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

December 13, 2007

Washington D.C.
Thursday, December 13, 2007

Webcast of the press briefing

MR. AHMED: Good morning to you. I'm Masood Ahmed, and I would like to welcome you to our regular press briefing. This is going to be embargoed today until 11:00 o'clock, Washington time, or 1600 GMT.

Let me start, as usual, by making a couple of announcements. First, just to let you know that next week, the Managing Director will be in Europe for a number of events. He will be in Paris on the 17th where he will attend the West Bank and Gaza donors conference. Our economic assessment of the West Bank and Gaza to the donors was posted on the Fund website yesterday, for those of you who would like to follow up on that. He will then go on to Rome on the 18th and Berlin on the 19th for meetings with the authorities.

Let me also mention to you that this afternoon, we are going to be publishing the documents related to the Article IV Consultations with Mexico, and this was discussed by the Executive Board on Monday, December the 3rd. This is going to be accompanied by a press conference call on Mexico at 2:00 p.m. today with Mr. Robinson and Mr. Phillips, the two staff members who are responsible for this from the Western Hemisphere Department in the Fund. A video clip will also be available via NewsMarket for those of you who would like to pursue this.

One note of housekeeping. I'd like to mention that this, of course, is the last briefing for this year, and the next briefing will be on January the 10th. We are going to be starting our briefings a little bit earlier next year. We are going to start them at 9:30 a.m. Washington time, and we are moving them up half an hour so that people who are logging in or filing stories in other parts of the world that are further ahead in terms of time zones have a little more time to be able to get their stories in. So we'll all be getting up a little bit earlier on Thursday on our side, and we'll be doing this at 9:30 a.m.

Let me also encourage those of you who are participating via the Media Briefing Center to get your questions in early. We've had a little bit of difficulty with the technology, so I just want to make sure that if you do have any questions, send them in, and we will try and make sure that we respond to them during the course of this briefing.

That's all I have as announcements. I'm happy to take your questions.

QUESTIONER: Do you have an assessment to the liquidity package outlined yesterday by the leading central banks in a sense of whether it will succeed, or is succeeding so far?

MR. AHMED: I make three points on that. Just to say to you that by way of background, we have been saying for some time now that the provision of liquidity to assure the smooth functioning of financial markets is a high priority, and we've supported the actions that individual central banks have taken in that regard.

I'd like to point you for reference to a speech that Mr. Lipsky, the First Deputy Managing Director, made at the Chicago Fed in September where he went over some of this -- the argumentation for it.

So with that background, we welcomed yesterday's actions by a number of central banks because they give an important signal to markets that these banks are working together to address the international nature of the problem, particularly as term funding pressures have deepened towards the -- are building towards the end of the year.

And third, that I should also add that with continuing concerns about the extent of credit deterioration, central bank liquidity operations are only one part of addressing the ongoing problems in financial markets. In that context I want to stress, in particular, the point we have been making that early and focused action to solve valuation problems is critical in moving forward to solve this crisis.

QUESTIONER: I think the IMF mission to Turkey was supposed to be visiting the country at some point for [inaudible] authorities to pave the way to accomplish the current review. When is that expected to happen, and are you waiting for something concrete in advance?

MR. AHMED: You're right. Before we can complete the seventh review, there is a mission that is going to take place. We don't have a precise date for the mission at this point, but as we've noted in the press release that we issued recently, we are working with the authorities to finalize agreement on the strong package of measures that would enable the completion of the seventh review. And the timing of the mission is going to be driven by that.

QUESTIONER: More specifically, are you waiting for the social security reform bill to pass in the parliament before that visits?

MR. AHMED: What I can say on the social security reform law is that the government is trying to address the concerns raised by the Constitutional Court on the previous reform law while preserving the bulk of the savings that were envisaged in that law. We support that strategy, and we believe that successfully tackling the deficit of the social security system is essential to the long-run sustainability of the public finances and hope to see this reform in place as soon as possible.

I have one question that has just come in from the Media Briefing Center. It's about the IMF's current refocusing and restructuring. The question is:"In the cost-cutting program for the IMF, will the cuts be across the board or in specific departments or areas?" And then there's a follow-up question that says: "There has been talk of having Article IV reviews every 24 months. Is this an option?"

What I would say to you is that the IMF refocusing is addressing two challenges: First, the purpose of this exercise is to refocus the work and activities of the IMF in a way that responds most effectively to the needs of the membership as they're evolving and which also pick up on the comparative advantage of the IMF as an institution that is focused on the interface between macroeconomic and financial issues and that has a global membership, which gives is a strong cross-country comparative focus.

