Transcript of the International Monetary and Financial Committee (IMFC) Press Briefing

April 12, 2014

Washington, D.C
Saturday, April 12, 2014

Tharman Shanmugaratnam, IMFC Chairman
Christine Lagarde, IMF Managing Director
David Lipton, IMF First Deputy Managing Director
Gerry Rice, Director, Communications Department, IMF

Webcast of the press briefing Webcast

MR. RICE: Good afternoon, everyone, and welcome to this Press Conference on behalf of the IMFC. We are on the record this afternoon. It is a pleasure to introduce to you the Chairman of the IMFC, Minister Tharman, and the Managing Director of the IMF, Madame Christine Lagarde. We also have with us the First Deputy Managing Director of the Fund, David Lipton. I am presuming everyone has had a chance to get a copy of the communiqué and have a look at that.

I will ask the Chairman to get us underway with some opening remarks and then we will turn to Madame Lagarde and then we will turn to you. So, with that, Minister Tharman.

MR. THARMAN: I thought it would be useful for me to give you a sense of some of the key themes in our discussions. Some of them are reflected in the communiqué, of course, but I would like to give some emphasis to some important themes.

First, as a very general point, we felt that we need a new balance in policies that meets the needs of the new phase in the economic recovery globally. What do I mean by a new balance? It is a focus on the medium term more than the short term, and a much greater focus on structural reforms.

Now, this does not mean a sudden withdrawal of macroeconomic policies, especially monetary policies, that support the recovery, but it does mean a much greater focus on structural reforms: balance sheet repair in banking systems, including in Europe; improving the functioning of labor markets so as to reduce the extraordinarily high levels of youth unemployment in many parts of the world; and building up institutions not just in emerging or developing countries but strengthening institutions in advanced economies as well. So, we spent a lot of time discussing structural reforms over the course of the last two days.

A second area of focus had to do with financial stability. There was much greater concern about not just the legacy risks coming out of the last crisis but about new financial risks; the increase in corporate leverage in some parts of the world, developing and some of the advanced economies, not matched by improvements in investment, not matched by growth of investment, but just increased leverage - more debt relative to assets.

There was also the continued risk of volatility in capital flows to emerging market economies. That is not going to be a short-term phenomenon but a continuing challenge, partly reflecting - and the staff’s work on this has been very useful, if you look at the Global Financial Stability Report, for instance - partly reflecting a change in the structure of global finance, with larger capital flows and also a changed composition.

We have greater share of capital flows thorough bond markets, and a greater share that has been taken by mutual funds and ETFs, often reflecting retail investors at the other end who tend to be more easily jittery. What we have observed is more herd-like behavior in the markets, more herd-like capital flows, which means risk on/risk off is now a more accentuated phenomenon. So, that is a continuing risk.

The third area of risk that we were concerned about was the geopolitical. That does not need much elaboration. The Fund plays an important role in that regard, being quick to respond, to stabilize economic situations where possible.

Finally, I will have to emphasize once again the importance of getting the 2010 Reforms of the Fund itself completed. We spoke about this yesterday after the joint meeting of the IMFC and the G20 finance ministers. It is in our communiqué. That remains critical not just for the Fund but for a safer and better world.

We are calling on the United States to play its responsible role and we have every confidence that it will. These reforms to the Fund are not just institutional reforms but reforms that would enable us to have a safer and better world, because the Fund provides critical public goods to the world.

MS. LAGARDE: Good afternoon to all of you. Thank you for being back with us.

I do not have much to add extensively to what Chairman Tharman has indicated. He is, as always, a great Chairman for those meetings and he did not fail on this occasion. Certainly it was, for my perspective, a good meeting.

You remember when we last saw each other at the beginning of these Spring Meetings sessions I said I hoped that Ministers of Finance and Governors of Central Banks, actually talk to each other, listen to each other and intend to cooperate with each other. That happened in the course of those meetings. They were constructive. There were good debates. Certainly, there was very strong endorsement of the Global Policy Agenda that was submitted to them and of which you have received a copy.

