Transcript of IMF Press Briefing

May 25, 2017

MR. RICE: Good morning, everyone and

welcome to this press briefing on behalf of the International Monetary Fund. I'm Gerry Rice of the Communications Department.

And as usual, our briefing this morning will be embargoed until 10:30 a.m., and that’s Washington time. I have a few announcements to make, and then I will turn to the questions in the room and to our friends online.

Let me begin with the Managing Director, Christine Lagarde, who will be undertaking a series of high-level visits to Europe over the coming weeks that will begin this weekend with the Managing Director attending the G-7 Summit in Taormina, Italy. Then on June 7, she will attend the European Development Days in Brussels, with a speech at the opening ceremony and other events.

The one other announcement relates to our Deputy Managing Director, Tao Zhang, who will be visiting Armenia, June 8 to 11, and Georgia, where he will be meeting various high-level officials, and civil society, parliamentarians, and so on. And he will be delivering a speech in Tbilisi on June 12.

That’s it. Questions? Let me start with ladies first.

QUESTIONER: Thank you, Gerry. Can you confirm whether you are considering to back the Greek program, but not financially until the German elections, and that’s a proposal that doesn't include debt sustainability for the time being?

MR. RICE: I think there might be some other questions on Greece. Shall we take a few, and then I will answer your question.

QUESTIONER: Again, to follow up on her question. Can you tell us if Mr. Poul Thomsen's insisteed on , the surplus of 1.5 after 2022? Because, Gerry, all the scenarios that we've seen, they would appear in press, talk about 2.2, or in the best case two percent until 2060, and it seems to me that nobody is talking about the 1.5 that you said many, many times. And I'm wondering if that is something that you can accept now?

MR. RICE: Okay.

QUESTIONER: And also what we see the last days especially, is a change in your tone that suggests a kind of compromise. Because, Gerry, less than a year ago, I mean a few months ago, you were saying that the debt relief needed is far beyond what -- than what the Europeans are considering, and now you are just asking for a bit more specificity. Is this a compromise ? --

QUESTIONER: Can you clarify exactly what the idea is that Thomsen had advanced during the meetings, which, if I understood correctly, it would have been to approve the deal but without disbursing anything. And would that be a departure from normal procedures within the Fund?

MR. RICE: Okay. So, let me try and respond to those, and we can come back if you need something a bit more specific. So let me, just stepping a bit and give the context. The status of the discussions on Greece is essentially as was summarized at the end of the Eurogroup meeting on Monday.

So, Greece has legislated a strong package of reforms, which the IMF has welcomed; but we still need to see more specificity on the debt relief issue. So, these were very useful discussions on Monday, and those discussions continue, but essentially the IMF position is, as has been stated here and otherwise many times, that we need to see the two legs of the approach, that is the strong package of reforms, which we have now, but we also need to see debt sustainability, and before we would be able to propose IMF financial participation in a program, we would need to see both of those legs, and again that position has not changed.

So, the focus of the discussions on Monday at the Eurogroup and the continuing discussions and negotiations now, is really very much on that second leg, i.e. the debt sustainability, and the level of debt relief. Of course, that is linked, in turn, to discussions of the assumptions made around growth estimates and the primary surplus. And those discussions are continuing.

What we have said on the primary surplus is that given that Greece has legislated now this strong package of reforms, we think that this can help to underpin a surplus of 3.5 percent of GDP in the medium term, until 2022, to answer your question.

Over the longer term, however, we continue to believe that the surplus of 3.5 percent of GDP is not sustainable, as Greece cannot grow while maintaining such a high surplus, and we believe it would impose too high a level of austerity on the Greek people.

So, we think that surplus should come down, and that the fiscal space that this would create should be used to support growth via more investment, capital spending, lower tax rates, the creation of a modern social safety net - all of the things that we've discussed before.

And this path then, for the longer-term surplus and the assumptions underlying it, has not been agreed, so that's a part of those discussions that relate to debt relief and debt sustainability.