Now, the other challenge we are facing is to deal with the shortfall in our income in terms of our operation expenditures and to find a sustainable financing model. And as part of addressing this sustainable financing model, there are two dimensions. One is that we have to ensure that the proposals that have been considered by the committee led by Andrew Crockett and other ideas on how we can address new sources of income that are better aligned with the Fund's work are put into place.

And the other dimension of it is that we need to look at and are looking at the expenditures of the Fund to ensure that those are also trimmed and with a view to looking at efficiency gains and cutting out lower priority items. And in that context, what the Managing Director has embarked upon is a program that addresses these two dimensions. On the expenditure side, we are looking to see savings of about $100 million in the expenditures of the Fund and that will translate, also, into a reduction in the number of positions of staff in the Fund by between 300 and 400 people.

Now, how will those cuts take place? As I said, since the purpose of the exercise is not simply to reduce the size of the budget but to refocus the institution at the same time and make it more responsive, we don't envisage that cuts will take place across the board. The Managing Director has been very clear that he sees these cuts as being done in a way that reflect the strategic direction of the institution.

Second point that you asked for is whether we could move to having Article IV reviews, which are the surveillance missions that the Fund does for countries, on a 24-month cycle rather than on a 12-month cycle, which is the case in many countries -- in most countries today. The answer to that is that, yes, people are looking at all kinds of options that would make the Fund more responsive and more effective, but there are no decisions yet that have been proposed by the Managing Director, by the management, to the Board, and at this stage we are not at a point of having any decisions on how precisely the refocusing would affect the timing of Article IV missions.

QUESTIONER: Going back to the action of the central banks. Specifically, could you elaborate what other action the IMF thinks would be needed to counteract the deepening credit [inaudible]?

MR. AHMED: I think it's important to put this in the context of looking at the overall perspective on the global outlook. And the points that I would make there are the following:

First, as I mentioned at my last press briefing, we do take the view that the global outlook as deteriorated since we published the World Economic Outlook in October. Some of the downside risks that we have identified at that time have now materialized and, in particular, it is clear that the adjustment process in financial markets will be complex and protracted. And, consequently, we take the view that on monetary policy it is important for key central banks to take a flexible view of policy in the current climate, and we have supported the actions and the signals that the main central banks have been sending in this context.

Second, we have also taken the view -- and this comes back to the first question -- that central banks need to continue to focus on assuring the proper functioning of financial markets through the provision of liquidity.

Third, and we've taken the view -- and this is offered you now, that market participants and financial regulators need to keep the focus on solving issues of valuation. This requires active collaboration and coordination by auditors and supervisors, and we believe that earlier recognition of losses is necessary and helpful.

And, finally, we believe that in the current circumstances it is also important to avoid procyclical reactions. And by this I mean that for financial institutions it is better to raise capital than to reduce balance sheets sharply. And for supervisors, we believe that they need to exercise judgment and not mechanically argue for stronger capital cushions.

So that's our current view on this.

QUESTIONER: You mentioned that the Managing Director Strauss-Kahn is going to be in Rome the 18th. Is this anything to do with the next Article IV [inaudible]?

MR. AHMED: The Managing Director will be in Rome to meet with the Minister Padoa-Schioppa, who is the chair of the IMFC[International Monetary and Financial Committee]. The principal focus of his meetings will be to discuss the agenda and the progress towards the next IMFC and to discuss with the chairman the various issues on the agenda which we need to take forward in regard to the implementation of the reform agenda that's been set out on quotas and voice on other elements of reform for the IMFC.

During that stay, he obviously will also have the options to meet with other members of the economic team, but the primary focus is not a bilateral discussion about the Article IV, but it's about the discussions on the IMFC.

QUESTIONER: Managing Director Strauss-Kahn was recently in Argentina and mentioned that he didn't think that the IMF should be involved in Argentina's discussions with the Paris Club about debt reduction. And yet the Paris Club requires the IMF endorse such discussions.

Can you clarify the position of the IMF in this?

MR. AHMED: I think the first thing I should say is that the Managing Director is very grateful for the hospitality of the Argentine government and people and appreciated the opportunity to meet with the president, with their economic team, and with other government leaders from the region who were in Argentina at that time.

Now, as to the question of Argentina and the Paris Club, I think the view that the Managing Director expressed is that there is obviously an issue between Argentina and the Paris Club that they need to resolve on the debt of Argentina.

From our point of view, the IMF stands ready to help, but we would hope that Argentina can find a solution with the Paris Club without direct IMF involvement. If the Argentina and the Paris Club would like the Fund to be involved, then we stand ready to help. But in other words, our view is that it be best if the issue could be resolved between Argentina and the Paris Club. If they would like us to be involved, we are ready there to provide help.

Thank you all very much, and just a reminder again that our next briefing is going to be on January the 10th at 9:30 a.m.

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