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

May 8, 2008

Washington, DC
Thursday, May 8, 2008
Webcast of the press briefing

MR. AHMED: Good morning to you. I'd like to welcome you to our regular press briefing.

Let me start off by giving you some information on management travel, starting off with reminding you that this morning, John Lipsky, the First Deputy Managing Director, gave a speech an hour ago in New York at the Council on Foreign Relations, and you should all have a copy of that.

Next week, the Managing Director will be visiting Israel, where he'll be meeting with Israeli and Palestinian leaders in the region. He will also be going to Brussels next week; on May 15 he will participate in the Brussels Economic Forum and be giving a keynote address there.

I should also mention that next week, we will be releasing our Regional Economic Outlook on the Middle East and Central Asia. This will be done in Dubai on Monday at 3:00 p.m. local time.

So those are the bits of information I have for you. I'll be happy to take your questions and, as usual, encourage people who are logged in through the Online Media Briefing Center to please pose your questions early.

QUESTIONER: It's regarding Simon Johnson's departure. I was wondering if he benefited from the voluntary separation package, if it's in this framework that he left. My second question would be, do you have a timeline for finding him a replacement and how the process is going to be for handling that?

MR. AHMED: On Simon Johnson's departure, well, as you know, there were a number of department heads who had volunteered through the process of voluntary separations in the Fund, and there was an announcement that went out of that. Simon decided separately that he, at this point, would like to move back to MIT at the beginning of next academic year. As we've said, the Managing Director has said, he regrets that decision, but it's a personal decision that Simon has made.

We are now launching or have launched actually an international search process to find a successor to Simon Johnson who can take on as Economic Counsellor and head of the Research Department. Our aim is to fill that position certainly well before Simon Johnson leaves, so that we can have continuity in that important part of the Fund's work.

QUESTIONER: I have a follow-up question regarding the replacement of Simon Johnson. Can you explain how is the procedure. Is the Chief Economist appointed on recommendation of the Executive Director? Is the Board appointing it? How is the procedure?

MR. AHMED: The procedure is that for all of the director level appointments, the Managing Director makes these appointments. He consults with the Board to get a profile of the kinds of people and skills that they think would be most appropriate for all of these jobs, but these are appointments made by the Managing Director.

QUESTIONER: When you look at now where the reform process of the IMF is, would you say that it is close to completed? I'm trying to get sort of a sense what the MD is thinking right now. I mean we've seen the two appointments—and congratulations. What is his thinking? Obviously, already, when you've see how he's chosen, for example, you and Anoop Singh, he's taking people from within the institution and he's also taking people from those regions as well. Can you give us some sort of sense of where he's going with all this and how he wants to remake the IMF in many ways to be more effective?

MR. AHMED: Let me step back a bit from that and put this in context. As you know, the Managing Director, when he came, launched a program for refocusing and renewal of the IMF to make it both more relevant for the needs of the membership going forward and also to improve and build on the legitimacy of the Fund. Those were the two drivers that he had been focused on from the very beginning.

Over the past six months, the time that he has been here, we've moved on a number of fronts to follow up on that agenda. Just to remind you of a couple of those, first of all, of course, the big open dossier, if you like, was the issue of quotas and voice and the governance reform agenda.

As you know, that's now been brought to closure at the Spring Meetings. So we've had a very good outcome. As I have mentioned at our last press briefing or since my last press briefing, we've had this overwhelming endorsement by the membership, 175 countries voting for that. That's one part of the agenda. Of course, there's more to be done on governance going forward, but that was a big part of the agenda.

The second block was to move forward on the income and expenditure model. There, as you know, the objective was to get agreement on a new income model based on the work that had been done by the Crockett Committee a year ago now. Again, on that for the Spring Meetings, we had agreement of the endorsement of the broad approach to the new income model, including the issue of using part of the gold reserves of the IMF in a way that could generate a more sustainable and a more appropriate way of financing the running costs of the institution.

The other side of the income was, of course, to deal with reducing the staff by about 380. I can say a bit more about that if you're interested, but there has obviously also been quite a lot of progress, and we're making progress on that. So we also want to bring that to closure relatively quickly.

