Transcript of Regular Press Briefing by Caroline Atkinson, Director, External Relations Department

December 4, 2008

Washington, DC, Thursday, December 4, 2008
Webcast of the briefing

MS. ATKINSON: Good morning. I'm Caroline Atkinson, Director of the IMF's External Relations Department, and I'd like to welcome you all, and those journalists participating via the Online Media Briefing Center, to our biweekly press briefing. As you know, this is under embargo until 10:30 a.m. D.C. time or 1530 GMT.

I have just a couple of announcements before I turn to questions.

The first is to let you know that the next issue of our quarterly publication, Finance & Development, is about to be published, and I wanted to draw your attention to it because I think it's a particularly topical and relevant publication this time. It's called "Cracks in the System: The World Economy Under Stress".

The lead article is by our Chief Economist, Olivier Blanchard, looking at how the world got into this mess and what we should do about it immediately and in the medium term. There are also articles there from Mohamed El-Erian, a profile of Robert Shiller whom you know. It was prescient of my editor of F&D to pick Robert Shiller as he has been writing so much about bubbles and so on. So I think you'll find that a very interesting publication. We will be making that available very shortly.

You will have seen that the Executive Board of the IMF discussed its work program last week, and we will be issuing all of the papers around that probably early next week. And, I think that has a bit more interest, perhaps, than usual. It sounds rather dry, the work program, but we will be focusing very much in the coming months on the three key issues of how to deal with the crisis in the immediate term for our members, how to draw the lessons from what happened and how to reshape the architecture going forward, and that will be the kind of work plan for the IMF going forward, also working on the requests from the G-20.

A couple of items on management's agenda in the coming weeks: The Managing Director, Mr. Strauss-Kahn, will be going next week to the Dominican Republic, Jamaica and Costa Rica during December 8 to 11. There will be press availability and a press release from each of those stops, for any details you may contact Media Relations as usual.

The First Deputy Managing Director, John Lipsky, on December 10 will be connecting with the Frankfurt Conference SINZ Forum via video link and giving a speech on the World Outlook for 2009, and then a week after that, on the 17th, he will be giving a major speech at the Council on Foreign Relations in New York.

So let me now turn to your questions and encourage you. You're more familiar than I am with the setup. But please identify yourselves, especially to help me, and journalists online the same. Thank you.

So who would like? Thank you.

QUESTIONER: A few questions, brief questions about Turkey: What's happening with Turkey? Could you give us an update?

Is there any plan to send a mission to Turkey?

And, today, the Turkish Prime Minister said that the IMF has been urging Turkey to raise the VAT rates. Any comment on this? Thank you.

MS. ATKINSON: Thank you. Well, as you know, the authorities have been discussing with us about their economic situation. They have not formally requested a program from the IMF.

Discussions continue with them, and in these sorts of discussions we normally would have many things on the table that can include changes in tax rates, but I don't want to go into any specifics about the VAT. I doubt whether that's a key issue. It would be more a broader question of the overall macro framework.

Thank you.

QUESTIONER: First, obviously, welcome and congratulations on your new job.

MS. ATKINSON: Thank you.

QUESTIONER: Obviously, it's a difficult time to begin this job while the world is in crisis. My question is about the U.S. where the crisis originated.

The bailout efforts have been -- the cost of the bailouts has been estimated at over $8 trillion. Not being an economist but having covered the IMF for a few years, I wonder where's the money supposed to come from. They don't have that money.

MS. ATKINSON: Thank you very much. That's a good question.

First of all on the numbers, of course there are many different measures and packages that the U.S. authorities have announced, and got involved. If you add them all up, you're really looking at gross numbers rather than net numbers. Many of the Fed operations, for example, as is normal for central banks, will have collateral. So they are not at risk for anything like the amounts that you mention.

Just more generally, we have argued and I think many have argued that sizeable measures have been needed to stabilize the U.S. economy. As you note, the problems first became evident in the U.S., and we thought it extremely important that steps be taken in the U.S. to address those problems, and the authorities here have done that. They have announced a lot of very sizeable measures: monetary policy, financial sector, and there's talk about fiscal policy. And, these are in line with the G-20 commitment, of all of the G-20 countries, to take further actions as necessary to stabilize the financial systems.

Now over time, of course, it will be necessary to unwind these financial operations as confidence returns, and that's needed partly in order to avoid inflationary consequences, which is perhaps what's behind your question, but at the moment, we see no evidence of any danger of inflation -- in fact, quite the reverse. There is concern of inflation undershooting rather than overshooting. So right now, we think that these sizeable commitments are appropriate.

QUESTIONER: If I may follow up on that, another concern, aside from the inflation, is obviously with the exchange rate, with the dollar. Does this create a risk of any sort? Do you see that?

A leading Russian economist actually suggested that the world needs to monitor more closely. There needs to be an international monitoring of, as he put it, money-printing in the U.S. Is this economically a viable and desirable idea?

