Transcript of IMF Press Briefing

January 18, 2018

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 under embargo until 10:30 a.m., Washington time.

Let me begin with a few announcements and then we'll turn to your questions in the room and online which I see is already fairly busy. Let me begin with the Managing Director Christine Lagarde, who is in Germany today, actually right now, participating in a joint conference that the IMF is organizing with the Bundesbank. I believe there will be plenty of media in the room, all those remarks are on the record. And just want to point you to a blog that the Managing Director published yesterday on Germany. And one more thing on Germany is that the Managing Director Christine Lagarde will be meeting with the German Chancellor Angela Merkel tomorrow.

After the visit to Germany, we have Davos which we were just talking about here in the room. One interesting thing for the IMF this year in Davos, and it's a new thing, is that we will be launching the World Economic Outlook, the WEO Update, in Davis for the first time. And that will be on Monday, that's January 22nd at 3:00 p.m. Switzerland time. That's 9:00 a.m. here in Washington. Our Chief Economist Maury Obstfeld will hold a press conference which Christine Lagarde will open, give brief opening remarks. And we will, as usual for journalist colleagues, we will get you that material under embargo early on, both the WEO update with the details and Maury Obstfeld's remarks.

There's a lot going on relating to the IMF in Davos. On Tuesday next week, Madame Lagarde will take part in the opening Davos press conference along with her six other co-chairs, all female co-chairs this year at Davos. In addition, our First Deputy Managing Director David Lipton will be there, and between the Managing Director and David they will be participating in many of the panel discussions and events throughout the week. And I believe that's all available on the WEF, the World Economic Forum website. Of course, Madame Lagarde will also be meeting with heads of state and other policymakers and leaders who are going to be in attendance at Davos next week.

I talked about Monday and Tuesday, and on Wednesday next week, and we're still in Davos, Christine Lagarde will present a new report by the IMF. She'll be giving a TED Talk on the issue of inequality and poverty across generations in Europe. So very much focused on the issue of youth and the challenges facing young people in Europe, we have some new research there from IMF staff. And, again, we'll get this to you, the report, under embargo.

What else? That's probably it for Davos. Lots of other things, but I won't go into them here. What I will tell you is that at the end of the month on January 29 and 30 the Managing Director with other senior Fund staff will participate in a conference on the Middle East in Marrakech, Morocco. And that's entitled, Opportunity for All: Promoting Growth, Jobs, and Inclusiveness in the Arab World. And, again, we can give you plenty of information on that if you're interested. There's a website. I'm happy to talk to you about that.

Two other things. Let me mention that our Deputy Managing Director Tao Zhang will be in New York on January 31st to participate in a United Nations panel related to the investor summit on climate risk. And finally, and I believe this has been released to you under embargo, the IMFC, which is the International Monetary and Finance Committee of the IMF, the governing body of the IMF, has selected a new chair, and the new chair is the Governor of the Reserve Bank of South Africa. That is Mr. Lesetja Kganyago. And, as I say, that announcement I think has been shared with you. Mr. Kganyago is succeeding Agustin Carstens from Mexico who has been the IMFC chair for some time. Thank you for your patience with those announcements. Let me turn to any questions you might have in the room. Katerina, good morning.

QUESTIONER: Good morning, Gerry. Thank you. I was wondering what's your take on the latest developments in the Greek European program? With the last payoff, their review having passed in Greek Parliament on Monday, and the Europeans indicating they're due for the disbursement of 6/7 billion do you think -- and, actually, the European creditors are indicating today that they're ready to start technical discussion on debt relief options for Greece. Could this start translating to a greater willingness from the IMF part to -- an activation for your own precautionary program, and would you need another board discussion in order to go forward with that?

MR. RICE: Thank you. Well, on the very last part, the IMF board, of course, would make the final decision. But maybe just explaining for people who don't follow Greece just so closely.

The IMF has what's called an approval in principle of a program. And what we had said was that for making that program effective, having board approval for that program, would depend on two dimensions, two legs as we called it. One was the implementation of the policy program which is underway and, as you say, has been making progress. And the second leg was debt relief to Greece that would ensure debt sustainability. I think the status is work on both of those legs is continuing. With Greece's creditors on debt relief and with the Greek authorities on the implementation of the policies.

