Transcript

Washington, DC
Thursday, September 17, 2015

MR. RICE: Well, hello, and good morning everyone. Welcome to this press briefing on behalf of the International Monetary Fund. I’m Gerry Rice, the Communications Director here at the Fund. As usual our briefing this morning is going to be embargoed until 10:30 a.m. That’s Washington time. I’m going to start with a few housekeeping things and then I’m going to introduce someone briefly who may be of interest to you and then I’ll come back and take some questions. But there’s a lot going on as we head into our Annual Meeting in Lima in October, so let me just give you a few things that are happening in the run-up to that now.

Monday, September 21, that’s this coming Monday, the Managing Director of the IMF, Christine Lagarde, will give remarks at a panel discussion on the Role of Ethics in Finance and that’s an open event. It will be Webcast. You’re welcome to come. It’s here at the Fund. And it’s related to the Ethics and Finance Robin Cosgrove prize. There’ll be a panel discussion and again the Managing Director will be there.

The Managing Director will also then be at the United Nations’ Sustainable Development Summit in New York City. That’s the weekend of September 25 and she’ll be there on September 25. Before going to New York for that summit, Christine Lagarde will be at the Brookings Institution on September 22 in the morning at 11:00 for a discussion there. It will be a conversation with her about the IMF’s role related to that summit in New York, so that’s the sustainable development goals. So that’s next Tuesday leading into the week and the following weekend.

Staying with me here, just shortly thereafter on September 30, which is a Thursday, the Managing Director will be giving what you all know as our curtain-raiser speech, which is the raising of the curtain on the Annual Meetings in Peru. That’s being hosted appropriately by the Council of the Americas here in Washington. The venue is actually going to be the Willard Hotel because it has a bit more space for everybody, and again you’re welcome to that speech. It’s open and I can get you all the details. Okay, that’s September 30, the IMF’s curtain-raiser speech for the Annual Meetings.

And then let me just mention our Deputy Managing Director, Min Zhu, will be participating in another panel discussion on Inequality and Fiscal Policy actually at the Center for Global Development. And that’s going to be on September 23 and there’s the launch of a book on inequality and fiscal policy related to that. We can get you all the stuff. We will get you all the stuff under embargo in advance. We’ll try and help you with that.

Then we’re pretty much into the Annual Meetings territory and let me just tell you on September 28 we will have the WEO analytical chapters. So it’s not the launch of the World Economic Outlook formally; that will be done in Peru as you know, but it’s the WEO analytical chapters, which often have some very interesting things to say. That’s going to be at 9:00 September 28. And then we will have the GFSR -- that’s the Global Financial Stability Report -- analytical chapters on the following day, September 29 at 9:30. And again, we’ll get these to you in advance under embargo so that you can do what you need to do.

Let me then just go to what I said. We have a person of interest with us. I’ve talked a lot about Peru this morning. I know it’s on your minds. I know many of you are coming and that’s terrific. We are launching today later in Lima a book on Peru. And we just thought that it might be of interest to have our Deputy Director of the Western Hemisphere Department, Adrienne Cheasty, to come and just say a few words about Peru, about this book. It’s being launched later today by the Director of the Western Hemisphere Department, Alejandro Werner. But Adrienne was generous enough to say she’d come here for a few minutes and then I will come back and we’ll get back to the briefing and take all of your questions. Adrienne, thank you.

MS. CHEASTY: Thank you very much, Gerry. Hi, good morning everybody. As Gerry said, we are launching this book today in Lima. It should be on the Website after the briefing. It’s called Peru: Staying the Course of Economic Success. And as you surely know, Peru’s been one of the most successful countries in Latin America over the last decade. So the book does three things: It documents the successes of Peru; it looks at the reforms that made the successes happen; and it discusses the policy agenda to meet the challenges facing Peru going forward.

The book is very special for us because it was written in a uniquely collaborative effort by the proven policymakers and economists working with our IMF team and that’s very gratifying. Our hope is that this book will provide insights not only into Peru, but a perspective on Latin America’s reality over the last 30 years and maybe some lessons for other countries going forward since Peru’s been such a good performer.

