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Transcript of a Press Conference by International Monetary Fund Managing Director Dominique Strauss-Kahn with First Deputy Managing Director John Lipsky and External Relations Department Director Caroline Atkinson
April 22, 2010
April 22, 2010
Webcast of the press briefing  |
MS. ATKINSON: Good morning. I am Caroline Atkinson. Welcome to the IMF's press conference being given by Managing Director of the IMF, Dominique Strauss-Kahn, to my right and First Deputy Managing Director John Lipsky.
This is on the record, and we will also be taking some questions from the Online Media Briefing Center for those journalists who are unable to make it here, which there may be rather more this time than usual.
Mr. Managing Director.
MR. STRAUSS-KAHN: Thank you, Caroline.
Good morning all of you. I will try to open this press conference with short remarks, as short as possible, which means shorter than usual. The main point is that we have come a long way over the past year.
As you all know, the recovery is coming faster and sooner than expected. We are forecasting 4.2 percent growth at the global level next year, which is revised upward from what we said six months ago. This is testament to unprecedented cooperation at the global level in terms of policies, and I just want to remind that the IMF said this approach would bear fruit and it is doing so. That is my first point, that cooperation at the global level was fruitful and that was really what we were explaining one year ago if some of you were already here in this room.
Now, what is the goal? The goal now is to secure an advanced recovery, because even if the recovery is stronger and faster than expected, it is fragile. It is fragile mainly because it is uneven. You have been told about this; this has been described, I guess, yesterday by Olivier Blanchard, so I am not going to elaborate a lot.
You all know that in advanced economies unemployment is still very high and in some countries still rising, that private demand is still weak, and the financial sector is still not yet repaired. When we look at emerging countries, the main concern is about capital inflows because of the huge amount of liquidity available in the global economy, and the fact that there is some reluctance to invest in advanced economies—Europe, United States, even Japan—so huge capital inflows going into emerging countries, creating risks of asset price bubbles and different kinds of risks linked to this kind of capital inflows.
So, the world is still a dangerous place and I would not like that too many people have in mind that the crisis is over, that everything is behind us, and that we can go back to business as usual.
Now, what are the lessons for all this and what do we need to do looking forward? Multilateralism and political policy cooperation is obviously the great legacy of this crisis and our point is that it has to be maintained in a post-crisis world. From this point of view, the G-20 MAP, the Mutual Assessment Program, is very promising. It starts now; we will have the first run, as you know, tomorrow at the G-20. Of course, it is a process which has to be improved. It is a learning-by-doing process and the first time we are doing it, but already I think that it is really interesting.
The second point is that it is time now for financial sector reform. In our view, in the IMF we need agreement on three key areas by the end of this year. One concerns the rules pertaining liquidity and capital, pertaining to capital liquidity and capital; the second area has to do with the toolkit which is needed for addressing systemic risks; and the third concerns the framework for cross-border resolution issues.
On top of that, our feeling is that what is done in the regulatory part is going rather fast and it is okay, but more attention has to be paid to the supervisory side which, in our view, is the most important. You may have the best possible regulation, if it is not enforced, if you do not have supervision, it is just as if you did nothing.
The third area has to do with the paper we prepared for the G-20 and the tax system. Our belief is that the tax system can help to reduce the likelihood of future crises along with regulation, of course. Taxation will not do everything by itself; regulation has its role to play. What we tried to do is to provide comprehensive analysis, having in mind two goals. One is to secure some resources to be able to help for crisis resolution, if any. The second was to have a tool that will help curb, to curb risk-taking behavior and try, by this way, to prevent the likelihood of future crises.
So, that is the main target of this paper which is going to be discussed. It is a draft paper, as you know. It is going to be discussed by the G-20 Ministers. The final version will be prepared for the Heads of State meeting in June.
Let me end by underlining the fact, and you will not be surprised, that in our view the Fund's role remains absolutely central. For this, our mandate, the IMF's mandate needs to reflect better what we are really doing. We are not trying to review the mandate to extend what the IMF is doing, but just to try to have this mandate fit with what we are really doing, which is not exactly the case because what we have been doing has evolved over time while the mandate has not.
