Transcript

April 21, 2012

Speakers:
Tharman Shanmugaratnam, IMFC Chairman
Christine Lagarde, IMF Managing Director
David Lipton, IMF First Deputy Managing Director
Gerry Rice, Director, IMF External Relations Department

Mr. Rice - Good afternoon, everyone, and welcome to this press conference on behalf of the International Monetary and Financial Committee, the governing committee of the IMF. It is my pleasure to introduce you this afternoon to the Chairman of the Committee, Mr. Tharman Shanmugaratnam; and immediately to his right, the First Deputy Managing Director of the IMF, Mr. David Lipton; and, of course, the Managing Director of the IMF, Christine Lagarde. We are on the record this afternoon. I will ask you to identify yourself by name and affiliation, and to keep the questions short, if you can. We will try to take as many as we can. With that, let me turn to the Minister. You have the communiqué, I believe. The Minister will give a few opening remarks, followed by Madame Lagarde.

Mr. Tharman - Well, I will give you a very quick sense of our discussions yesterday and today. We had a joint press conference with the G-20 yesterday, where we announced the strengthening of the global safety net, particularly by building up resources of the Fund. That was an important step forward.

Beyond that announcement, in our sessions yesterday and today, we focused principally on the real solutions to the crisis, the sustainable solutions out of this crisis that the safety net or the firewall is meant to support. We touched briefly on this at yesterday’s press conference, but that was our main focus. It was about the real theater of policy action, which is about fiscal reforms and structural reforms, and not just in Europe, although that is obviously an important focus of our attention, but also in the United States, as well as more generally amongst all players in the international economy.

There was a very strong consensus, I would say, in our discussions on the need for everything that we do to be supportive of medium-term fiscal consolidation, particularly in the advanced economies, and that applies both to Europe as well as the United States. A very strong emphasis that everything we do has to be focused on achieving medium-term fiscal consolidation.

In that regard, there was also a consensus that the steps to be taken, not only the well-known steps that involve fiscal adjustments, reduction in fiscal deficits and a sustained period of running improved primary balances or structural balances in government budgets, but also equally important is the need to restore growth over the medium term.

Growth over the short term is weak partly because of the adjustments which we have to go through in the international economy, and especially among the advanced economies. What was really critical in all our minds was to get back to normal growth over the medium term, and preferably sooner rather than later, within 2-3 years, to get back to normal growth, if possible, inasmuch of the advanced world as possible. If we do not get back to normal growth, if we do not get GDP back to its potential levels, then fiscal sustainability is not possible, either.

So, it is not just budgetary reforms, tax reforms, spending reforms that are important, but also growth reforms. That involves the way we craft our fiscal adjustments, the way we go about our tax and spending policies, but very importantly it involves structural reforms in order to bring confidence and investment back into our economies. There was also a discussion on other parts of the world and how they can play a complementary role in this very important adjustment process within the advanced economies.

So, that was the main focus. It was about medium-term sustainability and, very importantly, about bringing growth and jobs back.

Ms. Lagarde - I would like to just begin by telling you how important it is sometimes to have a good Chairman, and I have to tell you that Tharman is just a superb Chairman, and this should be recognized even in front of you. He was terrific and took us through a long journey where we discussed all the issues that he has indicated, thorough substantive issues.

As you can imagine, we talked a lot about certain regions; we talked a lot about certain countries, the Euro Area, the United States of America, the right balance between emerging market economies and other advanced economies, and all of that with the perspective of that medium-term anchoring that is so needed both for fiscal policies and for the purpose of stimulating that growth and this job creation that is so much needed. So, it is not always easy to conduct those discussions with such a large number of constituents in the room, and it worked extremely well.

Second tribute to Singapore. For those of you who are familiar with the IMFC, traditionally—and you have seen photos—there is this huge, big round of tables and it is relatively hostile in essence because everybody is protected behind their table. Well, we did it the Singapore way. We had chairs; it was much more fluid. People were much more in each other’s face and posture, which was extremely good for the dialogue that we had. So, it was lively and less of this sort of recital of narratives pre-prepared beforehand, just to give you a little bit of the taste of the discussions. The form and the substance very often interlink, and that certainly was the case in the course of those discussions. So, in terms of momentum, in terms of positive signals, we had a lot in the last day and a half.

We had very open and frank discussions, very respectful, but very true to each other as well, and focus on the medium term, necessary achievements. I think that if there were two concepts that were shared across the board, it was structural reforms and discipline, and that also underpins the medium-term growth and fiscal consolidation that Tharman was referring to.