So what do I mean by Latin America’s reality? Let’s stand back and look at Peru. In a couple of weeks it’s going to be the financial capital of the world, but if we see it in that perspective, we have to ask where it’s come from. When we talk about Latin America’s lost decade of the 1980s, for Peru what that meant was the GDP was actually lower at the end of the 1980s than at the beginning of the 1980s. In 1990 Peru was suffering from hyperinflation. It had run out of international reserves. And it had suspended payments on its debt. Other countries in the region were suffering the same kind of stresses and difficult performance.

But then Peru undertook a series of important stabilization programs -- macrofinancial reforms, put in a modern rules-based fiscal framework, introduced inflation targeting -- and backed all of these by fundamental, constitutional, political, and institutional reforms. It took two decades, determined effort, and commitment to modernization over the period of IMF-supported programs.

So happily it paid off. There was a gradual turnaround in growth, rebuilding of confidence, and then acceleration. For the last decade Peru has been the fastest growing country in South America, growth of more than 6 percent on average a year, and this period of strong and fast growth included the global financial crisis. Peru weathered it with relatively little damage on the strength of its now robust policy framework and ample financial buffers.

Now, I know you’re thinking that the commodity price boom has a lot to do with Peru’s success, which it did, of course. But what the book finds out is that the economic framework that Peru had put in place had left it in a very good position to stay stable through the crisis and through the boom years as well.

The book also looks forward. It recognizes that the boom years are over and that Peru, like the rest of the region, is facing a much more difficult future. It’s not only the end of the commodity super cycle, but also the slowdown in China, the normalization of U.S. monetary policy, all of these are going to matter tremendously to Peru. And we’re already seeing the sharp growth slowdown that we’re seeing in the rest of the region in 2015.

Again, the book sees Peru’s strong economic framework and plentiful policy space as leaving it well-positioned to maintaining prosperity in the face of this adverse external environment. But it also discusses policy priorities, the agenda going forward, replacing lost commodity revenues, finding new drivers for growth, developing financial markets to withstand any capital market volatility, and finishing with its challenging institutional reform agenda.

So the book is not only about economic success, but it’s also about staying the course. That said, a main lesson from the book is since Peru was able to achieve so much since 1990, it is well-positioned to stay the course in the coming decade.

So please read the book. I hope it will be useful in your reporting going up to Lima. And I hope to see you in Lima.

MR. RICE: Thank you very much. Any questions for Adrienne on this? It was an excellent summary. Thank you, Adrienne, very much. We’ll see you in Lima.

By the way, what Adrienne held up, it’s a weighty tome, it’s a big book, but the secret is there’s a little excerpt summary and it’s going to be free and available to all on the IMF Website. So there’s a cheat sheet if you like that you would be able to use and that will be available I guess later today once it’s been launched in Lima.

Thank you for your patience with that. Now let me turn to your questions in the room and I see quite a few online, so we’ll get there eventually.

QUESTIONER: Thank you, Gerry. I know that you don’t usually make political comments, but we are just three days away from the Greek elections and with all the delays and the political uncertainty, how much of a concern is it to the IMF?

MR. RICE: Well, as you said, I think everyone is now looking toward the election that’s coming up this weekend, and we as always respect that process. It’s for the Greek people to decide. At the IMF we’ve been working with the interim government. We will work with whatever the outcome in terms of government is from this weekend, and we will continue to try and support Greece’s economic recovery as much as we can as we have been trying to do.

QUESTIONER: We know that the IMF will wait for the first review of the European program to decide whether or not they will join the EU to support Greece. Can you give us an idea on when that will happen? I mean can we expect a decision from the IMF by the end of the year or do you have something more precise to give us?

MR. RICE: I don’t have anything more precise because I think we have to wait as just said for the political process to play through this weekend. And then for whatever the political arrangements are, the government is, then the government will be deciding how it wants to proceed. Then in that context we will proceed as well. I mean it’s hard to get a specific time, but we are in fully supportive mode as I said.

