Transcript of a Press Roundtable with IMF Managing Director

August 1, 2013

Washington, D.C.
Thursday, August 1, 2013

MS. LAGARDE: I'm very pleased to see you all, I thought it would be a good opportunity to sort of, number one, be available for your questions, because at the end of the day, that's really what you're interested in. You've got your own points, your own pet subjects, and you want to fill in the gaps or get the quote in, which is okay. I also wanted to sort of draw a little bit the conclusion of what has been a busy year and look at the coming months and the coming tasks.

In terms of most recent development, I think you have received under embargo two documents which I would really advise for good and solid reading, and that's the Spillover Report and the External Sector Report. I'll regard those two as very emblematic of what the IMF has to do and has to continue to press in order to be more efficient and have more traction with the membership. Those two reports have the characteristics that they are not bilateral work, they are very much multilateral surveillance work, and they are a particular report in and of themselves, each of them, but they also affect our bilateral surveillance work. So there are bits and pieces that you find in the Spillover Report or in the External Sector Report, that are the conclusions from the study and the work that has been done. But you will also find those same pieces scattered in any of the 25 Article IV reports and the External Sector Report, and you will find bits and pieces of the Spillover Report in any of the five systemic countries’ Article IV reports that have been done in the last few weeks.

It's been a very heavy duty period, the last few weeks, because we've had a lot of Article IV reviews. The Executive Board has been very engaged, very busy looking at those key pieces of work, and we are certainly looking forward to the preparation of the next step which will be, from our perspective—after Jackson Hole when we will have a chance to talk about monetary policy—the G20 leaders’ summit that will take place in St. Petersburg in the very early days of September. The IMF will be called upon talking about the economy in general, globally, called upon to make some policy recommendation which we believe could significantly improve the state of the world, and would help each and every member, as well as the global economy community.

I'm sure, because you are watchers of the Fund that you know those policy recommendations, those guidelines inside and out, they are country-specific. If there is one thing that we learned from the crisis is that it cannot be a one-size-fits-all policy mix. It's very peculiar to each set of circumstances, it's very particular to the state of development the countries are in. But we believe—and that's a number that you will find in the spillover report—that if everybody was doing the right things, our modeling work and our analytical work leads us to believe that the global size of the economy could be increased by about 3 percent, which is not insignificant, given the growth that we have at the moment.

You know that we have revised our numbers in the latest iteration of the [World Economic Outlook], and it has been revised downwards. I don't know how much you want me to go into these characteristics of the World Economic Outlook. I'm happy to do that, but you might be just buried up to your ears about it because you are top experts in this field.

So, without further ado, I will open the floor to question.

QUESTIONER: On this report, one of the main points, and you reiterate here, was the need to sort of cooperate or to implement these policy recommendations in sort of a coordinated fashion across the S5 in particular, but also the G20. The G20 has been working on this for a number of years, since Pittsburgh, that they agreed to do that. But unless progress has been glacial, it doesn't seem to have moved very far, as far as being in a coordinated manner.

How would you assess that part of what you're recommending, in other words, to do it, coordinated in a way that you get more bang for the buck of the policies? Are you satisfied with the way they've been proceeding, or disappointed with the fiscal policy implementations?

MS. LAGARDE: I think the highest degree of coordination that was demonstrated by the G20, in particular, was at the time of the height of the crisis. I would say that, from November 2008 to, for about one year, it was really very intensive coordination that was prompted, generated, and fueled by the global crisis and the imminence of catastrophic outcomes for pretty much every member.

Since then, because the crisis has abated, because there has been recovery here, recovery there, a bit more crisis there, and then abatement of some of the risks, the degree of urgency has been reduced, and therefore, the urge for coordination has diminished. I think it's an issue of, first of all, having a full understanding of the good consequences of coordination, so that's where we can play a role and where we can try to demonstrate, educate, do as much of propagation of that as we can.

And the second point has a political dimension that we cannot do much about. It's a question of whether the leaders of the world are prepared to organize themselves collectively rather than individually.

QUESTIONER: Thank you, Madam Lagarde. Two questions: what is on top of your policy agenda for the matter of this year and the coming year? Secondly, what should China do to push forward its economic and international reform at the recovery stage and in the near term? Thank you.

MS. LAGARDE: In terms of policy agenda, I would distinguish between the advanced economies and the emerging markets. For the advanced economies, I would say that, for where we have significant potential risk in the Euro area, there should be structural reforms and banking union in a comprehensive way, because I believe that much progress has been done on other fronts. But it doesn't mean that no fiscal consolidation should take place, I don't think that it is necessarily, at the moment, the key priority, but it's one of the elements of the policy mix that the Europeans have to apply.