Now, to top it up, I would say, because the structural reforms are longstanding initiatives and the anchoring of fiscal consolidation and expectations are also difficult things to do, it is nice to have a big umbrella or a big firewall, however you want to call it, and that was really the achievement of yesterday, thanks to your initiative again, to put the G-20 and the IMFC together for the purpose of that buildup of resources.

Finally, on sort of more domestic and internal issues through the IMF, for those who are experts on IMF issues, we had also a strong endorsement of the completion of the quota and governance reform that is due to be completed for the Tokyo meeting, which will be in October 2012. We have still a little way to go on the quota. We have more of a way to go on the reform of governance. But there was this strong consensus and you will find it in the communiqué to move on with this reform.

Equally, there was a strong endorsement of our determination to improve constantly our surveillance. Surveillance is one of our missions, whether it is bilateral, traditional, and it can be improved, or whether it is more multilateral and it is rather new, but it can also be improved. There was really strong endorsement from the IMFC to just continue with that and to complete the reforms that are needed to that effect. So, very positive.

Question - Congratulations. I think that the meetings proved to be a great success. My first question is, Managing Director, do you think the “Washington Moment” has been achieved, in your view. It seems to me that the BRICs countries still want to link the resource contribution with the governance and quota reform. Do you think their strategy will be effective and successful to push up the governance and quota reform? My final question is about China. How will you label China, if not substantial, undervalued, after the IMF has subsequently revised its forecast for its current account as a share of GDP in the next few years?

Ms. Lagarde - “Washington Moment,” yes, you know, the spirit, the momentum, the dynamic that was created in the course of this meeting. We will hear more feedback because it is on the spur of the moment; you tend to be quite upbeat about what has been achieved and then you have to let it sit a bit and wait for membership feedback. We will seek their feedback. We want to understand whether they were satisfied and whether they think that collectively we have achieved what we could achieve at best both in terms of form and substance. But I personally feel that that “Washington Moment” was clearly in the room in the course of the meetings.

On the issue of the conditionality, it was never expressed as a conditionality. It was a keen determination on the part of all, but maybe more so from some of the emerging market economies. There was also a definite commitment to participate in the tally, if you will.

On the last issue that you have raised, this is not completed yet. It is a matter that is under review with our various teams that are working on this initiative, the External Sector Report. That will come out later, but we have not completed the work on this. We have signaled how important that variation of the band had been and how stronger a step it was in the right direction.

Question - One question for Madame Managing Director and one for the Chairman, please.

Some Finance Ministers have said that the G-20 and the IMFC have incorporated additional safeguards for the use of the $430 billion in resources. Can you say exactly what those additional safeguards exactly are? It is my understanding that there is actually no change to the IMF Rules and Regulations principles on that. Secondly, the draft statement, IMFC statement said that advanced economies should be prepared to exit expansive monetary policy, but I see that that has been taken out of the final communiqué. Can you say why that is, please?

Ms. Lagarde - You are absolutely right. There is no change to the Articles. What has been clearly reminded during the course of the discussion is that, No. 1, those bilateral loans which are to be drafted and signed from now on, do not form a special pot of funds or coffers that would have an EU label on it. It is for all members of the IMF. So, that is Principle No. 1.

Principle No. 2, it must be used under the strict, exact, evenhanded, nondiscriminatory, demanding terms that we have for all our programs, and that is the strength of the IMF. It is the conditionality, the review, the monitoring, and the sequencing of the lending that goes with it.

Mr. Tharman - Let me add to what Christine just said. You will notice that there are a fair number of non-European countries and a fair number of non-G-20 countries that decided to participate in the effort to build up IMF resources. It was very important to all of us that any use of these funds be accompanied by the same strict conditionality and rigor that the IMF is associated with in all its programs. That was very important to the British, very important to all of us. We are contributing to the Fund to use as it sees fit around the world. Whoever the borrowers are, whatever the causes, it has got to be the same Fund standards because the credibility of the Fund is what we are attempting to bolster through this effort.

On your second question, I would not read too much into the final editing that goes into the statement. There is a very important nuance in the statement on monetary policy. It does not just say that monetary policy needs to remain accommodative. It says it needs to remain accommodative as long as inflation prospects remain anchored and weak growth persists. That was a very important emphasis, quite frankly, in our discussions. It captured both sides of the Atlantic as well as the emerging countries.