In terms of the way forward, again, the discussion will be continuing. We know there is going to be another Eurogroup meeting on June 15. And the way I characterize our position, the IMF position, is that we are exploring all options within our existing practices and rules. There is no deal at this point; there is no agreement. We are exploring all options within our existing practices and rules.

And on the question of what we've done in the past, and so on, if you look at IMF history you'll see that it always depends on specific country circumstances. Yes, we have rules and practices, but we try to be flexible given -- as flexible as we can -within a specific country’s circumstances.

And our objective is always to serve the member country as best we can and to use the mechanisms and procedures that are available to us.

That’s kind of my take on where we stand.

Questioner: With a proposal like that, I mean, like the one that I just asked you before, that you participated, but not financially, it needs approval. It needs to go to the Board to be approved. I mean, have you ever approved programs in principle before, just the policy packets without the money?

MR. RICE: Yeah. There have been cases in the past of what you said, approval in principle. But again, what I would want to stress here is that the IMF position remains consistent in terms of what we’re looking for.

So, we’re looking for the package of policy reforms. We think we have a good basis for that now. And we are looking for debt sustainability.

And before we would be able to propose to our Board, a financial participation in a program, we would need to have both. We would need to have the package of reforms and the assurance of debt sustainability. That has not changed.

Questioner: Are you still insisting on 3.5 after 2022? Because the best-case scenario that we hear about talks about 2.2 until 2060- .

MR. RICE: Yeah, I think I just answered that.

Questioner: So, I have a couple of questions. Actually, so if I understand you correctly, it means that the Europeans are expecting a 3.5 primary surplus after 2022. Is it correct?

MR. RICE: I believe that’s been the European position, and that’s what is under discussion now. As I just said, the assumptions underlying growth, and the assumptions underlying the primary surplus over the medium term, beyond 2022, as I just explained, that’s what’s under discussion now. And that, of course, is directly linked to the level of debt relief. So, those are the discussions now.

Questioner: And can you clarify something for me? Why has the debt issue prevented the Europeans to move ahead with another disbursement since the IMF is not involved financially speaking. Why is the debt issue -- has prevented them to move ahead -- to move forward?

MR. RICE: Well, I think the logic of it, is that the Europeans have said all along that they would need the IMF, they would like, and they would need the IMF to be involved, to participate. And then, what we have said is, and I just repeated it here. To participate, we need to see the two legs that we’ve called for consistently. And one of those legs relates to debt sustainability.

And we’ve been discussing, we at the moment, do not see the Greek debt as sustainable. So, that’s the discussion that’s taking place now.

QUESTIONER: If I may after I --

MR. RICE: Okay, last one for you.

SPEAKER: Yeah, but, sorry, I just wanted to -- can you clarify exactly what was the proposal that you made? Was it to approve a deal without disbursement? Can you explain more clearly what it is because I mean we don’t have anything on the record. Like exactly, can you detail exactly what has been proposed?
MR. RICE: Well, again, it wouldn’t be appropriate for me to go into what was discussed in the room in Brussels. The way I would characterize it is what I’ve said, that there are a number options, there are a number of ways that the situation could be resolved. And we are exploring all options within our existing practices and rules.

So, I think there are a number of ways that we could come at this.

Questioner: Last April, the IMF forecast a positive GDP for Brazil, which was 0.2 percent in this year and 1.7 in the next year. But that forecast was done considering that the congress was going to approve the pension reform. And now, we are facing some riots in Brazil and new political crisis and also, a new discussion about impeachment of the president.

So, do you think that there is any condition for the IMF to keep that forecast? Do you think that we are going to a negative ground in terms of GDP forecast for Brazil?

MR. RICE: I think it’s too soon for us to assess the potential implications of the political developments in Brazil and the effects on the economy and the reform drive. We’ll obviously be continuing to monitor the situation. And we expect to be able to present a more informed view to our Board once the Article IV consultation is completed, which would be in July.