And once we have both of those legs in place then we would go back to the IMF board with a recommendation that the approval in principle would become effective. So, that's where we are. As you say, the Greek authorities and the European institutions are still in the process, looks like they're close to the end of the process of completing the third review of that ESM program, and let's wait for, the final word on that. There's a Euro Group upcoming, as you may know, on Monday. So, let's wait for the final word on that. But the status of where the IMF is, essentially, as I've just explained, and as we've explained it before. I'll take this on Greece and then I'll move on.

QUESTIONER: Just a follow up. Are the technical discussions on debt, though, enough for you to start the process or do you need more than that?

MR. RICE: Well, again, I've said this before here. We've made what I would characterize as a lot of progress on the debt discussions. If you look back, say to 2015, I think there's been good progress. And, again, the way I've characterized it before I would say, not all differences have been bridged yet, but we believe there is scope to do so, and we are working very hard with our partners to arrive at a positive outcome on debt relief. And one that can credible alleviate Greece's debt burden so that it can get back on the sustained recovery path.

QUESTIONER: I know you'll be giving an update on the WEO at Davos, but is there anything you can say in advance about -- of that, about major trends in the global growth -- with the global economy. And what does the IMF see as the risk of protectionism and trade conflicts in 2018? Thank you.

MR. RICE: Thank you. You will understand that I don't want to scoop the WEO because we are very close to it now and as I said, you will be getting it very, very soon so I don't want to preempt that in any way. I can point you back rather than point forward. I can point back to what we said at the time of the annual meeting, when we had the full-blown World Economic Outlook, and you might recall Christine Lagarde had this narrative of “the sun is shining on the global economy, lets fix the roof, make the repairs while the sun is shining”, meaning that we are seeing a broad-based cyclical upswing and let's use the opportunity of that upswing, of that sunshine if you like, to make the policy reforms that are needed in so many countries. That was the broad narrative that we had back at the annual meetings.

If you also look at what Christine Lagarde has said since then in various places, and indeed what Maury Obstfeld has said -- he gave a couple of interviews recently I think in France -- he sort of restated this idea of we are looking at a broad-based cyclical upswing but there is no room for complacency, let's make the policy reforms that are necessary to do.

That’s what we said in the past, and I think looking forward what you can expect and I know there is, I appreciate the anticipation. I think what you can expect is that Maury and the IMF will put more, much more detail on that on Monday and you will get that in advance. Sorry I can't go into greater detail there. Good morning.

QUESTIONER: The IMF representative in Russia, Gabriel Di Bella, on Wednesday visited (inaudible) it's international economy analytical conference. He talked about historically the object for Russia is not to lose importance in the global economy and it needs grow at least three percent but at least in the next few years, potential growth may be limited at something between around 1.5 percent. So, what steps the Russian government should take to boost growth?

MR. RICE: Well, again I'm going to point a bit to the WEO update on Monday, because it will have some updated forecast numbers on Russian growth so I won't say more about the specific numbers. What I can say is that we believe Russia has left behind a two-year long recession now, thanks to good macroeconomic policies and improved sentiment in part due to higher oil prices, so GDP growth has been positive and again we will update that number on Monday.

Maybe just a bit more if it's helpful. To accelerate this pace of growth, we believe Russia needs in addition to the steady implementation of the fiscal rule, and inflation targeting regime already in place, Russia should tackle the structural shortcomings that we've identified in the Article IV process and so on, its detailed a bit more there: improving the investment climate for example; increasing investment in infrastructure, social and economic; improving the efficiency of the goods markets; integrating Russian trade more strongly, even more strongly in the global economy; expanding trade agreements; supporting innovation, et cetera, et cetera. So, I'm going to leave it there but you will get a bit more on Monday.

QUESTIONER: This week Ukrainian media published a letter from the IMF Europe and Department to the Presidential Administration of Ukraine regarding an establishment of credible and independent on the corruption institution. Of course, this is a very important step which is also as we know a precondition of the next IMF review. But is this the only necessary requirement that Ukraine has to fulfill in order to get the next disbursement?

MR. RICE: Okay. Thank you for that. I'm just going to dovetail that with what I'm looking at online which is two other questions on Ukraine. One is close to yours, it's on the anti-corruption and one is on the pension reform so I will just bundle them if that’s okay with you.

