Transcript of a Press Briefing by Masood Ahmed, Director, External Relations Department, International Monetary Fund

March 29, 2007

Director, External Relations Department
International Monetary Fund
Washington, D.C.
Thursday, March 29, 2007

View a Webcast of the press briefing

MR. AHMED: Good morning and welcome to those of here and also welcome to those who are logged in through the Media Briefing Center.

This is another of our regular press briefings. I am Masood Ahmed. This briefing is embargoed until 11:00.

Before I take questions, since this is the last regular press briefing we are going to have before we get into the Spring Meetings, let me just take a minute to run through some of the events that may be of interest to you.

Let me start by saying that the Managing Director will be giving a curtain-raiser speech for the Spring Meetings here in Washington at the Peterson Institute for International Economics on April the 9th at 11:00. This speech will preview the agenda for the Spring Meetings, and he is obviously going to talk about the global economic outlook, our views on that. He is also going to talk about changes in the Fund's surveillance and how we are taking that forward, both for the global economy and for individual members, the Fund's work on crisis prevention and our work in low income countries, and he will also set out where we are in the next steps in the reform of quotas and voice and how we are going to follow up on the expert group that reported on the Fund's income position, as well as the other expert group that reported on the relationship between the Fund and the Bank and how to strengthen that.

Copies of his speech will be available and will be distributed to the media under embargo before the speech. I expect that there will also be an opportunity for the press to interact with him right after the speech itself.

A few other events in our calendar for that week, starting with April the 5th at 10:00 a.m. when Simon Johnson, who has just joined as our new Research Director and Economic Counsellor, will be briefing the media on the analytical chapters of the World Economic Outlook.

On April the 10th at 9:00 a.m., there will be a press briefing on the Global Financial Stability Report. That will be done by Jaime Caruana who, as you know, is the Director of the Monetary and Capital Markets Department and a Financial Counsellor.

On April the 11th again at 9:00 a.m., there will be briefing on the World Economic Outlook itself. So on the 5th, it is the analytical chapters, and on the 11th, it is the outlook part of the World Economic Outlook.

On April the 12th at 11:00 a.m., we will have the Managing Director's regular pre-IMFC press briefing.

We will round off the week on April the 14th in the afternoon with the post-IMFC press conference given by the Chairman of the IMFC and the Managing Director.

Those are the events for that week.

All the WEO and GSFR documents will be posted under embargo on the Media Briefing Center before these events.

Let me just say a couple of things about the next four or five days. Tomorrow, the Managing Director will be in Madrid, giving two speeches: one on challenges of sustaining global economic growth, which he will be speaking on at the first economic forum of the Comunidad de Madrid and that is in the morning at 10:00, and that will be followed by remarks he is going to make at the Club Financiero Inova, also in Madrid, later in the day. Both of these events will be open to the press, and his remarks for both of these events will be posted on our web site.

Mr. Portugal, the Deputy Managing Director of the IMF, is visiting Morocco next week from April 2 to 5 and then on to Tunisia for the second half of the week, April 6 and 7. In both countries, he is going to have bilateral meetings with the authorities, but while he is in Morocco he will also attend a high level regional seminar on inflation targeting.

Two weeks from now, we won't have this briefing because we will be in the middle of the Spring Meetings, and you will have plenty of opportunities to get views from the IMF, but we will revert back to this format on April 26th, same time, same set of rules.

That is what I have to say by way of start-up. Let me now invite questions. Again, I see there are 20 people logged in at the moment on the Media Briefing Center. The sooner you send in your questions, the more likely it is that I will get to them before we finish.

QUESTIONER: Masood, what do you see as some of the most important issues coming up at the meetings, if you could just give us some sort of guidance?

MR. AHMED: Well, obviously, the Managing Director's speech on the 9th is the place where you will get a comprehensive view of the agenda for the Spring Meetings. But as we are working towards them, we see for the Spring Meetings the work on surveillance that the Fund has been doing and how we take that forward, both in terms of looking at the framework for surveillance, revising the 1977 Decision that underpins it, but also looking at strengthening surveillance at the multilateral level. That would be one area of work.

Another area, where in terms of again staying with the Fund's own agenda where we see progress, that we need to take stock of is, of course, quotas and voice on which, as we have said all along, in the timetable, this is not the moment for a deliverable on quotas and voice. We are working, as you know, on a new formula that will guide the next round of changes. That work is underway. There have been a number of constructive discussions on it in the Board so far informally. The next step would be to take stock of that and also to provide a report on that to ministers.

We also see this as an opportunity to brief ministers and governors on the work that is being done on the new income model for the Fund. So that would be another item.

Clearly, the work that the Fund has been doing and that others are doing on the Global Economic Outlook and looking at the outlook and risks will be a big part of the discussion.

Those are all items on the agenda, but as I said for a comprehensive view you will get on the report, the Managing Director's speech on the 9th.

QUESTIONER: May I have a follow-up?

MR. AHMED: Sure.

QUESTIONER: Well, it is not really a follow-up, but it is to do with Turkey. I was wondering. The mission has come back from Ankara, and there seem to be a lot of delays going on in the program that everybody is aware of. Does that in any way put the program at risk? Are there some concerns back here in Washington that the program isn't going according to plan?

MR. AHMED: Okay, on Turkey, well, first of all as you alluded to, I will just remind others. There was a press release last week, which I refer people to look at.

But I think our overall assessment of the work of the mission is that the mission made quite a lot of progress on a number of areas towards completing the review. For example, on the structural side, on a strategy for moving forward with social security reform was agreed as were actions to continue strengthening revenue administration and the next steps on banking sector reform as well. So those are all important things on the structural side.

With inflation still running well above target and expectations remaining elevated, the mission also endorsed the Central Bank's current tightening bias.