What I would add is that, we gave an updated forecast justseveral weeks ago in the context of our Spring Meetings. But Brazil has built buffers over time and has proven instruments to deal with market volatility and to preserve financial stability.

But again, too soon to assess the implications of the political developments.

I think there was as question at the back here. Did you have a question?

Questioner: Yes, can you please clarify regarding the second leg that we were talking about. If you believe that the debt-relief measures that are described in the 2016 Eurogroup agreement are bold enough, or do you believe in your protections in case we need something more?

MR. RICE: We’ve said consistently, so we’re back on Greece just for those who are watching. What we’ve said is that we accept the basic premise of the May 2016 agreement that was made at the Eurogroup. So, thatwhat we mean by that, is that the debt relief does not need to be approved, calibrated in all its details, and delivered before the end of the ESM program. However, what we do need to see is the specificity of the measures upfront, that would give us the assurance that debt will be sustainable.

And again, there would be no possibility of IMF financial participation in a program until we had that assurance on debt sustainability, which is just to repeat what I said earlier.

Okay, I’m going to take one more. From you on Greece, and so as not to make this the Greece press conference.

Questioner: Gerry, it seems to me, and correct me if I’m wrong, that you are extremely careful with Greece. And I understand Greece is in a difficult position. And they accept, unfortunately, everything.

But on the contrary, you expected everything the Germans have asked you for. Everything Mr. Schäuble wants. I mean you accept it. Mr. Thomsen, accepted.

And my question is this. Would the IMF agree for debt measures to be specified after German elections? And if so, it seems to me that you are doing a political favor to the Germans.

MR. RICE: Well, I don’t agree with your characterization in your question. I’d like to repeat that there’s no agreement. That the status of the discussions is as was described at the end of the Eurogroup. Good progress by the Greek government on reforms, which we support. And more discussion required on the issue of debt sustainability and debt relief. Where we are looking for, and again, I’m just repeating what I said, but we’re looking for a couple of things: More realism in the assumptions around growth and primary surplus over the medium term. And more specificity on the debt relief.

So, I, again, do not accept at all your characterization of the situation. That’s where we stand. So, you know, we are objective, and we try to be even-handed as part of our role on all sides, and we try to be helpful to the member country as much as we can. I am going to move off Greece for a minute unless --

Questioner: I have a very last one on Greece and another on another topic . I swear. Very last one, actually. Do you understand the frustration of the Greek people who basically are paying the price of the inability of the IMF and the Europeans to find an agreement? The Greek authorities have passed a package of reforms, but you guys and the EU are unable to find an agreement, and the Greeks are basically paying the price. Do you understand the frustration? And then I have a question on the U.S. after if you don't mind.

MR. RICE: You know, as I said we are all just trying to do our best to come to an agreement as quickly as possible, and we have a responsibility as the IMF to make sure that any such agreement would be in the best interest of the member country. And a big part of that is to ensure that the growth assumptions are realistic, because it does not help anyone to have assumptions that may be over optimistic and to ensure that the countries debt is sustainable over the medium term. So, that is what we are trying to do, we are just trying to do our job.

Questioner: And the U.S. I'm sorry.

MR. RICE: Well, let me take the last, I'm going to give her, I started with her and I will end with her on Greece. And this is the last one on Greece and then you; I will come to you.

Questioner: You said that you are exploring all possible options and the scenarios in order for a solution, but according to the eurogroup records, Paul Thomsen said that we not seem to be converging on the debt process with the Europeans.

MR. RICE: The way I would characterize it is that I think differences are narrowing, and I think that everyone is optimistic that an agreement can be reached and hopefully can be reached at the next Eurogroup meeting in a few weeks' time. But again it depends on the discussions, that they progress and, I just want to repeat again what the IMF is looking for, and what we would need before we could go back to our Board, which makes the ultimate decision here, on a financial participation in a Greek program, and it’s those two legs again.