So first on the corruption issue, you’ve heard me here before, you’ve seen recent news from the IMF on the importance that we attach to corruption generally and in line with this, the IMF supported reform program in Ukraine has focused on corruption and governance right from the start. From the very beginning, given its macroeconomic implications, the establishment of the anti-corruption court, consistent with the Venice Commission’s recommendations, has been an essential part of the program as I think you know.

The letter to which you refer, the letter that was sent to the authorities, expressed staff’s concerns about the consistency of several provisions in the draft law with Ukraine's commitment under the program and the recommendations of that Venice Commission that I mentioned. Now we hope that the authorities take these concerns from IMF staff into account, and that the draft bill is amended between readings in parliament.

In terms of the next review, I think the issue of anti-corruption and what I've just described needs to be set in a broader context. As always with any review there are usually a number of issues, a range of issues that are discussed and I'm sure that’s going to be the case with Ukraine as well.

I want to take the question on pension reform that I mentioned. Ukraine recently adopted the pension law and what I will say on that, as you know the pension law introduces some important provisions to modernize the pension system in Ukraine but also has some shortcomings that undermine incentives for people to work longer and contribute to the system and it does not fully ensure a fair and sustainable pension system so we think a bit more work needing to be done there. Okay on Ukraine?

QUESTIONER: One more question about Ukraine. As you’ve said, Christine Lagarde will co-chair the next annual meeting in Davos. Does she plan to meet with the Ukrainian leadership at this forum and in this regard what kind of message the IMF would like to send to the Ukrainian authorities?

MR. RICE: Well, I'm going to leave the sending of messages to Madame Lagarde. What I can tell you is that yes, they plan to meet. Madame Lagarde and President Poroshenko plan to meet in Davos which they have done actually in previous meetings at Davos too. What will they discuss? Again, I'm going to leave it to them. We will have some communication oncoming out of that but, I think they will discuss the recent developments and the prospects for reform in Ukraine and particularly those that would help pave the way for the completion of the program review which you just mentioned. I would imagine that would be the gist of it but yes, they are scheduled to meet in Davos.

QUESTIONER: Good morning. Germany hit back against Madame Lagarde's blog post saying boosting public spending isn’t the way to go and the country shouldn't run a fiscal deficit. This was based on comments Jens Weidmann gave today in Germany. What's the IMF's response?

MR. RICE: As I mentioned, as we speak Christine Lagarde is representing the IMF at this Bundesbank conference where I think Mr. Weidmann and others are also attending, so I'm sure she will touch on this issue and I'm going to leave it to her and not overlap. You're referring to the blog that Madame Lagarde published yesterday -- again, I won't get into the dialogue -- but the blog was a reaffirmation of a number of the things that we've said in recent Article IVs and discussions with the German authorities, which I would characterize as very healthy and including this ongoing dialogue. I think it's a very healthy thing. And the recommendations that we've made, of course, we see as being in the best interests of Germany – of the German economy, as well in the best interests of the Eurozone and beyond. I'm going to leave it there because I'm sure it will come up in Frankfurt as we speak. Thanks.

I'm going to go online; take a few questions. I see just many questions on the issue of Tunisia. So, I want to take them and maybe bundle them up a bit just to be efficient and I'm going to take a few minutes to do that.

The broad buckets are essentially: how do we see the current situation, the current program, the social unrest of recent days; and then there's some more specific questions on the dinar and the exchange rate and some questions on the tax, VAT and so on. Let me try, as I say, to get through those. I think they are of broader interest. Tunisia has been in the news and then we will come back.

What I'd say on the issue of Tunisia, and as I mentioned, the recent social unrest that we've seen is that we recognize, of course, the frustration of the Tunisian people, whose economic aspirations remain unfulfilled. They want growth and fairness. The government wants growth and fairness. The IMF certainly wants growth and fairness. I think we all want that, and economic reform is clearly the way to get there. There's a regional context to this. Tunisia is facing challenges that are similar to many other countries of the Middle East and they were highlighted in a blog that we published this morning by our director of Middle East and Central Asia Department, Jihad Azour. And we will be discussing these issues again at the conference I mentioned in Marrakesh at the end of the month.

