Transcript

Assistant Director, External Relations Department
International Monetary Fund
Washington DC
Thursday, August 24, 2006

MR. HAWLEY: Good morning, ladies and gentlemen here in the room and to those of you joining us by the Media Briefing Center to this, one of our regular media briefings for the press by the IMF. I am David Hawley. I am an Assistant Director in EXR.

Before taking your questions, I would like to run through a few of the events that will interest the press in the run-up to the annual meetings next month in Singapore. May I remind you that, as always, this briefing is under embargo. We are planning to hold the embargo lift at 11:00; that is 1500 GMT. I will remind you of the embargo at the conclusion of the briefing.

Let me start by mentioning some of the activities that will involve the Managing Director, Rodrigo de Rato, ahead of the annual meetings. I will start by mentioning that on September the 5th, here in Washington at the Brookings Institution, Mr. de Rato will give a speech that I think you should regard as the curtain raiser for the annual meetings. In this, he will address some of the annual meeting themes. Another important speech he will give, as the Managing Director always does at the annual meetings, will be on September the 19th in Singapore, which is the opening session of the annual meetings proper. He has, in addition, speeches on September the 8th in Calgary, Canada, and on September the 12th in Vienna, Austria. We will endeavor to get advanced copies of the speech to the media through the Media Briefing Center ahead of time.

His other events that you should be aware of are on September the 15th in Singapore, he will hold his opening press conference for the annual meetings; and on September the 17th, he will participate, together with the Chairman of the International Monetary and Financial Committee, in the press conference at the conclusion of the IMFC meeting; and the following day, he will join the President of the World Bank, Mr. Wolfowitz, at the Development Committee press conference.

A non-press event that you should be aware of is that he, together with Mr. Wolfowitz, will, on September the 16th in Singapore, have a meeting with CSO, a town hall meeting which has become a feature of the annual meetings in recent years.

I should like also to mention the release timetables of two of our flagship publications, the WEO, the World Economic Outlook, and the GFSR, the Global Financial Stability Report.

The WEO, this year, as usual, we will release in two portions. The first portion, the analytic chapters, will be released at a press conference on September the 6th here in Washington. The analytic chapters will be related to trends in economic development and growth in Asia, the role of financial systems in economic cycles, and trends in non-fuel commodity crises. These chapters will be available ahead of time, as usual, on the online Media Briefing Center. We sent details of this in a note correspondence earlier this morning. The WEO press conference itself, where the projections will be released, is on September the 14th in Singapore. Both these press conferences will be led by Raghuram Rajan, the Economic Counselor and Director of the Research Department.

The release of the Global Financial Stability Report will be on September the 12th in Singapore, and Mr. Jaime Caruana, the head of the newly merged department, formerly the International Capital Markets Department and the Monetary and Financial Systems Department, will lead a press conference on September the 12th. Again, a copy of the report will be available ahead of time. Hard copies of both reports will be available to the press in Singapore.

The Board has resumed its work after the autumn recess, and you can follow the Board agenda on the Fund's external web site.

With that, I am happy to take your questions, both from those of you in the room and those remotely through the Media Briefing Center. Thank you very much.

QUESTIONER: David, nice to see you here.

MR. HAWLEY: Thank you.

QUESTIONER: Two things: One, a quick question, do we have a date about when the IMF mission will go to Turkey, probably, presumably in September?

Secondly, this year, there has been much talk about an IMF reform that would include some quota changes for a number of countries, probably some poor countries in the next round in Singapore. I would not expect you to announce any of the countries, but I would like to ask something more theoretical and probably important. I would expect you to tell me what a quota rise or a share rise means. For example, Turkey's share presently is 0.46 percent which is pretty negligible. What happens if that rises to 0.70, for example? What concrete effects will Turkey or would any country with a quota rise see? Thanks.

MR. HAWLEY: Okay, I will take your Turkey question first. The next mission to Turkey is likely to be at the beginning of October, and it will conduct discussions on the fifth review. The policy priorities and program are continued prudent and monetary policies to rein in the current account and facilitate disinflation on the structural front. Continued progress is expected in the areas of tax reforms and state bank privatization.

Let me turn to your quota question. In answering the question, generally, the size of a country's quota in the IMF determines, among other things, the size of its voting power in the Institution and also how much it might borrow from the Fund because, as I am sure you are aware, limits on borrowing are expressed in terms of quota size. Of course, an increased quota increases the voice of that member in the IMF.

QUESTIONER: [off mic] May I have a follow-on?

MR. HAWLEY: Sure.

QUESTIONER: So, does it mean that if a country has a raised limit for borrowing, would it affect the interest rates?

Secondly, you said the mission would come to Turkey in early October, not September, is that right?

MR. HAWLEY: I will confirm the October date for you; yes, at the beginning of October.

QUESTIONER: I was asking about the interest rates. If a country can borrow more, and it seems that the IMF also has the authority to lend more than the ceiling, but the interest rates change in that case. In other words, having a larger quota, would it mean better or lower interest rates?

MR. HAWLEY: A larger quota does not influence, in itself, the interest rate at which a country borrows from the Fund.

Lesley?