Now, all of that is an open agenda, if you like. The next bit is that through the voluntary process of separations that we've been going through, a number of department heads who have been here many years in some cases have decided that they would want to move on. So this, of course, does mean all transitions need to be managed carefully. These people have made enormous contributions and hold an institutional memory, but that they are leaving does provide an opportunity for the Managing Director to have a sort of broader reshaping of the leadership team.

It's in that context that he has already made three appointments of people, who are already at the department director level, to move to take on new positions. The third one that you didn't mention was Barry Potter who will be moving from being the representative at the U.N. to being the head of our Internal Audit. So that's three people who will be moving.

Now there are a number of vacancies that are out there. There's a process that's being launched to find individuals who can take on those positions. The expectation is that they will come from within, and some will come from outside the institution. In each case, there's going to be a process of looking for the best person and identifying them, and the expectation is that all of these positions will be filled in the coming weeks so that during the course of the summer, we then have in place all of the people, hopefully before the individuals who are leaving will be moving on. So that's, if you like, sort of that part of the agenda.

Just to complete that point, I do also want to suggest, as the Managing Director has also said, that there is also a refocusing agenda for the Fund. On the refocusing agenda, we have already, over the last six months, stepped up the work on the linkages between macro-economy and finance, which we see as the sort of core area for the Fund's comparative advantage. At the Spring Meetings, the Global Financial Stability Report and the World Economic Outlook both came out and provided in many ways the frame for the discussions of substantive issues over that weekend. This is an important step forward in kind of focusing the Fund's work in those areas, but there is clearly now an ongoing agenda on taking forward the refocusing in surveillance, in capacity-building and in the work that the Fund does in supporting emerging markets and low income countries. So that's kind of, if you like, the ongoing agenda, but that's where we are now.

QUESTIONER: If you might, does it actually make the Fund more effective? Does it make it more legitimate? I mean, we know these steps, and we've been following them every day, every week. At what stage does he say, okay, this is the new Fund that is more effective, that has strong surveillance, or is that still the process that's taking place?

MR. AHMED: I think my answer to that would be that all of these things that have been happening are intended and, I would argue to some extent, do make the Fund more effective, more legitimate. For example, the reform on governance, the fact that 175 member countries all overwhelmingly come behind it and the income model, the fact that again an overwhelmingly number of countries come behind it demonstrates that there is a broad support of the membership for the agenda. All of those actions serve to build the legitimacy of the Fund.

Now, as for the effectiveness, I do think that the refocusing agenda that we have embarked on has that objective, and neither legitimacy nor effectiveness is an on-off switch and clearly not going to be done overnight, but that's clearly the direction of travel. As I say, we would take a view that in all of these areas, there's not just a direction of travel, but you can see progress along those lines.

QUESTIONER: On the voluntary separation, I think you call it, the IMF employees and chiefs of departments that expressed the desire or the availability to leave, Masood, if you could clarify where you are, because I think if I understood correctly, your goal was 380 departures in the expanded agenda and you have 590 who offered to go. So how are you managing? What's the procedure at this point or so, considering the benefit package?

MR. AHMED: Thank you. Let me answer the question. So, just as you said, our objective going into this process was that to reduce our costs by $100 million, about two-thirds of that reduction in cost would come from a reduction in the number of staff positions by 380, so about under 400, 380 to be precise.

We wanted to reduce the number of positions by 380. The profile of those reductions was based on our assessment of the organization, which suggests that the Fund was both too top-heavy, that it had too many middle managers in relation to the staff and also that we had more administrative and support staff than other international institutions. So the focus of our reduction was targeted on those two groups with also some reductions of professionals in the middle.

We started this by having a voluntary phase, and we did it because we wanted to see if we could actually get enough volunteers in each of those categories. It's obviously a much less disruptive way than to do it through a mandatory phase. From the outset we left the possibility that if there were not enough volunteers, then we would go to a mandatory phase and, if there were too many volunteers, then we would obviously have to find a way to select some and refuse others. So that was sort of, if you like, the design.