We spent some time discussing this in the context of the emerging countries as well. We are all pretty much of the same mind on the importance of ensuring that inflationary expectations remain anchored; in other words, they remain low and in check. If there were any trends indicating that we are likely to lose control of inflation further down the road, there was a general sense that monetary policy, being very easy, would no longer be advisable.

So, I think there was a good meeting of minds on that.

Question - Madame Lagarde, the IMF has said that it is ready to adopt some of the bailout programs in case it is needed. My question is, do you feel the need to adopt a bailout program for Portugal sometime soon and, if not, if you think that Portugal is on the right track.

Ms. Lagarde - You know, the Portuguese program has been under way for less than a year now, if I recall, and it works like any of our programs. It belongs to the country. It has political endorsement. The Portuguese government and opposition did a fantastic job in that respect because they came together to endorse it. So, it is the program of Portugal as negotiated with the IMF, but it is their program. What we do is that we conduct a regular review. As you know, we send the mission team on the ground. They work with the authorities to make sure that the targets have been reached within the timetable that has been adopted and agreed between us. So, I do not see any reason for any change to the Portuguese program. I think the review that was conducted certainly concluded that the program was on track.

Question - For Mr. Tharman, and Madame Lagarde, please chime in if you feel you want to.

Coming from a part of the world that really is reshaping the global economy through thrift, competition, and productivity, do you feel that the industrialized world, the old industrialized world, the old economies, have a realistic sense of the adjustment their societies are going to have to go through to take advantage of this two- to three-year window you talk about? What are the implications if they do not come and get their act together in this reasonable medium-term framework.

Mr. Tharman - To be quite candid, I have a lot more sense now than I did 3-4 years ago. I think I have been accurately reflecting the discussions we have been having when I say that across the room, amongst the advanced countries—I am not sure of the term you used—Western economies, there is very strong resolve to get to the heart of issues of competitiveness, thrift, rebuilding of household and government balance sheets. Very strong resolve. Frankly, it is quite courageous, politically it is quite courageous, what we are doing, because there have been very strong expectations built up over the years for more of the same. It has taken tremendous political courage, particularly in the last year, to begin to switch course and to paint a vision that leads to a better future, and we are all very supportive of that.

We know it is going to be a long road. This is a multi-year journey. There will be pitfalls along the way, which is why Christine’s umbrella is extremely important. There will be pitfalls. It is a very challenging journey with politics intersecting with economics. I am a lot more confident now than I was a few years ago. I would finally just add that one of the things that we will have to also watch out for in the non-western part of the world is hubris. We will have to avoid thinking that we have got it all right, whether it is on fiscal policies or savings policies or competitiveness policies, that we have discovered the new golden equilibrium. There is a lot of learning to do on both sides.

Question - Low-income countries, especially in Latin America, do you think these countries will be able to make the structural reforms?

Ms. Lagarde - You know, we do not talk enough about the work that the Fund does with low-income countries. Of the 48 programs, or so, that we have around the world, more than half of them are with low-income countries. They are not for huge amounts, because everything is proportionate, but we do a lot of work and we develop technical assistance, advice, capacity-building for them. So, we do as much as we can to help low-income countries. We will work a lot on the countries in transition from the Northern African and Arabic world previously and otherwise known as the Spring Countries, Arab Spring Countries, and it is a real focus for the Fund as well. So, I am confident. If you look today at where are the countries in the world with double-digit growth, you will find them in low-income countries and, of those, about two thirds in Africa.

Question - I have two short questions, easy questions. The first one is, is the IMF in discussion with the government of Cyprus for a bail-out program? There are rumors around. The second question is, did you think about the possibility that parties that are against the Greek program have the majority in the Greek Parliament on May 6?

Ms. Lagarde - You know, our people talk to their contacts all the time, all over the world, so I am sure that they are in discussions. Whether there was a discussion on any kind of program with Cyprus, not to my knowledge. Second, I would be the last person, especially today, to predict the outcome of a political election.

Question - I want to ask about how the IMF supports the Arab countries to change the policy, and what about the agreement with the Arab Spring countries, especially Egypt.

Ms. Lagarde - Well, I will share a secret with you, which I am sure will be well kept. We have a commitment to the Arab countries in transition, a commitment that by our Annual Meetings in Tokyo we will have several programs in place to help them navigate the transition. It will not be enough. It will require other supporters, donors, partners, to help financially and in trade opening.