QUESTIONER: David, can you say anything about the Board meeting yesterday as to how it went? Do you see progress made? Are you hopeful of some sort of concrete proposal that goes to Singapore? That is one question, and I have another follow-up.

MR. HAWLEY: Shall I start with that question?

The Executive Board, as you know, held a discussion yesterday on a possible package of reforms to the quota and the voice in the IMF. The discussion was substantive and constructive, and it has considered, as I say, the proposed package.

The elements of the package were described by the Managing Director most recently in his speech in Tokyo at the beginning of this month and, as you know, include an ad hoc quota increase for a number of countries which are most under-represented in relation to their weight in the world economy. Another element of the package is to increase the basic votes of all members of the Fund, but that is a step which benefits, of course, most of the low income members. In addition, there was discussion of a new quota formula and possibly a second round of ad hoc quota increases after an agreement on the new quota formula.

We expect that this work, the work begun yesterday in the Board, will continue in the coming days with the aim of reaching agreement on a package by the annual meetings in Singapore. As you know, that has been the objective since the spring meetings in April, and we remain optimistic that that objective will be met.

QUESTIONER: Thank you.

My follow-up question is regarding China. China recently raised its interest rates to curb a credit boom. Some are calling it an overheating already. Do you have any comments on that move and do you think that that move was substantial enough to cool the economy?

MR. HAWLEY: I have a comment on the interest rate move you mentioned. The Chinese authorities have taken important steps to slow credit and fixed investment growth to more sustainable levels. However, economic activity remains strong, driven by net exports and investment, while inflation is low. Macroeconomic policies should continue to be geared towards restraining investment growth. While the recent increases in reserve requirements and benchmark deposit and lending rates are welcome steps, a significant risk still remains that macroeconomic policies are not sufficiently tight. Additional monetary tightening would drain liquidity from the banking system and guard against continued rapid credit growth.

QUESTIONER: Another question?

MR. HAWLEY: Please.

QUESTIONER: This is another follow-up. This one is regarding the global imbalances. There were bilateral meetings that have happened already. How soon can we see the actual roundtable of thought taking in place among the biggest players?

Also, I am interested to know, is there a timeline on how long this process can last? Surely, it wouldn't be an indefinite process.

MR. HAWLEY: I have got no information for you on specific discussions between the participants and the Fund on the multilateral consultation on global imbalances. If you look at the press release we issued when we announced the multilateral consultation on global imbalances, we made clear that this would be a process that would take several months, and I think the way to characterize the current state of the consultation is to say that it is at an early stage.

QUESTIONER: Two questions for your consideration: One is that, after September 11th, the whole global focus has been on antiterrorism as well as safety. In view of this, what is going to be, according to you, the expectations for the upcoming annual meetings in Singapore, the main topic or the main theme of the annual meetings? That is one.

My second question is developing countries like India who have been playing a key, major role nowadays in the international financial matters, what kind of role do you expect for a country like India, which has never shown a default? On the contrary, they have paid the repayment in advance. So what kind of role do you expect and also what further steps to be taken by developing countries like India? Thank you.

MR. HAWLEY: Let me start with your first question on the themes of the annual meetings. I speak from the Fund side. I am not going to address the issues that the Bank will have at the annual meetings. As you know, the Fund's main agenda is at the IMFC, the International Monetary and Financial Committee. We haven't yet published the agenda of that meeting, but we will do so in advance of the annual meetings, but it is no secret that the work of the Fund has focused on the Medium Term Strategy that the Managing Director has launched, which looks at many aspects of the work of the Fund to provide a roadmap for our work in the period ahead. During the annual meetings, I think you should expect to hear many aspects of the MTS discussed, including the Fund's work in surveillance and our role in low income countries.

As always, at the annual meetings and at the spring meetings, there will be discussion of the World Economic Outlook, the flagship publication which I mentioned at the beginning of this briefing.

I am sorry. I didn't quite follow your question on India. What aspect of India's contribution?

QUESTIONER: The second question?

MR. HAWLEY: Yes.

QUESTIONER: Developing countries like India, which have in the past been taking loans and aid from the world institutions, now, because of their fiscal and monetary reforms, they have been a major player in the international finances. For a country like India, what kind of role do you expect? What do you, meaning the World Bank and other interests of the financial community, expect from countries like India, so that they can contribute more for the global economic and financial growth?

MR. HAWLEY: India is a major member of the IMF and plays an important role in the Institution at every level. The Fund's views on the Indian economy are well known. I can repeat them for you, if you wish.

Growth in 2006 and 2007 in India should moderate to about 8 percent against a backdrop of higher oil prices and rising global interest rates. A further rise in oil prices and a slowdown in global growth constitute risks to this outlook. However, staff strongly supports the resumption of fiscal consolidation in 2006 and 2007 budgets, and this should help counter growing demand pressures while enhancing the credibility of the Fiscal Responsibility Law. Over the medium term, tax base broadening and subsidy reform will be key to improving the fiscal situation. With the inflationary pressures building and credit growing rapidly, the RBI needs to remain vigilant. Further rate increases may be needed to anchor inflation expectations and curb demand pressures, particularly in light of need for further pass-through of higher world oil prices.

Do we have any other questions?

If we don't, I will conclude this briefing. I will remind you that the embargo is set for 11:00. Thank you very much indeed.

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