Now the voluntary phase closed on the April 21. The result of that was, as you said, that in the aggregate, 591 staff volunteered. The good news from that was that there were enough volunteers both in terms of the middle managers, the senior staff that I mentioned, and in the administrative and support staff that we could meet our targets for separations in both of those areas by accommodating all of the people who had volunteered and without the need for a generalized mandatory phase.

I say generalized because there are some specialized areas where clearly we're outsourcing our work, where we still need to go through a limited number of mandatory separations.

There was also, as I said, a small percentage that we had envisaged of reductions of staff in the middle, if you like, the professional staff. In that area, people also volunteered. Even though the percentage of volunteers was lower than for either the managers or the support staff, because we expected an even smaller share to be targeted, we have an overrun of some people who have volunteered. So the net result is that although we've been able to accommodate some of the extra staff who had volunteered, we will in the end have about 100 or so of the 591 staff who will not be able to exercise a right under the separations package.

So, obviously, we recognize that they can't do this because we have a budget constraint. The Board has approved a total amount for this work. Clearly, it doesn't make any sense for us to ask for additional money to let people go who would then have to be rehired. So the question now is how are we proceeding to deal with that difficult issue?

We recognize, of course, that for the individuals concerned it's a difficult problem because many of them have made a mental decision to volunteer and to leave, and they thought they would be leaving with a certain financial package. Some of them will and others, we would encourage to stay because the Fund is and will become a very exciting in which to work.

So, from an institutional point of view, the criteria that we will be using are to basically retain the people whose track records and skills are best suited to the needs of the institution going forward, and these are the people who, if they left, we would have to recruit people just like them again. So, obviously, that's the criteria that we'll be using.

Our objective, as I said, is to try and bring this exercise to closure relatively quickly. The administrative and support staff and the managers have already been informed that they're able to take advantage of the offer of separation. For the staff where the process has still to be completed on who can stay and who has to leave, for that set of volunteers, that process is now underway, but we expect to bring it to closure during the month of May so that we can then move on to the issues that we were discussing of refocusing and continuing that discussion.

QUESTIONER: So 490 basically, it's going to be, more or less, because you said 100...

MR. AHMED: It's about 100, and that process of exactly how many it will be is still underway, but it will be in that neighborhood, yes, about 100 short of 591.

Just to remind you, therefore, the remaining 490 or so, will be able to leave within the budget that was approved, because for us it's very important to follow through and deliver on this agenda within the budget framework that we had.

QUESTIONER: Coming back to the next Chief Economist, apparently, the French economist Olivier Blanchard is in the short list for the position. I was wondering if you could tell us which are the other candidates.

MR. AHMED: We haven't got to the point of having a short list yet because the process has only just started. As you said, Olivier Blanchard has indicated he'd be interested in the position, but we're still just starting the process of applying. There will be a formal process. There will be a short list at some time, and it's at that point that we'll be able to bring this to closure.

So we're just not at the point yet where we have anything like a long list, let alone a short list, because the process has just started.

I have one question that's just come in from the Media Briefing Center which is actually a country question, so I'll turn to that, which asks: Could you please comment on the results of the IMF delegation's recent visit to Tajikistan.

On Tajikistan, what I can say is that we did have a staff team that visited Dushanbe at the end of April, the last two weeks of April, and that team was able to reach understandings on a staff-monitored program. The objective of this program is to establish a track record of sound economic policies and provide a macroeconomic framework for an economy which has been badly affected by severe winter weather and soaring food and energy prices. So that's the current state of the results from that discussion.

QUESTIONER: I understand Mr. Lipsky has spoken in New York, but I was wondering what the IMF's position is in general, if you think that the financial crisis has eased.

The other question is that on Wall Street they believe that the oil could go up to $200 a barrel. Has the IMF revised its outlook on that in any way in recent weeks?

