economy and to the growth of national economies. The impact of that increase in prices is less severe than it was a few years ago, because our economies are more efficient, and what we should continue is doing that.

I think that oil-consuming countries have to make an effort to be more efficient energy-wise, and they have to be aware that the price of energy is very much influenced by a world economy that is growing, and that's the good news that the world economy is growing.

So long-term and medium-term policies that make societies more energy efficient--and that includes all types of measures regarding demand and regarding supply--are certainly needed at all times. And I think that this is a good time to reflect on that because we are seeing an increase in the price of energy that is related to--that is mainly related to demand explanations.

Also, of course, uncertainties of production and of geopolitical character influence also the price at certain moments. So our opinion, as I said before, is that the increase of price in the realm of $5 more than we predicted over all the year will not have an impact on the world economy because we are seeing signs of more strength in the world economy than we anticipated a few months ago.

At the same time, for a medium-term strategy regarding energy, we are convinced that countries have to work on more efficient energy markets, domestic markets, and they have to do that through a group of measures that regard demand questions and supply questions.

QUESTIONER: My question is about the relations between the IMF and the Russian Government. How do you think this--how do you think the relations between the Fund and the Russian Government will develop in the upcoming five years during your tenure on this post, taking into account that the actual status, if I may say so, of Russia in the IMF can change and Russia can evolve from the borrowing country to the donor country, because by 2008 the Russian Government is going to pay off completely its debt to the IMF.

MR. RATO: The relationship between the Fund and countries, of course, can be different in the different situations of countries and what are the needs of the countries with the Fund. But at the end, we work with all governments to strengthen their macroeconomic policy, and in that respect, we work with our governments to analyze, for instance, the financial sector or the working of their budgetary policies. So in that respect, the work of the Fund with different governments or with different countries is not only related to the situation of debtor or creditors regarding the Fund.

We have been working with the Russian authorities very closely, and the fact that Russia is changing its position in the world economy we think is very good news, not only for the Russian people but for the whole of the world economy. And we will continue doing that, analyzing what are the weaknesses and needs of change in the Russian economy, as we have been doing in the past.

QUESTIONER: Mr. Rato, as you know, Venezuelan authorities announced a couple of days ago that finally they have a referendum on President Chavez's administration. I was wondering if there is an assessment of the IMF--basically if the assessment of the IMF is that once this referendum took place, Venezuela is going to be in a path to consolidate the economic recuperation, because as you know, the economic crisis has been really having a big impact in the economy of that country.

And the other aspect, we hear that one of the main themes at the G-8 meeting is going to be if some of the biggest countries will [inaudible] the debt of Iraq. I was wondering if the IMF had been giving some consideration to this issue or you are waiting to see what is going to happen at the G-8 meeting before taking a position in that regard.

MR. RATO: Regarding the question about Venezuela, I want to say that in Venezuela, like in all countries, political stability is essential for economic growth and for the well-being of citizens, so that's something that we all know, and we, of course, follow very closely the political situation in all our member countries. But it is not the Fund's responsibility to make political analysis of that sort. What we do is we hope that every country will solve its political problems in a fiscal and stable way, and that certainly political stability, as I just said, is essential for the well-being of citizens.

As regarding the HIPC Initiative and the reduction of debt, forgiveness of debt to countries [that are]heavily indebted, I have to say that the Fund has always been with other financial institutions, international financial institutions like the World Bank, absolutely proactive in that respect, and that we are working with all the countries affected by that measure. If my figures are not wrong, which I'm sure they're not, we're talking right now about 11 countries who--no, 14 countries that are already completing the completion point, and 13 countries who are between the decision and completion point, and there are 11 countries which are affected by conflict and some which have protected areas, and, of course, those have not been able to complete either the completion point or the decision point. But with all of them, we are working with them.

If creditor countries take new steps in that direction, we will work with them because we believe that the reduction of debt of very indebted countries is an essential position for the future of those countries and their economies. So we contemplate all those questions with a lot of interest, and we will work with our membership to develop new policies regarding the HIPC Initiative.

MR. DAWSON: The second row here.

QUESTIONER: I just have a question about interest rates in the U.S. Yesterday, Mr. Greenspan said that there's a--that he's going to be raising rates soon, but that it's not going to be a dramatic increase. How soon does the Fed need to start raising rates? And does it need to be faster than Mr. Greenspan was talking about yesterday?

MR. RATO: We don't see, as we have expressed in our review of the American economy, we don't see signs of risk of inflation. And I think that that appreciation is shared by most institutions, including certainly the Federal Reserve. So, in that respect, we think that monetary policy will follow the path the authorities have already expressed, which you just mentioned.

QUESTIONER: Do you consider the Iraqi Government to represent an internationally recognized government such that you would move ahead with post-conflict emergency assistance?

MR. RATO: Certainly the decision yesterday by the United Nations opens clearly the door for that recognition. And as I expressed here in my first press conference, the moment that Iraq has an internationally recognized government, we will be able to work with them. And one of the areas we will work with them will be the post-conflict instruments we have and that we're using with other countries. So in that respect, I think that the vote yesterday in the Security Council is a very important step regarding the future of the new Iraqi Government and the collaboration that the Fund will have with them.

