Transcript of a Press Briefing by Gerry Rice, Director, Communications Department, International Monetary Fund
IMF News, June 11, 2015
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- Published: June 11, 2015
Greece — status of negotiations and key obstacles
- Current status:
- "There are major differences between us in most key areas."
- "There has been no progress in narrowing these differences recently and thus, we are well away from an agreement."
- IMF "never leaves the table" and "remain[s] engaged"; Greek authorities are preparing further proposals.
- Main obstacles identified:
- Pensions
- "Pensions and wages account for 80 percent of Greece's total primary spending."
- "Greek pension funds receive transfers from the budget of about 10 percent of GDP annually."
- Comparator: "the average in the rest of the Euro zone of two-and-a-half percent of GDP."
- "The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany."
- IMF emphasis: protect "basic pensions that are targeted to the most vulnerable groups" and planned rollout of a "national safety net."
- IMF view: "the Greek pension scheme, system is unsustainable."
- Taxes
- Concern with "increasing already high rates on a low tax base" — not sustainable.
- "Greece has among the largest gaps in the European Union on VAT revenues that are actually collected versus VAT revenues that should be collected given the rates."
- IMF view: VAT structure "is highly complex and allows for significant leakage"; "reforms of the VAT that greatly simplify the structure should allow for tax collection, we think, of an additional one percent of GDP."
- Financing and debt sustainability
- "It needs to add up" — tradeoff between fiscal measures and financing/debt relief.
- "The more distant the measures agreed and targets are from the original commitment made in 2012, the higher would be the need for additional financing and, indeed, debt relief to make Greece’s debt sustainable."
- "There is an agreed framework in place for dealing with Greece’s debt in the current program. That is with the European partners. There has been no discussion on a change in this framework."
- IMF will "update our debt sustainability assessment in the context of the comprehensive review of the government’s policies."
- Negotiation stance and process:
- IMF will not speculate on outcomes; technical discussions recently stopped and the IMF technical team "has returned from Brussels."
- "We remain engaged" and ready to resume technical talks; no timeline provided.
- The joint proposal put to Greek authorities was "a joint proposal of the three institutions."
IMF role, principles, and political neutrality
- Institutional posture:
- IMF describes itself as "a technical institution" with "188 members" and seeks to be "evenhanded."
- On flexibility: IMF can be flexible on fiscal targets if "it has to add up on the other side of the equation in terms of additional financing, debt relief, to make the whole thing coherent and again, add up."
- Interaction with European partners:
- The proposal referenced was prepared jointly by "the three institutions" (IMF and European partners).
Ukraine program and contingent issues
- Recent engagement: Managing Director met with Ukraine’s Prime Minister and Minister of Finance; "Understandings have been reached on most issues."
- Outstanding items: "A number of issues still have to be resolved before we move forward" — no specific timeline.
- Debt restructuring and lending into arrears:
- First Deputy Managing Director Lipton: important that Ukraine and creditors reach an agreement "in line with the three objectives of the operation" before the IMF review; outcome is a "very important consideration."
- If Ukraine cannot continue to pay private creditors but meets program goals, IMF policy "lending into arrears" may allow continued lending provided policy conditions are met.
Cyprus program update
- Board schedule: "The board is expected to meet on June 19th" to consider approving the combined "5th, 6th and 7th reviews of the Cyprus program."
- Progress noted:
- "Return of growth" and lifting of capital controls.
- "Returned to issue debt in the market in the international market."
- Public finances "have improved considerably."
- Recently approved "insolvency and foreclosure frameworks" seen as key to getting credit flowing again.
- Program objective restated: growth, job creation, improved living standards.
Nepal — rapid financing request
- IMF received "a request from the Nepalese authorities for financial assistance under our rapid credit facility."
- Mission timing: "A mission will be going to Katmandu later this month" to coincide with the international donor conference scheduled for "June 25th."
- Facility details and potential access:
- RCF is "the fund's zero, zero interest line."
- "Nepal would conceptually be able to access about 50 percent of its quota per year, that’s about U.S. 50 million."
- "125 percent on a cumulative basis which is about 124 million."
- IMF readiness: "We could move ... pretty quickly" if discussions conclude.
Jamaica — program cash flows and poverty concerns
- 2014–15 cash flows:
- "In 2014 - 15 there were U.S. $259 million in IMF disbursements and U.S. $422 million in repayment to the fund."
- Net purchase: "a net outflow of U.S. $163 million to the IMF" in that period.
- Projections: "in 2015, 2016 the direction of the net flow is the opposite with net IMF inflows to the country, positive flows to the country projected at $127 million and in 2017-2018 the net flows are projected at $176 million."
- Poverty discussion:
- IMF disputes a direct correlation between the program and increased poverty rates in Jamaica.
- Global context: World Bank indicates poverty rose "from 9.9 in 2007 to almost 20 percent in 2012" in affected contexts.
- IMF program measures: a "floor on social spending expenditure to protect the most vulnerable Jamaicans" and expectation that poverty rate will decrease as growth and confidence increase.
Ghana — eurobond planned under program context
- Ghana plans to issue a "billion dollar 10 year euro bond in 2015."
- IMF context:
- "This euro bond issue was indeed envisaged under the program with Ghana."
- For countries "at high risk of debt distress like Ghana reducing the debt burden and associated vulnerabilities is a priority."
- Authorities must be "very selective with regard to new non-concessional borrowing" because it can "escalate debt."
- IMF policies are "flexible" and can accommodate some non-concessional borrowing if it finances "critical and profitable projects for which concessional financing are not available."
U.S. Article IV surveillance and monetary policy advice
- IMF role: provides advice to all central banks as part of surveillance, including on monetary policy.
- On U.S. timing for rate normalization:
- IMF recommendation: "monetary policy should remain data-dependent."
- "Given the balance of risks around normalizing policy rates, we said we think there's scope to defer rate hikes until there are greater signs of wage, or price inflation than are currently evident."
- Under IMF projections: "this would put the first policy rate increase into 2016."
- Caveat: "any specific projection will turn out to be wrong, perhaps markedly so" — actual course should be determined by incoming data; decision is "entirely a decision for the U.S. Federal Reserve."
IMF internal items and process notes
- Euro Area Article IV: Managing Director to travel to Brussels and Luxembourg; Luxembourg meeting on "June 18th" will focus on preliminary staff conclusions of the IMF's Euro Area Article IV consultation.
- Executive Board timing:
- No date available for discussion of the "Systemic Exemption Rule" related to sovereign debt restructuring reforms; IMF will provide a date when available.
- IMF presence: resident representative remains in Brussels; technical team returned to Washington.
Transcript of a Press Briefing by Gerry Rice, Director, Communications Department, International Monetary Fund — June 11, 2015