Transcript of Press Conference by IMF Managing Director Christine Lagarde

April 20, 2017


Christine Lagarde
Managing Director, IMF
David Lipton
First Deputy Managing Director, IMF
Gerry Rice
Director, Communications Department, IMF

Mr. Rice ‑ Good morning, everyone, and welcome to the Spring Meetings 2017. This is the IMF’s Press Conference. I am very pleased that we have with us this morning the Managing Director, Madame Christine Lagarde. We also have with us, as usual, our First Deputy Managing Director, Mr. David Lipton.

We are on the record this morning. Please keep your questions short. Identify yourselves, please. With that, I will turn to the Managing Director for some opening remarks, and then we will get to your questions.

Madame Lagarde.

Ms. Lagarde ‑ Thank you, and good morning to all of you. Welcome to the 2017 Spring Meetings. Spring is in the air. There was a bit of rain this morning, but spring is in the air and spring is in the economy as well.

We are finally seeing the global economy picking up the momentum that we hope is going to be sustained in the medium and longer term, and I will be happy to discuss that this morning.

It has also been warmed by rays of sensible policies that are now bearing fruit in many countries. As you will have seen from the WEO, which was commented upon by our Chief Economist, Maury Obstfeld, we are forecasting growth in 2017 at 3.5 percent percent and 2018 at 3.6 percent. That is a significant uptick from 2016, which was only at 3.1 percent, which is all good news.

But we need to make sure that this momentum is sustained and that we continue to have that growth and more, and, importantly, that that growth is shared more equitably. Looking at the downside, as we always do, there are risks [tilted] to the downside, including political uncertainty. We all remember the green shoots of 2011, which did not last very long.

So, what will we do during these Spring Meetings? Well, with 189 representatives of the membership, Finance Ministers, Governors of Central Banks, we will be discussing how we can sustain that momentum; how, irrespective of political cycles, we can make sure that our global economy is more resilient; how it is rooted in stronger growth, more inclusive growth and with good cooperation among all.

So, how do we actually focus on more growth and more inclusive growth? You will have seen the Global Policy Agenda, which I think is on each of your chairs, and it is in that document which was submitted to the Executive Board of the IMF that I share with you the objectives that we will pursue.

Our first priority is to maintain the growth momentum. Using which tools? Well, the traditional fiscal, monetary, structural reform tools that we put together as the three‑pronged approach which has to be tailored to each country’s specificity.

Second, and really importantly, we need to reinvigorate productivity, especially by boosting innovation and trade, both which fuel productivity, as is very clearly demonstrated by the recent research paper that we published.

We need to make that global growth more inclusive. That inclusiveness needs to be identified and supported by policies on three dimensions: within countries, across countries, and between generations.

So, what do we mean by more equitable growth within countries? We mean making tax and benefit systems more equitable, boosting high‑quality infrastructure investment, and mitigating the impact of the structural changes that are taking place.

These policies can take different forms, depending on the country’s specificities. It can be minimum wages or raising them when they are way too low. It means expanding in‑work tax credit; the Earned Income Tax Credit, for instance. It means stepping up retraining, job search, labor market‑specific policies, relocation support, revisiting housing policies in order to facilitate labor mobility.

Now, I also mentioned intergenerational; in other words, over time, how we make sure that that growth is equitable. What it means is protect future generations against imprudent actions of today’s generation. Here we are referring to the excessive debt burden; we are referring to unsustainable pension schemes; we are referring to poor or not maintained infrastructure and the impact of climate change.

Finally, stronger cooperation across countries would help reduce excessive external imbalances, clamp down on tax evasion and tax avoidance. It also means focusing on delivering the Sustainable Development Goals so that the low‑income countries can also reap the benefits of this improved productivity and these good policies that we are recommending. All countries, of course, should guard against what I have called self‑inflicted wounds, such as restrictions, subsidies, and other trade distortions that reduce competition and economic openness.

Now, on the question of trade, which is clearly on the minds of some, we are very pleased to see that trade is picking up. Is trade going to continue to increase and grow? We do think so. Is trade operating in a perfect environment, with a perfect setting? No. Is there room to improve that? Of course. Should it be done in a cooperative forum, such as on a week like this, with all Finance Ministers around and talking to each other in a cooperative setting and forum such as the IMF? Yes, we think so.

