April 14, 2007
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MR. AHMED: Okay. Good afternoon. Welcome to the IMFC press conference, with the Chairman of the IMFC, Gordon Brown; the Managing Director of the IMF, Rodrigo de Rato; and the First Deputy Director, John Lipsky. As you come in, you should be getting two documents, the communiqué of the IMFC and a document on multilateral consultations.
The Chairman and the Managing Director will make some opening remarks, and then we will open up for questions.
MR. BROWN: Thank you all very much.
This was a very productive meeting of the International Monetary and Financial Committee. Let me say, first of all, that we heard from Pascal Lamy, the head of the World Trade Organization. We welcomed the resumption of trade negotiations and the meeting that has taken place in Delhi amongst the G4, but we were clear as a group that we now need strong political leadership from those countries now playing a central role in the negotiations to ensure the necessary breakthrough for an early completion of the trade round.
In our communiqué, which has just been issued to you, we use the word "urgent" because we believe that leadership and courage to reach a solution on that is what is needed now. We also emphasized that all members, rich and poor countries, stand to benefit from an outcome in the trade negotiations which is, in our view, possible, and it is critical that this happens so that the benefits of globalization are shared.
We stressed the importance of delivering aid for trade commitments, and the G7 has indicated that, to advance aid for trade for developing countries, they would make available $4 billion for infrastructure developments.
We welcomed, also, the report of the Managing Director and the participants in what has been called the multilateral consultation on global imbalances. We agree that resolving imbalances in the world economy in a way that is compatible with sustained growth is a shared responsibility. We note that the plans that have just been issued to you set out further progress that we believe can be made by individual countries and by continents working together, and these multilateral discussions are an important way of addressing global issues. We will evaluate the exercise, and look forward to further consultation on issues of concern.
It is an example of the IMF reform process at work, where the emphasis is on crisis prevention and the focus is on surveillance, both bilateral and multilateral surveillance, to achieve it. So, we also considered the reform agenda today for the IMF itself. We welcomed the steps being taken to modernize IMF surveillance. We have called on the Executive Board to continue to give high priority to further work on all further aspects of this reform, including a revision of the 1977 Decision on Surveillance Over Exchange Rate Policies.
We have stressed the need to improve the quality of surveillance, particularly with respect to its focus, its candor and its evenhandedness, and we have agreed to three principles that should underlie the next stage of the work. A revised decision should not introduce new obligations. It should enshrine dialogue and persuasion as key pillars of surveillance. It should pay due regard to country circumstances, emphasizing the need for evenhandedness, and it should retain flexibility to allow surveillance itself to continue evolving as a process.
We have supported today, also, the efforts being made to strengthen frameworks that address financial sector, capital market, and exchange rate issues in surveillance, and to enhance the focus of surveillance on key risks affecting members and on cross-country spillovers.
We have also reiterated the importance we attach to the program of quota and voice reforms for the IMF. In September, in Singapore, we set out a timetable, so we welcomed the consensus reached in the Executive Board on the legal framework of an amendment of the Articles of Agreement regarding basic votes. We have reiterated our commitment to agreeing a new quota formula. We have said it is a priority to take this work forward to our next meeting in October, and we have asked that we meet the objective of better capturing the weight and role of members in the global economy while enhancing the voice and participation of low-income members, a key mechanism for which is an increase in the basic votes.
We have also considered today the report of the eminent persons group on the long-term financing of the IMF, and we have stressed the importance of improving collaboration between the World Bank and the Fund in achieving their shared objectives. So, I can assure you that the reform agenda for the IMF is moving forward, that we have stressed and put resources in-the major countries have put resources behind a bid to secure a trade deal as a matter of urgency, and we have met, of course, today at a time of continued global economic change. World growth is strong, and expected to remain so. It is becoming more regionally balanced and we have considered prospects for the world economy, particularly in the recommendations we make as a result of the multilateral surveillance program.
For the advanced economies, we have concluded that monetary policy needs to remain attuned to price stability while taking account of the situation of different countries, but we have stressed again the importance we attach to avoiding protectionism and securing a trade deal. Thank you very much.
MR. DE RATO: Thank you.