QUESTIONER: Can we expect it by the end of the year to join the program?

MR. RICE: Those have been the timelines that have been talked about in the past before the run-up to this election. But again, I want to fully respect the political process in Greece and the prerogatives of the Greek government. So I don’t want to get into giving precise timelines on it.

QUESTIONER: Thank you. Both parties leading the polls, however, have vowed to try to renegotiate aspects of the European program that the IMF would eventually join. Would the IMF support such an endeavor in the context of its own reviews with Greece for some of the fiscal measures or maybe even some of the reforms?

MR. RICE: Again, it’s all just too speculative right now because I think we have to respect what’s happening this weekend and the prerogatives as I said of the Greek government, what they would wish to do. The IMF is always in supportive mode, so we will be in that mode and just looking for the outcome of this weekend.

QUESTIONER: Gerry, I know that you have connected the euro participation to the IMF to the Greek third bailout program with the debt discussion. So did Madame Lagarde have any discussion with the Europeans while in Turkey or elsewhere the last weeks about this issue, and do you have any idea what the Europeans are planning to do about it and when?

MR. RICE: Yeah. I'm not aware of any particular discussion in Ankara that took place on Greece. Generally our view has not changed and Madame Lagarde has characterized this as you know as a strategy that has to stand on two legs. And the two legs, you know this well, are the policy reforms on one side, a credible set of policy reforms, and then credible, adequate financing on the other side including debt relief which we've stated often and emphatically as you know. So our position on that has not changed and I'm not aware of again any particular discussion carrying this further forward in terms of details right now.

QUESTIONER: Thank you. Thank you. A different subject. I have a few things on Russia and the Ukraine. On Russia, the Russian Minister of Finance has proposed to use for the draft budget for the new year a benchmark oil price that is lower than is allowed by the fiscal rule. Do you think it's a good decision?

MR. RICE: Yes. What I can tell you on that question is that the IMF staff agrees with the proposed decision by the Minister of Finance to use a benchmark oil price for the 2016 draft budget expenditures that is lower than that allowed for in the fiscal rule. And this should preserve fiscal consolidation and contribute to continued anchoring expectations.

QUESTIONER: Then also the Russian Central Bank obviously faces a difficult environment and they've had to take some difficult measures, policy measures on interest rates, measures to support the banking system. Again my question is if the IMF can comment on those measures, how appropriate they seem to be.

MR. RICE: Well, again I can tell you that IMF staff believe that monetary policy normalization in Russia should be conditioned to the decline of actual inflation and inflation expectations. And in that context our staff agreed with the recent pause in the easing cycle as this will provide time to ascertain whether the recent decline in the exchange rate leads to a change in inflation.

QUESTIONER: Then lastly I have a couple of things, perennials I guess, on Russia and the Ukraine. And the first one is the Russian loan to Ukraine, the $3 billion which seems to hinge in part on the status of that loan. So can you tell me when the IMF will pass judgment on whether it's an official loan in your eyes or a commercial loan?

MR. RICE: Yeah. Maybe just -- I'll answer that, but maybe just stepping back for those who may not have seen the news this morning that the Ukrainian parliament actually approved this morning the debt restructuring agreement which paves the way for launching the bond exchange offer in the near future as planned. And as we have said, the Managing Director, as you know, was in Kiev just a short time ago and said that full implementation of this agreement will provide the targeted external debt service relief, reduce post program gross financing needs, and place public debt on a clearly downward path. And therefore what we've said is it's important that the agreement gains broad support by all concerned, euro bond holders.

On the specific question that you asked in the Russia bond, as you know Ukraine has made the latest payment on that bond; that was in June. So, you know, there are no arrears to Russia. The next payment is not due I believe until the end of the year, December, so it's not pertinent right now.

And on the status, which I think you also asked about, I can only reiterate what we've said here before, Andre, which is that our Executive Board is responsible for establishing the status of the bond, of this bond, and has not made a decision on this.