With that, I will be very happy to take questions.

Question ‑ You once described the post‑recession world economy as the new mediocre. Do you think we are seeing an end to it? In particular, what role, if any, has China’s recent economic performance and economic policies been playing in that regard?

Ms. Lagarde ‑ When I referred to the new mediocre, there was a combination of two mediocres. The first one was growth, which was at around 3.1 percent. The second one was the growth potential, which was also alarmingly mediocre. The first one is certainly a lot better. As I said, growth is picking up, and there is a momentum underway which we need to sustain with the right short‑term policies.

But the growth potential still needs a lot of work. There is clearly a need for policies that will support and encourage and improve productivity. This is one area where clearly policymakers have to focus.

Whether they take particular measures to encourage innovation, support research and development by the private sector, participate in basic research themselves, or whether they work on education, skilling and reskilling on a very vast basis, will be obviously for them to decide.

But we believe that productivity has to be encouraged and supported so that we can move not just from “low mediocre” to “less low mediocre,” which is how I would characterize our position now, but to “not mediocre at all,’ with the prospect of strong potential growth going forward. That applies to all categories of economies that we are studying.

As far as China is concerned, there are clearly good numbers coming out that are certainly a result of some stimulus, some encouragement from the Chinese authorities. We are also quite pleased to see the rebalancing that is taking place in China, from being heavily geared toward investment to being geared more toward consumption, from being a bit more into services—not a bit more into services but actually more into services, and less so in manufacturing.

We are seeing, of course, the rebound of export activity for obvious reasons, because demand addressed to China is picking up. All of that is good and supportive. We also, as you know, have some very specific recommendations to China in relation to credit growth, in particular, and to the reining in of the housing sector, which, despite efforts already undertaken, is continuing to grow.

Question ‑ At these meetings, of course, there is a lot of concern about the policies that the Trump Administration is going to put in place. I am just wondering how you are viewing them, how you are reacting to them, particularly on the trade front.

Do you view this as sort of a big, noisy family, where you really have to have a loud voice to get your view across, or is it a question of maybe adapting a bit because this is the new reality and the organization has to change in its views to accommodate their views?

Ms. Lagarde ‑ From the various contacts that I have had with the Administration so far, I have every reason to believe that we will make progress, that we will cooperate all together in order to support and indeed improve the system as we have it.

The IMF is not a trade organization, but we are concerned about trade because it has been a major engine for growth, and it is actually one of the pillars of prosperity and growth going forward. We certainly will be looking at how we can participate in that, how we can continue to support the growth of trade, and how it can be done in the most efficient, fair, and global way as possible. That implies clearly a level playing field, no use of distortive measures, and no protectionist measures going forward.

Question ‑ [In French, through interpreter] Madame, we see that the CEMAC area is going very badly and the IMF has been at its bedside for some time now. Could you tell us what advice you could give that area of the world so that we get back to a more hopeful growth rate?

Ms. Lagarde ‑ I am going to answer in French, and I will summarize my answer in English for those interested. I will be brief in the summary.

[THROUGH INTERPRETER] In the CEMAC area, there are six countries. Out of those six, two are already in a partnership and a program with the IMF. The Central African Republic and Chad would be those two countries.

The first certainty that we have is that these six countries are in a monetary area and show solidarity to one another. It is very important, therefore, for the policies that are undertaken and the reforms that are implemented to be consistent with one another and be collective. Every country will have its own specificities and its own reform programs, if they wish, but I think there needs to be a shared approach that is common to all six countries.

The second thing is that we have in‑depth relations with all six countries, including the two that are the subject of programs, to see to what extent the IMF and other international institutions, including the African Development Bank, the World Bank, and friendly countries on bilateral basis, can help the area to get back on its feet and to answer the double challenge it is dealing with: on the one hand, the drop in raw materials prices, which greatly affects some countries; and then security issues, which have also greatly affected some countries in the region.

[SPEAKING NOW IN ENGLISH] For those who are interested, in Cameroon?

Six countries are in that monetary zone. The IMF is already having a program with two of them. We are discussing with the other four as well. The first recommendation is that, although each country will have to make specific efforts, the whole monetary zone has to move together and there has to be solidarity among them. It will take goodwill on the part of the governments, of course, in the countries, but also on the part of all international institutions, including the African Development Bank, the World Bank, and bilateral countries to support them.

