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

February 21, 2008

Washington, D.C.
Thursday, February 21, 2008
Webcast of the press briefing

MR. AHMED: Good morning to you. I'm Masood Ahmed, and this is our regular press briefing.

I'd like to start off with just a couple of announcements today—first, just to say to you that it's not too early now to register for the Spring Meetings. The Spring Meetings, as you know, will include the IMFC which will meet on April 12th and Development Committee on the 13th, and the registration for both is starting for the media on Monday, February the 25th. So, those of you who would like to start the process can do so from next Monday. In a few weeks' time—not the next one but the one after—a month from today, I'll go over in some detail the agenda and expectations for the Spring Meetings.

Secondly, I'd just like to let you know that the Managing Director will be in Africa next week. He's going to be visiting four countries, starting with Senegal where he'll be on Sunday, and then he continues to Burkina Faso, Nigeria, and then to Tanzania. During this visit, he's going to be meeting, obviously, with authorities, African leaders, representatives of the private sector, civil society; and this will be an opportunity for him both to get their perspectives on the IMF reform agenda, how best it can serve all its membership, particularly low-income countries, and to discuss issues relating to low-income countries and to many African countries as they face the current international economic environment.

So, those are the two announcements I have to make. Let me now turn to your questions. As usual, if you could identify yourself and your affiliation.

QUESTIONER: Masood, I was wondering if, considering the independence of Kosovo, if they had actually signaled that they plan to apply for IMF membership.

And, notwithstanding that, a separate issue: In this circumstance, what is the procedure that the Fund would follow?

MR. AHMED: So, on Kosovo, first of all I should just preface what I'm going to say by saying that our current relations with Kosovo have been governed by an Executive Board decision of July 1999, which authorized the Fund to provide technical services, which have been interpreted to include policy advice, and IMF staff have been visiting Kosovo periodically to monetary economic developments. Obviously as Kosovo is not a member of the Fund now, it is not eligible for financial support, but we have been engaged, as I said, on technical services.

Second, to come to your specific question, Kosovo has not applied for membership. If we were to receive an application for membership, then we would address it according to a set of standard procedures, and those procedures are that a country would make an application for membership. That application is initially considered by a membership committee, which is a subcommittee from the Executive Board. This committee then takes its recommendation to the full Board. The full Board then examines that application and makes a recommendation to the Board of Governors, and that recommendation is made by a vote, which is a simple majority. And then, finally, the actual decision on membership is made by the Board of Governors, which is again made by a simple majority. So, that's the sort of process that would be followed.

QUESTIONER: The issues on sovereign wealth funds—there's been a lot of noise in Congress that if the IMF does not hurry up with getting this code of conduct out that they will take action. What is the status currently of drawing out that code of conduct? There's also been reports that the Fund has come against some resistance from wealth funds to participate in discussions on this. Could you maybe just clear that up and let us know exactly where we are?

And the other thing is, is it true that the code of conduct will probably only be finished up around the end of the year?

MR. AHMED: Okay. On sovereign wealth funds, let me make a couple of points. The first is to say that the IMF is working across a broad range of issues relating to sovereign wealth funds, and this reflects the fact that these funds have grown rapidly in recent years and are becoming increasingly important players in the international monetary and financial system. The IMFC encouraged the Fund to analyze the issues and engage in a dialogue with sovereign wealth funds to identify best practices—and I'll come back to that term in a minute.

Now, specifically, the Fund's work has progressed on a number of fronts. First, we organized, as I have mentioned before, a roundtable of sovereign asset and reserve managers here in the Fund in November of last year, and that facilitated a preliminary discussion with key sovereign wealth funds. This roundtable was attended by high-level delegates from central banks, ministries of finance, and sovereign wealth funds themselves from 28 countries. The participants at this roundtable generally welcomed the Fund's efforts in starting a dialog on best practices.