So, we want to put more and insist on multilateral surveillance. As you know, during the crisis, we beefed up crisis prevention tools, the FCL. We are trying to set up a new precautionary line for other kinds of countries. We are working also on a multi-country swap line to help countries have a good track record in the event of a crisis. So, there are a lot of things that we are working on to try to prepare the Fund for being able to help the membership in case of a new crisis in two, five, seven, or 10 years from now.
Of course, to do all this—and this is my last point—governance has also to be reformed. We are working on that. You will remember that in Pittsburgh at the G-20 and then the IMFC at the last Annual Meetings have asked us to prepare and manage a shift of 5 percent of the voting powers and we are working on that. I will not say it is easy because, of course, it involves a lot of political concern, but I think it will be done on time.
At the same time, we are working on the size of the Fund, because the question of the adequacy of the Fund to the economy and the usefulness of this Fund for its membership is also related to the size of the Fund, so it is also part of the discussion on governance.
So, I will stop here. Of course, John and myself are prepared to answer I will not say all your questions but maybe most of your questions.
QUESTION: Can you tell me in either the G-20 setting or the IMFC setting what concrete advances you expect in the regulatory agenda sphere, and that can include the bank tax as well. I mean, there clearly will be a lot of discussion, but what would you expect in a concrete fashion?
MR. STRAUSS-KAHN: Well, I think it will be totally unfair to say that things are not moving. They are. The FSB, and you know we are a member of the FSB, is doing a very nice job. The problem is that the technical time for preparing this kind of regulatory or supervisory reform is a long time. I used to remind people that the Basel II process took 12 years. We do not have 12 years; we do not even have six years; and we need to go much faster. But, even going faster, it takes time.
On the other hand, we have political pressure in most countries, including the U.S., the European Union, others, which ask governments to go forward more rapidly and to implement reform more rapidly. The risk of this—which is not only a risk but already materialized somewhat—is that, doing so, different parts of the world will have their own proposals, which all makes sense when you are looking at the interests and the problems of the countries preparing this reform, but which may be somewhat inconsistent. And there are many fields, concerning credit rating agencies, OTCs, hedge funds, other problems, where what is already announced, if not implemented, by the U.S., the Europeans, the Japanese, and others are just inconsistent and may create problems.
So, our main concern is to have everybody trying to work together and to maintain the cooperation momentum on this question that we had on the stimulus. So, you are asking me what is the main output I am expecting. It is kind of a commitment—commitments are just commitments but they are more than nothing—to try to work together and adapt what they are doing, taking into account the remarks of the others. It does not mean that we need exactly the same kind of regulation everywhere, but what we need is to avoid a question on which really it will be inconsistent and create problems.
QUESTION: I have two questions. One is, as you know, Argentina is the only country that does not have an Article IV revision of the G-20. I was wondering if that is a problem for the IMF monitoring of the economies of the G-20.
Second, the Argentine government just announced a swap and I was wondering if you think that this is enough to normalize the relationship between Argentina and the markets, so if more is needed like to arrange with the Paris Club and other things.
MR. STRAUSS-KAHN: Well, we are very lucky because in this room you have an expert about the relationship between the IMF and Argentina. Maybe I should ask him to answer the question.
MR. LIPSKY: Thank you.
Of course, Article IV consultations are a regular part, a basic part of our relations with all our 186 member countries and is part of the obligations of our members. It is part of our obligation to our members. So, we are very hopeful that we will continue to make progress. We have had contacts with the Argentine authorities and we hope that in a reasonable timeframe we can agree on a scheduling of a new Article IV.
There are some technical issues to be solved before that can take place. We hope that step by step, as the Argentine government has made clear, they are in a process of moving toward a complete renormalization of their relationships with international capital markets and, of course, to take their place as a G-20 member and fulfilling all their international obligations.
Thank you.
QUESTION: These days we are in the news for better or for worse. Two questions.
First of all, in general terms, what should Greece be doing? I know your people are in Athens negotiating, but I am just wondering in general terms what should Greece be doing.
Also, there is a complex mechanism with the European Union. I was wondering, will whatever is decided have to conform with the IMF's regulations, or needs, or decisions, or are these two separate packages?
