Transcript of IMFC Press Briefing

October 9, 2015

October 9, 2015
Lima, Peru

Agustin Carstens, Governor, Central Bank of Mexico
Christine Lagarde, Managing Director, IMF
David Lipton, First Deputy Managing Director, IMF
Gerry Rice, Director, Communications Department, IMF

Webcast of the press conference Webcast

MR. RICE - Hello everyone. Welcome to the press conference on behalf of the

IMFC. I think you just received the communiqué, so you should have that.

If you check online, you will find it is there. And, it is my pleasure to introduce to you the Chairman of the IMFC, Mr. Agustin Carstens, the Governor of the Central Bank of Mexico.

We also have with us, of course, the Managing Director of the IMF, Madame Christine Lagarde. And to her right, David Lipton, the First Deputy Managing Director.

With that, I'm going to ask the Chairman to make a few opening remarks, followed by Madame Lagarde, and then we will take your questions.

Mr. Chairman.

MR. CARSTENS - Thank you very much, Gerry. Good afternoon, all of you. I would like to thank President Humala, Minister Segura, and the people of Peru for hosting us.

Also, thank you, Managing Director, Christine Lagarde, for working so effectively with the membership.

We had very productive discussions today. Let me review them briefly.

On the global economy, as you can see from the communiqué, we agreed the global recovery is continuing. That is the good news. But growth remains modest and uneven. And, key policy priorities, it was agreed, must focus on lifting short-term and potential growth, preserving fiscal sustainability, reducing unemployment, managing financial stability risks, and supporting trade.

This may seem like a large task. However, we are not starting from scratch, and the ministers and governors broadly affirmed that continued policy adjustment and implementation is necessary, because uncertainty and financial market volatility have increased and medium-term growth prospects have weakened.

We all recognize there is no room for complacency.

Emerging market and developing countries are generally better prepared than earlier for this less favorable environment, given their stronger fundamentals, buffers, and policy frameworks. That is also the good news.

Nevertheless, many emerging market economies are exposed to tighter financing conditions, slowing capital inflows, and currency pressures.

A sustained recovery in the euro area, growth in Japan, and continued robust activity in the U.S. and the U.K. were viewed positively. However, spillovers from increased market volatility is mentioned in the communiqué because they may pose financial stability challenges in the near term.

Risks also remain from slower growth from an already low base, particularly if global demand falters further and supply constraints are not removed.

China's ongoing rebalancing toward more sustainable growth is also welcome. While vigilance is necessary with regard to challenges that might arise. And the impact of weakness in commodity prices globally remains a concern, particularly for exporters, many of whom are low income countries.

On policy actions in emerging markets and developing countries, we agreed to use available policy space to smooth adjustment thru less favorable conditions. In advanced countries, we agreed to maintain an accommodative monetary stance where appropriate, while being mindful of stability risks. We will also implement fiscal policy flexibly to support growth and job creation, while putting debt on a sustainable path.

In addition, we will implement the global financial regulatory reform agenda to strengthen financial stability and implement structural reforms to improve productivity, potential output and living standards.

Overall, we reaffirmed our commitment to cooperation aimed at implementing measures forcefully in order to secure strong, sustainable, inclusive, job-rich and more balanced global growth.

We also need more cooperation by all members to strengthen the international financial system. Along with the IMFC members, we remain deeply disappointed at the protracted delay in implementing the 2010 IMF quota and governance reforms.

Given their importance, we urge the United States to ratify the 2010 reform as soon as possible. At the same time, the IMF Executive Board is to complete its work on an interim solution that will meaningfully converge quota shares to the levels agreed under the 2014 general review of quotas.

Let me finish by saying that the Managing Director made an excellent presentation on the strategic review of the Fund, and it was endorsed by all members.

Thank you very much.

THE MANAGING DIRECTOR - Good afternoon, to all of you.

Thank you so much, Chairman Carstens. Agustin, it is a pleasure working under your leadership as Chairman of the IMFC.

I will maybe just focus on three points.