Since then, our staff have also stepped up our analysis of sovereign wealth funds and they are now surveying sovereign wealth funds to help identify prevailing objectives—institutional frameworks such as a kind of governance structure and accountability arrangements and the investment and risk management frameworks that they have in place—so survey processes are underway.

I should say to you that we are coordinating our work on sovereign wealth funds with the OECD and with the World Bank. We're also involved in other elements of this work.

Now, the next step is that the Fund Board will discuss a preliminary paper on sovereign wealth funds in March, and this paper will set out the key issues surrounding sovereign wealth funds and their implications for the work of the Fund, including the Fund's bilateral and multilateral surveillance work. In this paper, we will ask our executive directors for their agreement for the Fund to move forward with the preparation of a set of best practices for sovereign wealth funds, and, if the Board agrees, the next step would be to prepare a framework of voluntary best practices for sovereign wealth funds in close partnership with the Fund themselves and with other stakeholders.

We will carry out this work over the spring and the summer, and this will likely entail further meetings, some of which could be organized in groups here in Washington, and the plan is to present a draft set of these best practices to the Executive Board ahead of the annual meetings in October.

In the interim, we have an IMFC meeting in April, and at the IMFC meeting in April we are going to be providing a status report on this work along the lines that I have mentioned to you, subject, as I said, to the fact that the Executive Board will discuss and need to approve this going forward in March.

The basic objective of this work is that we believe that having some best practices will help to provide a public good that may be used by existing and new sovereign wealth funds to run sound organizations, good governance structures, robust risk management frameworks, and appropriate transparency. We also think that they will help to allay some of the prevailing concerns about sovereign wealth funds and allow the international financial system to remain open, which we believe to be a very important issue in this regard. And we think the best practices will also promote a better understanding of the role and significance of these sovereign wealth funds in their country's macroeconomic policy framework and also improve their understanding in the international communities. So, that's kind of our work program going forward.

QUESTIONER: Masood, so can you say until now these funds have cooperated or expressed an interest in cooperating?

MR. AHMED: I think I can say that the outcome of the November roundtable—and we issued a press release after that roundtable which I can refer you to and my colleagues can give you specific details; it's on our website. The participants generally welcomed the fact that it would be useful to have this kind of sharing experience, and, as I say, I'm focusing on the production of good practices that helped to quantify good practices across.

QUESTIONER: Masood, do you have a date for the Board to consider the completion of the latest review of Turkey's program?

MR. AHMED: At this stage, it's unlikely that the Board meeting will take place in February. It's not likely that it will take place in February. As you know, agreement was reached last December on the policies needed to complete the next review under the Stand-By Arrangement, including a number of policy steps to be implemented before the Board meeting, and over the last few weeks I'm happy to note that the authorities have made progress on a number of areas, and we are now looking forward to progress also being made in the areas of social security and tax administration reform, which will enable us to complete the pending review. But, as I say, we don't expect this—it's unlikely that this would be done during the month of February, so it's after February.

QUESTIONER: After February...

MR. AHMED: Yes, but I don't have a precise date, because it depends, as I said, on when these actions will be completed.

QUESTIOENR: Likely in March.

MR. AHMED: After February.

QUESTIONER: Today new data have been released by the European Commission about the growth prediction for the Euro area according to the European Commission. I think that growth is, at 1.8 percent now, from 2.2 in October, their last data, and Italy growth has been cut half from 1.4 to 0.7. Do you have any comment also in view of the fact that you have an ongoing Article IV for Italy which has not been completed from what I understand and in general for the Euro area from the last data you gave?

MR. AHMED: What I would say is that as you know we completed the update and now about four weeks ago, and at that time we already brought down our projections, for growth in the Euro area in 2008, and, as you know—just to remind you—the numbers that we had brought it down from was that we had expected real GDP growth to decline from around 2-1/2 percent last year to around 1-1/2 percent in 2008. That's broadly consistent with the numbers that you just mentioned. And we also said that at this point the risks to this outlook are broadly balanced.