Thank you.
MR. STRAUSS-KAHN: Well, I think everybody can understand that I am not going to make a lot of comments on Greece because we are just negotiating with the Greek authorities. The point is that we just started this negotiation. Until now, we are not involved in the discussion with the Greek authorities but providing some technical assistance, which had been asked by the Greeks for months and we provided.
But, in all financial discussions, we were not involved. We are just starting now, and even with some delay because of the volcano. So, it is going to take some days and it is difficult for me to give any kind of opinion before the negotiation mission comes back with its report.
Now, it is clear that the Greek situation is a very serious one, and we are very much concerned. It is a serious one for the question of macroeconomic stability of Greece and even more than Greece. It is also a very serious question for the Greek people, because the efforts which the Greek people have to make are really very important.
I do understand that the Greek citizens can become somewhat reluctant to this kind of effort, but they have to understand that what the Europeans have tried to do until now and that we will try to help to do also is just in the interest. They need to solve the problem in which they are. There is no way, no silver bullet to solve it in an easy manner.
So, we will have altogether the Europeans, the Greeks, the Greek authorities I mean, but also the Greek people and all parts of society, the unions, business unions, everybody, and the IMF to try to find together the best way to put Greece back on track.
Now, on your question about the cooperation with the European Union, I think there is no real problem in cooperating with the Union. We already did this for countries outside the Euro zone: Latvia, Hungary, Romania. So, we now have some experience of doing this. Of course, we will have to follow the IMF rule and in no way Greece can be treated as a different member that the IMF has to deal with in the past year or decade.
But the fact that the Europeans are on board and helping is certainly very useful not only on the financial side, because they will provide an important amount of resources, but also because of the mechanism and the linkages between the different economies, especially in the Euro zone. It is perfectly normal that the Greek authorities will seek some advice and support by their peers in the Euro zone, and it is okay with us.
So, we are starting a discussion, the IMF with the Greek authorities. We only know the Greeks, you know. We have no direct connection, formal connection with the European Union. The Greeks are our member, not the European Union, so our discussions are taking place only with the Greeks, and we will try to do it in the best possible way to help the Greek economy.
MS. ATKINSON: Thank you.
I have a question online here from Portugal.
“Is the IMF worried about the sovereign debt situation in the Euro zone and prepared to intervene in other countries than Greece—Portugal or Spain, for instance—if necessary?” That was a question to the Managing Director.
MR. STRAUSS-KAHN: Well, concern about the sovereign debt in the Euro zone, let me first say that the sovereign debt in the Euro zone taken as a whole is rather lower than in many other parts of the world. So, if you consider the Euro zone as a whole, there is no specific problem of sovereign debt.
Now, obviously the question was not for the Euro zone as a whole, but also trying to focus on some countries. For these countries, I do not see that the problem today is much bigger than it can be in many other countries, not only in the Euro zone but outside the Euro zone. So, of course, if the question is, are you prepared to help some of your members if needed, that is the definition of the IMF so, yes, we are prepared to help countries, if needed. But we do not see a need these days to focus on any other countries but Greece.
QUESTION; I would be interested how the IMF perceived the newest statistics by Eurostat this morning that the Greek indebtedness is still higher than has been announced so far, and how the IMF will deal with the statistical problems of Greece. So, do you really get an overview of how the situation actually is in Greece?
The second question is about the debt in Greece. There is some discussion starting about do we need some restructuring of the debt of Greece.
MR. STRAUSS-KAHN: On the first point, there has been some revision. There have been many talks in the last weeks about the reliability of the Greek statistics so Eurostat has made some revision in a bad direction; I mean, in the correct direction in terms of statistics but a bad direction in terms of looking at the macro economy. So, of course it does not help. If the problem has to start by it being a little worse than we expected, we will take this into account; that will be part of the discussion that we are going to have with the Greek authorities in the coming days. I do believe now that we have firm basis and solid data on Greece which, of course, is absolutely necessary to be able to build a program.
On your second question, that is not a question we are working on. We are working on a plan which is basically in line with what the Europeans and the Greeks already had prepared. Of course, the IMF plan has to look further for other years, 2011, 2012, and that is a large part of the discussion that we will have with the Greeks, but we are focused on this.
