Transcript of the International Financial and Monetary Committee (IMFC) Press Conference

October 13, 2012

Christine Lagarde, Managing Director, IMF
Tharman Shanmugaratnam, Chairman of the IMFC
Gerry Rice, Director, External Relations Department
October 13, 2012
Webcast of the press conference Webcast

MR. RICE: Good afternoon everyone and welcome to this press conference on behalf of the International Monetary and Financial Committee, the IMFC. Very pleased to introduce to you this afternoon, Chairman Tharman who is well known to you, the Deputy Prime Minister of Finance and Minister of Finance and, of course, the Managing Director of the IMF, Madame Lagarde. We are on the record this afternoon. I ask you to keep your questions short and to the point, identify yourself by name and affiliation.

With that, I will ask the Chairman to make a few brief opening remarks, followed by the Managing Director. I believe you have the communiqué. Mr. Chairman.

MR. THARMAN: Thank you very much. I'll be very brief. Let me just make five points which summarize the substance as well as the tone of the discussions that we've had in the last couple of days.

First, IMFC members all agreed that we are in a better position today than we were six months ago, a better position with regard to the policy footing, getting growth restarted, and for achieving fiscal consolidation in the advanced economies, especially. The economic environment is still tough, but we're in a better position today as far as our policy footing is concerned.

Second, there was complete agreement that we have got to focus first and foremost on the medium- and longer-term narrative, the medium- and longer-term task of achieving fiscal sustainability, and pursuing structural reforms so as to regain competitiveness and growth. There is complete agreement on that. The medium- and long-term narrative is fundamental.

Third, the short term must be relevant, but we have to find ways of supporting growth in the short term, even in an environment of fiscal consolidation, by finding measures that are growth-friendly, growth-friendly forms of fiscal consolidation. So the right type of tax measures and the right type of spending adjustments deserve great emphasis. It is also important to be conscious of the spillover effects from one country's policies to another and particularly from larger countries to the rest of the world. That is important in the short term, as well.

Fourth and fifth points, very briefly, concern the Fund. There was strong recognition of the fact that the Fund is today better equipped to advise and to guide because its surveillance toolkit is now broader and more integrated. The Fund is now quite different in its capabilities and its analytical framework, compared to where we were even two years ago. Looking at both sovereign risks and financial risks and the interlinkages between the two of them, looking at macroprudential risks, which involve the asset markets and not just growth and inflation as we know it. And looking at the spillover effects from one economy to another.

Finally, governance of the Fund remains a very important project. We are reaching the conclusion of the 2010 quota and governance reforms and we are already embarked on the next round of quota review, and the changes in voting power that comes with that.

There was an expression of views from a broad spectrum of positions on the next round of quota reforms, but I think there was also a tone of, a desire to compromise and an understanding that we will eventually have to find a consensus that bridges the different positions. So, I'm quite hopeful that we will be able to achieve agreement on the next round of quota reforms on schedule, by next year.

MS. LAGARDE: Thank you very much, Chairman, and let me in front of journalists in the room, whom I salute for their resilience and their presence at such a late hour, recognize what a wonderful chairman you have been. It is a real pleasure to work with Tharman. He has this ability to focus on the right issues and to bring people together, whenever there is an issue that is debated and where we need to come to some conclusion.

I would take away from our meetings so far three key points, in addition to what Tharman has mentioned to which I subscribe completely.

First of all, clearly, a very strong commitment to policy implementation, and you have to know that as part of my job, I have to understand what we need to do, and I have to have some views and make some recommendations as to what the members can do in order to improve the overall economic situation, consolidate recovery and create jobs. That is taking the form of something that is called a global policy agenda will be published shortly, I don't know if it is yet available, but it has been approved. But it sets out really what we expect the membership to do and what the Fund can do in order to support that effort. Clearly from the meetings we've had, particularly this morning, I have a sense of a renewed commitment to actually implement those policies. So much so that at the next IMFC meeting that will take place in the spring at the time of the spring meetings, we will actually check what we have committed to do, and what we have done, so that there is accountability amongst ourselves and the Fund is accountable to its membership, and members of the Fund are also accountable to each other, which is almost a consequence of the identification of spillover effects, as really having a role in domestic policies and the way in which economies are developing.

So, first of all, a commitment to implementation. I would like to give you an example. There has been a lot of attention in the last few days to the issue of fiscal adjustment, a lot of debate. And, in reality, what sometimes has been presented as disagreement is more about perception than about reality. What do we mean by fiscal adjustment? Well, we all recognize that credible, medium-term fiscal adjustment is necessary in all advanced economies. So, credible, medium-term, adjustment is necessary in all advanced economies.