Let me just follow-up on Gordon's very comprehensive survey on our meeting. I think this has been a very productive day for the IMF. I had the opportunity to report to our Committee on the established looks of the global economy in terms of continued strong growth over the next two years, and certainly on the fact that in the past six months there has been some welcome movement over containing global imbalances. Nevertheless, despite this progress, global imbalances is expected to remain wide, as you can see in our document of the WEO.
In that respect, and following up also on what Gordon has referred, the first multilateral consultation that was launched last year in the Spring Meetings was able to present important results to the IMFC in terms of joint document by the participants, in which each of them-I understand you all have a copy of it-each of them takes not only a common view and a consensus view on global imbalances, on the need to manage them and reduce them in an orderly fashion, but also to take steps through their different domestic policies to address their own domestic agendas and at the same time have a contribution to reducing the risk of a disorderly unwinding of global imbalances.
I think this is a very, very welcome process, a process that will not have been possible outside a multilateral institution like the IMF, and I am really happy that we have moved, I think, in seeing the quality that we can give to a new instrument of global surveillance, that can be useful for the issue of global imbalances but also for others, as the reference in the communiqué to financial stability.
I think that on the rest of the elements of the Medium-Term Strategy, the communiqué is very clear. Progress is occurring on all of the fronts. There is still a lot of work to do. But I am very encouraged by the engagement of the Governors today on many issues, quotas, the update of surveillance, and the income model of the institution, among others, but certainly also crisis prevention. I look forward to deliver on their mandates by the Annual Meetings in Washington next October.
MR. AHMED: Thank you very much.
We will open up for questions now. Please identify yourself and your affiliation.
QUESTION: Could Mr. de Rato and the Chancellor elaborate further on the agreement on the multilateral consultations, in particular the policies that are set out; what confidence can there be in the light of previous commitments in G7 communiqués to take similar policy measures that the signatories to those will actually want to proceed and implement them. In the past G7 measures, proposals of this kind have not been seen to result in concrete measures. Thank you.
MR. BROWN: I would say the first thing is that this is the first time that this has happened in this way and, therefore, we should not look back on the past and say that it was never implemented. This is the first time that this has actually happened and, therefore, we will be able to monitor its implementation over a period of time. I think the willingness of the five participants to make commitments about the future is important in itself. I think there is some evidence that the promises that have been made and set down are already being set in motion and, therefore, there is some optimism about some of the reforms that have been talked about in this document.
I think from the world economy's point of view, it is a major advance that, on a huge issue that has worried policymakers for many years, we have got a process that has worked, that has ended with a report, that people are happy with the conclusions of the report, and accept that they have mutual responsibilities.
I think I should add that we say, also, in our communiqué that one area which we will be looking at for the multilateral process for the future is the financial sector and financial stability and that is contained in the communiqué when we look at the financial sector and say that, in paragraph 9, it looks forward to further steps by the Fund to promote dialogue and hope financial markets and innovation can work to foster growth and financial stability, including possibly in the context of further multilateral consultations.
So, we have had one that has worked. We will evaluate it and we learn lessons, but it is obvious that there is scope to move forward as the IMF cements its role in crisis prevention and in surveillance on a multilateral basis.
MR. DE RATO: I just want to add that, as Gordon says, this is a new experience. I do not remember any communiqué of any gathering that has these boxes that you have here about policies to this detail. Also, you have to take into consideration that this is a document that is being put not in a meeting of five economies, but in the International Monetary Fund, so this is going to be part of our policies. Through bilateral and global surveillance, we will monitor these advances.
As I had the occasion of saying last Thursday, we believe that if these policies are put into place, there will be significant effects on reducing global imbalances in a way that will be to the advantage of the five economies here, but also on the rest of the global economy.
QUESTION: I have my job cut out for me, because the Russian delegate made a statement in the IMFC also and he said, in particular, that the Russians have doubts about this new process of multilateral consultations, in particular because of the limited number of participants. As for the quotas, which is another major issue here, they basically ask why not use the blended indicator, incorporating GDP measurements as both PPP and market exchange rates instead of the formulas that, quote, possess all the same shortcomings as the old ones. Thank you.
MR. BROWN: Perhaps before Rodrigo comes in, I can say that, whatever reservations that people may have as individuals, as a group we came together today, and the Committee welcomes the report-that is what we say-that we have received from the Managing Director on the multilateral consultations on global imbalances. It agrees that resolving imbalances is a shared responsibility, and it notes the progress made on the policy issues that have come out of the process itself, considers that the experience so far gained has been useful.