MS. ATKINSON: Thank you.
Switching to another part of Europe, there is a question online about Iceland asking how content you are with how the IMF plan is progressing, and do you foresee further delays for the next review, and also how much of an impact would the volcanic eruption have on the global economy as opposed to people's ability to get here.
MR. STRAUSS-KAHN: I am happy that you do not have the question the other way around, how much an impact the IMF program has on the volcano, because then I would be in trouble.
Well, for the first part of the question, I am happy that we completed the second review. You know it has been somewhat delayed because there was a need of securing third party financing, namely from the Nordic countries, and it was not that easy to do. Now it is done. I am very happy also to see that the program is going very well. Iceland is clearly on track. Whatever we asked the Icelandic government, what we discussed with the Icelandic government have been put in place and the results are there.
Iceland's economy is, I will not say, totally saved but all disasters have been avoided. It is difficult also for the Icelandic people, of course, because of the huge losses by oversized banks, but I think the program was the right thing to do. I think the government today totally acknowledged this. I have no concern about the third review if, of course, what is supposed to be done by the government from now on to the third review is put in place, but I have no reason to believe it will not be the case because, until now, everything has been correctly done.
Now, on the impact of the volcano on the global economy, frankly I have not seen any serious assessment of this until now. If—but it is a big "if," of course—the problem stops or is now decreasing, I do not believe the impact will be that big. Of course, there will be some impact on airline companies, but on the macroeconomic side it is not really significant.
If, as it was the case a hundred years ago—I do not remember when—it lasted 440 days and for that 440 days you have no airline traffic over the Atlantic, that may be another story, but it does not seem to be the case. You know we are specialized here in some kind of forecasts, but we limit ourselves to economic forecasts.
QUESTION; I wanted to ask you, Mr. Strauss-Kahn, that President Obama is announcing today measures to regulate the financial markets. I was wondering if you could give us your opinion on that, and also if you think it comes a little too late, given the situation of the world economy.
MR. STRAUSS-KAHN: Well, I mean, it is a mixed answer, because I told I just a few minutes ago that from one point of view we were a bit worried that it comes too soon; it comes too soon in terms of having a global answer and the fact that the different countries are moving which, again I can totally understand, makes it more difficult to have a global and coordinated answer. So, I will not say it comes too late. On the other hand, what is done by the U.S. authorities is not that far from what we are proposing ourselves, so I do not think it creates a big problem.
I hope that legislators, the American administration on the one hand, but other countries on the other hand also will take advantage of this report, even if it is only a draft report for which we are going to listen from the Ministers to produce the last version for June, will take advantage of this report to try to maybe channel part of the point where they are open to change to make it more compatible and more consistent which what could be done in other parts of the world.
MS. ATKINSON: Thank you.
I am going to take another question online and then just another couple in the room.
Governments and central banks are starting exit strategies from their extraordinary financial support during the crisis. The IMF, on the contrary, is discussing higher quotas and new tasks. What plans does the IMF have for its own exit strategy from elevated loans, and when will the IMF start to exit from its crisis mood?
MR. LIPSKY: First of all, we have been very clear, and I think the Managing Director earlier was clear that given the status of the fragility of the recovery, it is premature to start in general saying it is time to withdraw support. Similarly, for the financial sector, exit strategies will have to be done carefully over time.
For ourselves and our own support for our members, our programs do contemplate, because they are multi-year, do contemplate a strategy for a return to normal economic performance, regularizing economic performance, and normalizing financial support and public finances in general. So, obviously, these will need to be adjusted as the situation evolves, but we will be paying close attention to our own relations with our members.
QUESTION: You just mentioned multilateral cooperation in the global recession. Could you explain the impact or the role played by the emerging markets, such as China?
MR. STRAUSS-KAHN: Well, as everybody knows, the stimulus package put in place by the Chinese for their own sake and for the support of their own economy was mostly directed at shifting part of the growth model from exports to a domestic-led growth model. That will have a lot of influence not only on China, of course, but it will have also, I guess, a lot of influence on the global economy, because one problem which has been extensively discussed before the crisis about the global imbalances has been a little forgotten during the crisis because other topics were on top of the agenda but are clearly coming back today with the recovery, and this question of global imbalances looks now a bit different from the one we had before the crisis.