QUESTIONER: And then lastly -- and that is last -- the Ukrainians themselves have reported extensively on this diversion of the IMF funds that come as IMF aid within the program. And then this story was picked up even here in D.C. and then New York by a major magazine. Basically the gist of this story is that a lot of money, billions allegedly has been taken out of the country to offshore accounts in a rather simple scheme from the outside by the bank belonging to a Ukrainian oligarch who is now again allegedly in the U.S. Does the IMF know about these allegations and what can you tell us about the attitude in the Fund to such diversions if they do take place?

MR. RICE: Well, you know, in all cases the IMF's funds -- there are careful safeguards in place as to how those funds are used and we disperse as part of the program and it's to support balance of payments and strengthen reserves. That's where our resources go. My information is that these allegations that you refer to are unfounded, unfounded.

QUESTIONER: Unfounded? Okay.

QUESTIONER: Thanks. The Federal Reserve will be announcing the decision today, probably one of the most important decisions at least in the last decade for the Fed. Can you update us on the Fund's position on whether the Fed should raise rates today?

MR. RICE: You know, as you've said, within hours of the decision -- we've spoken about this -- I won't say ad nauseam, but fairly regularly and often. I think the IMF's position has been clearly stated. And I'm going to respect the Fed's decision and process that's coming up in just a few hours. So I'm going to leave it there.

QUESTIONER: You caught my attention -- just as a follow up, you caught my attention with the advisory you sent out yesterday on official reserves. I believe that you'll be publishing a list of countries that participate in the IMF's COFER program. I'm just wondering where is the IMF headed with this? I mean does the IMF hope that at some point countries will eventually publish their official reserves, that that data will be available to the world?

MR. RICE: You know, as a general principle, and I think this publication is part of it, you know, we are for as much transparency as possible. We think that's a healthy thing for economies, for global stability. I think especially in the interconnected world that we live in where the spillovers are increasingly obvious from one country to another. So I think it's part of that general drive and momentum that we'd like to see.

QUESTIONER: Just going back to the Fed decision, I understand you respect the Fed's independence.

MR. RICE: Yeah.

QUESTIONER: But do you have any words for any other economies and emerging markets that might be affected by their decision, any advice for them? It's all waiting.

MR. RICE: Yeah. I think it's the advice that we've been giving fairly consistently, which is that I think everyone needs to be vigilant. It relates a bit to what I was just saying. We are in an interconnected world, the spillovers are, you know, increasingly significant. And so everyone has to be vigilant. The nature of that vigilance is obviously case by case. It depends on the individual country's -- you know, the conditions that they face. You know, maybe what we've said fairly regularly -- I'm just looking at previous statements -- we've said policy coordination, clear communication, and appropriate policy responses are what everyone needs to be implementing.

QUESTIONER: If I could just follow up on one other issue. Does the IMF Executive Board plan to discuss the plans for interim solutions on quota reform now that the September 15 deadline has arrived?

MR. RICE: So thank you for question. Let me just step back and then I'll come to it. For those who don't follow it perhaps as closely as you do, the effective implementation of our 2010 quota and governance reform is the highest priority for the IMF. We believe it's critical for our credibility and effectiveness and to ensure that IMF has sufficient resources to meet our members' needs. We continue to urge countries that have not ratified the 2010 reforms, and in particular the United States, to do so as soon as possible. And we believe that adoption of these reforms is in the interest of all our member countries.

So on your question, you are right that our Executive Board said on June 11 this year that they adopted a report to our Board of Governors that notes that while progress has been made on the quota and governance reform more time is needed to build the necessary consensus among the membership to complete its work on the interim steps that you mentioned. The report then further says that if the 2010 reforms were not ratified by September 15 the Executive Board will consider, prior to the end of this month, end of September, which interim solution to pursue and complete its work on steps that represent meaningful progress toward the objectives of the 2010 reforms as early as possible and no later than mid-December 2015. Okay. So that's the story so far, that's the timeline so far. So in line with that June report I think we can anticipate that indeed the Executive Board will meet in late September, later this month, to discuss possible next steps that can represent, you know, meaningful progress toward the objectives, again the overall objectives of the 2010 reform.