We had also said at the time that we thought that this shading down of the growth that we had done for the Euro area would be fairly evenly spread across the major countries. So, at that stage we hadn't come up with individual country projections for 2008, revised ones, but we did expect the same trend to reflect in the major countries.

Now, going forward, we are now in the process of putting together the next WEO—World Economic Outlook—update that will come up at the Spring Meetings, and this of course will have both 2008 and 2009 numbers, and it will have the disaggregated countries' specific numbers, which of course would include Italy as well. So, I'm not surprised by the numbers you've quoted. They're broadly consistent with where we are, but we are moving forward now with our own specific analysis and will come out with those numbers in about a month and a half.

QUESTIONER: Italy was cut in half from the European Commission, so you find it consistent with your analysis?

MR. AHMED: I think all I can say is that, as I said just a minute ago, that we're into our country-by-country analysis now, so we don't have a number now for Italy for 2008 that I can give you, but what I can say is that the markdown that we had announced in the Euro area—you remember not only had we brought it down from 2007 to 2008 but we had also marked down our projections for 2008 for the Euro area by about a half a percentage point at that time compared to the projections we had made earlier for 2008, and what we had said then is that we believed the reduction in the projected Euro area growth is fairly evenhanded across the Euro zone countries, including Italy. So, we had said that at the time, and that's as far as we have gotten.

QUESTIONER: Yesterday the IMF revealed its country report on France, which was generally very favorable. The growth figures were much lower than what the French government has projected. There was a question raised in France. Some French officials were upset by the growth forecast, and apparently the Managing Director's office—there was an inquiry made whether the Managing Director had had any role in the report, and they were told that no, that he had nothing to do with that report and, by tradition, that the Managing Director does not. And I wanted to know is that the tradition that country reports are, even though according to your website they're transmitted by the Managing Director, that this has nothing to do with the contents of the report?

MR. AHMED: Well, I think the general rule about the staff reports of the Fund is that there is a process. There is a staff mission. It goes to the country. It has discussions. We have our own analysis. Staff pull together their report. That report is reviewed broadly amongst the Fund. Other departments bring in their perspectives so in a country like, for example, France or Italy or the United States or India or Burkina Faso not only would the respective mission team pull it together but other review departments—the Research Department, Policy Development Review Department, other departments—bring in their perspective.

There's a process of discussion and from that emerges our best assessment at the staff level of these things. Staff reports are then—the material is then pulled together by the staff and transmitted by management. Management as a whole reviews the process that's taken place; it goes to the Executive Board. The outcome of this is an Executive Board discussion, and what comes out of it is the Public Information Notice after the Board discussion which reflects the discussion in the Board of the IMF, and of course this is the key thing about the IMF, which is just worth emphasizing in this case, is that unlike other agencies that are simply producing analyses of countries—there are many agencies that produce analyses of countries. I'm sure there are many agencies inside and outside many major countries where they've got analysis projections.

In this case, it is both the independent staff analysis and there is also a process of peer review whereby the results of that analysis are reviewed in the Executive Board that represents all 185 members, and we provide the assessment of the policy advice and of the staff work, so that's how the process works. And I can confirm that this is a process whereby the staff are involved and the Executive Board is involved and it's not something where individual management members, management director, or others can intervene to change the process.

QUESTIONER: Masood, just to get onto another issue, Mr. Padoa-Schioppa is—was—the chairman of the IMFC. He will be without a job soon, and I was wondering is there anything in the IMF that says that he can continue in that role or that he will have to give it up and that another process will have to follow that?

MR. AHMED: Well, first of all, I'll give you three points in response to that question. First point is that he is currently the chairman of the IMFC, and as far as we work in the assumption that for the next IMFC meeting he will be the chair of the IMFC. So there's no question about who's going to chair the next IMFC meeting in our mind.