Let me summarize some of these broad contextual issues. One is that countries of the Middle East are facing some very long-term problems: low growth; high unemployment; corruption. In recent years, these problems have been exacerbated by a series of shocks: protracted conflict, terrorist attacks, the drop in commodity prices; low growth in key trading partners, for example, the low growth in the EU until recently. They all have very large public sectors. One in every five jobs in many of these countries is in the public sector. And so, the increasing fiscal deficit and debt levels have tended to put even tighter limits on the capacity of these typically very large public sectors to absorb labor market entrants. It has had a big impact on employment and on job creation, which needs to rely much more on the private sector.

And to engage the private sector and encourage investment, we need to see a number of structural reforms. That's the broad regional context which I think is important. It does impact on Tunisia. Many of these same issues are faced by Tunisia. The low growth, the high unemployment, the very large public sector, the high levels of debt, the increasing levels of inflation. I think the current government has recognized these issues and the IMF, for our part, we've tried to support the effort to address the issues.

So, what did that mean? What are the elements of our response? Maybe just to characterize a few of them: number one, of course, the IMF has provided some funding, which has allowed Tunisia some breathing space and allowed the government, in fact, to run higher fiscal deficits than they would otherwise have been able to do. And over time, we have actually relaxed those fiscal deficits to try to take account of some of the social and the political pressures.

We've supported the civil service reform to limit the future growth of the public wage bill, which again, is among the highest in the world, it relates to that public sector issue that I mentioned. It actually represents half of spending in Tunisia and related to that, we've supported a new tax policy and tax administration in broadening the base for tax, so that the government can receive more revenues and to try and reduce and eliminate tax evasion, which is another issue.

As I said, to engage the private sector, to create more jobs, we need to see reforms in the area of governance, the business climate, access to finance and so on, and we've been trying to support the government in those areas as well. We believe our financing has been instrumental also in catalyzing support from other external partners. That's both money and technical assistance. And, in fact, we see that support from external partners has been vital to continue the support to Tunisia, as it makes this very important economic and social transition. And we are urging Tunisia's international partners to increase their support.

That's where we've been trying to support the government in this effort to address these undoubtedly very difficult challenges that Tunisia faces. There are a number of questions on the social dimension of the program, and I've seen some reports at least that tend to give what I would characterize as a very outdated view of the IMF's role. “The IMF imposing austerity, the IMF hurting the poor,” and so on, which I think is an outdated view of actually how we work.

In the case of Tunisia, the IMF has consistently highlighted the need to spread the adjustment burden in a fair way and to protect the most vulnerable from its effects. This includes, and just a few facts, maintaining subsidies on basic food products; increasing taxes on products mostly consumed by the better of in society; we've asked for increased budget transfers to the pension and health funds since 2016; and we have tried to ensure that the reduction in the public sector, in the civil service, relies on voluntary departures and early retirement schemes and not on mandatory layoffs.

All of that to say, again, the frustration that the Tunisian people are feeling is very understandable. We share that. We are trying to address very deep-seated long-standing issues, so, we we can't expect to see success overnight. Speaking for the IMF, we do not want austerity. We do want well-designed, well-implemented, socially balanced reforms. And again, that's what we've been trying to support the government in that effort. It's, at the end of the day, it's their program. It is not something imposed by the IMF. The Tunisian people want growth and fairness, as I said at the beginning. We all want that. The economic reforms are key to achieving that objective, and reversing those reforms would be the wrong option at this stage.

Having said that, as I mentioned, there were some big specific questions on the tax. There was a question about the VAT, “isn't the VAT regressive, why do you call for that”? And there what I would say is, a general VAT increase is part of the governments reform package but it does exclude basic food stuffs covered under the tax exemptions such as bread, milk and vegetable oil. And the Tunisian authorities and the IMF have agreed to leave unchanged subsidies for basic food items. The 2018 budget law actually provisioned about 1.5 percent of GDP to that effect. We also understand, from the Tunisian ministry of commerce, that non-essential food items will be subjected to the tax increase. So, that is things like alcohol, sweets and so on.

