Transcript of a Press Briefing by IMF Managing Director Christine Lagarde

April 10, 2014

Washington, D.C.
Thursday, April 10, 2014

Christine Lagarde

IMF Managing Director
David Lipton

IMF First Deputy Managing Director
Gerry Rice

Director, IMF Communications Department

Webcast of the press briefing Webcast

MR. RICE: Good morning everyone. Welcome to this press conference on behalf of the IMF. Thank you all for coming. Very nice to see you. We're on record this morning. We'll get to your questions very shortly, ask you to keep them short, stick to one question, please. It is my pleasure to introduce to you this morning the Managing Director of the IMF. Madame Christine Lagarde and our First Deputy Managing Director, David Lipton.

With that, let me turn to Madame Lagarde for some opening remarks and then we'll get to your questions.

MS. LAGARDE: Thank you very much, Gerry, and good morning to all of you. Welcome to the 2014 Spring Meetings. You will have seen our numbers in the WEO that was presented a couple of days ago. For those not in the room, we expect global growth at 3.6 percent this year and 3.9 percent in 2015.

The emerging markets and developing economies continue to be the main source of growth, even if a bit slower than in the past, at 5 percent in 2014 and 5.4 percent in 2015. The advanced economies are finally strengthening a bit, with growth projected at 2.3 percent this year, and next year as well. Our overall message, the global economy is turning the corner, but the recovery is still too weak and too slow. So, our bottom line is, fairly good, but not quite good enough, can do better. For some, despite the fact that growth is strengthening, they're not feeling it. We still have 200 million people unemployed.

So, bold actions are needed to generate more rapid, stronger, and sustainable growth, as is outlined in our global policy agenda, what we call our GPA, which I know you have received overnight and I hope has made good reading for you last night. We are sharing it with you for the first time in advance. So, you probably wonder what policymakers are going to discuss during these meetings. We believe that the overriding topic for discussion will be the topic of growth, quest for higher growth, better quality growth, more inclusive growth, and sustainable growth. Now, what does that mean in practice? It means in our view overriding a trio of hurdles.

First, an extended period of low inflation in the advanced economies. The topic has been discussed. We are concerned about this potential risk in advanced economies in general, in the euro area in particular, where we know that prolonged low inflation would hurt both growth and jobs. In this context, it is encouraging that the ECB has reiterated its commitment to use unconventional measures as needed.

Second, we need to act on growth because it is just too low, and we need to act now, and that requires policy actions across the board. In the advanced economies, they need to get the pace of fiscal adjustment right and the normalization of their monetary policy right in due course as well. It will be about timing. It will be about execution. It will be about communication.

In the emerging market economies, they need to strengthen macro and prudential policies to safeguard against market volatility.

In the low-income countries, where growth continues to be strong, they need to guard against the rapid debt buildup that needs to be watched. Short-term growth, but we need to also guard against the risk of low growth in the future. To deal with that we need ambitious and coherent policies to avoid years of subpar growth and to secure global financial stability. That means that all countries, advanced, emerging, and low income, need to step up structural reforms. That is certainly the case in product and service markets, but it is also the case in labor markets. Together with that well-targeted investments, whether private or publicly funded, are needed in quite a few countries, not all.

It also means renewing the momentum on global financial reform and containing financial vulnerabilities emerging in hot spots in various places. For instance, in the non-bank sector, both in the United States and in China, and high corporate debt in emerging economies. And all of that, obviously, is taking place against the rising risk of a geopolitical nature.

Now, how can we get to that destination and face those three hurdles? Clearly, the policies that I have briefly touched on are needed, but what is also needed is cooperation. At the recent G-20 meeting that took place in Sydney, it was noted that with the right policies undertaken by the various countries, and appropriate cooperation between them, growth could actually be higher by 2 percentage points over the next five years. And that is the kind of growth trajectory that would help create jobs and improve the situation of those economies.

What is the IMF doing about it? Well, the fact that you are all here, the fact that 188 members of the institution are represented here, means very simply that the IMF is the ideal forum for cooperation, for communication, and a lot, I can assure you, has taken place, officially in big public meetings but also bilaterally in private meetings that take place and advance resolving issues.