QUESTIONER: But no particular date?

MR. RICE: I don't have a date for you. Stay tuned.

QUESTIONER: And may I follow up on the -- just for the record, what are the other countries aside from the United States that have not ratified it?

MR. RICE: I'll come back to you with a list. It's very few. And as you know what the reform needs to -- the reforms need to pass is the approval of the United States.

QUESTIONER: No, I understand. I just was wondering.

MR. RICE: Sure. I'll come back to you on that.

QUESTIONER: I have two questions on two different issues. The first one is on China. There are some concerns that the economy data of the country could be manipulated for political purposes, especially maybe the growth figures. I was wondering what's the IMF assessment. Do you think that the Chinese economic data are reliable?

MR. RICE: Okay, again let me just step back a bit in terms of context, it’s such an important issue on everyone’s minds. Right now, and as we said before China is transitioning toward what we have characterized as a safer, more sustainable growth model. This involves a significant set of reforms aimed toward making the Chinese economy more market oriented and more integrated with the global economy. It is important that these efforts continue. It’s complex and should not be unexpected if the process is bumpy at times. We believe the Chinese authorities have the policy tools and the buffers needed to manage the process and that the IMF continues to support the Chinese reform effort as much as we can. On your question -- on the Chinese data what I would say is China has made great progress in modernizing its GDP statistics at a time when, as I just said, the economy has been undergoing rapid structural changes. Its methodologies are largely in line with international practice. Like many countries however there is room for improvement. It’s important that China does continue to improve its data quality to reflect the fast changing structure of its economy. Again, I was just trying to give you a little bit of the context on that.

QUESTIONER: I had a second question on a different issue. There was a coup today in Burkina Faso and you have a program over there. Are you going to suspend your cooperation with the authorities over there? What are you going to do?

MR. RICE: So is this, as you say, literally unfolding as we speak, so we’re watching it, we’re monitoring it, and we’ll get back to you when we have something.

QUESTIONER: Does the IMF have a preferred way for the Greek bank capitalization to take place? Our information in our newspaper is that there was a meeting between IMF staff and some funds that have invested in Greek banks and there was a disagreement on how to proceed. Some fund managers are actually publicly complaining that the conservative view taken by the ECB will cause their investment to wither away and that will make Greece toxic to investors. Do you have anything on that?

MR. RICE: Again, this will be a set of issues for the post-election period, but specifically on your question and I think it’s important to get the facts straight -- the IMF did not host and the mission chief Delia Velculescu did not participate in any meeting like the one described, okay? Just for the facts. I’m going to go online and then I’ll come back in the room if there are one or two others.

I want to take a question from our colleague because he’s asking about another issue that’s very much on our minds I think these days which is -- he’s asking what does the IMF see as its role in the current refugee crisis, both countries of arrival and countries where people are leaving. Well the first thing I’d say is obviously this is a massive humanitarian crisis. The concern first and foremost is for the people effected and the IMF shares that concern. The magnitude of the crisis is indeed extraordinary. As you know European political leaders are working together on the response and we believe managing the crisis will indeed require collective concerted action. On the implications which he was asking about, on the economic cost, on the fiscal dimensions, obviously the crisis is still evolving, so it’s too early for us to estimate specific fiscal impact. It’s going to be case by case in terms of countries, however past international experience with surges in immigration suggest the speed with which immigrants are integrated into the labor force is a crucial factor.

On the European dimension of this crisis there are many factors at play and it’s difficult to make again an economic assessment at this moment but we are working on it and we will be coming back to you in due course on this. I just want to finally mention that Europe is not the only region affected by this issue. Many countries in the Middle East and North Africa, for example, perhaps most notably Jordan and Lebanon have been hosting large numbers of refugees from conflict areas including Iraq and Syria and they have been shouldering heavy burdens in accommodating the refugees basic needs for multiple years now. The IMF has been involved in this issue in terms of dialogue, in terms of urging the international community and most specifically in our programs where needed and where appropriate. We have been trying to create -- help countries create the fiscal space which is something that we can help them with specifically. Create the fiscal space to accommodate some of these large refugee issues. This was the case for example in Jordan recently.