So, I ended this IMFC Meeting with strong encouragement to go forward on what we at the Fund can offer the global community in order to strengthen growth, I would call it “in the pursuit of growth,” and better growth that is more inclusive. Our work on inequality from a fiscal point of view, notably, is certainly supported. A more balanced growth. There has been rebalancing, for instance, in the United States and in China. We have seen numbers changing for the better in terms of rebalancing. There is more rebalancing to be had in various emerging market economies that show deficits and in Northern Europe that show surpluses, and better quality growth. It was encouraging to hear some of the members also regard climate change and the degradation of the environment as of critical importance, which, again, encourages us to work in that direction. As you know, we have worked on the removal of energy subsidies. We will soon be publishing on the setting of the right price for energy. So, all of those issues that have macroeconomic criticality we are encouraged to pursue the work and to provide the analysis that will enable the membership to actually decide on what kind of growth they want forward.

So, the pursuit of growth, on one hand, and waiting for the reform on the other hand—I was very encouraged to see that, thanks to the leadership of the Chairman, support from the G20 in the discussions that we had yesterday. We have a way forward, which indicates a time by which the reform is either completed or has to be reformed in a positive way going forward. That will be another debate that we will have in early 2015 if by any chance the 2010 Reform was not completed by then.

Apart from that, I would just like to leave two numbers with you. It is the number of lending programs that we have around the world. We lent under 33 different programs at the moment, and I can assure you that they are not all located in Europe. We provide technical assistance to 150 members within the membership. So, as you can tell, it is not just with a focus on a few countries here and there. It is global and very comprehensive technical assistance and training program and capacity-building that we provide as well as our traditional lending.

The final point, because this is our third mission or rather it was one of the initial missions in terms of surveillance, we were also very encouraged by the membership to continue focus on spillover analysis, spillback analysis, and anything that identifies the level of interconnectedness and the consequences thereof in our global economy.

The final point: we have two big conferences coming up and that demonstrates the focus we have on low-income countries, particularly the African countries, and Arab countries in transition. We have a conference that is coming up at the end of May in Maputo, Mozambique, which is called Africa Rising. You are more than welcome to come. The other one is in Amman, Jordan, which is a focus on growth and jobs in the Arab countries. Thank you.

QUESTIONER: The first is just about your broader growth agenda. We have been talking about growth every year since the end of the financial crisis. Structural reforms, institutional changes take a long time. So, what specific thing would you want to see this year that has not been proposed before?

The second question is, as far as the risk of low inflation for the ECB and the Eurozone, how long can they wait to see if it is persisting before taking action?

MS. LAGARDE: I do not want to argue with you, but I think that we have not had a focus on growth in the early years of the crisis. The focus was very much on stopping the collapse and trying to build firewalls here, defenses there. The focus on growth is much more recent.

There has been a series of policies, whether fiscal or monetary, that addressed particularly the issues of the disaster we were in 2008, 2009, and 2010. As Chairman Tharman has indicated, we are moving into a strengthening phase. As I said, we are turning the corner. The global economy is faring better. It is uneven, it is too slow, it is too fragile, which is why clearly, in addition to the pursuit of appropriately paced fiscal consolidation, appropriately articulated monetary policy, and it varies from one country or one region to the other; clearly, gradually withdrawing—tapering, rather—in the United States; continuing to be accommodative in Europe, for instance, continuing to be accommodative in Japan; and overwhelmingly, because it applies to pretty much all countries, structural reforms that will improve the competitiveness of those economies.

It is quite striking to see that the European countries that have been under programs over the last three or four years have indeed undertaken those structural reforms. It is beginning to show; it is beginning to unleash results. Many of the countries that have not had an IMF program and do not need it have to embark on those structural reforms as well, and they know it.

