Transcript of the IMFC Press Briefing

October 8, 2016


Agustín Carstens 
Chairman of the IMFC and Governor, Banco de México;

Christine Lagarde 
Managing Director, IMF;

Gerry Rice 
Director, Communications Department

Mr. Rice - Good afternoon, everyone. Welcome to this press conference on behalf of the IMFC. I am very pleased to introduce to you this afternoon the Chairman of the IMFC, Governor Carstens. We also have with us the Managing of the IMF, Madame Lagarde.

We will go straight to it. We are on the record. We will begin with some opening remarks from the Chairman and then we will take your questions.

Mr. Carstens ‑ Thank you very much, Gerry. Good afternoon to all of you.

Our discussions today and yesterday in the IMFC were extremely productive. We have accomplished a lot, including the opportunity to collectively share views and come up with possible solutions about the economic and financial challenges that each of us is facing within the context of the global economy and the International Monetary System.

Let me start by extending our sympathy and support to the governments of the Caribbean, especially Haiti, as the region grapples with the impact of Hurricane Matthew.

As you see from the IMFC communiqué, the economic outlook is mixed, and today we expressed concerns about global activity. The “too low for too long and benefiting too few” message that the Managing Director has been delivering has been echoed in the meeting. Therefore, that captures very well a lot of our discussions.

There are a range of downside risks. There are still some signs of recovery, arguably at a slow rate, and principally focused on emerging market economies and a few advanced economies.

We broadly agreed that more is needed, and that individual and collective policy responses are warranted in the face of what are increasingly inward‑looking policies that may derail the benefits of globalization, open trade and markets, and technological change.

The global economy has benefited tremendously from globalization and technological change. Ministers and Governors also recognized and acknowledged concerns about the impact of globalization in the advanced and developing world among people who have been left behind.

That is the broad picture. What are the outcomes, then, from the IMFC Meetings? Let me list a few.

We have committed to strong, sustainable, inclusive job reach and more balanced growth. The membership has also pledged to use all policy tools, structural reforms, fiscal and monetary, exploiting synergies among them. We reaffirmed our commitment to communicate policies clearly, resist all forms of protectionism, and refrain from competitive devaluations. We are committed to ensure that everyone has the opportunity to benefit from globalization and technological change.

The IMFC communiqué, therefore, underscores a number of policy priorities: first, growth‑friendly fiscal policy; continue supportive monetary policy in advanced economies; prioritize structural reforms, which we all agree is key to raising potential growth; effective financial sector policies to deal with legacies from the global financial crisis and to head off potential systemic risks; and finally, stronger global cooperation, including a concerted effort, as the communiqué notes, to maintain economic openness and reinvigorate global trade.

We also covered a range of IMF institutional issues. I will not run through all of them, but we agreed that the IMF should explore further the impact of globalization and technological change, and what it can do to help the Fund’s membership to better understand the impact of policies on inequality in both advanced and developing economies.

We also endorsed the Fund’s continuing work on challenges facing low‑income countries and fragile states, and in capacity‑building more broadly. In particular, we welcomed the extension of the zero interest rate on all IMFC concessional loans and the contributions received so far to the PRGT loan mobilization efforts.

The membership welcomed steps to maintain the current lending capacity of the Fund, and stressed that they remain committed to a strong quota‑based and adequately‑resourced IMF, which is important for the Global Financial Safety Net. In this regard, we also welcomed the strong pledges to extend IMFC access to bilateral borrowing as an important backstop for IMF resources.

As you know, a general quota increase was just completed. We also recognized that it will take some additional time to conclude the 15th General Review of Quotas and agree on a new quota formula so our membership can build the necessary broad consensus.

Last, but not least, I would like to thank the Managing Director for her very strong leadership of the IMF. Thanks so much.

Mr. Rice ‑ Thank you, Mr. Chairman.

Let us go straight to your questions. If you keep them brief, please, and identify yourselves, then we will try and take as many as we can.

Question ‑ Managing Director, you have made some very welcome comments at this meeting about the need for more inclusive growth. You have also warned of the threat to growth from the political backlash against globalization. Yet only last summer the IMF was fairly criticized by its own Independent Evaluation Office over its handling of the Eurozone debt crisis and the Greek debt crisis. I get my question is, is the IMF not itself somewhat complicit in the very political backlash it now complains of as one of the main threats to growth?