For Japan and United States, both of them should anchor medium-term fiscal consolidation plans, including touching on the entitlement programs, particularly for the U.S., in order to offer that degree of security for the medium term that is needed at the moment. Japan must also, in our view, conduct those structural reforms and deliver on the three-arrow plan that has been identified by Prime Minister Abe. We've seen one, the other two are being articulated now that the election has taken place, but we need to see them being rolled out.

For the emerging market economies which have clearly slowed down a little bit, each emerging market is going to have its own set of policies. But it's clearly an issue for a country like India, for instance, to have more investment, to have structural reforms that will address the bottleneck of the Indian economy and that are clearly putting a drag on potential growth.

On China, where rebalancing has clearly taken place, it's really a question of continuing the shift from domestic investment to domestic consumption. We have seen it already in action for the last couple of years, but we need to see a continuation of that. I believe that the banking sector and shadow banking sector need to continue to be under very solid scrutiny by the authority, and we certainly welcome the position taken by the Chinese authority to conduct adequate audit of the various institutions that can issue debt.

In the same vein, we also welcome the determination of the Europeans to conduct balance sheet assessments in order to assess where the strength and where the weaknesses are before they can actually proceed with banking union. But we see that as very welcome development. I think that addresses your points.

QUESTIONER: The IMF recently called for debt relief for Greece and the German government is very clear in its position so far that nothing will be put on the table. Do you expect them to change their mind after the election? And, if not, what other forms of help could be made available for Greece?

MS. LAGARDE: Well, first of all, let me say that Greece has made considerable efforts to comply with its program commitments, not all of them have been delivered upon, but there has been considerable effort and results. Second, the European partners, particularly members of the Eurogroup, have always indicated that they would consider any additional measures and assistance needed for Greece in order for that country to reach the debt thresholds that have been agreed—it's the 124 percent, and significantly below the 110 percent, you know that inside out and by heart—provided that Greece delivers on its commitment.

And I have no reason to believe that the Europeans would not, themselves, deliver on their undertaking, vis-à-vis the Greece and vis-à-vis third parties. So what form those further measures and assistance will take will certainly be discussed at a later stage, but the key point is the commitment for these further measures and further assistance for the Greek debt to fall at those thresholds that have been agreed.

QUESTIONER: Just as a follow up on that: how worried are you about the abstention this month on the Greek vote, and is that a sign of growing unrest among emerging markets in the developed world on the policy implementation in Greece?

MS. LAGARDE: I had a very amicable and long telephone call with Minister Mantega from the finance ministry of Brazil and he authorized me to mention it. He indicated to me that Brazil was fully supportive of Greece, the Greek program and that if a vote could be retaken Brazil would support that program. And he said that himself.

QUESTIONER: A quick question: could you give us a little more than the one sentence we got from you on the Argentina Supreme Court court case? We all knew that the U.S. was supporting until the very last minute, and we still don't know what happened. Is the U.S. citing any involvement from Congress, what could you tell us? A second question: you always like to promote women, are you rooting for Ms. Yellen for the Fed, or do you have any opinion?

MS. LAGARDE: You know, I will probably disappoint you on Argentina, because if you want to have full clarity and understanding about why the United States took that position, the best is to ask Treasury and to obtain clarity from them.

You know what I will say. We are very concerned about the Second Circuit Court of Appeals New York decision, and we're not worried for Argentina, we're worried for financial stability at large, and for the way in which debt can be restructured in a predictable way.

And that is the reason why we thought it was appropriate for the IMF to file an Amicus Curiae brief with the Court to express that view on behalf of the international community in line with our mandate, which is that of financial stability. Now, it's very unusual to file an Amicus Curiae and, clearly, we would not do that in any country in the world if we didn't have the country, where the court is located, support.

Why is that? Because, clearly, we have the duty of neutrality that we have vis-à-vis all members, and we don't ever want to put the Fund in a position where it would possibly at one point in time in the procedure find itself hostage to different views between members. The United States informed me that it would not support us filing an Amicus Curiae brief. Therefore, I decided to withdraw such proposal. But it doesn't affect or change our concern, which is high and which I think is shared by many.

QUESTIONER: What about Yellen?

MS. LAGARDE: Oh, she's my friend. I'll say no more. [...] And she's a very competent woman.