I presented to the IMFC the Global Policy Agenda (GPA) which many of you have seen if you attended yesterday's press conference. The GPA focuses on what we see as critical initiatives going forward, and also how we want to improve our services to the membership around the theme of AIM, A for agility, being more agile, I for being more integrated in the services we offer, and M for being more member=focused.

I think that was very strongly endorsed by the membership, and we will apply our energy, the collective brain power of the institution to do precisely that. And we will apply AIM at the three key areas of activity that we have.

One is, policy advice and surveillance. And certainly there was a strong echo in the room of the fact that all issues, all problems are strongly interconnected, and more so than ever.

The second activity, and as a result, we will be looking at issues that are of a global nature and have spillover effects, such as climate change, such as migration, such as capital flows.

In the lending area, the membership approved the progress that we made in enhancing our lending, particularly to low income countries. As those of you who follow the Fund know, we have announced it and presented it in Addis Ababa at the Financing For Development Summit, and that was certainly very strongly supported as well. And we will continue adjusting and adapting our lending facilities to the needs of the membership.

On the third point, in capacity building, technical assistance, training that we provide, we will continue to also provide as much as we can online. That is certainly highly appreciated by the membership. And we will try to leverage our knowledge base in order to provide knowledge in context and tools that the members can actually use in their day-to-day lives as finance ministers or governors of central banks.

Thank you.

MR. RICE - So, let's begin. Please identify yourself and keep the questions short.

QUESTIONER: Two quick questions, if I may, addressed principally to Madame Lagarde. The first one concerns IMF resources. As I understand it, the resource position of the Fund is quite strong at the moment, but a large part of that is in the form of bilateral borrowing facilities, and you would like to have more in the form of permanent quotas.

So, what do you think are the chances of converting more of the financing into quotas? And, has there been any attempt to link U.S. approval of ratification of quotas to changes at the top leadership of the Fund?

My second question is on liquidity. The IMF officials, including yourself, I believe, have often expressed concerns about the illusion of liquidity in financial markets. Can you say precisely what you mean by that? Are you referring to the danger, because of changes in the trading system, that stock markets may suddenly crash, so on, so forth?

THE MANAGING DIRECTOR - On your first question, clearly as soon as the 14th review is ratified by the United States, we will have reached the 85-percent majority that is needed to operate the governance change, which is itself linked to the quota increase. And, in practical terms what it means is that those countries that have committed new arrangements to borrow, those NABs, which are not really of a quota nature, those countries will actually roll their NABs into the quota in order to effectively double the quota, as was committed in 2008.

It is clear that the IMF should be a quota-based institution. And, the bilateral loans that I secured very promptly in 2012 shortly after I took over as Managing Director of the IMF are not a substitute. They complement the situation that is not satisfactory at the moment because the quota reform has not been implemented.

MR. CARSTENS - On the issue of liquidity in financial markets that was discussed, basically the issue has to do with the fact that many advanced economies have taken as a very important piece of their stabilization policy the increase, precisely, in liquidity. That has led to the search for yield, has led investments into markets that today, or at the time when investments were made, look liquid, but the situation might change in those markets at the time when some of the central banks who conducted unconventional monetary policies start reversing them. That, I would say, illusion of liquidity might exacerbate asset price adjustments and might lead to stability risks.

Therefore, in the context of the meeting we had today,

MR. CARSTENS - On the issue of liquidity in financial markets that was discussed, basically the issue has to do with the fact that many advanced economies have taken as a very important piece of their stabilization policy the increase, precisely, in liquidity. That has led to the search for yield, has led investments into markets that today, or at the time when investments were made, look liquid, but the situation might change in those markets at the time when some of the central banks who conducted unconventional monetary policies start reversing them. That, I would say, illusion of liquidity might exacerbate asset price adjustments and might lead to stability risks.

Therefore, in the context of the meetings we had today, the issue was discussed, more than anything, for authorities to be aware of the issue that this lack of liquidity might be present, and also in some instances, some measures might be adequate to implement. And also it is important to warn markets that the situation might arise under circumstances.

MR. RICE - Next question.