Ms. Lagarde ‑ Thank you very much for your question. We are one of the few institutions that actually imposes itself that ex‑post review and very careful analysis of the work that has been done over the course of time. We very warmly welcome the recommendations, the encouragement, and also the criticisms that we receive on one topic or another.

As far as this particular report is concerned, we have learned a lot. We have modified a lot as well in order to continue to be fit for purpose, focused on the outcome, humble in the delivery of what we can do best: serve the community and serve the membership.

Question ‑ I am wondering, first of all, how much political uncertainty is weighing on global growth.

Secondly, one of the key themes that we have heard at these meetings is about the tone of our politics. Do you have any reaction, Madame Lagarde, to the kinds of comments we have heard about women in the US presidential election, particularly as someone who has done so much to advocate for women?

Ms. Lagarde ‑ Thank you again. If anything, any comment that I will not comment upon will be an encouragement for me to continue to express respect for all human beings, for women in particular, and an encouragement for our institution to continue to work specifically on the issues of discrimination, on the issues of barriers to jobs, to finance, which are encountered by many women around the world. We have been very strongly encouraged by the membership to continue doing that.

When you look at the uplift to growth that can be generated by the inclusion of women in the labor force, by the closing of the participation gap based on gender differentiation, and how much it can bring to the US economy or to the Indian economy or to the Japanese economy, you can only be encouraged to support that effort by women to see their dignity respected around the world in economic terms and otherwise.

Thank you.

Question ‑ Madame Lagarde, there has been some talk during this meeting about why Mexico is not growing. I mean, after all, the authorities have been doing most of the homework and the recommendations that the IMF has proposed. Some of those reforms are already in place, but there is still weak growth.

The government right now is in a difficult position, because they do not have the resources to do the things they would like to do, and they can get more revenues through tax. Among the things that the country can do in order to improve productivity growth, how would see fiscal reform, a new fiscal reform in order to get those necessary resources?

Ms. Lagarde ‑ One of the reasons many people have picked up on my “too low for too long and benefiting too few” is that it applies really across the board, and it applies particularly to the commodity export countries. Now, sometimes it is a blessing; sometimes it is a curse. But it is certainly for all commodity exporters an encouragement to diversifying their economy.

Clearly, Mexico has conducted some major reforms that had not been conducted for many years, whether it is education, telecommunications, the oil industry, the access, the new licenses. That is a massive range of reforms, and they will unleash potential, no question about it. I was encouraged to see that fiscal policy will be properly continued under the new leadership of Mr. Jose Antonio Meade, the new Finance Minister.

Clearly, the country is also preoccupied by whatever spillover effects will result from decisions made outside. So, that is another encouragement for us to continue to support our membership and to continue to look at the spillover effects of monetary decisions, including others.

Question ‑ [THROUGH INTERPRETER] My question to Madame Lagarde I will ask in Arabic.

Yesterday Mr. Masood said that the IMF loan being given to Egypt will include conditions to limit the budget deficit and it has to do also with the exchange rate. My question in this regard is, is the currency movement and the flexible regime a precondition to provide the first tranche of the loan, and are there other measures like reducing energy subsidy? Is there going to be a delay in approval by the Board after November? Is it going to be in November or later? I am talking here about the first tranche.

Ms. Lagarde ‑ I hope you do not mind that I will not respond in Arabic.

As you know, about three weeks ago, a staff‑level agreement was reached between the Egyptian authorities and the Egyptian mission that was on ground for a few weeks to identify the areas for growth, the necessary reforms in order to unleash the potential of the Egyptian economy.

There are several prior actions which need to be completed before the Board can actually meet in order to formally approve a US$12 billion program over a period of three years. To my knowledge, these prior actions are almost completed, not quite, in relation to both the exchange rate and in relation to subsidies. There is still a little bit of implementation to be had before the Board can meet.

So, I very much hope that the Board can meet promptly. Then once the Board has met, it will have meant that the prior actions are completed and, therefore, the first tranche can be released. So, that is the sequence: completing implementation of prior actions, convening of the Board, Board review of the proposal, hopefully approval, then first tranche released.