MS. ATKINSON: Well, I learnt a while ago not to make predictions about exchange rates, so I won't go there, and I think that we've commented in our official publications that we see the dollar is closer to its medium-term equilibrium more recently. Of course, the dollar has strengthened in recent days. That's evidence of some of the shock to confidence worldwide that has tended to pull money in here.

QUESTIONER: Ms. Atkinson, I was wondering if you, just coming back to Turkey quickly, whether there is a mission going anytime soon. I don't think you answered that.

And how advanced are those discussions? I mean is it clear yet that -- I mean have the authorities kind of outlined very specific things? You said there were some things on the table. We've seen stuff in the press but just wondering how advanced those discussions are and if there's anywhere that they've indicated that they're close to a decision.

Number two, I was wondering if you have comment on the U.S. automakers looking for a $34 billion bailout or rescue rather. Does the Fund have comments on whether that would be suitable and if there's precedence for anything like that?

MS. ATKINSON: Thank you. Well, taking your second question first, I won't comment on the auto makers, except in very general terms to say that we stress the importance of governments taking measures that are necessary to stabilize and stimulate their economies, but it's also important, as again was said at the G-20, that all measures should be done in a way that is supportive of world growth and open trade and so on. But I think that those sorts of industrial questions are for individual authorities.

On Turkey, I don't believe that there's a mission there, and I know that there have been conversations, and I think that you are aware of those perhaps at the time of the G-20 meeting. Of course, the Turkish authorities are part of the G-20, and they certainly spoke with our people then.

And, I don't have a way to characterize how advanced, or otherwise, discussions are. I did mention that there has been no formal request from the Turkish authorities for a program. So that means that our discussions are of a normal nature. But maybe there will be a request at some point, but maybe not. So that's all I have to say on that.

Turning now to the Media Briefing Center, I have a question there.

"Will the rapid fall in commodity prices make the IMF revise its growth forecast for Latin America? Do you foresee that some countries will have budgetary problems as a result? Have any countries asked the IMF for help?"

So we have done quite a bit of work in Latin America on how much commodity prices affect growth and budgets and so on, and we have a rough rule of thumb that a 10 percent reduction in or increase in commodity prices can affect GDP by about 0.5 percent.

The fall in commodity prices since the summer was indeed one reason why we revised downwards the forecasts in the update we did for the whole world economy, and we also updated the Latin American growth figures.

It's important to note, however, that whilst the region as a whole is a commodity exporting region, there are some countries, particularly in Central America and the Caribbean, that are importers of food and fuel. And of course, for them, the increases in commodity prices have been very costly, and they will benefit from the subsequent decline in commodity prices. And, especially perhaps the poorer people, especially on the food, may benefit from the subsequent decline in commodity prices.

Of course, in one way country teams are always looking at these issues, but we as an institution only put out formal forecasts at certain times of the year, and probably our next update will be in January on the regular quarterly schedule.

You asked about budgetary problems, again for some countries, and I would like to refer to our Regional Economy Outlook. We can get back to you as to which one it was. But in the last one, I think released in October, it had some numbers about how much budget revenues have been helped by commodity prices and how much fiscal policies -- I mean how much current accounts have been helped. So you can get a kind of idea there of the dependence of revenues on commodities.

I'd also say that for some countries, where the budgets are quite dependent on commodities -- and Chile comes to mind or Mexico -- their governments also have fiscal rules that make sure that they save part of the additional revenues when prices are high. So, in a sense, they have that to draw on when prices decline, and that is an important buffer, as are the reserves that as you know have been built up in the region.

I'm not aware that any countries have recently asked the IMF for help in the context of the commodity price declines for Latin America, but we'll get back to you on that if I'm wrong on that one.

QUESTIONER: Going back to exchange rate and regarding your question on interest rates, you have said that the dollar is close to its medium-term equilibrium. Could you tell us what about the euro and the interest rate that the European Central Bank did today, one of the biggest cuts in the last 10 years, and the U.S. is close to zero rates probably? What's your view on this?

MS. ATKINSON: Well, on the interest rate moves that have, of course, been very dramatic this morning and -- I think, Sweden, the U.K. and the ECB all announced moves that were on the higher side of expectations. We have been making the point, the Managing Director has been making the point and the Chief Economist, Mr. Blanchard, that the global economy and, in particular, advanced economies do face a very severe downturn. And in those circumstances, it's important both to address financial problems but also macroeconomic issues, and monetary policy is one important element in that.

So we very much welcome the actions by the European and other authorities. We've also talked, of course, about fiscal policy, but that's a different issue.

On exchange rates, the euro as well, I think we see is close to its equilibrium level, possibly slightly on the strong side. I would comment, though, that exchange rates, not just stock markets but exchange rates have been so extremely volatile in recent weeks that our longer-term analytical estimates of equilibrium exchange rates can't really keep up with all of the day to day changes, and what you think one day can be completely different another day.

So I wouldn't attach too much weight to those judgments, or at least bear in mind that rates are moving a lot. So that would change how we see things.

QUESTIONER: I had a question about conditionality. A lot has been said about the IMF's conditions becoming more streamlined.