I’m going to take a couple of other questions. There’s a question on Ghana asking what is the exact position of the Fund on the concerns being raised by the minority in Ghana concerning the IMF facility especially when they have threatened to pursue the matter in the Supreme Courts. I guess the question is about the legality of the IMF program raised by the opposition party and as we’ve said in previous cases it’s a matter of domestic law as to whether an IMF arrangement requires parliamentary approval and we defer to the member authorities to make this determination. I understand that in fact that Ghana authorities issued a press release on September 10 confirming that under Ghanian law no such parliamentary approval is required.

Let me take a question on Pakistan. Questions are on interest rates in Pakistan which are not according to the question at a 42 year low. Do you see monetary policy as one of the key economic drivers in the days ahead and does the IMF think the rupee -- the Pakistan rupee is still overvalued? Quick background: the IMF is supporting the program in Pakistan. We concluded the eighth review mission in August. The board is scheduled on this topic for September 28. On completion and board approval that would amount to about 502 million being made available to Pakistan. On the interest rate question. The easing of monetary policy in Pakistan has become possible in an environment of improving stability and low inflation. We do expect a moderate pick-up in inflation in the coming months as international energy prices stabilize. That said real interest rates remain positive and we expect inflation expectations to remain well anchored.

The other question was on the exchange rate and what I can say there is the pronounced appreciation of the rupee in really effective terms over the last two years is one of the factors that’s been affecting Pakistan’s export performance. In that light the recent depreciation of the rupee against the U.S. dollar has been a welcome development.

Let me take on more question online and it’s on Brazil. What will be the impact of the recent downgrade of Brazil’s credit rating by S&P on Brazil’s economy? Now we don’t -- as you in the room know we don’t comment on actions by rating agencies. Our focus is rather on the underlying trends in economic growth and public finances that in combination are pushing debt ratios up. Let me add however that the recently announced proposed measures by the Brazilian authorities are a positive step toward restoring fiscal sustainability. It is important that these measures be implemented now including approval by Congress where this is required. A strong commitment to putting the debt to GDP ratio firmly on a downward path is needed to bolster market sentiment and to force a return to growth.

I’m sorry, there is one other question that has come in on Italy and I want to take it because I know this person has been trying in the past to get a question in, so I want to be fair. She is asking -- the Italian government is going to scrap property taxes in the next bill. Do you think it’s the right direction or do you believe tax cuts should be focused else where. I don’t really have sufficient information on that point to give specific views on the details of the 2016 budget but in general fiscal policy in Italy faces the twin challenges of supporting the nascent recovery and reducing very high public debt. Since taxes on labor and capital remain high, tax cuts financed by expenditure cuts, identified by the spending review would be growth friendly. A modest use of the flexibility under the SGP -- that’s the Stability and Growth Pact could support the structural reform agenda while an acceleration in privatization could also facilitate the goal of reducing debt. That’s on Italy. Is there one or two in the room?

QUESTIONER: Thanks, Gerry. Any updates on the SDR review process the board will I presume deliberate on this in November? Anything that staff is doing, any papers that they are preparing, can you just walk us through the next couple months on this?

MR. RICE: Yeah, not sure I have more specifics for you. The general process and timeline -- I think you are familiar with, we have published the criteria and that’s sort of well-defined I think. Well known. The board is still scheduled as we’ve said before to meet toward the end of the year to formally discuss the matter. Yes, we are working very closely with the Chinese authorities in the review both to assess the criteria for possible inclusion of the renminbi in the SDR basket and to ensure that the operational needs of the SDR users are met. So the process is progressing. It’s going well. There is a full engagement on both sides and discussion with the Board is on track and on schedule for later this year.

Okay, I want to thank you for coming this morning. Thanks for your questions. Those of you in the room and online. Thanks again to Adrienne for Peru. This will be the last briefing before Lima so look forward to seeing those of you who will be there and for those of you will join us online. Thanks very much.

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