Questioner: So speaking of a realistic growth assumption, the U.S. has presented its budget for the year 2018, and it's based on the assumption that the economy will grow at three percent annual rate. So, do you think that that assumption is realistic, or do you have any assessment? I know that you are in the process of this Article IV on the U.S., and I was just wondering if you could have any comment on that since it's, you know, a lot of experts seems to be really skeptical about this three percent growth target.

MR. RICE: You know, I don’t have a comment on it right now for the reason you just gave, which is that we are indeed engaged in the U.S. Article IV discussions with the United States, and so we would be looking at the U.S. budget proposal in that context. And I think we would have something to say toward the end of June.

SPEAKER: I was expecting that answer actually, so I was ready.

MR. RICE: You know me very well.

SPEAKER: Yes. So do you think that it's realistic for any industrial country to have this three percent or three percent growth target? Is it realistic or healthy for an industrialist country like the U.S. or any other countries like that to have a three percent growth target?

MR. RICE: I'm not going to hypothesize or speculate on growth rates. It really depends on - it's country by country. So I won't speculate on it. Anything, is there anything further in the room? I'm not going to take - I won't take much more on Greece. I have a couple of questions here, and some of them are on Greece.

Questioner: You cannot escape.

MR. RICE: And I think I have dealt with them. I think you have covered the waterfront very well. So let me turn a little bit to some other parts of our membership and the world. There's a question on Africa on Ghana, and it’s asking will Ghana agree to extend the IMF program in return for a bigger credit facility? What is the IMF's position on the government’s speed in meeting the objectives of the program? So, there I can say that we have made progress in our discussions which are under the Fourth Review of our program to support Ghana, and these discussions have helped us better understand the government’s new policies.

We are still working toward a common understanding of their implications, and how they align with the program objectives. A key priority is to bring the public-sector debt on a clearly declining path. So, we welcome this ongoing dialogue with the authorities and look forward to completing the discussions over the coming weeks. On the specific questions, we have discussed with the authorities the possibility of extending the program and any extension that would of course have to be requested by the Ghanaian authorities, and we understand they are considering the matter, and that's where it stands.

There is a question on Saudi Arabia. What is the IMF's view of the interaction between the country’s sovereign wealth funds deal with Blackstone and the warning that rapid cuts to the government's budget deficit could damage the economy? To which I would say as we understand it the Blackstone deal is part of the ongoing effort to diversify the public investment funds portfolio toward international assets. We do not see this as being related to the pace of domestic fiscal adjustment, where we fully agree with the authority's objective of balancing the budget over the medium term, but do not see the need to achieve this objective in the next two to three years as suggested in the fiscal balance program.

And there's a question, let me take one more online, and then I will come back. There's a question on OPEC, which as you probably know made a decision earlier this morning. It's asking - OPEC is supposed to prolong its agreement on oil supply cuts for nine months today. Do you expect the IMF to adjust its own projections for oil prices in this regard? We will be looking at our projections on oil prices in the context of our next WEO update, which will be in July. On the OPEC decision this morning, we expect it will help temporarily the oil producing countries as spot prices have increased when Saudi Arabia and Russia initially agreed the extension in mid-May. In the medium run we expect U.S. shale producers will offset the production cut from the OPEC cut that’s the medium-term impact we expect to be limited.

Questioner: For the first time in 28 years Moody's has downgraded the ratings of China and and expressed concerns about the level of the public debt in the country. Do you share this assessment and are you more concurred before about the pace of the debt in China?

MR. RICE: We will be assessing the outlook and the risks to China in the upcoming Article IV consultation. What I would say at the moment is that we have noted the pickup in near term growth momentum and are encouraged by the recent efforts by the Chinese government to address financial risks. At the same time, continued the efforts are still needed to resolve debt vulnerabilities from high credit growth and the increasingly large and interconnected financial sector. Now I may be, you know, just in that regard, I noted this morning some public statements from high level central bank officials in China themselves noting the risks from high leverage, high credit growth, and they're acknowledgement of that and their determination to take the policy measures to address those issues. Thank you very much. I'm going to leave it there for this morning and look forward to seeing you in a couple of weeks' time. Thanks.

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