Transcript of a Press Briefing by Thomas C. Dawson, Director of External Relations Department, IMF

February 23, 2006

Director of External Relations Department
International Monetary Fund
Washington DC,
February 23, 2006

View a Webcast of the press briefing

MR. DAWSON: Good morning, ladies and gentlemen. I'm Tom Dawson, Director External Relations at the IMF, and this is another of our regular press briefings. As usual, the briefing is embargoed until the conclusion, no, 15 minutes after the conclusion, and we'll set a particular time, a precise time at that point.

I'd like to make a few brief announcements before I take questions. First, I would like to flag an issue that is of particular concern to us at this time. As you probably know, we have periodically issues press releases to warn the general public about scam artists drawing on using the IMF name. It's come to our attention that in recent weeks, an entity calling itself "F&D - Financial and Development Division," end quote, has surfaced using the IMF mailing address. It is a clear attempt to defraud people. We have no accurate information at this time about what this entity is or who is involved, but we want to make it clear that the entity is in no way connected with the IMF, and that persons who receive letters purporting to offer large cash rewards, should contact federal law enforcement authority.

According to the information we currently have in hand, it appears that this scam is currently targeted at elderly persons in the United States, along with recent immigrants to the United States. The Media Relations Division can fill in members of the press on further details if you are interested.

Let me now turn briefly to management travel and other items. The Managing Director will be visiting Honduras on Monday, February the 27th. He will meet with President Zelaya, as well as authorities, legislators, private sector representatives and religious leaders, including Cardinal Rodriguez on Tuesday, February the 28th. I'm sorry, that was on the 27th.

On Tuesday, the 28th, the Managing Director will be in Guatemala, where he is scheduled to meet with President Berger, along with other government officials, legislators and representatives of civil society and the private sector. In both countries he will hold press conferences and have press availability.

I believe Media Relations will be accompanying the Managing Director, and I think Francisco Baker is down there now making arrangements.

First Deputy Managing Director Anne Krueger will be speaking later today at Stanford University's Graduate School of Business. The text of her address will be published on the Fund's website later but I do not believe it will be available in advance.

I'd like to again repeat that Fund and Bank Spring Meetings officially will convene on April 22nd and 23rd here in Washington. We'll be opening online press registration around March the 1st.

Now I'd like to turn to questions and welcome the press watching via the Media Briefing Center's webcast. Please feel free to submit questions. I will do my best to answer them, but if I do not get to them during the press briefing, someone from the Media Relations Staff will follow up after we conclude. Thank you, and I'll be happy to take questions at this point.

QUESTION: Could me an update about the Third Review's of Turkey's program Are you waiting for the authorities to advance their program so that they can invite the IMF mission. Secondly, the term of Turkey's central bank governor's term is due to expire in mid-March—either his term will be extended or the someone else will be chosen. In any case, in the post mid-March periond, what kind of monetary policy do you see from the central bank and the independence of the central bank

MR. DAWSON: Well, the first two of your questions, it would appear as if you had helped the European Department write my press guidance because they are precisely the questions asked. The last part of your question, I think was a bit unexpected on their part.

But first of all, on the third review mission in Turkey, the timing has not been set, and as the authorities have in fact requested more time to advance implementation of their program. Of course, we remain in close contact with the authorities, both from headquarters and through the Resident Representative Office.

In terms of the Central Bank and the governor position, I mean, obviously, any decision on this issue will be taken by the government in due course, and the Fund does not get involved in decisions of that sort. And I think I would just leave it at that. I don't have enough data on the current program, in terms of economic indicators, which I think was part of your last question. Do you want to follow up?


MR. DAWSON: I mean we are—in terms of the program, I mean we do certainly believe and sense that the authorities are intent on getting early passage, for example, of social security reforms so that the review can go forward. So in that sense it's quite similar to my position in the past, which has been there has been a pattern of at times, because of the political calendar, legislative calendar, requiring time for the authorities to get the measures passed, and that's exactly the kind of situation that we see we are in. It's not a change.

QUESTION: Do you have any updates on Zimbabwe?

MR. DAWSON: Sure. And I might also add that we have an online question that just popped up at this point from Zimbabwe Independent, stating Zimbabwe printed 21 trillion, Zimbabwe dollars to raise foreign cash for arrears payments. What is the view of the IMF on this strategy?

I could perhaps start by answering a little bit of your question in terms of the state of play, and I'll get to that one in particular. Zimbabwe has been in arrears with the Fund for almost five years. They did increase significantly their payments to the Fund in recent months, and as we indicated on February 15th, have fully settled their overdue financial obligations to our General Resources Account—that's our ordinary quota based resources—on that day. There are still arrears to the PRGF, on the PRGF side of the account amounting to approximately SDR 83 million.

There have been questions regarding the sources of funds for the payments that Zimbabwe has been making during 2005 as well as in 2006. Since the conclusion of our Article IV consultation in September of 2005, we received further information from the authorities on sources of some of those payments—and it would appear the authorities have used a wide range of sources including funds from export proceeds, so-called free-funds, which are funds not linked to exports, and a credit facility.