MR. THARMAN: I have a couple of points. I think when we discussed structural reforms, quite apart from the stressed countries, and Christine just made a very important point that the stressed countries that went through programs involving very tough reforms are coming out much better, we also discussed countries that are not in the greatest stress, in Europe, the U.S., Japan, the emerging countries.

We all need structural reforms. Investment is still weak relative to where it should be at this stage of the recovery everywhere, in the emerging world as well as the advanced world, including the United States. So, there is considerable emphasis on getting markets to work better, including the markets for investment in infrastructure, in both the advanced economies and the developing economies. There is a huge potential for growth, and sustainable growth, coming out of infrastructural investment. But it does mean more transparent and predictable regulation, and it does mean a framework for private investment that gives confidence to investors. That is one example of the things we have been discussing.

MS. LAGARDE: On the low inflation point, first of all, it is not just a euro-specific issue. We are observing low inflation in many advanced economies. Clearly, Japan is a case in point where there is determined action to raise inflation. We are encouraged to see that the ECB—and to have read and to have heard from the President of the ECB that they appreciate that low inflation is an issue, and with the 12 percent unemployment rate in the euro area, it is indeed an issue. We were very encouraged to hear that the ECB has available, and will use in due course and if necessary, the appropriate tools to deal with it.

QUESTIONER: Can you say how concerns about the Ukraine crisis were expressed?

MS. LAGARDE: There were two denominations for the concern. One was generic, because it is not the only place in the world where there are potential risks, and it was called the geopolitical risks, with an “s,” because you can think of other places where there is no big coverage but where there are, nonetheless, geopolitical risks.

Sometimes it was referred to as Ukraine. We indeed had questions from the membership as to what the IMF does in relation to Ukraine, how much, and when things will evolve. It is a matter that has been discussed by the European Department when they gave their Press Conference.

I am happy to restate that we have engaged immediately. We have done the work as soon and as competently as we could. We have a staff agreement on the necessary measures, on the financing needs of the country. It is now Ukraine which is gradually, I understand fast, taking the measures to fulfill the prior actions that they have to fulfill before the program is put to Board. We expect that this should take place shortly and our hope is to be able to conclude at the end of April.

QUESTIONER: (Speaking in Arabic) [Question refers to economic outlook for the MENA region].

MS. LAGARDE: As you know, the IMF has been engaged with all countries that wanted to work with us, to have a partnership with us. I am pleased to report that in the region we have programs underway with three countries, Morocco, Tunisia, Jordan. We are in negotiations with Yemen. We are prepared to work with any other country that wants to work with us. We are providing some technical assistance to countries like Egypt, for instance, because you are from Egypt yourself, and we will continue to do so. The conference in Amman in early June will be a time when hopefully we concentrate as much expertise from us, but also from other sources, to really elaborate how much more and how much further we can take those countries, because there are issues. They were of a geopolitical nature. There are constitutional steps to be taken for some. There is capacity-building, institution-building that is needed for progress to be made. We very much hope that we can continue that partnership and relationship, those that exist and those to come, we hope.

QUESTIONER: I just wanted to ask what you think the effects will be on Asia of the gradual normalization of U.S. monetary policy and what sort of measures countries, especially small ones susceptible to international flows, can do to manage the impact.

MR. THARMAN: That is a good question and I would say it is a question that applies not just to Asia but, more broadly, to the developing world.

First, and this is something that comes out of our meetings as well, we all have to place more emphasis on resilience in our own economies. And that means monetary policies that try to keep inflation stable, it means fiscal policies that ensure balanced budgets over the medium term, and it means a framework of laws and rules that encourages private investment.

But even well-managed countries can run into difficulty, given the scale and volatility of capital flows. That is something which we discussed at some length. The Fund is doing work on the development of possible new instruments as part of the international safety net. We do have some bilateral and regional safety nets. We do have some existing Fund programs and instruments requiring varying degrees of conditionality for assistance to countries. But there is an important space in international finance that is still missing, and that involves quick assistance, quick liquidity at times of crises to well-managed countries without conditionality, because they are well managed and they are prequalified for such purpose, but which can reduce the need over time for developing countries to build up their own reserves at the cost of growth. That is the real objective: ultimately, it is about growth. A well-designed international safety net will avoid the need for each country to build up its own safety net.

