Transcript of a Group Interview with Managing Director Dominique Strauss-Kahn and Middle East Journalists

IMF News, April 7, 2011

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Published: April 7, 2011

Context and overview

Date and location cited: Washington, D.C.; Wednesday, April 6, 2011. Transcript title dated April 7, 2011.
Interview framing: a “historical moment for the Middle East and North Africa” with major political and economic challenges arising from citizen demands for freedom and democracy.
IMF engagement described:
- Masood Ahmed, head of the Middle East and Central Asia Department, was reported to be in Damascus for a regional finance ministers meeting.
- The IMF’s immediate focus emphasized technical assistance and policy advice; financing would be considered only if needed.

Economic impacts and projections

Tourism and growth
- Tourism “has significantly decreased during the first quarter” with uncertainty about summer recovery.
- Tunisia: growth forecast for the year revised downward “to something which is between 1 and 1-1/2 percent from something which was above 3 percent.”
Fiscal and subsidy pressures
- New government measures to respond to public demands (food and fuel price pressures) may create fiscal challenges.
- Estimated cost cited for subsidies/support “as big as 3 percent of GDP.”
Commodity-price transmission
- Food and energy price impacts noted as significant: “something which ranges around 3 percent for energy and 1 percent of GDP for food prices.”
Cross-country divergence
- Oil exporters expected to have a good year; oil importers expected to face difficulties.
- Current account surpluses of oil-exporting countries projected to rise sharply in 2011 compared to 2010 (described as “doubling, something like this, in 2011 compared to 2010”).

Country-specific assessments

Tunisia
- Financial system assessment: “the average situation of the financial system in Tunisia is rather good.”
- Growth outlook: forecast cut to “between 1 and 1-1/2 percent” from “above 3 percent.”
- Distributional concerns: prior macro assessment “was not bad” but distributional issues warrant closer attention.
Algeria
- Public investment program referenced: “public investment program launched since last year [for] 5 years, about $200 billion.”
- IMF view: economic situation “rather good”; 2011 expected to be “a rather good year for Algeria” due to high oil and gas prices.
- Reserves: “The reserves that the Central Bank of Algeria has accumulated are huge.”
- Policy emphasis: use resources for infrastructure and improving the business environment to attract foreign investment.
Libya
- Oil exports “have decreased significantly” with uncertain and potentially prolonged recovery; economic consequences “will be important.”
Syria
- Vulnerability to food and fuel price increases emphasized; policy advice to focus on protecting the most vulnerable with targeted measures rather than across-the-board subsidies.
- Fiscal cost sensitivities highlighted given Syria’s status as an oil importer.
Morocco
- Political reform: King Mohammed VI’s March 9 constitutional reforms commended as timely and relevant to political stability and business environment attractiveness.
- Regional integration: stronger economic integration among Tunisia, Algeria, and Morocco seen as important to boost growth and job creation.
Egypt
- IMF prior macro policy advice credited with achieving “rather good” macro outcomes (growth, current account, fiscal situation), but distributional effects and inequality seen as critical unmet challenges.
- Perception issue: public accusations that previous economic ministers “followed the prescriptions of the World Bank and the IMF” noted as a potential obstacle for future cooperation.

Social and labor-market indicators highlighted

Youth unemployment: “around 25 percent when it is not more.”
Female youth unemployment: “for girls reaching sometimes 35 to 40 percent.”
Jobs needed (demographic challenge): cited figure of “80 million jobs to be created to just absorb youth unemployment.”

Policy recommendations and IMF approach

Short-term emphasis
- Prioritize technical assistance and policy advice; avoid premature financing which signals problems to countries.
- Advocate targeted support for the most vulnerable rather than broad universal subsidies to contain fiscal costs.
Medium-term and institutional emphasis
- Promote regional economic integration (Maghreb) as a way to boost growth and job creation.
- Use oil-sector resources (e.g., Algeria) for long-term infrastructure investment with regional spillovers.
- Strengthen governance and institutions (public procurement rules, public expenditure management) as part of programs where applicable.
Evolution of IMF surveillance and mandate
- IMF to expand surveillance content: incorporate distributional effects, unemployment, and social perceptions more systematically into Article IV consultations (“Article IV is the name of the report we make every year”).
- Collaborate with other institutions (World Bank, UN agencies, NGOs) to use their expertise on inequalities and social tensions; IMF will “learn by doing” and develop indicators beyond traditional macro variables.

Institutional and political constraints

Leverage limits
- IMF’s capacity to influence policy depends on whether a government requests assistance; advice alone has limited enforcement power.
- The IMF’s multilateral board can exert peer pressure when programs require conditionality, but sovereign governments may ignore advice when unwilling.
Communication and fairness
- Acknowledged public criticism that IMF advice contributed to unrest; response stressed that macro outcomes were “rather good” but not sufficient without inclusive growth.
- IMF acceptance that it must do more on inclusion and governance within its mandate without becoming a political or sociological expert.

Transcript of a Group Interview with Managing Director Dominique Strauss-Kahn and Middle East Journalists, April 7, 2011 (interview in Washington, D.C.; quoted remarks dated Wednesday, April 6, 2011).