Our global membership has asked for support. We are actively helping the Australian presidency in regard to the 2-percent objective and how we can measure it, tailor it. That is also why the IMF must be reformed, and that reform, as you know, is the reform of quota and the reform of governance, one that I had hoped we could celebrate on the occasion of this Spring Meetings. We are still longing for, the entire membership and certainly the institution as well.

These are important commitments that were made by the entire membership back in 2010, were to be delivered in 2012. We're in 2014 and it hasn't happened yet. Are we giving up? No. It will happen. How quickly? Through which path? With whose support? I hope the entire membership, and I hope that happens soon.

It is important because it matters for the credibility of the institution. It matters for the size of the institution. And we certainly look forward to a good dialogue during the IMFC on those particular issues so that we can rally support across the board, across the aisle. Thank you.

QUESTIONER: My question is about China's economic growth. We have just seen a very poor trade data in March. If China's authorities were to continue to use the depreciation of the RMB as a tool to support economic growth to reach its forecast of 7.5 percent, which is also the IMF forecast for China's growth this year, what would be your comment on that?

MS. LAGARDE: I think you are jumping to conclusion. I certainly took the recent increase of the band of variation of the Renmimbi as a move in the direction of the internationalization of the currency. I would not characterize it as an intended depreciation of the currency. And certainly we welcome the internationalization of the Renmimbi going forward. We believe that there will be steps in that direction going forward.

In terms of China's contribution to international growth, clearly China is playing a key role. With 7.5 percent growth target for 2014, it is clearly contributing significantly. And from the various discussions that I had two weeks ago when I was in China, I took great comfort from the fact that the rebalancing that we have advocated over time not only is being visible in numbers, but is also the intended policy of the authorities.

QUESTIONER: How concerned are you that the new IMF program with Ukraine could go off track and do you think it could put the IMF’s credibility at risk?

MS. LAGARDE: Thank you for your question. We generally do not enter into negotiations with the idea that the program is going to fail, and when we do negotiate on the ground, when we do work with the authorities, with support from the entire membership of the IMF, we do not forecast failure. Our plan and actually the conditions under which we enter into a program is for that country to deliver on its commitment and restore its financial situation so that it can finance itself, refinance itself, and operate without support from the IMF. That is exactly the conditions under which we enter into that project, which by the way is not yet completed. There has been staff agreement in Ukraine, now ten days ago. The Board has met several times in an informal setting, and we hope, provided that the authorities deliver on their commitment, which we have every reason to believe they will, we hope to review that program and submit it to the Board at the end of April, or in the very early days of May.

QUESTIONER: Madame Lagarde, the IMF regularly gives other organizations, other countries and organizations advice and cause for Plan B, most recently asking the ECB to loosen monetary policy. Given that there doesn't to be any sign that the U.S. Congress is going to change its mind about funding, is it time now for a Plan B for the IMF where you circumvent the U.S.?

MS. LAGARDE: I hope that we can exhaust all the opportunities under Plan A, and I don't think that our institution should move to Plan B until we have full certainty and massive disappointment that Plan A is definitely dead. I'm not prepared to declare that at this point. I very strongly hope that the resolve of the institution, the pressure brought to bear by the members of this institution on all those who have not yet ratified will deliver fruit in the not too distant future.

QUESTIONER: My question is about Japan. The WEO projection was lowered 0.3. Do you still believe in Abenomics? If so, why? Especially, the third arrow seems to be not working very well. Do you have any concerns? When you meet Minister Aso this afternoon, what do you expect from him, and what do you recommend to him?

MS. LAGARDE: I listen very carefully to Prime Minister Abe's description of the three arrows, and those three arrows were described by former prime minister, now Finance Minister Aso in various meetings. It is fair to say that the first arrow has been delivered, has begun to work. We are seeing inflation certainly rising not yet to target but significantly in Japan. We were very pleased to see that the commitment to increase the consumption tax from 5 to 8 percent as of April 1st was delivered upon.

On that second arrow we also believe that the medium-term fiscal plan needs to be articulated and needs to be convincing. We hope to see that.