So, I think there is general agreement and, in fact, it was unanimous on the Committee itself that this is a process that has not only worked in this instance, but has got relevance for the future.
As far as the debate on quotas is concerned, I would just draw your attention to the conclusions that, whatever ideas individual countries have put forward in the past or now, there was a willingness to come together to say that the work in the reform package should be continued as a priority, and in line with the timetable set out in the resolution of Singapore. There was an agreement that a new formula should be simple, transparent, and should capture members' relative positions in the world economy.
So, we made progress today. I realize that, if you are going to get a final solution to these issues of quota and voice that accommodates the needs of the developing world, recognizes the changes that are taking place in the economies of the developed world, then there is going to have to be both leadership and compromise, and I think we saw today Rodrigo de Rato leading on this, that we need to move this forward as a matter of the priority, and the Committee agreeing.
But we also saw around the table that, whatever strong views people have had in the past-and, of course, some people voted against the original resolution last September-people are willing to work together to reach a solution that will work for the future. So, I am more optimistic than perhaps these comments that you reflected from one of the delegates suggest, and I am more realistic and optimistic because I have got the communiqué which is an agreed document in front of me.
MR. DE RATO: First I believe, I have always believed that it is not very wise to make reactions on partial quotas, because I will have to see everything that has been said. Having said that, I agree with Gordon Brown.
QUESTION: I have a question on the Paris Club, a little bit a side question. Argentina, as you know, is trying to restructure its debt with the Paris Club, and one of the conditions is to have an agreement with the IMF. Do you think, Mr. Brown, that it is possible to reach an agreement without an IMF program?
MR. BROWN: Well, I think I should refer this to Rodrigo, first of all, because he has done the original negotiations with Argentina over many years.
QUESTION: But I do not think he is the Paris Club.
MR. DE RATO: Well, the negotiations between the Paris Club and countries are among themselves. There is no way that the IMF can make any comments on that.
MR. BROWN: I would just say that this issue has not been raised in the meetings today. It was not part of the agenda and there is no reference in the conclusions. I think I would be commenting out of context if you were to pursue this questioning. It was not raised at the meeting today.
QUESTION: Chancellor, there is a story in the Sunday Times running that you did not take proper advice on gold sales in the past. I wondered whether you had a comment on that.
MR. BROWN: Gold sales are a decision for the government. They were a decision that I made as Chancellor of the Exchequer in the right and proper way. Many countries at the time were doing exactly what we have been doing, and that is, diversifying our portfolio and reducing the risks. Actually, at the time, the Governor of the Bank of England, Eddie George, said to the Treasury Select Committee that the decision to sell gold was a perfectly reasonable portfolio decision. In other words, diversification of our reserves and reducing risk is in the national interest; it was the right long-term decision for our economy.
It was studied by the National Audit office at the time. It was also examined by the Treasury Select Committee. Indeed, the National Audit Office said that it was in a transparent and fair manner that the sale had happened while achieving value for money, so that is actually what happened.
QUESTION: Mr. de Rato, Gordon Brown just referred to the statement of policies in the multilateral consultations document as commitments, as promises. Do you also regard them as commitments and promises? And when you talk about monitoring these, could you describe a little bit how you will be monitoring progress on these policies set out in the document?
MR. DE RATO: I think it is very obvious because, first of all, as you know very well, surveillance is the core business of the institution. We have a very strong engagement of surveillance with 185 countries so this will be part of it. Global surveillance is also part of our job, both in multilateral consultations and in the WEO. I think that one should not underestimate the fact that these five economies have voluntarily not only engaged themselves into a discussion with our staff and with John Lipsky that is here, and he probably can provide more insight to it, but also have a willingness to accept a joint communiqué, a joint document, and a shared responsibility on global imbalances. I think one should not underestimate all those issues at all.
Of course, we will see how things evolve in the future. The fact is that global imbalances, although they have remained very large, there has been some rebalancing of world demand-nobody can argue with that-in recent months. I think there are many values of this exercise, but certainly the fact that you and me can very easily read five different boxes with very detailed proposals is a clear basis for following up and have a future discussion both at the bilateral level and the multilateral level. John?