However, the authorities's explanation of the sources of payments to the Fund are not inconsistent with the revised reserves and balance of payments data reported by the authorities to the Fund, but we are unable to independently verify the data and explanations provided, and we have urged the authorities to improve the reporting of Zimbabwe's international reserve position to the Fund and balance of payment data, as well as the transparency of the central bank's financial statement disclosure framework.

In his speech last week, the Governor of the Central Bank made some comments about the payments to the Fund, and attributed the high inflation of 2005 and 2006 to the printing of large amounts of local currency to pay foreign exchange. We cannot reconcile the numbers that the Governor cited with the information previously provided by the authorities on the sources of payment.

But I would make it very clear that—and I would note that there's been the comment, allegations made both within the government, but also from others, observers, that the high inflation in Zimbabwe in some fashion is owed to repayment of the Fund resources. We do not believe that is in fact the case at all.

The reality is that inflation in Zimbabwe has been driven mainly by quasi-fiscal activities of the Reserve Bank of Zimbabwe. The government deficit that is reported at some 3 percent of GDP in 2005 is only a small part of the picture. A truer picture of the public deficit is provided by the consolidated deficit of the Reserve Bank of Zimbabwe and central government, which is estimated to have reached nearly 60 percent of GDP in 2005, up from 27 percent of GDP in 2004.

We have repeatedly urged the authorities to implement a comprehensive policy package so that Zimbabweans can benefit from a sustained non-inflationary growth and a strengthening external position, which would allow the country to meet its payment obligations to the Fund.

There's also been comments made that because of payments to the Fund in some fashion, the Zimbabwean Government, Zimbabweans have had to do without medicines, adequate food, fuel and other essentials, and we do not believe that has been the case at all. If in fact there have been shortages in that regard, it has been entirely because the authorities have chosen the course of action in not implementing the comprehensive package of macroeconomic and structural reforms, that the Fund and including the Fund Board have repeatedly recommended.

Our regular assessment and policy recommendations on Zimbabwe are available on the website, and I think it's quite transparent, but if people have questions on these policies, you certainly can go through that and we're available to answer any additional questions.

Finally, because it's a logical follow up, what are the next steps? As we indicated in the press release last week, the next Fund Board meeting to review the overdue financial obligations—these are the remaining PRGF obligations—is tentatively scheduled for March 8, and at that point Directors will have an opportunity to consider Zimbabwe's cooperation with the Fund on policies and payments, as well as remaining sanctions and remedial measures against Zimbabwe relating to its arrears. And, again, the history of what those are in our press releases over the last year or so.

QUESTION: Can you comment on the recent speech by the Governor of the Bank of England and specifically on his proposal for non resident board?

MR. DAWSON: Well, I mean, the Managing Director, last fall, initiated a strategic review that has, I think, prompted quite an international discussion, dialogue, and consideration. The speech by Governor King, I think, is part of the reactions from our member governments, from our member countries, from individuals. The Fund staff presently are working on the next stage of this strategic review. The Managing Director gave a speech in Rome about 10 days ago that I think was sort of an update of what the state of play is. It will be, I think, very high on the agenda for the Spring Meetings in April.

There are, of course, a number of ideas on the table. The particular one of Governor King's that you mentioned of a nonresident Board is not a new idea. I've heard the idea for probably 20 years myself. That makes me unfortunately reflect my age. I'm sure there are also people I know, are influential members of the institution who believe we should have a larger Board, there are some who believe we should have a smaller Board, there are some people who believe we should have a nonresident Board. All of them I think are sincere. They all have their views on how to make the Fund most effective as it can be, and I think that's the process going on at the moment that the Managing Director launched with his strategic review, and I think the April 22nd, 23rd meetings will be the opportunity to sort of see the degree to which we can get a consensus on the direction to go forward.

We are, of course, an organization with 184 members. We operate on a consensus basis, which means that the vast majority of the institution needs to agree on how to go forward, so I think this is going to be a continuing discussion, and I think the Governor's speech was a valuable contribution to that.

QUESTION: Just to follow up on that on, when you talk about the Spring Meetings and about being able to to getting a consensus....

MR. DAWSON: And not just on that issue. There are a number of issues. For example—how to strengthen surveillance; for example on the governance of the institution and the Board issue—the resident-nonresident size of the Board) is an aspect of the governance of the institution, but there's also the representation issue in terms of countries that feel they are under represented, and that are in fact under represented in the institution, and then for surveillance, the role of the Fund in low-income countries, the role of the Fund in provision of technical assistance, role of the Fund in middle income countries, and so on.

It's a wide range of issues being discussed—and again, you never get in trouble referring to your boss's speech—take a look at the Managing Director's speech in Rome 10 days ago, and I think that indicates sort of the state of play, and there will be, I would say without any doubt, in the run-up to the Spring Meeting, quite a bit more coming forward in terms of the work that has been going on by the staff working groups, as well as the Managing Director's own drawing together of that will also be presented.

And I think it's fairly well known—a number of the wires have reported that various of the G groups are also looking at the issue of, quote "IMF reform," as another way of deciding this subject, and they will be coming forward with their views as well.