Question ‑ I would like to ask in Arabic.

Ms. Lagarde ‑ Oh, okay. Give us a minute.

Question ‑ [THROUGH INTERPRETER] My question is, what is the view of the Fund about the economic reforms done by Egypt recently? What are the expectations for other economic reforms by Egypt going forward? Also, what is the expected date for the second tranche of our loan, the $12 billion? We need more details about your last meeting with President Sisi in Washington.

Ms. Lagarde ‑ The Egyptian program which is underway has been very courageous and has embarked on very major reforms for the country. I have [met] President Sisi. I met with [AUDIO CUT OFF] my strong encouragement for the work that had been accomplished and strong support to continue along that path.

There is clearly a question that needs to be addressed, I would say, head‑on, and that is inflation. The other reforms have to continue, but there has to be a special focus on inflation. I think that the Central Bank and the Finance Minister of Egypt are both aware and will, I hope, tackle the inflation risk which is weighing on the population.

It is a very important program in terms of amount. It is the second largest financial program that we have at the moment. It is critically important that the Egyptian authorities and the Egyptian people actually endorse the proposals there in order to take the economy forward. It is a big country. It can really unleash potential. It has the challenge of, obviously, security and threats at home that it needs to deal with.

Question ‑ I would like to ask you about India’ economic reforms, in view of the two major reforms that the Prime Minister has done. One is demonetization, and also about the GST purchase coming up in the next few months.

Ms. Lagarde ‑ As you know, we had slightly revised down our projection as a result of the demonetization process that had been announced a little bit unexpectedly, actually. Our understanding is that that demonetization has now been remedied at about 75 percent, which is the latest March figure that we have and which shows clearly that the situation is now being mended. We believe that India is going to continue to grow at a really fast path. I think we have a 7.2 percent forecast for 2017.

The GST reform is really an act of courage, because it really means reforming in depth each of the Indian states in order to substitute the existing state taxes with that overall federal tax, the reallocation of it, and then the digital platform that will support it. I am personally extremely impressed by the work that is being done in that regard and we expect some positive outcome.

I think there have been other reforms as well that have been conducted by the Indian authorities courageously, one of which, as a former lawyer, I am particularly attentive to because it matters a lot, particularly when you want to deal with the corporate sector or banking sector that needs reforms and help, is the Bankruptcy Law that has now been put in place. So, we are seeing significant developments and a clear determination to continue and to sustain growth going forward.

Question ‑ You said that there is room to improve the global trading system, and, of course, it should be done cooperatively. Can you say exactly how you think the global trading system should improve? Can you cite some examples for what it means to have a level playing field?

Related to that, if I may—

Ms. Lagarde ‑ How many questions do you have?

Question ‑ This is the second part of the first question and the only question.

The IMF’s primary mandate is, in some sense, surveillance, assessing economies accurately as a way to encourage global stability. Would you in your assessment call China a market economy?

Ms. Lagarde ‑ And that is, of course, not a loaded question on your part.

On trade, when I say that there is room to improve, you are talking to a former Secretary of Trade for France and I have been looking very carefully at the reports of the WTO. When you see that the number of violations, number of cases is steadily improving and has gone from a little over 2 percent to 6.5 percent of noncompliance with the trade commitments by the G20 countries alone between 2015 and 2016, when you see that there have been about 3,000 [new restrictive rules] since 2008, there is clearly an issue that needs to be addressed.

There is a Dispute Settlement System that exists which has been used extensively by many partners, including the United States, the European Union and China, but it is clearly an area where there is room for improvement.

I have been saying that for at least two years. It is not a recent development but something that has been with us. It has simply increased between 2015 and 2016 in a quite significant way.

So, has that improved? We believe very firmly in this institution on the value and virtues of dialogue, cooperation, reciprocated assessments. We will contribute our part where we have competence and where it is our mission, and I think other institutions will also want to do that as well in order to make sure that we do not jeopardize the engine of trade, which has been fueling growth and which is evidenced as a key component of productivity.

If you look at the recent report that was published, there are two clear forces that drive productivity up. One is innovation and the other one is trade. We need to keep that going. If we do not improve productivity, our growth potential is going to stay mediocre, as we were discussing earlier.