QUESTIONER: Ms. Lagarde and Mr. Carstens, which one was a compromise for the United States for the ratification of the quota, or the mandate of governance? Especially since the 15th of September, the date last meeting in Washington, it was established to begin to work for new alternatives. I heard that the mandate is to go on, even if the United States does not ratify, and the Treasury Secretary said that could be okay. Is that true? Which kind of searching are you doing?

THE MANAGING DIRECTOR - I think there is general consensus that the first-best solution is the ratification of the 2010 reform, and I very much hope that the United States will ratify this quota reform in the not too distant future, and hopefully before the end of this year.

In the meantime, we cannot just stand still and wait forever, so there is technical work which has been done. There are various interim steps which are no substitute to the 2010 reform. But that we have started looking at, exploring, weighing and which we will continue to explore in order to reach some solution, which as I said would not be the first best.

QUESTIONER: I want to ask a question about SDR valuation. I wonder how far away is it for the renminbi to be included in the SDR basket? Also, do you worry that the inclusion of any new currency could bring more volatility in the financial markets?

THE MANAGING DIRECTOR - As you know, the review of the special drawing right basket of currencies has to take place every five years. So, before the end of 2015 we will be presenting to the Executive Board of the IMF the technical assessment that will have been concluded by staff and approved by management. The technical work is nearly completed. They are finalizing their recommendation. I have not seen it myself yet. But it is certainly going to be in the not too distant future, with as you know, an implementation effective date that has been approved to be in September, in order to allow for time, to allow central banks, institutions that rely on the SDR to actually adjust, including their computer system.

QUESTIONER: Given America's reluctance to pass the 2010 quota reform and your statements yesterday that you would be willing to serve for another term, we're in a limbo position where we have to go through this rigmarole that we talk about interim steps the whole time --

MANAGING DIRECTOR - Talk about what?

QUESTIONER: Talk every time about interim steps the IMF might take, and we know that won't happen since the U.S. has a veto. Could you serve another term, could you serve five years in that position where the U.S. has not ratified the 2010 reforms.

THE MANAGING DIRECTOR - I can assure you that it does not impede my ability to manage the institution, nor does it impede the ability of staff to serve the membership and to provide the best possible work that they expect.

So it is not in that respect an impediment to us serving.

But, it is an issue for the credibility and for the representativeness of the institution, particularly with vis-à-vis the underrepresented countries. And, I very much, very strongly and very much hope that it will be taken seriously, and that the U.S. authorities will actually appreciate the need to reinforce a multilateral institution that they participated very actively in creating, and then in strengthening over the course of the years, including under a Republican presidency, by the way.

QUESTIONER: I apologize, I want to ask a similar question. But I'm interested in your comments on the situation regarding the Greek debt relief, which you have been very clear about up until now, but there have been some officials here participating in the discussions who have been saying that Greece does not need debt relief immediately, they can wait a few years, they're pushing the issue down the road and using a 15 percent of GDP threshold as debt service over a longer period of time to justify their position. I wonder what the discussions were like about that, and what your position is on the need for debt relief.

THE MANAGING DIRECTOR - To the risk of repeating myself, the IMF position in relation to Greece has not varied. We are very much prepared to engage, provided that the program walks on two legs, one that is about very strong, in depth reforms, including on pensions, including on bank governance, including on a few other structural reforms that we regard as needed for the country to regain economic strength and financial sovereignty. And a second leg provided that the debt of Greece is sustainable, and to our knowledge, and based on our understanding of the situation, this requires a debt operation. The nature, terms and conditions of which obviously need to be explored when the reforms are undertaken and implemented, in good intelligence, but certainly based on our standards and our debt sustainability analysis.

QUESTIONER: (Inaudible) the 15 percent of GDP threshold is what is [needed] --

THE MANAGING DIRECTOR - It is one of the many components, but we don't operate on a basis of that number of that nature, but it is a factor, the debt sustainability analysis is far more complicated than just the analysis of what is the debt service over the course of the years and it is certainly in the literature that we publish you will see that as a cap in various pieces that we have published, but it is not at all the single component that we would examine, absolutely not.

MR. RICE - Thank you very much everyone.


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