QUESTIONER: Two questions. First one: the growth for Brazil has been disappointing last year. Do you think the reasons are more domestic or external? Second question: On the case of Paulo Nogueira Batista. Is there any part that you could clarify on the record about the call with Minister Mantega. Do you have any additional comments on the issue? Thank you.

MS. LAGARDE: You know, on your latter point, I think the facts speak for themselves. I don't want to add to it. But it's most unfortunate that it happened in those circumstances, but I'm very pleased that the position of Brazil could be rectified and clarified at the highest level.

QUESTIONER: And about economy?

MS. LAGARDE: On growth in Brazil, Brazil is not isolated; it's not the only emerging country where growth has slowed down in the last couple of years. There is probably a trend that we are seeing, which is also part of the rebalancing act that is at stake at the moment. How much of it is attributable to internal domestic factors, how much of it is attributable to external factors? Here, we can obviously think of the consequences of capital flows in and out. It's difficult to actually delineate what is purely domestic, what is purely external. It's probably a combination of the two.

As we move into the momentum easing that we have seen, and as this momentum will probably pace and tighten over time when the time comes, we'll be in a better position to assess what is purely domestic and what is purely external. For us, at the moment, our analysis tells us that it's a combination of both.

QUESTIONER: I have a brief follow-up question and another one. The follow up is: I understand that the Amicus-brief track is closed now, but is there any other way that you may be considering the possibility of expressing the Fund’s point of view on this issue? Beside the paper of last May, maybe another way to express or to say its opinion about this issue?

And the second one is, there is a deadline for Argentina to comply with its statistics issue, it’s September 29, so we are almost there...

MS. LAGARDE: Two months.

QUESTIONER: I would like to know if you have anything to comment on that, first of all, and my question is: if at that time Argentina does not comply, should that situate open the door to a new possibility of new steps in the process of sanctions, or what would happen?

MS. LAGARDE: You know, on the CPI issue and the clarification, rectification, correction of data, we have a dialogue with the Argentinian authorities and I'm very pleased that we have that dialogue. We have to carry on working, we have to come to completion of this work and make sure that we are on the same page. I don't want to speculate on it not happening. I want it to happen. We'll do everything we can to help, but it's a question of having reliable, comparable numbers and statistics which is the rule of the game in the membership. Everybody is on the same page for that.

On expressing our views, unless the United States was to change its views and would support the Amicus Curiae, it will not take a judicial form under the present case referred to the Supreme Court, but we will be very attentive to developments. There are other developments, as you know, going on in front of the Court of Appeals. We're looking at things, we're very attentive, as I said, and we are concerned about this matter because it's an issue for financial stability and the ability for an institution like the IMF to discharge its mandate, which is why we will be attentive.

What form will it take? We'll see, but not the judicial form at the moment, for sure.

QUESTIONER: Thank you. Can you please speak a bit about the Arab Spring countries? There are at least three of them, that is, Tunisia, Egypt and Yemen, to some extent that is having some serious political problems. Egypt specifically got some money from the GCC countries, does it mean that the IMF is still involved, or nearer to being involved? I would really like to hear from you.

MS. LAGARDE: Well, you know that, in Egypt, we have been in contact, in regular contact since last August. I was myself in Egypt in August and had discussions with the authorities at the time. Obviously, the situation has evolved, has been very unsettled, and everybody is watching the situation. We stay in touch on technical issues, we continue to discuss with the administrative level and officials in Egypt, not with the political authorities, and we try to be as ready as we can when the time comes for Egypt to re-initiate discussions with us. That's the relationship with the country at the moment. And I just want to remind you that we also are attending to the degree of recognition of the authorities within our membership.

On Yemen, as you know, I saw the President yesterday. He was in town, and we had a discussion on the current economic situation, and the various improvements that are needed in Yemen to stabilize its economic situation. It's a situation which is difficult from a security point of view, from a political point of view, and we are looking at the economic side of it.

We had a long discussion as to how the Yemeni authorities could gradually, over time, address the issue of subsidy phasing out. You know that about 10 percent of Yemen’s GDP is actually paid to Yemeni people in the form of energy subsidies, and it's clearly a program that we want to help the Yemeni authorities reframe and reduce gradually over time, with a specific target on compensating the support for the poor, the poorest in the population.

On Tunisia, we have a program underway, and I don't know when the next review is planned, but we have the normal relationship with the country and program, despite the fact that the country is undergoing some very difficult political turmoil.

QUESTIONER: Do you mind if you comment a little bit on the money that Egypt received from the GCC? Was it helpful, does it really serve any purpose or not?

MS. LAGARDE: No, I won't comment on that.