The pace and type of measures obviously need to be calibrated on a country-by-country basis. A fiscal adjustment program over a period of time can not be one size fits all. It has to be adjusted based on the parameters of each country, it depends on its pace of growth, it depends on the market pressure upon it, and it depends on the weight of debt that is upon it, as well, and therefore it has to be adjusted very specifically to each country.

Third, fiscal policy in and of itself will not be sufficient, and it needs to be complemented by other policies such as monetary policy in particular. When you do a lot of fiscal policy adjustment then you have to accompany it with accommodative monetary policy. And it needs to be complemented as well by structural reforms. So, I think on these points there was complete agreement amongst ourselves and a reaffirmed commitment toward that principle.

That is just by way of example. And this is what we have been saying consistently for some time. Certainly I remember in Jackson Hole the first presentation that I gave, it was in there already.

Now, the second point I take away is that our global safety net is not an illusion, it is real. It is so much real that it has actually increased. If you remember back at our Spring Meetings we had, thanks to the enormous support of Tharman as chairman of the IMFC, thanks to the support of the presidency of the G-20, Mexico, we had managed to rally the support of 32 countries, if I recall, that altogether increased the resources of the Fund by 456 billion dollars. Well, we are now up to 461 billion dollars, because Algeria came in with 5 billion new dollars, and the Sultan of Brunei has also committed 300 million dollars to complement the pot of additional resources. You know approximately half of that has already been signed by way of bilateral loan agreements, some of which have been signed in front of you, actually, yesterday.

That was on the general resources, the resources we use on a nonconcessional basis. But, if you remember, at the last Spring Meeting, I said that we also had to deliver on the concessional front, those resources we use for the low-income countries, we have a poverty reduction and growth trust fund that needed to be replenished, and for which we needed a 90-percent majority in order to begin using the windfall profit of the gold sales. That is done. We have secured all the necessary approval, the membership came along to actually guarantee the replenishment of the PRGT Fund, which will be much more sustainable going forward, and the Fund will be able to not only respond to the needs of the advanced economies, that we pay more attention to at the moment, but also to the low-income countries when they need concessional loans. That is my second point.

My third point has been alluded to by the Chairman. It is the reform of the governance of the IMF, and on that one we have made significant progress by reaching or exceeding two thresholds, one for the quota increase, one for the number of countries approving the governance reform. We are still short on the third and last item, which is the threshold of quota for the governance reform. But we hope to make significant progress. It will take actually one or two countries to press the yes button for that reform to actually be implementable, and when it happens, it will bring the four large emerging market economies into the top 10 of the membership of the Fund. We will continue to work on the formula reform. We have until January, 2013 to do that and we received strong encouragement from the IMFC this morning to continue to make progress in that direction.

QUESTION: I have two questions to Madame Lagarde. On the communiqué, regarding Europe you mentioned that the Committee looked forward to see a stronger fiscal union. Can you elaborate on this point in the context of containing the crisis?

Secondly, on Japan, there is a mention of Japan on the fiscal consolidation, but in your presentation you mentioned that the role for monetary policy as fiscal policy has been already exhausted, can you comment on the role of the Bank of Japan when it comes to the Japanese case?

MS. LAGARDE: On Europe, I'm not sure which sentence you refer to, because the sentence on Europe is in the paragraph on advanced economies and it says that, if I'm not correct, the ECB—monetary transactions and the launch of the ESM are welcome, full stop, but further steps are necessary. And I think the sentence, "further steps are necessary," actually apply to the ESM and the outright monetary transactions, where there is a sense from the group that it is a process, the ESM is now operational, the outright monetary transaction have been identified, and articulated, so the process is ongoing, the tools are there, and I think that is the sense of that sentence. It refers to those particular instruments.

Otherwise, programs are underway in some countries, significant reforms and fiscal adjustments are underway as well, which from our perspective, as the IMF, we regard as appropriate. But there is nothing else, I think, behind that particular sentence.

Regarding the policy mix of fiscal adjustment and monetary policy, as far as Japan is concerned, I would like to, first of all, state that the consumption tax law that has been voted this summer, which will increase consumption taxes, is in our view a very significant step toward fiscal consolidation, and moving from 5 to gradually 10 percent is really heading in the right direction in terms of focusing revenue at the right level, with indirect taxation, is certainly, from our perspective, a good policy. Monetary policy is indeed also engineered by the central bank of Japan. And I'm sure that they would be prepared to do more as and if appropriate. That is certainly something we would regard as suitable.

QUESTION: In the communiqué I notice that some of the countries have already signed the first batch of Fund augmentation agreements. Could you elaborate, which countries have already signed and which have not? What about China?

Also, do some of the countries link any preconditions to this, with the effectiveness of the quota formula review, or something?