That is one of the issues coming out of our discussions. It requires careful study and deliberation, because we want to avoid moral hazard: in other words, if money is available too easily, the tendency for countries not to manage their economies as well as they should.

QUESTIONER: What is the Fund doing to let developing countries like Ghana appreciate that you are moving toward a country ownership program, because in Ghana people still have in the back of their minds the structural adjustment program they went through some time ago and this is why a lot of people have a phobia of the IMF. Any time a country is in discussion for a program, I mean, Greece had the problem, and looking at the results today, it shows how a program has helped the economy.

What advice do you have for Ghanaians who have a phobia of the Fund, that do not go to the Fund because of the conditionality, and show that this new approach that you are adopting would ensure that the program works to their advantage?

Second, a lot are dependent on commodities and what happens in the world market really affects our economy a lot. What do you think should be the approach going forward for countries like Ghana that are dependent on gold and cocoa on to grow their economies?

MS. LAGARDE: You know, if you do not go to the Fund? It is okay if the Fund comes to you. You know that we just opened in Accra, Ghana, our fifth Regional Training Center. This is our fifth location. So, we provide all sorts of things. We provide surveillance. We try to make it more sophisticated, better adjusted to the new economy, more connected, more balance between the various regions and areas of the world.

We provide lending, and, by the way, structural adjustments? That was before my time. I have no idea what it is. We do not do that anymore. No, seriously, you have to realize that we have changed the way in which we offer our financial support. It is really on the basis of a partnership. There is always in partnership a bit of hardship to go with it. If the Fund is called upon to help, it is that the country feels that it cannot decide certain things on its own. It needs backup support, financing to make sure that it has access to enough funding to finance itself.

The third thing that we have done and that is probably the fastest growing part of the activity of the Fund is technical assistance and capacity-building. So, it is a new face. I am glad that you brought up Greece. The journey is not over and there are still more structural reforms to be completed and more work on the way. The fact that Greece was able to return to markets and on the basis it did is clearly an indication that something is working.

QUESTIONER: Our first question is for Chairman Tharman. To what extent do you agree or disagree with the article that has been published earlier this week by Mr. Bergsten and Mr. Truman, who suggested very vocally that the Fund should seek kind of an Option B. We heard that a special committee had been set up and chaired by you to set options to push forward reform. What kind of technical details have been discussed on the table or you simply wait to the end of this year?

The second question is for the Managing Director. We know that the G20 has established a target to raise 2 percent of economic growth in next five years, which means 0.4 percent every year in the next five years. My question is, has this 0.4 percent of growth been incorporated into the WEO forecast this October? If not, will you upgrade and raise the forecast very soon?

MR. THARMAN: On your first question, first, I will have to say that it is entirely possible that the United States is going to ratify the 2010 reforms in the course of the year. I say this not just because of the technical space within its legislative calendar that makes it possible but also because of the much greater political consensus that we have seen building within Congress on the need for a strong IMF in the face of what are very obvious challenges in the global economy and to the whole global order. So, it is entirely possible that it will be done and we have every confidence that it will be done. That is the first step and let us focus on the first step before we think of future reforms to the IMF.

The other way I will answer your question is this: If for some reason that first step is not taken and the 2010 reforms are not completed, then we are more likely over time to see disruptive change. We are more likely over time to see a weakening of multilateralism, the emergence of regionalism, bilateralism and other ways of dealing with global problems, and that will not be a better world for all of us, for the U.S., for members of the IMF. It is really a world that will be less safe.

So, the best way to avoid disruptive change, or an accidental evolution of the system, is to pass the 2010 reforms. And we think there are many minds in the United States, including in Congress, that believe that they are in their interest, and we believe it will be done.