MR. DAWSON: A couple more questions. Back here?

QUESTIONER: You mentioned that Argentina needs to make a deal with all creditors to succeed [inaudible]. And I would like to know, you can explain--be more specific about that term, because--do you mean that they have to deal with local and external creditors both? Or you are thinking in a minimum threshold? I would like to know the number.

And the second question is: Is the new offer better enough to--the staff will be able to recommend its approval to the Board for this third revision?

MR. RATO: Excuse me. I didn't understand the last point.

QUESTIONER: Is this new offer better enough that the staff can recommend its approval to the Board to the third review?

MR. RATO: I think that we share with the Argentinean authorities the idea that one of the steps that the Argentinean authorities have to complete to be able to leave the crisis behind is to get an agreement with their creditors. And, of course, nobody is saying that there is difference between creditors. I haven't read anything of that by the Argentinean authorities. So what I'm expressing is my confidence with the Argentinean authorities that the agreement with creditors, with all creditors, is very important. It's one of the key issues to leave the crisis behind and to allow the Argentinean society to have full access to the international capital markets.

The negotiations between the Argentinean authorities and its creditors, we follow them, of course, but--and they're part of our program. It was mentioned in the program. And it was mentioned that they have to--that they will be pursued in good faith. But as to our opinion to specific moments of the negotiations, we will not make any opinion of that.

MR. DAWSON: This will be the next to the last question. One after this.

QUESTIONER: I just wanted to ask, you're inheriting an institution with a rather odd distribution of power. Do you think that any case for increasing the representation of countries such as China and maybe decreasing quotas of countries such as Belgium or the Netherlands, which are overrepresented relative to their share of world GNI?

MR. RATO: Well, as you know, right now there is work going on inside the International Monetary Fund, a strategic review of its goals for the future. And I hope that we will be working with the staff on that and with the Board in the next few months. And, of course, the governance and the transparency of decisions will be one of the issues of that strategic review.

At the same time, many member countries at the level of heads of state and prime ministers in a unilateral way or in a group of countries, G-7, G-20, G-8, have expressed their ideas about an institutional review of the functioning of international financial institutions, including the Fund. So our work inside is, I think, coincidental with what we are seeing that is a position of different member countries.

The question of governance is a very important one and how countries can be represented and have a chance to express their worries and their needs and their positions. And I think the Fund has done a lot of efforts to not only measure countries by their share of the capital of the Fund, but also by other means: representation in the staff, coordination of the work of the Board, a consensus method of working between management and the Board. So I think there are a lot of tools we're using to have the better possible governance and to give all countries a chance to influence our decisions and to have a say in our decisions. But that will be, of course, part of the [review]. I'm not saying that we think that that's a closed issue.

What you were mentioning specifically, which is not the only issue regarding governance, is the different weight of countries regarding the capital of the Fund. And that's, of course, an important issue, but it will have to be addressed not only by the management but also by the Board. If the Board is willing to reassess the weight of countries, well, of course, that would be a possibility.

But even if that is not completed or totally completed, we believe there are other ways in which countries can have a say, can have a leadership in the decision of the Fund. And we are working with the Board on those--on those possibilities.

MR. DAWSON: The last question.

QUESTIONER: As a former Finance Minister, you no doubt are aware of the criticisms of the IMF, and you said that you had met with the staff and the Board to discuss short- and medium-term objectives. Do you have any clear idea of where you want to go? Should the IMF just stick to dealing with crises and should it leave development issues to the World Bank?

MR. RATO: I believe, and I think the World Bank--I have the impression that the World Bank shares my view or I share their view that development is not one single question. I don't think that we will have many chances of reducing poverty if we don't have macroeconomic stability. And I see very difficult reducing poverty without growth, and I see very difficult growth without financial stability. So I am not of the ones who think that one thing is development and something else is macroeconomic stability. I don't share that view.

I think that we have a technical and--a very important technical capacity to help countries to overcome macroeconomic crisis. We have a great expertise in designing financial policies. We also are able to help countries, through loans and also technical assistance, to overcome situations in which countries kind of have opportunities to bring themselves to the market. And, of course, it would be very difficult to have a development policy when a country is cut off from the financial markets. And I think that the Fund and the World Bank and other regional institutions are there to provide that support.

So, in that respect, I think that the Fund has areas in which we have, let's say, very clear expertise and other areas in which we use our expertise to collaborate with others. And more and more, both go together in most cases and in more instances.

So I am not of the opinion that we have to make a clear cut between macroeconomic stability, financial policies, and development, but to the contrary. I think that whatever is the mandate of different institutions, we are all working in the same direction. And I would have to say that not only the World Bank and the International Monetary Fund and the regional banks, like the Inter-American Development Bank or the Asian Development Bank, but also trade is a clear requisite for development and growth, and we are collaborating not only with WTO but also with countries and technical assistance to give countries that are open in their markets technical assistance to be able to cope with complicated negotiations and also with new rules of open economies. So in that respect, I think we have broad goals and broad horizons that, of course, we share with other institutions.

Thank you very much.

MR. DAWSON: Thank you.

MR. RATO: Buenos dias.

[Whereupon, the press briefing was concluded.]


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