Surveillance, yes, this is one of our three missions, with lending and capacity development. We do that on a bilateral as well as a multilateral basis. The multilateral surveillance work that we do in the ESR , for instance, informs the bilateral surveillance that we do. We will be releasing next July the ESR, the External Sector Report, where we assess the external position of 29 countries and that will inform the bilateral Article IV that we conduct on those 29 countries.

Irrespective of that external report, we also look at other factors: state‑owned enterprises, the way in which financing is provided. It is on the basis of all those factors that we actually make policy recommendations, but it is not our mission to declare whether one country is or is not a market economy.

Question ‑ Brazil is not yet out of the worst economic recession in its history and is in the middle of the biggest investigation against corruption in its history. If the patient is the economy of the economy country, when can the medicine help and when can the medicine kill? Could you please make a reference to something that happened 25 years ago in Italy, Operation Clean Hands, that was not dissimilar to what is happening—

Ms. Lagarde ‑ Mani Pulite.

Question ‑ Mani Pulite.

Ms. Lagarde ‑ When I look at our list of countries, one clear indication that growth is picking up and that there is a momentum across the board is that there is not a single minus in that whole [column] of forecasts for 2017, including Brazil, which has just come out of a major contraction in 2016.

So, I would say that thanks to the cycle, thanks to policies that have been announced, some of which are being implemented, hopefully the Brazilian economy has turned the corner and is going to improve over the course of the 2017 and 2018. Clearly, we welcome both the fiscal policy that has been identified, the intention to reduce debt going forward, and the monetary policy that responds to a clear reduction of inflation in Brazil.

So, as we see it, the policy mix from those two perspectives is fine. Structural reforms are clearly needed. Trying to get to the bottom of that corruption case or cases or list of cases will be critically important in order to unleash the potential of the Brazilian economy. Will it take a bit of transition time to move from the state of affairs that was known previously to a state of affairs where the economic relationships will be more transparent, will be better disclosed? Possibly. But certainly the fiscal and monetary policies that are underlying those changes are there in place.

Question ‑ The US has recently accused Germany of contributing to global imbalances by running large surpluses and by unfairly benefiting from the low valuation of the euro. Do you share this assessment and are you willing to put more pressure on Berlin to act?

Ms. Lagarde ‑ I think the position of the IMF in relation to reducing external imbalances has not varied in the course of the last few years. In relation to the German economy, in particular, I think we have consistently said that the external imbalance of Germany within the Eurozone should be addressed.

I have gone public last week to actually say that part of that surplus is justifiable, given the aging character of the German population, but that not all of it is justified and that a reduction of that surplus of the current account, particularly the trade balance, was highly desirable.

We are pleased to see that Germany has decided to increase investment for child care centers, is spending quite a bit of money on attending refugees’ needs for those refugees who are being integrated into the German economy, and to also invest in some infrastructure. I have personally recommended to Chancellor Merkel that investing in the broadband system in Germany would be a good idea.

Question ‑ I will not inflict my French on you. Molière would spin in his grave.

I have a question for you on currencies. The US has suggested that perhaps the IMF could play a more robust role in monitoring currency practices globally. Have you given some thought to this and how that might play out? What do you think that would look like? What would be a way for the IMF to step up its currency monitoring?

Ms. Lagarde ‑ The External Sector Report is a fairly sophisticated instrument which has been evolving over the course of the last four years predominantly. Ever since David and I have taken the leadership of this institution, we have been very keen to continuously improve the system. As you know, it is informed notably by the EBA, which is also a sophisticated instrument.

But as sophisticated as they are, they are also models and work that need to constantly be improved, because there is a judgmental part about that system which we always need to insert in the most rigorous, intellectually honest way in order to arrive at a system that is the best explanation and the best set of data that we combine together.

So, we will be doing that. Over the course of the last four years, it has improved each and every year. I hope it will continue to improve in order not to satisfy every player, because typically not everybody is satisfied with the outcome, but at least to eliminate doubt about the looseness of the analysis.

Question ‑ Could you tell us what the latest state of play is with the IMF’s negotiations over a new package for Greece? Are you any closer to coming to an agreement over the scale of debt relief that you would be prepared to accept to sign up to a new package?