MS. LAGARDE: Neither Tharman nor myself were in the communiqué drafting room, but we both know which countries have delivered in terms of signing the bilateral loan agreements and I can assure you that China has indeed signed, had signed actually prior to the meeting, the bilateral agreement with the Fund, with their contribution to increasing the resources. I'm not aware, myself, of any contribution that would have been subordinated to any particular change concerning the quota. But we were not in the communiqué drafting. It is not reflected in the communiqué, so as far as we're concerned, it is not the case.

QUESTION: Question to either Madame Lagarde or Chairman Tharman. Assuming that you do eventually cross this so-called third threshold and don't get stuck permanently on the stairs, were you able to look at all to the next quota review, the size of the Fund, the future size? Is there any consensus to whether the Fund is at an optimal level now or needs to be increased, possibly certain borrowing facilities will be allowed to lapse? In other words, what is the state of play now on the likely future size of the Fund? If I could ask Chairman Tharman briefly, could you be a bit more specific about the grounds for optimism that you expressed in point No. 1, where you see recovery coming, growth coming?

MR. THARMAN: Very quick answer on your first question, the size of the Fund that we envisage once the next round of quota reviews is completed, at the very least it should not be less than the sum of existing quotas, as well as the existing bilateral contributions. The 460 plus billion of bilateral contributions. The bilateral contributions, if you like, in advanced boost of the Fund's resources in advance of the next round of quota reforms. At the very least, we will not be less. We'll have to assess the situation next year, look at the vulnerabilities, look at the progress in resolving difficulties in all major regions of the world, all major regions of the world, before deciding on how much further we need go.

On your second question, we're in a better position now than we were six months ago. It remains challenging. There remain downside risks, and in particular we were all quite candid about the nature of those downside risks. The fiscal cliff in the U.S. and the uncertainties over how it will be resolved is a major uncertainty that affects the entire world. That is in fact a major spillover. It is not just actions that need to lead to spillover effects, it is nonactions as well that lead to spillover effects. Whether Europe, with stronger policy footings that it has to find, will be able to deliver on time remains an uncertainty, but we are a lot more optimistic now than we were six months ago, or three months ago.

MS.LAGARDE: Added to that, there was no objection to the recommendation that we gave to the membership which was A-C-T, act.

QUESTION: There have been some obstacles to Spain accessing the OMT, namely the German position in particular, what we're hearing. I just wonder what pressure has been brought to bear on the German delegation here, or on the Spanish team to apply to get access to the OMT?

MS. LAGARDE: All I can say is that in general terms we collectively acknowledged and praised, actually, both—the members of the eurozone and the European Central Bank—for one completing the incorporation and capitalization of the ESM, the European Stability Mechanism, and articulating the outright monetary transaction. So, the tools are there, but in terms of using them, clearly, it is up to them to decide when it is appropriate.

QUESTION: Ms. Lagarde, how do you evaluate the new funds from Japan to the Middle East and especially for the countries of Arab Spring, the 12 million dollars? Yesterday the minister of economy said that. And, how do you think the IMF members agree with your idea about a new fund "box"? Yesterday you said you want to have a new idea about a new international fund "box"?

MS. LAGARDE: What we said, and what we think about, what we call the Arab Countries in Transition, which conventionally is ACT as well, is a combination of what we as the Fund can do, and are doing on the ground, in Jordan, in Yemen, in Morocco, currently in discussions with Egypt, for instance. What we do in terms of capacity building on the ground in Tunisia, Jordan, Libya. By the way, this region is the highest recipient of capacity building and technical training at the moment of the entire global world. A combination of that on the one hand, and support by the international community. Some members are demonstrating that support by making financial contributions, and what I said this morning is that it can either take the form of financial contributions, but also market access. Also, facilitating foreign direct investment. So it can take multiple forms, and certainly something we encourage.

As to Japan, I'm not surprised, because Japan is No. 1 quite a partner of the Fund, a great supporter of technical assistance and support to other members in the institution. It has demonstrated that in spades.

QUESTION: The important thing of this meeting should be actions for the future, but when you see the economy, according to yesterday's debate between you and Mr. Schӓuble, this is a little bit different meeting, in terms of the pace and speed of the Greek issue. Also on Brazil, asking the advanced economies to stop the monetary easing and also it has its own issues, and also China, despite the high hopes. The key should be the global policy agenda, so we need to see that, but how confident are you that you can dispel the uncertainty for the future?

MS. LAGARDE: I don't think you can eliminate all uncertainty, because otherwise there would never be any risk in doing anything. Right? As Samuel Beckett said once, "It is life. There is no cure for that." But I believe that this morning and yesterday in our various meetings we narrowed down the degree of uncertainty and we certainly renewed the commitment around policy implementation. And that in and of itself is I think good to address this issue about uncertainty. We might not always agree on anything, on everything, but I think there is a general consensus that collective action is going to produce results.

MR. RICE: Mr. Chairman, would you like to have the last word? Then that is the last word. Thank you very much, everyone. Thank you for coming.


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