On the one hand, on the United States' side they have more savings, which means probably less deficit, so from this side part of the imbalances may be corrected; but on China's side our view is that it is consistent with the new growth model to contemplate and we expect to contemplate over time some revaluation of the currency just in the interest of the Chinese economy itself. When you have a more domestic-led growth model, you want to fight inflation, you want to give more purchasing power to your consumers, and this goes along with higher value of the renminbi.
So, I am not expecting that is going to happen over time, but I think that is the medium-term strategy that I will advise the Chinese authority to follow and I think they will follow, not because I am advising it but because it is in their own interest. In my view, things are about to change slowly, not suddenly; they are going to change, and I think they are going in the right direction.
An important point for this is that the discussion of this question, in our view, in the IMF, would be much better held in a multilateral institution rather than bilaterally between the two main players, namely China and the U.S., and so the IMFC, the IMF multilateral consultation, but also the G-20, all these kinds of bodies are certainly the right place to try to address these questions
QUESTION: (THROUGH INTERPRETER) Mr. Strauss-Kahn, I have two questions, Sir. You said earlier that this is still a dangerous world. What are the threats that we need to face? What are the challenges?
MS. ATKINSON: If you could summarize it quickly in English as well, that would be great.
MR. STRAUSS-KAHN: If I am allowed, it is okay.
[LAUGHTER]
[THROUGH INTERPRETER] Well, there are several challenges that we need to meet. The first is that in a number of countries unemployment continues to rise and so we cannot in any way assume that the crisis is behind us. In some countries, not in all, and some advanced countries, unemployment continues to rise. The second challenge is that the recovery is certainly there, but it is fragile within the G-7, and among the advanced countries in general it remains fragile. So long as private demand remains what it is, we know that public policy will have to remain vigilant for the crisis to move on to stronger terrain.
The risks of future crises remain latent. There is, of course, also the question of public indebtedness. I would like to underscore—and I will say a word in English on this point—that our judgment here at the IMF is that for the advanced countries the ratio of debt to GDP before the crisis and to 2014 will go from 14 percent. So, there is an economic slowdown.
Three percent of the 35 percent is due to the stimulus, so let us not believe that, because there has been a stimulus, there has been an increase in indebtedness. On the contrary, because of the stimulus, there has been more growth and that has led to less indebtedness than would otherwise have been the case. But that does not mean that we must not in any event continue to move toward more sustainable levels of indebtedness. Let me move to English.
[IN ENGLISH] Our forecast is that when you compare the ratio of debt over GDP before the crisis and in 2014, this ratio will jump for advanced economies from 80 percent, Eight-Zero, to 115 percent, so it is an increase of 35 percent. The point I would like to make just to avoid misunderstanding is that this is mainly due to the downturn in economics, economic downturn and the fact that growth was lower, even negative, that you have less revenue, more expenditures, this kind of thing.
But the stimulus by itself has only a share of 3 percent out of 35, and the stimulus by itself has only a 3 percent impact, which is 1/10 of the total increase in the debt ratio. So, it would be totally wrong to argue that, because of the stimulus, you have an increase in the debt ratio. Because of the stimulus, you had more growth and less increase in the debt ratio that we would have had without the stimulus, and that, I think is a very, very important point.
The other point is that, of course, our main concern today has to do with unemployment. The answer I gave to your Canadian colleague is that one of the threats, not only one of the concerns but also one of the threats to the recovery, one of the concerns because it means the crisis is not over but one of the threats because, with high unemployment, you have—sorry— you have low private demand, and this low private demand may be one of the reasons why the recovery does not go fast enough. So, unemployment is really one of the main problems countries have to address now.
MS. ATKINSON: Okay. Thank you very much.
I know that there are lots of questions, but I am afraid that is all we have time for now. We have another press briefing— we have many, but we have another one with the Managing Director on Saturday after the IMFC Meeting. Thank you.
MR. STRAUSS-KAHN. Thank you.
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