MR. LIPSKY: Obviously, you have said the important things, but it should be just to emphasis here that there was agreement among each of the participants in the multilateral consultation that their proposals were in their own interests as well as in the general interest, and they were willing to state in the cover note their conviction that these plans, as implemented, would make a significant contribution toward reducing global imbalances.
QUESTION: There are people outside calling for Mr. Wolfowitz to resign. What is the IMF's official position, and how did that issue affect your meetings? Thank you.
MR. DE RATO: Well, I to say the same thing I said on Thursday. First of all, the President of the World Bank has made public a very comprehensive statement. I understand the Board has also made public documents. I understand the Board of the World Bank is looking at the issue. And I have total confidence in the institutions of the bank to handle this issue.
QUESTION: [Inaudible.]
MR. DE RATO: Well, you asked me the same question; I am going to tell you the same thing I said on Thursday and one minute ago. The President of the Bank has made a statement. The Board of the Bank has made public the documents. The Board of the Bank is looking at the issue. And I have total confidence of the institutions of the Bank to handle the issue.
MR. BROWN: Could I just add that Mr. Wolfowitz played a full part in the meeting, as he always does, of the IMF Committee today, as he did in the G7 yesterday. He has, of course, issued his statement of apology. Having published the facts themselves, the Board obviously has to complete its work, and I think we have got to respect the Board process. It is the World Bank's process, not the IMF's process.
QUESTION: Could you elaborate further on your discussions with Mr. Lamy? Did he give you any good reason to believe and expect that the barriers to a successful outcome of the Doha Round are surmountable?
MR. BROWN: When we met last in September, the trade talks had broken down. There seemed very little chance of resuming them at all. When we went to Davos in January, the trade talks were still stalled and there had been no formal agreement to resume them. In these last few weeks, there has been, first of all, a formal agreement to resume the trade talks. Secondly, there has been a meeting of the Group of Four in Delhi, and that is the four major negotiators. Third, Pascal Lamy came today to the International Monetary and Financial Committee to tell us that, in his view, it was possible to move quickly to a deal, and he reported not only on the discussions that he has been having with other countries, but on the determination of world leaders, not Finance Ministers and Trade Ministers but the world's Heads of State to move this forward.
He also asked us to make sure that there was an aid for trade package available. That is not formally part of the Doha Round, an aid for trade package available so that the developing countries would be in a position to benefit from the trade agreement by having funds for infrastructure almost immediately. We have agreed as the G7 that $4 billion would be available by 2010. That decision came late yesterday but I think that is an important part of the process. And we have also agreed on an enhanced initiative to provide technical advice and assistance to countries as they prepared to gain the benefits of a trade round through developing their economies.
So, we are trying today to put in place as much as possible so that developing countries can get the benefit of a trade round. So, what has actually happened since we met last? We have got the formal resumption of the trade round. We have got a meeting of the four in Delhi. We have got an aid for trade package now being put in place by the major countries. We have got a statement today where everyone, and that includes the major parties that are still to come to an agreement, recognizing the urgency of moving forward, so I do believe that this weekend has been significant.
I know I have been an optimist about trade talks and an optimist about the resumption of negotiations. I can only say when last September people said that negotiations would not resume, they have resumed. They are moving forward. What Pascal Lamy was asking us to do was to have leadership and a willingness to compromise to get an agreement as a matter of urgency over the next few weeks and months.
QUESTION: I would like to ask the Chancellor about his meeting with President Bush and whether he could tell us a bit about what was discussed there, the wide range of topics that I gather were under discussion.
MR. BROWN: I have had a number of meetings, obviously, this weekend, including a several hours' meeting of the IMFC today. I have had a number of meetings, obviously, with people in the Administration. I happened to be at the White House meeting the National Security Advisor yesterday and President Bush happened to drop in at the meeting. We had a friendly discussion and that is it. I have got nothing more to add to that.
QUESTION: A much less sexy question following up on gold sales and the finance of the IMF, which I understand was a topic of the discussion at the lunch of the Finance Ministers today. I wondered what the Chairman's assessment is after this lunch of what the sentiments seemed to be at this time among the Finance Ministers regarding gold sales and, on the other hand, a much more active management of the Fund's resources, and could you put perhaps a percentage figure on the likelihood that we will see gold sales of the IMF in the coming year?