On the third arrow, there are many reforms, many changes of a structural nature that have been touched on, not yet completely articulated by the Japanese authorities. When I have a bilateral meeting with Minister Aso I will certainly discuss that with him, ask what the timetable is, and what the extent of the reform is. I will particularly focus on the reform of the labor market in order to facilitate access for Japanese women to the job market, because we believe it is a very important component of the structural reform. It is not the only one, but it is one where clearly the Japanese authorities have signaled interest, have responded to recommendations, which I was very pleased about, and I will not give up on that.

QUESTIONER: There was impressive demand for five-year bond issue, Greece is returning to the market today. However, the IMF program is ongoing and the country is still counting on official sector support to make its debt sustainable. Do you still believe that the debt restructuring is necessary, and when do you expect it to be concluded?

MS. LAGARDE: It is the case that Greece is still under a program, and that we have just recently approved a review of the program, which shows that after significant discussions and work being done by the Greek authorities and the Greek people, progress is under way.

I see the issuance that took place today that was massively oversubscribed, as an indication that Greece is heading in the right direction, and that the water testing that the authorities wanted to do is really successful.

Now, there is still a lot to be done. The program is not over. But, this is a clear indication that the return to markets, which is clearly the objective of any IMF program, is on the horizon.

QUESTIONER: Madame Lagarde, on Ukraine and Russia, are you now closer to understanding the range of the contribution of the IMF to the Ukrainian program? And secondly, as you yourself pointed out recently, Russia has been supporting Ukraine for a number of years; it is still supporting Ukraine, especially in energy subsidies. So my question is, in the new program, is it intended to provide specifically for Ukraine to be current with its debts to Russia that is paying the arrears and being current on the current payments?

MS. LAGARDE: The Ukrainian program, the prospect of a program, right—because it will be a program once the Board has approved it, has been negotiated on the ground, has been discussed informally with the Board, and there has been encouraging, very broad-based support from all corners of the Board of the IMF. The range of financing is going to be predicated on what the international support will be to that country, whether on a bilateral basis, or from other international institutions, whether it is the World Bank across the street, the EBRD, and other regional institutions.

For the moment what we are forecasting is a financing envelope ranging from 14 to 18 billion U.S. dollars, and that includes room for appropriate payment of anything that is a legitimate arrear to any creditor.

QUESTIONER: About a year ago when we had this meeting, at that time emerging markets were clearly the star of the global economy, but one year later the driving force is still clearly declining. So, what is your opinion on this kind of shift? And policy-wise, what do you think the emerging markets can do in order to regain their growth momentum and enhance the resilience of their financial markets in the post-QE era?

MS. LAGARDE: I would not call it a shift, because it is still the case today that the bulk of growth is generated by the emerging markets. So, this story about the emerging markets lagging behind, slowing down, and having lost their momentum is a little bit overdone. They are still providing the bulk of growth. What is new is that advanced economies have picked up, and there is that rebalancing happening at the moment. But I wouldn't call that a shift. I would call it rebalancing.

Having said that, clearly since the tapering talk in May, the emerging markets have been under some pressure, and we have observed volatility, which has had an effect, a significant one on some of them, which has since been essentially erased by the various policy measures that have taken place in those countries. And they range from one to the other, depending on the fundamentals of those economies, but if you look at what India has done from a monetary point of view, for instance, and if you look at what Indonesia has done on the whole scope of tools available to the policy authorities, clearly there has been good work done. There continues to be a need for constant attention to avoid the consequences of volatility, but volatility is something that we are going to have to live with. We have been massively protected over the last few years from volatility because of quantitative easing taking place in many corners and launched by various central banks. This is bound to be normalized over the course of time as the economy bounces back.

QUESTIONER: We recently witnessed the recent declaration by Nigeria of being Africa's biggest economy, after its recalibrated indicators, and which before that everybody is a witness to what happened between the federal government and the central bank. Well, Nigeria may not have anything to do with the IMF right now, with the Fund right now, but Nigeria's situation is only an isolated case in Africa, where we have whistle blowers coming out to—

MR. RICE: Do you have a question?