I had a question almost about sort of positive conditionality where I think you were talking the other day about the case of Pakistan where there was a requirement pretty much to treble spending on social safety nets and similar conditions with Ukraine and Hungary. Can you talk about how common you think these are going to be in future packages, how much of a departure does that represent and what is the motivation behind it?

MS. ATKINSON: Thank you. Well, as you say, we were very clear in the case of Pakistan that there were two key elements in the conditionality with that program. One was the measures to support macroeconomic and financial stability, and the others were what some people have called social conditionality which were to make sure that social safety nets were in place or being put in place. And, we have also made sure that these were part of the consideration in other programs that we've been doing in the past couple of months.

And you mentioned Hungary. In that case, there were steps to protect the very low income pensioners from the impact of the necessary fiscal consolidation that the government had begun.

I think this is something of a departure. I think that the Fund is very aware now and perhaps more than in the past of the importance of ownership and buy-in by not just governments but also populations of our programs and that that requires that social conditions are -- these programs are difficult. When countries are in crisis, that's not a pleasant thing. We see that in the U.S. now.

So we can't really avoid that if IMF support helps to make the crisis less difficult than it would otherwise be, but in particular we want now to make sure that governments are aware of the importance of supporting, keeping in place or building social safety nets to help the very poor. And the rationale is to -- I mean there is of course a human ethical side of that, but there is also a practical side which is about a buy-in and ownership of and therefore the ultimate success of programs.

On a global scale, I would just say that as the Managing Director always makes sure that he mentions in a discussion about the global economy and the financial crisis, that he refers also to the so-called "other crisis", which is the crisis of poverty and where higher food prices have particularly been damaging for poorer countries, notably in Africa but not only in Africa. And that is also an element that we think is very important to pay attention to.

I've got one question from the Media Briefing Center:

"Has the Fund had any contact with Argentina such as technical discussions on how to handle the difficult fiscal situation and how to use resources taken from the pensions funds?"

Well, in Argentina as everywhere, we have an ongoing dialogue with the authorities, and you may know that we have a resident representative, a very able economist in Buenos Aires, who is of course in contact with the authorities and others in Argentina all the time. But beyond that, on the specifics of what we discuss, I won't go into that. But we do, of course, have a dialogue. Thank you.

QUESTIONER: I wanted to come back for a second to my original question. It had a literal meaning too. The literal meaning means: Do I understand it correctly that the only way for them to raise money is to borrow to print the dollars or to cut their budget which probably wouldn't help because there is nothing much to cut?

MS. ATKINSON: Well, the only way for the U.S., just as any other country, if you have fiscal spending, you either cover it with tax revenues or cuts in other spending or by borrowing. The borrowing doesn't necessarily lead automatically to printing money because if you borrow from the general public or from foreigners by issuing bonds, that doesn't necessarily lead to an increase in the money supply. Thank you.

QUESTIONER: My real question, I'm sorry, for my region: When do you expect to resume talks, consultations with Belarus? I understand they have been suspended now.
How well is the bailout or the rescue, whatever it is called, program with Ukraine going?

And finally, last but not least, last but not least, how well is the Russian government coping, do you think? Is there anything else they need to be considering?

MS. ATKINSON: Okay. Well, I'll go quickly through those.

In Belarus, I would not say that discussions are suspended. We have had discussions. The mission came back recently, but the discussions are ongoing, and that's that.

Ukraine, there are also discussions. We have a mission there that is expected to come back, I think, at the end of this week or early next week, and that is looking at reviewing the program that is underway. That's the next stage. Once you've approved a program, then you go out to review it.

And on Russia, I think that our general advice is that, and again I can come back to you if necessary, our general advice is that countries need to look at what is feasible and sound policy to promote the macro stability there and to adjust to changing external circumstances. Thank you.

One more and then that's it.

QUESTIONER: Well, I've just got two questions. One is on Latvia actually.Do you have an update on how those discussions are going and also do you have any comments on the government's decision to increase its control of Parex, the bank, I believe from 51 percent to 84 percent?

Number two, any update on the China Article IV? When do you expect that to be coming to the Board?

Dominique Strauss-Kahn said a few months ago that that had been taken off the table for just as to allow the world economy to stabilize. They didn't want to rock the boat. The question now is with Paulson going to China is it back on the table?

There has been some -- the appreciation of the RMB seems to have halted in the last few days, in fact, reversed. So any comment on that?

MS. ATKINSON: Thank you. Okay, so on Latvia, as you know, there have been initial discussions on Latvia's economic program between the IMF staff and the authorities. We expect these to continue, and of course we're ready to help Latvia in whatever way that we work out is appropriate. And, Latvia is of course a case that is very closely involved also with other partners in the area.

You asked about Parex Bank, and again we encourage the authorities here, as elsewhere, to deal and take steps to strengthen the financial system, but I don't want to go into discussions or comments on individual banks. That's really up to the authorities.

Finally, on China, we have no update on the date for the Article IV consultation, and I don't think that there's been any change in that position.

Thank you very much and thanks to those of you who participated online.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100