MR. BROWN: Rodrigo may wish to say something about the report and the work that he is going to do to take it on, and then I will say something about what Finance Ministers said in response.
MR. DE RATO: We had a chance to discuss with the Finance Minister the Crockett report, which I think has been well received by Finance Ministers from what I heard around the table. Now, I think, is the moment for me and staff to prepare a paper for the Board, and we will do so, based on the concept of a package of an income model or an income model based on a package-that is probably better English-and I think that, in that respect, the use of IMF resources, a more efficient use of IMF assets and resources will be part of that package.
Regarding the use of our gold, I think the recommendations of the Crockett Committee are very clear. If there is a decision to do so, it will be in a measured way, a very limited amount, about 1/8 of our gold resources. It will be managed in a way that the proceeds, after inflation, will be the ones that really apply to our income model.
In any case, any use of our gold will be done in the context of the agreement of central banks that was established, I believe, in 2004. I have to say that some of the gold-producing countries have expressed that, well, this is a way that could be seen as constructive but, of course, nobody has yet given any final position and I do not expect that nobody will do it until I do not make a formal proposal to the Board.
MR. BROWN: I think it is true to say that the Crocket report recommended that, if it were necessary that gold sales could happen, that it should be done in a measured way and it should be part of the 2004 central bank agreement about the ceiling on gold sales at any particular point in time.
What I found encouraging today was that there were countries who previously had not been prepared to consider gold sales and who were prepared to do so now. I think the next stage is the report from the Managing Director to the next meeting about how we move forward with this issue of the income of the Fund. There is no doubt that the gold sales are potentially a part of that.
QUESTION: Mr. Brown, it says that you are calling for greater exchange rate flexibility. Can you talk about what that means in terms of China and the yuan?
MR. BROWN: I do not know where there is referred to. If you are referring to the report-
QUESTION: About the surplus countries.
MR. BROWN: If you are referring to the report itself, what it actually says is that we talk about emerging markets and developing countries and their resilience to turbulence and volatility. We also talk about advancing reforms to improve the functioning of domestic financial markets and enhance the business and investment environment. Then we say, among some surplus countries, there is a continued need to push domestic demand and allow for greater exchange rate flexibility. We got no further than that and that repeats what we have said at previous meetings.
QUESTION: Second question. Can you speak to the progress toward transparency and anti-corruption activities in sub-Saharan African countries and if these effort are undermined with the current controversy over Mr. Wolfowitz?
MR. BROWN: I have just been talking to Kofi Annan very recently, who is chairing the Africa Review Commission, and that is looking at what happened in the two years since the Gleneagles agreements, and it is obviously looking at what progress has been made on health, on education, and on governance. A very essential part of this will be to maintain the progress that has been made in increasing the transparency and the openness of government decision-making on financial and other issues in sub-Saharan Africa. So, I am waiting for the report that Kofi Annan will do in a few months with a panel of people looking at these very issues.
QUESTION: Mr. de Rato, on the Chinese commitments on the consultations, which is it on the renminbi? This says in the section on increasing flexibility of the renminbi that it has appreciated 7 percent against the dollar and 6 percent real effective exchange rate. But I understood that on a trade-weighted basis, the renminbi has actually depreciated. So, which is it, and what was said today? Was there concern about the low value of the renminbi being potentially destabilizing to global finance?
MR. DE RATO: First, you are right in what you said, but you should read in the same box where it says "looking forward," and go down to the last bullet, which says, and this is the Chinese government who says this, that the exchange rate formation mechanism will be improved in a gradual and controllable manner. Exchange rate flexibility will gradually increase, with attention paid to the value of a basket of currencies.
I believe this is an important element that introduces what you very rightly said, that is, the question of an important currency like the renminbi is not only with one traded partner like the United States or the dollar area, but with the rest of the world, too. So, I think that is part of what the Chinese government has presented as its plans in the future.
As for today, there was no discussion about any currency. It is clear that our view on currencies is expressed in different Article IV consultations, the Chinese or others, and you have them public on our web. I would just stress that we believe that it is in the interest of the Chinese economy and Chinese citizens to have a stronger rebalancing of demand and, to do that, monetary policy should be allowed to play a bigger role. In that respect, exchange rate flexibility will help very much in their own interest.
MR. AHMED: I want to thank you all for being here, and we will bring this to a close now.
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