Ms. Lagarde ‑ As you all know, and you certainly do, I have consistently repeated that for the IMF to be entering into a program with Greece would require that the program can walk on two legs. One leg is the leg of reforms and the other leg is that of debt sustainability.

The leg of reform has made progress. We have always contended that reforms should be sustainable reforms, parametric reforms that would actually lead the Greek economy to be more solid going forward. We are seeing progress that needs to be detailed and ironed out when the mission returns to Greece in a few days on both the tax reform and on pension reform. There are other areas that need to be negotiated as well, but this is making progress and we are heading in a good direction when it comes to reforms.

On the Debt Sustainability Analysis, which, as you know, is part of any program that I would submit to the Board, we still need to discuss and understand the primary surplus objective that would be assigned to the Greek economy, which, in our view, and in order to determine sustainability, would have to be reasonable. That will indeed determine the amount of debt restructuring that would be needed for the debt of Greece to be sustainable in the medium and long term.

Question ‑ I would like to ask you one global question. A year ago was the scandal about the Panama Papers and one of the compromises at the end of the meeting was the setting of a platform that could help to stop the arbitrage between countries that use tax systems to avoid in other countries the—

Ms. Lagarde ‑ Optimization, as it is called.

Question ‑ —the revenues for the government.

The second one is on Mexico. Do you think that in this moment when it has passed two years of big shocks and with a downward of the oil platform, the oil prices, the stretch of the income, and even the volatile external rates and even the focus that the Trump Administration has given to NAFTA’s future, do you think it is okay for Mexico to be a flexible credit line supporter in this moment especially? Some agencies are thinking to downgrade even the credit risk outlook. How do you see it in Mexico?

Ms. Lagarde ‑ I will start with your first question. I am not exactly sure what the scope is. What I know is that between the Panama and the Bahamas Papers, there have been in multiple jurisdictions around the world tax pursuits and trials and investigations and controls that have been undertaken in order to recover the lost revenue by the state.

The IMF does not deal with those national determinations, but we are really encouraged by both the BEPS project and signing up by all the authorities, by the now entering‑into‑effect of the automatic exchange of information. We certainly believe that it will help better design tax national systems in order to make sure that governments in their respective countries will secure the legitimate flow of revenues that they should be aspiring to and they should be entitled to.

Together with the Bank, with the UN and with the OECD, we have set up that international tax platform, where we are trying to give as much support as we can. We have finished now putting together the toolkit. We are providing about a third of our total capacity development on those issues as well in order to help them structure their tax system, on the one hand, and in order to raise domestic revenue at home, with a particular focus on low‑income countries.

On Mexico, we are really encouraged by the set of very solid, strong policies implemented by both the monetary authorities and the Secretary of Treasury in Mexico. As we know, the price of oil has increased significantly and inflation has gone up as a result, but we believe that the monetary response that was immediately put in place by way of tightening was actually the right decision.

The Flexible Credit Line is in place. I think it is providing support to the Mexican economy. At this point in time, we see no reason whatsoever to challenge that state of affairs. We believe that Mexico satisfies all the requirements of the Flexible Credit Line.

Mr. Rice ‑ This is going to be the last question. I am going to go to the hosts of our next Annual Meetings in Indonesia.

Question ‑ I only have one question for you. Inequality has become a constant for many governments from advanced economies and emerging economies as well. The other side, the resources needed to support the action, is very limited. For example, revenue from taxes is not very good or it is very low. Do you have any suggestion on how to address that challenge?

Ms. Lagarde ‑ First of all, thank you very much for the help that the Indonesian authorities, the Indonesian people are giving us in order to prepare for next year’s Annual Meetings in Indonesia. We are all looking forward to it. Anybody who likes strong coffee, good coffee, there is an Indonesian coffee booth, which is just outstanding.

The Indonesian economy is growing at a nice pace. I was just looking at numbers. We are forecasting 5.1, 5.3 next year. But it is obviously a country where reducing inequalities is a goal, and I know that Finance Minister Sri Mulyani is determined to do that.

I think that the fiscal policy that she applies, her determination to collect revenues that have been sitting outside of the country by way of the tax amnesty of Indonesia, has been a good effort to have more fiscal space available moving forward. There are clearly structural reforms that will be also undertaken in Indonesia and we would strongly recommend that that same policy be applied with the same vigor that is needed.

Mr. Rice ‑ Thank you very much.

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