QUESTIONER: You touched on the Japanese three arrows. But our next critical question is whether the Prime Minister is going to raise the national sales tax to 8 percent coming April 2014. And he said he's still holding discussions and will yet have to decide. And we just reported that he is considering several options, including a lengthier and slower implementation period. So, again, how do you view the Japanese fiscal situation and the necessary sales tax? Thank you very much.

MS. LAGARDE: You know, we've always been supportive of the increase of the consumption tax from 5 to 8 to 10 over a reasonably short period of time. We believe that's one of the strong indications that the Japanese authorities can give of their determination to do fiscal consolidation in a sustained fashion. So we still have that view.

QUESTIONER: I have two questions, if I may. How satisfied are you with the G20 to find new goals for fiscal consolidation in G20 and the advanced economies? As you know, there is some resistance in United States; they don't want to come to any specific numbers.

And the second question I have is: do you really see any chance to get the IMF quota reform finished at the end of this year so that you can make the decision in January as it should? 

MS. LAGARDE: Well, I can assure you that, on the latter point, we shall do everything we can to meet the deadline and to comply with the commitment we have. Unfortunately, it's not completely in my hands or in the hands of the IMF at large. We very much need to complete the 14th review and to finish the governance job. Most of it is done; we're short of one big vote.

QUESTIONER: Do you have any assurances that the United States will come through? 

MS. LAGARDE: Does anybody have any assurance about anything in this world.

QUESTIONER: Maybe you.

MS. LAGARDE: So my response to you is, we'll do everything we can, because it's important for the institution. It's a matter of representative aspect; it's also a matter of delivering on a commitment that was made.

QUESTIONER: Do you have a plan B?

MS. LAGARDE: No, plan A has to be completed.


MS. LAGARDE: Your other issue had to do with the Toronto objective. We're way past Toronto, and we've learned a lot since then, mainly that, in terms of policy mix, like in terms of fiscal consolidation, it's not a one-size-fits-all. And while we firmly believe that fiscal consolidation is a necessity and must be an agreed upon direction for members, equally a straight jacket in terms of timing is not necessarily appropriate. Some countries have to go slower; some countries have to go faster.

QUESTIONER: I have a question on Cyprus. I'm sure you know that there are accusations even from the President of Cyprus that the Europeans and the IMF, they use the word destroy the Cyprus economic model, and I wanted to know your thoughts on this.

MS. LAGARDE: You know, whatever was decided has been the result of negotiations that were inevitable regarding the state of the Cyprus economy. And it's a fact that the Cyprus business model is evolving and will evolve. The real question is that we have to help Cyprus make sure that the economy is redesigned in such a way that it creates growth and that it creates jobs, but on a different basis.

All that was discussed, negotiated, the initiative of the discussions were taken by the Cyprus authorities. I visited Cyprus at the time of the informal meeting; we had discussions with the President then. At the time, it was already in the cards.

QUESTIONER: Thank you. Looking at the risks to the global economy in the spillover report, it appears as though Japan not firing all three arrows is the biggest risk. Is that what keeps you up at night, and does the Argentine case argue, is the IMF encouraging the resurrection of SDRM?

MS. LAGARDE: On what keeps me awake at night? Lots of things. But I might surprise you when I say that what keep me awake are two things: one is 200 million people without a job; and two, the fact we don't pay enough attention to climate change.

So it's not that I'm not interested in what's happening in Japan. I have faith in Prime Minister Abe when he said that there would be three arrows to his bow, and that he will launch the three arrows. This Prime Minister has leadership and courage, and I trust that he will do it, and I think it's important that the three arrows be used. That's not just about the monetary policy, it's also about the fiscal consolidation, and indication of political long-term determination to do so, and it's also about structural reforms. But, as I said, it does not keep me awake, because I have faith in Prime Minister Abe that he will do it. He said he would.

On SDRM, look, we are  because of this Argentinian case and the potential outcome, because of what happened in Greece, what happened in Cyprus in relation to debt burden and a necessity to restructure, it was worth for the IMF teams to go back to the drawing board and look at debt restructuring, corrective actions clauses, the latest legal status around the world, and how we can do our job going forward.

So this is something that is ongoing, that will continue, that we will be able to discuss in the next few months because there will be more working papers on the topic. But SDRM, we're not there yet.

QUESTIONER: Just to follow up on one of the things that keeps you up at night. Is there anything you plan to do with the World Bank on climate change, because they've become very active in that area? And what do you think the IMF should do more in this area to push this issue?