MR. AHMED: I'm not sure I have a whole lot to add on the crisis and the response except to say that I think certainly the central bank's actions that have been appropriate in calming the turmoil in interbank markets. But, as John Lipsky said this morning, you know we do have now the issue of looking ahead in terms of worrying about inflation. There's still something to be done also on this follow up agenda in terms of looking at the regulatory and supervisory structures. So there's clearly still an agenda of work ahead, both in terms of dealing with the transition from the current prices to return to normal functioning of markets, and then building on that, going forward. But beyond that, I'm not sure that I have an awful lot to add to what John said this morning.

QUESTIONER: That was basically my question. Secretary Paulson has taken recently to saying that we are closer to the end than to the beginning of the crisis, and I wanted to ask you if you agreed.

MR. AHMED: As I said, I don't have anything more to say on the first point beyond what I just said, and I refer you again to John Lipsky's speech this morning. But now on the question of oil prices, sorry, I missed that bit of your question, and thank you, for reminding me of that.

A view on oil prices is that we have been saying, and I said it I think in my last briefing, as well, that we do think that the recent surge in oil prices is going to be an additional head wind in terms of growth this year. And we do think that this is different than the earlier increase in oil prices, which was largely a reflection of demand. So I think for both of those reasons, we've taken a view now that—we see that this is going to be a—it's qualitatively different in terms of having more of an impact as the head wind, if you'd like, on global growth.

Now, we haven't yet revised our outlook on oil prices. We have said that we expect oil markets to remain tight in the medium term because of supply and demand considerations, but we basically do rely very much on futures markets in terms of looking at projections of oil.

QUESTIONER: Last time you said there were up to 10 countries that the IMF was working with regarding food prices. The World Bank says it's working with between 30 and 50 countries. I was wondering if that number had gone up and if there is anything additional that you have? Also, considering what happened in Burma recently, the UN setting up a task force to deal with this and I believe the IMF is involved.

MR. AHMED: Right; actually, on food, I should also say that I have a question just coming here which is how to deal with the current world food prices, particular in poor countries, so let me deal with both of those at the same time. Well, as I said last time when we had this briefing on food prices and the crisis on food availability and cost, we are working on a number of fronts, we are working at the country level, which is trying to help countries look at the appropriate policy response, and I mentioned then that we thought of certain kinds of policy responses such as targeted social assistance is better than a generalized subsidy on prices, and also we had said that we are working internationally and with other agencies, including the World Bank, which you mentioned, and the UN.

And in that context, I should say that, as you mentioned, there is this international task force on the global food crisis which has been created. Its first meeting is next Monday, I understand, and the IMF will be represented by Mr. Portugal, Deputy Managing Director, he'll participate in that meeting. As to our looking at financing for countries, I had mentioned we were in discussions with a number of countries, about ten or so, and those discussions are continuing, in particular, of course, the focus of our discussions would be to look at the countries where there is a balance of payments impact and consequences of that. So those discussions are continuing. I don't have anything specific on individual countries beyond what I said to you last time.

QUESTIONER: On Burma, the Managing Director yesterday said he was ready to help; what kind of help could the IMF provide?

MR. AHMED: On Myanmar, we did have yesterday a press release, the managing director's statement, which in the first instance, of course, expresses our condolences to the people and the authorities on the occasion of this terrible tragedy.

We have said that, at the moment, of course, the first focus is very much on the humanitarian response, and that's where the agenda of international agencies is clearly focused. Down the road, there will be a need to assess the economic impact of this. It's difficult to ascertain yet the full macro economic impact of this tragedy, but it's clear that there will be an effect, there are already reports of an effect on pricing, on inflation, which has risen significantly, clearly growth, particularly in agriculture, will be lower and—and quite likely a deterioration will follow in the balance of payments. And as far as the staff are concerned, we are monitoring developments closely, and we are also in contact with other international organizations. But at this stage, it's difficult for us to say more, since we haven't fully ascertained what the full macro-economic effect of the cyclone will be.

QUESTIONER: I have an Italian question. If Mr. Tremonti was named as the Economy Minister in Italy yesterday, does that mean Mr. Padoa-Schioppa has resigned as head of the IMFC? And also, do you have general comments on challenges from Mr. Tramonti?