Question ‑ I have a question about the SDR.

In Article VIII, Section 7, members, in a slightly roundabout way, obligate themselves to make the SDR the principal reserve asset in the financial system. Now, to me, that means replacing the US dollar as the principal reserve asset.

With China being admitted to the SDR basket and the first SDR bond issuance in August or beginning of September this year since the 1980s, how much of a priority is replacing the US dollar with the SDR at this moment for the Fund? If all goes well, when do you think you will have accomplished your objective?

Ms. Lagarde ‑ My response to you is it might take a bit time (laughs), but I have to say something.

The process through which the renminbi has been integrated in the basket of currencies has been time‑consuming but really worthy of the effort on both sides, because it has meant a lot of reforms on the part of the Chinese authorities in order to satisfy the two criteria of inclusion in the SDR basket.

My clear satisfaction is that the teams have worked extensively on this project. It is highly technical, I can assure you, in order to make sure that between the BIS, the central banks, the IMF and other public institutions, financial institutions, we can actually operate in all currencies included in the basket of currencies. That work has now been completed. I am confident that there will be more issuance of SDR‑labeled and ‑quoted bonds. I think we are seeing the beginning of it. Is it going to take time? Probably.

Question ‑ When you put the last G20 communiqué beside this one, it feels like, at least to me, that there is a starker, there is stronger language about the risks of the turn-away from globalization and the risks of protectionism and isolationism. I am wondering if you can speak to that. Why did you feel the need to step up this warning? What is the clear and present danger?

Ms. Lagarde ‑ If you remember, and I know you follow us carefully, we have been advocating the three‑pronged approach combining monetary policies, fiscal policies, and structural reforms for quite a while. We continue to hear central bankers around the world, particularly in the advanced economies, saying that monetary policy cannot do it alone. The Chair of the IMFC, one of our most talented central bankers, can speak after me on that particular topic.

So, when you want to move the needle, you have to use all the tools. Given that the three categories are not being used to their fullest extent, nor in a coordinated fashion, we certainly have decided to come up more loudly on this occasion to say that central bankers cannot be the only game in town. We have said that many times. Let us get on with it and see some action on the part of the other authorities as well so that in combining their forces—that is what we call the comprehensive approach—giving some time horizon to the work that they do—it is not going to happen in one budget—and doing it together, they can actually deliver something that will move the needle of growth, which, as we have said again, has been too low for too long and benefiting too few.

Agustin is far more qualified than me to talk about monetary policy alone, but clearly the focus on the occasion of these meetings has been on how do we deliver growth, what tools do we have, listening also to the private sector, looking at not just the advanced economies and their respective problems but also the many developing countries and emerging economies around the world.

Second, which was not extensively discussed, is how do we make it more inclusive? The focus that I tried to give on trade, in particular, and the value of openness was specifically dedicated to that. You are better than me for that.

Mr. Carstens ‑ First of all, I would say that we discussed the trade issue in a very comprehensive manner, first of all to recognize that the volume of trade has not been showing stellar performance since 2009. The volume of trade has not been weaker than what we are seeing today. That is a clear sign that we are not exploiting the gains for trade as a way to promote growth, as the Managing Director just said.

It was noted by some of the participants in the meeting that more than 1,400 restrictive trade measures have been adopted only in G20 countries during the last year. So, that is one aspect that was considered. If we want more growth, more inclusive growth, we need to facilitate growth.

But the other important aspect was that some of the reactions against trade in the world has been the result of precisely some members of the population in different countries feeling that they have been left behind. Therefore, a lot of discussion took place about what to do with those sectors in the different economies.

I think it is fair to say that we should promote growth through trade. We also in a way have to welcome technological change. Also, those who have been affected by any of those forces should also be looked after by governments by adopting specific measures. So, we took a very roundabout approach to trade and in a way make it more inclusive but also more powerful, or exploit better that instrument to promote growth.

Mr. Rice ‑ Thank you, Mr. Chairman.

I know many of you have other questions. I am afraid we have to finish there. We will catch you next time. Thanks again for coming.

IMF Communications Department


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