And, a bit off the beaten track, but Zimbabwe had elections, and the IMF recently started engaging with Zimbabwe, so I was wondering if some of the European and U.S. concerns about irregularities in the elections could affect the IMF's work with the country, or support for that work on the IMF Board. Thank you.

MS. LAGARDE: On your first point, we collaborate with the World Bank on the climate change issue, and I'm delighted that my colleague across the street is also concerned about climate change. As you know, we have released about three months ago a paper which has been very, very widely covered, and which has gone in many corners of the world outside Washington, which was our in-depth work on energy subsidies, their removal, the timing of their removal, the best practices in that area, the consequences of it, and so on and so forth. And that paper is, to my knowledge, one of the first pieces that were so encompassing and so empirically justified in terms of its conclusion.

I think it's quite eloquent when you look at the amount of public spending, and in many ways, public waste, and it has two sides to it. There's clearly the climate change side and the fiscal side of it, because a lot of fiscal revenue is spent on those issues. We will hold a joint seminar with the World Bank at the time of the Annual Meeting which will bring together a lot of climate change experts from around the world. We will try to focus on the fiscal side of it, but also the financial side of it, with a view to making as practical proposals as we can. We don't pretend to take the lead, there are lots of institutions that are concerned about it, but from our perspective at the IMF, we want to contribute as much as we can in the area where we have expertise that relates to that. So we will do so.

You'd asked me about Zimbabwe. I think it's a bit early on, because we have not seen the results yet, we don't know what the regularity or irregularities have been, so I think we don't want to jump to conclusions before anything is revisited.

QUESTIONER: I have a question on Greece. The German position on debt restructuring for Greece seems to be lower interest rates and higher maturity dates, does the IMF think that that will be enough for the Greek debt to become sustainable while the program is progressing? And the latest IMF report on Greece seems to suggest that confidence is important for growth to return to the economy, even though everyone is counting on Greek growth to return sometime next year. And I'm wondering why you think it hasn't happened yet, is it that three years are not enough for investors to return to a crisis country or is it something else? Thank you.

MS. LAGARDE: On your first point, I sort of stand on the three-times-repeated commitment by the Euro partners to consider further measures and assistance to make sure that the Greek debt is reduced substantially below the 110 percent by 2022. What channel it will take, what tools will be needed, what methodology will be applied is something that will have to be discussed by the Euro partners and with the Euro partners, but the commitment is, in my view, what matters most.

On your second point, you should not forget that, on the Greek case, there has been one year of pretty much nothing happening because of the total political instability of the country. So when you have the economic crisis that the country encountered, plus one year of total political instability, it takes a bit of time for investors to renew the confidence relationship that they want to have with a country before they start investing again. But if one country has demonstrated its ability to do massive fiscal consolidation after having done massive fiscal expansion, for that matter, that's Greece—15 percent in three years! Not many countries have done that.

Now, they need to show that they can do and continue to do structural measures in a diligent, decisive, resilient way. They need to show that they can do privatization in a decisive, convincing way, and that's where the issue of confidence kicks in. But for successful privatization, you need a solid agency and have good processes, and you need to have interested investors.

QUESTIONER: But given your point and the fact that you mentioned that some countries might move slower and some countries quicker on fiscal consolidation, do you think it might be time for Greece to focus more on structural reforms and less on fiscal consolidation?

MS. LAGARDE: They don't have a massive fiscal consolidation program going forward. It has significantly abated compared to with what they had to do in the last three years. But, clearly, the work, where there have to be decisive steps is on privatization, is on the management of human resources in the civil sector, is on structural reforms touching on the product and service markets, is the continuation of labor market reforms—all of the above. And  sorry, I forgot to mention tax collection.

QUESTIONER: I would like to know your opinion if you think Spain can keep up the current level of consolidation, even with this persistent, really high unemployment that we have right now.

MS. LAGARDE: Again, Spain is another country that has done a lot and where it seems and where it seems that the numbers are turning around and moving in the right direction. There is a stabilization of unemployment; it’s still massively high, way too high, touching lots of young people, but it seems to be turning around. The competitiveness has improved the attractiveness of Spain as a place for foreign direct investments seems to have improved also significantly. So it may well be that we see the corner.

QUESTIONER: But the pace of consolidation?

MS. LAGARDE: I think the pace that we've identified in Article IV and which has been committed to by the Spanish authorities vis-a-vis the European Commission is okay. They have had the benefit of an extra two years, as we had advocated. And we think that this is appropriate.

Thank you. We hope you have a nice August.

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