MS. LAGARDE: On your second question, it does not say anywhere in the G20 commitment that it will be 0.4 percent per year during a period of five years. So, I do not think it is as sort of mechanical as you described. What we are doing at the moment is doing enough scoring and assessment of the contribution to additional growth on the basis of the plan that had been submitted by the 20 countries in the G20. That is step number one. You score first and you account for it second. For the moment we are still in the scoring phase, and we will see about the renewed commitment of the G20 countries to actually deliver on those plans.

QUESTIONER: Over the past ten years, at times where we have not been in crisis, we have had many of these operations to try and improve the balance and quality of growth around the world. Multilateral consultations in 2006 and the Pittsburgh Agreement in 2009 are just two of them. They have all fizzled out. Why is it different this time?

MS. LAGARDE: We might be disappointed at the end of the road. I was not around in 2006 but I was around in 2009, and it was a bit of a by-default commitment at the time to focus the mind away from crisis management that we were all deeply involved in. I sense nowadays that a lot of that work has already been achieved, not finished. Financial sector reform, for instance, is far from over. There is still more to do to complete the job. There has to be continued momentum on the macroeconomic front.

But now there is clearly a move toward better and more growth. I think it has gone quantitative, the 2-percent threshold set out by the Australian G20 presidency, and it is better because there is now a clear discussion as to what kind of growth are we talking about, which is why I re-emphasize inclusive growth, a clear focus on who should be rebalancing going forward, the concern for sustainable growth and one that is respectful of the externalities that will hopefully be costed out, and we will participate in that effort. We are a few steps forward and away from this sort of general understanding that there should be more growth. I think there is more detail, more engagement, and willingness to be accountable to the membership as well.

MR. THARMAN: Just to add to that, there is a point to what you are saying. Crises will recur; we are not going to see the end of crises. If we look back at how previous crises have happened, they happened because during good times bad policies are put into effect. Promises are made that cannot be kept and all manner of bad policies usually start in good times.

So, what we have got to try to do is avoid once again making bad policies as times get better. That means especially placing strong emphasis on medium-term fiscal planning so that we do not build up deficits that can only be solved in a crisis, which is when it is much more painful and often less equitable. It means focusing on building up institutions and an investment environment that promotes growth.

So, that is one of the things that again almost everyone in our meetings shared - that we have got this time around to focus on good, sustainable policymaking, especially as times get better, and not repeat the mistakes of the past.

QUESTIONER: Ms. Lagarde, four years into the program and the citizens of Greece feel that things are going bad and bad and bad and that they have no hope. Sixty percent of the young people are unemployed and they feel that they have no future in Greece. The only thing that we have in our country is austerity, austerity, austerity. Can you give me one reason why the average Greek citizen has to have hope?

MS. LAGARDE: I share your concern and the concern of the Greek people, because I know about those unemployment numbers and I know that it particularly affects young Greek people, those who went to school, went to university, and are just bumping their heads against the wall of unemployment.

But we are seeing some improvement. We are finally for the first time seeing positive growth, right? Those numbers are finally turning positive. We are seeing the exports from Greece finally heading in the right direction. We are seeing a country that has a lot of pride, and rightly so, finally borrowing from the financial markets at not extraordinary but very decent rates and oversubscribed on its own.

So, my hope is that confidence is coming back as a result of that set of facts, and as confidence comes back, investment will pick up. Foreign direct investors will return to Greece and will regard it as a place which is worth their money, worth their investment, worth the creation of jobs.

I also believe that some of the structural reforms are going to bear fruit as well. I know that the private sector has really borne the brunt of the hardship of the program. I very much hope that this is going to continue to improve and will not only be shown in those growth numbers, export numbers, financial numbers, but also in the number of those that are now getting jobs on the Greek market.

MR. RICE: Thank you Madame Lagarde, thank you Minister Tharman. Thanks to all of you for coming. We look forward to seeing you next time.


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