MR. AHMED: First of all, I'll take your question on the IMFC chair. Well, of course, you'll remember that at the press conference at the end of the IMFC meeting, Mr. Padoa-Schioppa said that he anticipated that would be his final press conference, press briefing in that capacity. We are waiting to get a formal letter of resignation from Mr. Padoa-Schioppa.

At the moment, he's still the Chair of the IMFC, until we get a formal resignation if you'd like from him. Once we get that, then the process of selecting his successor will begin. So at the moment, I have nothing on it, but as soon as we have that, I'll certainly make sure that you are informed of it.

As to our assessment of the issues facing Italy and the Italian economy, well, the first thing I should say is that, because this is a question that I addressed in some ways the last time around. But I should say, first of all, that the mission will go to Italy in the second half of 2008. So we haven't yet got an exact date, but it's sometime in the second half. And, of course, as we get closer to it, I'll give you more on that.

Now, as to our current assessment based on the work that has been done so far, we haven't yet had the opportunity to discuss these policies with the new government. But the assessment that has been done suggests that the requirements and priorities facing the economy are well known and have been set out already in the Fund, and just to sort of remind you of that.

I think we see two broad areas which I can point to. The first is to safeguard progress on fiscal consolidation. As you know, after good progress in 2007, the deficit is already likely to weaken substantially in 2008, and debt is rising again, and we do think that rapid action is needed to prevent further slippage. Beyond this, we also think that progress will be a priority, to make progress on reaching Italy's medium term fiscal consolidation objectives, which, of course, does mean both lower expenditures and more effective expenditures, and that will require following through on budget reforms and expenditure reviews and ensuring continued progress in tax compliance and strengthening tax administration, so that's if you like one block.

The second block that I want to mention is that we do think that a raft of liberalizing structure of reforms, reaching a critical mass, are needed to jump start the supply side of the economy.

And in that context, we would stress building on a series of reforms since the beginning of this decade that have already born fruit, and quick and thorough implementation of the European Union's services directive, and introducing more competition for local government services, and also issues relating to divesting the remaining public enterprises. So these were, if you like, the sort of broad areas that we have identified before, and which we think will be the basis for the discussions that we will have with the authorities in the coming months to take account of their own assessment and their own priorities clearly.

QUESTIONER: I absolutely need to have follow up question about Italy, thanks for helping me out today—two questions actually. If you could restate the second part, when you were mentioning the quick implementation of the European Union services directive, if you could repeat it for me. But I had another question actually to ask since today is a very important day. In Italy, the new government is swearing in, and Mr. Berlusconi has already announced the first economic measure he intends to pass next week, it looks like the Parliament will be equitable, which is to cut the local county tax on first house ownership, which is a big fiscal stimulus.

And even if you don't want to go into detail, I just wanted to know if you think this is in the direction of whether IMF is suggesting to jump start the Italian economy. Thanks.

MR. AHMED: On the first one, just to repeat what I was saying, on the supply side, there are three blocks, the first is to build on a series of reforms since the beginning of this decade, they have already begun to bear fruit. The second is quick and thorough implementation of the European Union's services directive, and introducing more competition for local government services. And the third relates to divestiture issues amongst the remaining public enterprises. So those were the three blocks that I wanted to mention.

Now, on your specific point about the proposal to reduce taxes, local government level taxes on the first house purchase, I don't have anything specific that I can say to you right now.

[After the press briefing, the following reply was made available to press: "The new government has not yet been formed nor their policies fully articulated. Also, individual measures need to be seen not in isolation but in the overall policy context. And at this level, the main objective should be broad-ranging structural reforms to jump start the supply side of the economy. The new government will have the majority to make this happen. On tax cuts, we would point to two principles that should guide initiatives. First, any cuts need to be at least fully compensated by expenditure reduction, given the pressing need for fiscal consolidation. Second, the tax cuts should stimulate the supply side of the economy. We would also underscore, as we did at the last press conference, the need for continuing progress on increasing tax compliance and improving administration."]