If I have to tell you, I think relative to other parts of the world, it is probably the part of the world where we give the highest, largest number of technical assistance, hours, days, man or woman hours, in all sorts of matters, public finances, taxation system, all sorts of fields where they seek our assistance. You would be surprised, dozens and dozens of technical assistance missions we have fielded over the last couple of years.

Question - You mentioned in the communiqué that the surveillance framework should be significantly enhanced. Does it mean that the IMF would take into consideration the exchange rate policy of the member?

Ms. Lagarde - A very pointed question. It is one of the components that we would be looking at, clearly. There are others, but it is one of them, yes.

Question - The communiqué says that the members’ collective responsibility to avoid protection is in all forms protracted. There is a sort of war in the exchange rate front. Some countries are using controlled exchange rates. Some are having problems with the outflows and inflows of the capital flows and there is an increasing use of the exchange rate. They are not more flexible. What are you going to do?

Mr. Tharman - We discussed exchange rates yesterday and today. Compared to a year ago, we had a good meeting of minds, pretty much a consensus among emerging countries and advanced countries. Whether we were talking about China, or Brazil, or anyone else, we all agreed that there had to be some greater flexibility in exchange rates over time. We agreed we were getting there.

We also agreed that from time to time capital flows can be very troublesome. The Fund has shifted it thinking on the matter and we have all shifted our thinking as to what is a sensible toolkit for emerging countries when faced with volatile capital flows. So, there was recognition that in instances where you face severe volatility of capital flows, some form of management of those capital flows could be sensible. In other words, where it is not due to your own domestic policy being out of sync with your economic fundamentals but simply because of the vicissitudes of the global capital markets, some sort of capital flow management was sensible. These were statements that were agreed to on all sides, so I found that quite encouraging. We have moved some distance in the last year on this issue.

Ms. Lagarde - Maybe just to complement on that, there is work that will continue to be done at the Fund so that we can really analyze in-depth the relationship between movement of capital flows and monetary policies. That was another matter which was of interest. There is not at this stage definite evidence of a close correlation between the two.

Since you are from Mexico, let me just say also that we have had an extraordinary collaboration with the Mexican presidency, and I am sure it is in no small part due to President Calderon’s focus and support on the G-20. This has really been a great work experience for us.

Question - A question on economic reforms in Myanmar. Would the IMF prefer to see a faster lifting of US and European economic sanctions in order to push forward some of the financial and economic reforms that we are seeing now? Aside from providing economic technical assistance, what else would the IMF be looking to do in the months and years ahead?

Ms. Lagarde - Well, I will tell you something. We do not brag much about what we do, and in this particular case others would have, because we have been behind the scene discreetly helping the Myanmar monetary authorities particularly in relation to their most recent currency reform. We have been working with the Central Bank of Myanmar on that very, very actively. You know, it is a tribute to them that they have made this change on April 1, if I recall, and that it has been successful. There is a momentum that is clearly initiated and my dearest hope is that it continues. We are going to continue to provide any technical assistance that they need.

Question - First, I would like to ask you how the euro crisis will affect the emerging countries in the Southeastern of Europe, like the Balkans and Macedonia, and what are the main risks for these countries. The second one, Macedonia has a PCL arrangement with the IMF for 480 million euros from last year. Despite that, our government is borrowing money on the commercial markets. Do you think it is the right policy to borrow money with higher interest right now and to spend the main part of it for social transfers, for pensions, and for salaries for administration but not for capital investments? And do you plan to come to visit our region in Macedonia?

Ms. Lagarde, I will wait until my knee is fixed and then I will get back on the road.

On the consequences in Southern Europe or, more extensively, Central and Eastern Europe and the large periphery of Europe, it is clearly the sort of immediate circle that is potentially exposed, which is why it is so important that the Europeans do what they have committed to do, that they deliver on their program, that they move on with their structural reform, as well as stick to their commitment to each other, and for some of them to the larger community, which is what we are seeing at the moment.

So, that really is important to them, it is important to us, but it is important to the likes of Macedonia, because the linkages between countries of Central/Eastern/Southern Europe and the core of the Euro Area is extremely important, particularly the banking channels. As you know, in those countries, there are lots of branches and subsidiaries of Euro Area banks, and it is generally those channels that are the contagion channels. So, I think there is a clear community of interest in the Euro Area doing what it has to do.

On the Macedonian program, allow me to be a little bit out of my depth, because I am not exactly sure where they stand on the review of the program. I do not want to pass judgment on facts that I have not verified with the team. So, I reserve my response. Since you are a fellow journalist with us, we will get back to you. We want to double-check.