Again, I go into some detail there because I think it is important. Just the sweeping criticism that you sometimes hear that the taxes are imposed on everybody, there is a differentiation here. There was a question about the exchange rate, “did the IMF recommend depreciation of the dinar?” The IMF has recommended continuing with a more flexible exchange rate regime to allow the dinar to reflect underlying economic and financial conditions and to protect international reserves. We believe this policy will be instrumental in supporting Tunisia's export sector, that has struggled over recent years, and again, spur job creation. That said, we see no need for an abrupt correction, and we have not asked for one considering the currency's recent depreciation.

There was one more question on Tunisia and then I'll leave it. That question was about when will the Board consider the second review of the Fund's extended fund facility. There, I can say our Board is scheduled to discuss the second review in the first quarter of 2018. A successful review would bring total disbursements under the program to about a billion U.S. dollars. Again, this is a very important point, to help catalyze additional financing for Tunisia from other external partners. I appreciate your patience on that. I think it is an important issue and as I said, there were very many questions on Tunisia. Let me come back to the room see if there is anything, then I've got a couple more online.

QUESTIONER: Yes, I had a question on Bitcoin which continues to capture a lot of attention in the financial markets. Treasury Secretary Mnuchin said he wants the G20 to look into the risks of cryptocurrencies. To what extent would the Fund support that and what does the Fund think are the risk of cryptocurrencies to financial stability?

MR. RICE: We've talked about this in the past. I've talked a bit about it here in a press conference or so ago. We don't comment on specific currencies. I don't really have a comment on Bitcoin as such. All I would say is when asset prices go up quickly, risks can accumulate, particularly if market participants are borrowing money to buy those assets. So, it is important for people to be aware of the risks and take the necessary risk management measures.

On the broader issue of cryptocurrencies, as opposed to Bitcoin specifically, we've said we think they can have potential benefits, including the promotion of financial inclusion and more efficient payment and settlement processes. But we have also alerted that cryptocurrencies can post considerable risks as potential vehicles for money laundering, terrorist financing, tax evasion and fraud. So, the bottom line, I think, we think greater international discussion and cooperation among regulators would be helpful.

If there is nothing more in the room, there is a couple more online that I'll take and then I'll wrap up. One is on Somalia and it is asking a couple of things. It is asking about the possibility of debt relief for Somalia and there is a very specific question that the IMF puts the figure of debt owed by Somalia at $5.1 billion, but there have been other reports that Somalia was only around $4 billion, what is the difference?

On the numbers issue, Somalia's record on external debt were actually lost during the civil war. So, IMF staff are working closely with the authorities on reconciliation of the external debt data. We expect that to be completed by this summer. The current official estimate of Somalia's external is U.S. $5.1 billion.

On the issue of debt relief, a few things. Number one, it is a priority issue for the IMF and every effort is being made to accelerate the process within established procedures. Those established procedures, as many of you know, fall within what is called the Heavily Indebted Poor Countries (HIPC) Initiative, so there are standard procedures for that, there is a process for that. There have been a large number of countries that have gone through that process and that's the path that would be available to Somalia going forward. To get on that path, there are a number of things that Somalia still needs to do, which includes the policy track record and building capacity and institutions, even before it can start borrowing again even concessionally. Otherwise, there is the risk Somalia would slip back into arrears. We are providing a great deal of technical assistance to Somalia, as are others. Again, we are looking to expedite this process as much as possible.

Just one other point on this. Some have claimed that is the arrears owed to the IMF and the World Bank that are the barrier to debt relief and normalization of relations with international financial institution. The arrears are part of the issue, obviously, but they are not the major stumbling block. The major issues continue to be the policy track record and the building of institutional and other capacities to place Somalia on stable footing. They have our full support in that effort.

There was one more question I wanted to take that was relating to Yemen. The question was about the Yemen Central Bank and what, if anything, is the IMF doing. On Yemen and the Central Bank, I would say, again we're working with other key donors to improve the capacity of the Yemeni Central Bank to help mitigate the humanitarian crisis. This includes improving the Central Bank's capacity to maintain the payment system, receive foreign exchange grants, reduce foreign exchange volatility and pay civil service salaries in all of Yemen. So, again we're working with other key donors in Yemen to help out there.

I'm going to leave it there for today and thank you all for coming. I look forward to seeing you in a couple of weeks.

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