Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton

IMF News, October 11, 2012

Source details

Canonical URL

Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: October 11, 2012

Global economic outlook and risks

• The Fund lowered its global growth forecast to 3.3 percent, with advanced economies at 1.3 percent and emerging market economies at 5.3 percent.
• Growth has slowed since the Spring Meetings and is weaker than expected in April.
• The slowdown is affecting both advanced economies and emerging markets, including China, Russia, and Brazil.
• Key drivers of the current situation:
  • Multiple tail risks.
  • A pervasive degree of uncertainty that is hampering investment, job creation, and value creation.
• Recent positive actions: central banks (the Fed, the European Central Bank, the Bank of England, the Bank of Japan) have given strong policy signals that create momentum, but further action is required.

Immediate regional priorities

• Eurozone:
  • Identified as the epicenter of the crisis where urgent action is needed.
  • Actions already taken include the ECB's LTRO and outright monetary transactions.
  • Continued work needed on fiscal discipline, sanctions, coordinated policy, European banking supervision, and progress toward a European banking union.
  • The European Stability Mechanism is now in operation; practical implementation requires legislative and parliamentary processes across 17-member states.
• United States:
  • Major risks from the fiscal cliff and the debt ceiling that become more threatening as year-end approaches.
• Emerging markets and low-income countries:
  • Need to watch domestic and external vulnerabilities closely.
  • High food prices on certain foods may increase poverty risks.
• Regional political tensions:
  • Absence of some officials (example: reported non-attendance by Chinese officials) is seen as a missed opportunity for cooperation and dialogue at the Annual Meetings.

Four key policy areas for anchoring future growth

• Completion of financial sector reform:
  • Work in progress; the job is not completed.
  • Variations and discrepancies remain, including in the Basel III definition of capital.
• Dealing with the legacy of high debt:
  • Need credible, medium-term strategies to bring down debt, which in many advanced economies is at levels not seen except in wartime.
• Supporting job-rich, inclusive growth:
  • High unemployment rates, particularly among young people, require policies that create jobs and more inclusive growth.
• Addressing global imbalances:
  • Imbalances remain and need attention because they are likely to widen when growth picks up.

IMF role, internal priorities, and governance

• IMF agenda includes:
  • New approaches to lending.
  • More effective surveillance that embraces both bilateral reviews and multilateral expertise.
  • Improved technical assistance and capacity-building.
• The IMF will discuss these priorities with its 188 members during the Annual Meetings.
• Governance reform:
  • The 2010 Reform is under way and due to be completed at the Annual Meetings in 2012.
  • Two of three thresholds have been largely exceeded; one threshold remains short and staff are working with the membership to meet it.
  • The reform aims to make the Fund more representative and inclusive and to bring emerging markets into the Top Ten members of the Fund.

Country-specific engagement and program status

• Greece:
  • IMF team on the ground working day and night to resolve differences across four chapters: fiscal consolidation, structural reforms, financing, and debt.
  • Objective: help Greece return to markets and stand on its own.
• Spain:
  • IMF engaged in design and monitoring of financial sector restructuring; a team will conduct the first monitoring visit.
  • The Fund can operate within a range from standard SBAs to design-and-monitoring roles.
• Cyprus:
  • Identified as “in discussion” with the Fund.
• Greece, Ireland, Portugal:
  • Are under programs with the Fund.
• Egypt:
  • IMF discussions ongoing; a return mission planned in the course of the month with hopes for closure in the middle of next month.
• Sub-Saharan Africa:
  • Less affected than other regions with generally impressive growth rates.
  • Recommendation: maintain and reconstitute fiscal leeway to prepare for shocks.
  • The PRGT (Poverty Reduction and Growth Trust) has been replenished using gold sale profits to ensure concessional lending capacity beyond 2014.
• Latin America:
  • Performing quite well; IMF focus is on providing technical assistance, training, and capacity-building rather than large-scale lending.

Research implications for policy (fiscal multipliers)

• The World Economic Outlook research on fiscal multipliers indicates larger negative impacts of austerity on growth than previously estimated.
• Policy implications highlighted:
  • Time is of the essence; in many cases avoid heavy frontloading of fiscal consolidation.
  • Consider extending consolidation timetables (example: IMF advocated an additional two years for Greece).
  • Avoid rigid nominal targets; allow automatic stabilizers to operate.
  • These principles are particularly relevant for Eurozone countries pursuing concurrent consolidation.

Japan and regional cooperation

• Tokyo hosted the 2012 Annual Meetings; last IMF Annual Meetings in Tokyo were in 1964 (48 years earlier).
• Japan’s reconstruction since the Tohoku disaster and its ability to adapt energy policy (shutdown of nuclear plants) have been notable; innovation and cooperation seen as strengths.
• The IMF reduced its forecast for Japan in line with global downgrades; Japan’s export-driven growth is affected by slower global demand.
• On currency-swap and territorial disputes (e.g., with Korea and China): IMF encourages resolution of longstanding differences to allow economic cooperation to support regional and global stability.

Advice for China and policy priorities

• IMF downgraded Chinese GDP growth forecast from 8 percent to 7.8 percent.
• Advised priorities for China:
  • Be a full-fledged partner in the global economy.
  • Focus on activating the domestic market, with an emphasis on increasing consumption relative to past heavy investment-driven growth.

Final strategic points

• The recovery requires courageous and cooperative action by members; policy responses should be coordinated and seen as a positive-sum game rather than competitive.
• The IMF seeks to be better equipped financially and institutionally to provide services—lending, surveillance, and technical assistance—to support a sustained, inclusive recovery.

Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton, October 11, 2012

References

• Arab Republic of Egypt and the IMF
• Spain and the IMF
• Greece and the IMF
• Japan and the IMF
• Republic of Korea and the IMF
• United States and the IMF
• People's Republic of China and the IMF
• IMF Policy Advice -- A Factsheet
• Technical Assistance -- A Factsheet
• Transcripts
• PRESS CENTER
• Webcast
• https://www.imf.org/en/home