I should also say that understandings were reached between the mission and the authorities on the measures to safeguard the achievement of the primary surplus target at the central government level.

Where the authorities have asked for a little more time, and the reason why we have had to adjourn the work, is to work on options to secure the contribution of state economic enterprises to the primary surplus target, and that is why we have got a little more time.

I think our overall assessment, now moving away from the mission itself to the broader question you asked, is that Turkey's performance under the program that the Fund has been supporting has been and remains good. Disciplined economic policies, especially a high fiscal primary surplus, have enabled reductions in inflation and public debt ratios and strong growth. There have also been significant structured advances made in banking, in tax reform and in privatization, and I mentioned the work that was done during the last mission.

Going forward, we do see that continued financial discipline and structural reforms, especially in the social security area, are needed to ensure fiscal sustainability and to entrench low inflation and strong growth.

QUESTIONER: I plan to spare you to ask you a question about Italy today. So my question will be about the U.S. economy, if you can give me a general assessment at the moment. Of course, there is the issue subprime mortgage. Someone has expressed recently a concern about rising inflation. What is the IMF view at the moment?

MR. AHMED: The first thing I should say to you, of course, is that when we have the WEO, which is going to be released in a week and a bit, that will be the time when we give you a comprehensive updated assessment of the Outlook including the outlook for the U.S. economy.

What I can say now is what we have been saying and, in fact, what the Managing Director said earlier today in the Hague where he was is that we will probably see a lower rate of growth for the U.S. this year, projected to be somewhat lower than it was anticipated six months ago. It is lower, but it is not dramatically lower, if you like. We see this partly being driven by the housing sector correction which is likely to continue for longer than expected. The recent softening in business investment is also something that we think should be monitored.

But I should also say that the momentum of the U.S. economy as we see it will gather base later in the year, and we do see therefore an upturn in that either towards the end of this year or the beginning of next year as the housing correction winds down.

Our central scenario, therefore, for the U.S. economy remains a soft landing with a recovery either by the end of the year or the beginning of next year. As I said, the precise outlook and the numbers associated with it, we will be releasing with the WEO.

QUESTIONER: Masood, on the Fund's favorite topic, Argentina, I just wanted to find out. There is a lot of back and forth going on. I don't know what the Fund's views are on this. It is regarding the restructuring of Argentina's debt and the Paris Club. Last time, you said the usual way to go is that a country does need a Fund program. We are now seeing Germany remarked last week said that it did need a program. Spain said earlier this week that it didn't need a program and that all it would need is some sort of assessment and support from the Fund.

What is the Fund's stance on this at the moment? Has Argentina asked you for that assessment? Where are things standing?

MR. AHMED: I have been reading the same press reports that you have been reading, and our stance on it is that this is a discussion that is underway between Argentina and its creditors in the context of Paris Club, and that is a discussion that is best held there, and questions about it are best answered by them.


QUESTIONER: As you know, the Peterson Institute of International Economics led by Mr. Bergsten announced some report this week saying in order to address the international imbalances, that currency realignment is necessary. He specifically insisted that the yen should be appreciated to [inaudible] yen a dollar as well as the Chinese yuan. I would like to know your view on whether currency realignment is necessary or not in order to solve the global imbalances.

MR. AHMED: Well, I want to give you an answer to that in the following way which is that we in the IMF have for a long time taken the view that the disorderly unwinding of global imbalances is a risk to the economic outlook and it is something that needs to be addressed. We have also taken the view that this is best addressed in a framework by bringing together the key actors, and that is why the IMFC endorsed and asked us to launch a process of a multilateral consultation which is aimed precisely at how you can reduce global imbalances while sustaining high global growth because the important point here is not just to reduce imbalances but to sustain global growth.

That multilateral consultation has now been underway since last June. There has been active engagement of participants in that process and constructive discussions. We will be reporting. The Managing Director and the participants will be reporting to the IMFC on the progress made in that exercise. Immediately after the IMFC, we will make that statement available.

I think that is indeed the approach that we have taken. We do think it is an important issue, and that is the process that has been agreed to address it, and that is the timetable for bringing that material forward.

I have one question here from the Media Briefing Center which I will just take which is actually another version of the question that was just asked a couple of minutes ago on Argentina.

He asks, Argentina's president has offered to repay Paris Club the country's debt if the IMF is not involved in the talks. Do you think the IMF involvement is necessary?

Well, I answered that question just a minute ago by saying that that is an issue between the Paris Club and Argentina because it is the Paris Club that are the creditors, and the answer to that is best obtained by talking to them.

Any other questions?

QUESTIONER: Just a quick question, does the IMF have any comment, any concern about the spike in oil prices?

MR. AHMED: We don't have a day-to-day commentary on oil prices, but I think the basic point that we have made and which we continue to make in looking at the global outlook is that one of the risks that we have identified is high and volatile oil prices which continue to be one of the sources of risk to the global economy. But in terms of day to day movement, we don't really comment on that.

Any more?

If there are no more questions, sorry. I see the Briefing Center is trying to send me something.

I have here a question saying: Yesterday, the IMF warned about private debt in Spain, which is mostly due to the burden of mortgages as interest rates are rising there. Are you afraid of a housing crisis there or a scenario similar to one the U.S. is going through now?

I think the best I can do for you on that question is to refer you to the text of the concluding statement that has been released, which has quite a lot of detail, and I do encourage you to look at the entire text of that statement to get an overall view of our assessment of that. I can also refer you to the FSAP, the financial sector review that was done on Spain which, of course, found that the financial sector in Spain was very strong. But beyond that, I don't have a specific response to give you on what you have asked.

I think those are all the questions we have got. If so, thank you very much.

We will see you many times during the course of the next 10 days, and we will be back in this format on the 26th.

Thank you.


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