Second, there is a process by which at any time if the existing chair of the IMFC says that they can no longer carry on that function, then the IMFC membership, amongst them the members, elect somebody who then becomes the chair for a term that is to be agreed amongst the members. We went through this last time around, if you recall, when Gordon Brown stepped down from being chair of the IMFC.

Technically, there is no requirement that that person be a serving minister, but that has been a governor or minister, but that has been the tradition, and so that's something there for the members to decide. It's not something that the Fund staff or management have a particular view. As I said to you last time around when we were going through the process after Gordon Brown said he would step aside, that this was both the process and the candidates themselves emerge from discussion amongst the members, and that took place both amongst the executive directors and in capitals. The process traditionally that has been followed is that a number of candidates do emerge through this process, an informal process amongst the members, and from that then ultimately one name ends up commanding broad support of the membership. So, we're not at that point yet. We have a chair. The chair's going to be there for the next meeting.

Okay, I have a question from the Media Briefing Center. The question is : "Argentina continues its drive to pay its debt with Paris Club in a lump sum, keeping the IMF off monitoring the process, and it seems they've reached a tentative agreement with the U.S. Ambassador to Buenos Aires last week. What's the role the IMF would play in an Argentina Paris Club deal if any? What do you say on the Argentinean demand?"

Well, my response is just simply to say that as we've said before, questions about the state of play on the discussions between Argentina and the Paris Club or its other creditors are best addressed to Argentina and the creditors.

As to what role the Fund can play? I simply say again what the Managing Director noted in Buenos Aires when he was there, that the Fund stands ready to help on this issue if and as requested by Argentina and the Paris Club, but the decision on this and the primary inquiries on it ought to go to them.

Okay, any other questions on the Media Briefing Center and it's on the Dominican Republic: Standard&Poor's Rating Services said last week there's a risk that the Dominican Republic will not pay the country's US$130 million in promissory notes issued in 2006 and due between March and July 2008 because they were issued illegally. The matter highlights institutional weakness, poor debt management, and lack of transparency of the country officials. So, here's the question: Since the country and the IMF have finished the current program in January, is the Dominican Republic seeking a new program with the IMF? And the second question is: Do you think there is such a risk with the Dominican Republic's notes?

You have two questions there, and the answer to the first one is that I can confirm that members of the Economic Team have indicated to our representative in Santa Domingo their intention to initiate discussions on a new Fund engagement. At this time, we don't have a schedule for such discussions, but I can confirm that they have stated their intention to initiate them.

On the second point about these promissory notes, the authorities have assured us that the notes will be paid and paid on time. I can't comment on Standard and Poor's ratings. That's not something that we would do. But I can say that the authorities have assured us that these notes will be paid and paid on time.

QUESTIONER: This is about oil prices, and if you could give us whatever comment concerning prices—they keep climbing.

MR. AHMED: On oil prices, of course in the last week there's been a further run-up, and the short-run movements in this are probably driven as much by people's concerns about immediate things happening in the supply chain, like refinery closures. But the more important point here is that this is part of a trend of higher oil prices, which we have seen for a while, and so far, as I've said before, the effects of these higher oil prices on global growth have been manageable, reflecting the fact that these higher prices are, themselves, largely driven by sustained demand growth, including from emerging countries, which are big growing markets.

And I've also said that looking forward, the extent of concern about the impact of future oil price changes on global growth depends on the underlying reason for these high prices. If the oil prices remain high because of more-robust-than-expected growth in emerging markets, then the increase would not be a bad sign in terms of the effect on the health in the global economy. On the other hand, a supply-driven oil price spike would be a serious concern, as it would reduce disposable income in oil-importing countries and amplify the adverse growth effects of tightening credit conditions in the global economy.

We have said, and continue to think, that if the global economy slows down this year, as expected, and in particular if there's a moderation of growth in some of the large emerging markets, then that would translate into a moderation of oil prices, as oil demand would be affected. But this is a statement that's as if—if one thing happens then we expect the other to happen.

Okay, no further questions? We will meet again in two weeks' time. Thank you.


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