QUESTIONER: We have a new Russian government, not yet formed, but we already know who will head it, and I guess I wanted to ask you a similar type of question. What do you expect from the new Russian government, do you expect any change, do you think any change is needed in the...

MR. AHMED: Well, at this stage, I think our focus is on giving an assessment of what we think are the issues. And, of course, it's for the authorities to take a view on in all countries as to how they want to move forward on setting trade-offs and priorities, and we look forward to discussions with the authorities in Russia, as we do in other countries.

But in terms of our assessment of the economic issues facing Russia, I'd like to start by saying that it is important to note that the overall macro economic situation remains strong in Russia.

We have noted a concern about the notable relaxation of the non-oil fiscal balance at a time when GDP's are growing above potential and inflationary pressures are high. And we have said in that context that we think that a priority for monetary policy is to focus on lowering inflation, including by allowing more flexibility on the exchange rate side, so that's kind of been one view that we have articulated.

The second thing that I would say is that we have also noted that, insofar as the increased revenues from oil are concerned, it's important that these be used to spur reforms and to raise the potential GDP growth rate. And its in that context that we've looked at and raised a little flag, if you like, about the fact that these revenues are being spent on wages, pensions, and other recurrent expenditures.

And finally, I should say that we have also indicated that we think that Russia has weathered the recent global market turmoil relatively well. We see little risk of a systemic problem for the banking system, we don't see that as a risk.

But, of course, Russia, as other countries, will find that the cost of foreign borrowing internationally is beginning to rise, and this does place in all countries a further premium on strengthening prudential supervision and regulation, so that's been the set—that we've articulated on the challenges in Russia, Andre.

QUESTIONER: Well, just to make clear, what is the biggest priority for you looking—from your vantage point, growth or fighting inflation?

MR. AHMED: I don't think in any country it's going to be quite as simple as that, and I don't have a simple answer for you to say it's growth or its fighting inflation. We think, you know, clearly raising the long term GDP growth rate is a high priority, and fighting inflation is a way of ensuring it, so I don't see those as being necessarily a trade-off.

QUESTIONER: Since we're crossing the globe, I'm going to ask you about Turkey, because I know that the Board is meeting tomorrow, but in the meantime, Turkey has announced a new primary surplus target. Do you have any comments on their target and whether the IMF thinks that that is appropriate?

Also, just to clarify about tomorrow, the Board is reviewing the last two reviews, it's the final one and one before? And will the Board also be discussing a follow up program for Turkey?

MR. AHMED: I will start with the process first and move on to the substance. In terms of process, as you said, we do expect the Board to be meeting on May 9, that's tomorrow, and right now the focus is very much on completing this final review—it is the seventh and final review.

As regards future relations, as we've said before, we work with our members in many ways, and we are ready to be guided by the government on what is the best way in which the fund can work with Turkey, but that's as far as we've got to at the moment. Now, on the substantive point that you raised, which is the issue of a lower than budgeted primary surplus for this year, well, I think the first point that I would make is that the government's view on this has been that the fiscal tightening embedded in the budget by relying significantly on investment spending cuts would have unduly compressed an already slowing domestic demand.

Now, as we look at the rationale for a less contractive fiscal stance from a dynamics perspective, particularly since the additional fiscal space will mainly be used for infrastructure investment, and a costly, but welcome, cut in labor taxes, obviously the dynamics is not the only consideration in setting appropriate fiscal targets, and policy makers have to be mindful of the macro-economic circumstances of the country, in particular of the implications on inflation and the current account.

And from this perspective, the unwinding of the tightening of fiscal policy is likely to put a greater emphasis on monetary policy for stemming inflationary pressures. And so, going forward, in our view, some monetary tightening, together with strict adherence to the revised fiscal target, will be critical to help contain macro-economic pressures.

QUESTIONER: I believe, I'm just trying to recall, because I think it's about 3.5, it used to be 6.5, I think, you don't have anything more on that, I mean whether you think that is appropriate?

MR. AHMED: I don't have anything more specific than that, but I can, if you're interested, I can certainly put you in touch with the right people.


MR. AHMED: No further questions? Thank you all very much. See you in two weeks.


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