At the end of the day it all convenes in Washington, April 22nd and 23rd, and we will see how much progress can be made. I'm not saying, by the way, that the 22nd and 23rd is the conclusion of the process. It does clearly go on for a while, and as I've said in other sessions, on the subject of governance in particular, I think the focus is very much on the meetings in Singapore, as a point to see whether a solution or a path, a specific path can be found.

QUESTION: The risk of people in other countries moving out of dollar asset—the Chief Economist has spoken of that risk recently and the WSJ suggested yesterday that it may grow because of the situation with the Dubai company—if the deal falls through then they say that it may have an adverse effect on the current account. So how does the IMF assess that sort of risk of the US economy.

MR. DAWSON: I don't think it's appropriate for me to comment on what is an active issue in a member country in which the Fund is not directly or even particularly indirectly involved.

On the subject, however, of reserve diversification, asset diversification and so on, we certainly have had—and have written both in the Global Financial Stability Report and in our various World Economic Outlooks on the subject of both asset and liability management in that sense of the word, and in an analysis that looks at it in a pretty clinical, analytical fashion, in looking at public versus private sector actors in this equation, i.e., the behavior of Central Bank versus individual investors, the issue of diversification of reserves on the part of the Central Bank, as well as on the part of individual private holders and investors.

There is quite often a lot of newspaper commentary, speculation about a government or private actor changing their policies, and often a quick overnight story, and then it quickly is discovered that there was a misinterpretation of what was actually reported in a particular publication. We do, as part of our responsibility, publish regularly, at least twice a year, the figures on reserve holdings, where you will see the trends have been rather slow in developing, and indeed, the thought that there was going to be a massive rush, either by private or public actors did simply not materialize.

It's obvious that when Raghu Rajan talks about this, it is one of the risks that we see in the context of the problem of global analysis. I think that's the context in which to look at it. Whether and when there would be any particular triggering event that caused a significant or rapid change is at this point purely speculation. It is our job, however, to note where concerns are and what might cause such a development.

So, I think it is something we look at, but it is not something we have any indication that the key actors have been changing their asset allocation decisions in any significant way, because they make their asset allocation decisions, one would presume with my MBA training, one would presume on longer term macroeconomic and market analysis, as opposed to a particular development that may happen in a political sphere or elsewhere.

Maybe one more, two more questions.

QUESTION: I have two questions. The economic outlook published yesterday by the European Commission is less optimistic on the Italian growth than the IMF's Article IV report recently approved. Do you see any reason for this difference?

MR. DAWSON: And then you had a second one too? Let me take the first one too. This comes up all the time, whether it's European Commission forecasts or OECD forecasts and so on, and I don't have any particular reason to point you toward in terms of what differences may be. The Article IV itself, of course, as a document is a bit dated, although in this particular context, because we just had the Board discussion and released it, and indeed had a Managing Director visit, I think our views are quite up to date and this is just sort of the way different forecasts operate. It's sort of what makes a market. And your second question?

QUESTION: The second one is about the world wide growth. Do you think as the IMF that the growing tensions between Iran and the international community; the growing violence in the Middle East; and the situation or uncertainty between Israel and Palestinians could effect the energy prices in the short term and impact economic growth.

MR. DAWSON: I don't think it's appropriate for me to answer that question sort of for two reasons. One is you couched it in terms of a number of particular recent developments, and speculate off of them. That's not really what our purpose is.

In terms of our views of the global economy, we do regularly, through management speeches, give our assessment of—and when I say "management" in this context I also have to of course include Raghu Rajan—of our prospects of the WEO type forecast and so on. We are in the process of putting together the next WEO forecast, which will be out, I guess, in less than two months from now, and I would leave it at that.

I think our last comments on that point clearly indicate we see continued sustained world growth, and I think I would leave it at that.

QUESTION: I have two questions. Reportedly the U.S. Treasury is considering to regard China as a currency manipulation state on the April Currency report to the Congress. Any comments? [Inaudible].

MR. DAWSON: I think any question on that should be directed to the U.S. Treasury.

QUESTION: The International Insitute of Economic report suggested that the function of the IMF should be reigned in to some extend and that the PRGF function of the IMF should be transferred to the World Bank. Has the IMF discussed with the other multilateral institutions with regard to IMF reform?

MR. DAWSON: Well, that particular issue—well, first the issue of IMF reform, we are always, of course, in contact with every actor involved in that, because part—some issues of IMF reform, for example, deal with Bank-Fund collaboration and so on, and parts of the reform could involve differing divisions of labor. That issue was again raised by the Managing Director in his strategic review.

With the idea of somehow moving PRGF or other functions to other institutions, in this context the World Bank, that is another not-new idea. I would cite not that long ago, the Meltzer Commission, which I think by a vote of probably 5-1 recommended that. There's only one problem. We have lots of people who recommend things that we do. We have 184 member countries, and as far as I understand, the 184 member countries oppose that idea.

So it's unlikely that a think tank is going to suggest to us something that our membership is united against.

Thank you.


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