QUESTIONER: Exactly. This is background to the question. Whereas, the government tries to victimize the whistle blowers, but the same government comes to the Fund to put in a proposal for a grant with staff. In this case, has the Fund any upper hand to play the super power by wielding a stick with strong conditionality?

MS. LAGARDE: It is a very important question that you raise. I can assure you that there are cases when countries, and I would not single out African countries, any country, when countries come for negotiations for a program, for a monitoring program, whether with or without funding, where we have that dialogue with the authorities about the authenticity, the evidence relating to contracts, to licenses, the ways in which business has been conducted. And there have been instances under my watch where we have said, sorry, but unless and until we have documented information about the circumstances under which such contract, such mining rights were granted, unfortunately we cannot work together. And, I can assure you that it is efficient. And I applaud any instances when authorities, in Africa or elsewhere, actually have the courage to step up and identify when there are shaky, if not shady, circumstances under which those rights are granted.

QUESTIONER: There seems to be a different assessment on the risks of protracted low inflation or deflation in the eurozone between the Fund and the European monetary authorities, especially on the timing of the response. You just said that there was unanimity on unconventional measures, but several opponents of the ECB have also said these will not be imminent, whereas Mr. Blanchard the other day said the sooner the better. What is the message that you are going to deliver to them later today when you meet them?

MS. LAGARDE: I'm obviously on the same page as my chief economist, so the sooner the better is good. But, we have an ongoing dialogue with the European authorities, and we highly respect the judgment of the central bank. They have their fingers on the pulse of the European economies and they we were very encouraged to see at their latest board meeting and subsequent press conference that they are envisaging any tools to respond to the situation, and I think it is going to be a question of timing now. But we are encouraged.

QUESTIONER: The question is about the IMF. What would happen after the Senate refuses the increase of the quota to the IMF? What would be the schedule for the restructuring of the governance and quota issue?

The second one is about restructuring of sovereign debt. It is said here, but it is a rumor, that the IMF is supporting the possibility of leaving out the agreement of CACs, the collective action clauses, that has included sovereign debt contracts after the crisis of the 1990s, and 2003, and the probability of supporting some kind of default before helping the countries to stand up. Could you please tell us about that?

MS. LAGARDE: We don't comment on rumors, but I'm not going to leave you with that. It is a bit short. I think it is clear to everybody that the collective action clauses, as they're applied, proved to have deficiencies, and we certainly realized that when we dealt with the Greek debt restructuring. So, what do we do? Do we just sit and wait, or do we try to work in good cooperation with other members, with the membership first, of course, and in consultation with others to see how they can be improved? I think our duty is to do some work, to do enough consultation, enough iteration of how they can be improved, and then submit them for Board review and see how we move forward. We have been tasked by the Board to actually explore that.

Now, I want to dismiss the idea that we would be heading in the direction of what some of you who have been around a long time know as the SDRM, which is that extremely structured and organized way of dealing with restructuring. We are not heading in that direction. Let's be clear about that. So, if you hear rumors, you can tell them that I told you very specifically that we're not heading in that direction at all. But, are we working on the issue of CACs and the efficiency of CACs and how we can best and equitably deal with those matters? Yes, we have to. We have to.

On governance, I've already touched on that issue, and I think I have outlined what my plan is.

QUESTIONER: Please allow me, Ms. Lagarde, to ask my question in French. [Question was in regard to Tunisia and the recent meeting of the Prime Minister with Ms. Lagarde.]

MS. LAGARDE: What I'll do is respond in French and then I'll summarize in English, so that everybody understands what I tell you.

So very quickly for the others in English, I know you might not be interested, but some might be. I was just saying the Prime Minister of Tunisia's visit was very successful in that it allowed him to describe exactly his program of reforms for the country, which is not a program of the IMF, it is his program, that of his government for the population of Tunisia, and was particularly struck by his focus on developments, on attracting foreign direct investment in very strong growth sectors, and in really moving toward investment for growth in Tunisia. I very much hope that as the reviews of the program progress and as Tunisia matures into those programs it will be a success story. I'm convinced of it. He called his country a democracy startup, which I think is a great name.

MR. RICE: We have to come to conclusion. We're out of time. We look forward to seeing you over the next few days and thanks again for coming today.


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