Transcript of Managing Director's Press Briefing

April 19, 2018


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. We are on the record this morning. I will ask you to identify yourself by affiliation. Keep the questions short, and we will try and do as many as we can.

I am delighted this morning to introduce the Managing Director of the IMF, Madam Christine Lagarde; and just to Madam Lagarde’s right is our First Deputy Managing Director, David Lipton. And with that, I would like to ask Madam Lagarde to open this press conference and these meetings. Thank you.

Ms. Lagarde - Thank you very much, Gerry, and welcome to all of you. It is very nice to see many of the good friends back in the room on the occasion of these Spring Meetings 2018.

You may have heard it — if you have not heard it, you have read it — the IMF forecast growth this year and next year at 3.9 percent, which is more than the 3.7 percent that you may have heard about back in October. It is clearly a pickup in our projection, and we maintain it this year and next. The momentum has been driven by stronger investment and a rebound in trade. It is broad-based, and it involves the US, Europe, Japan, China, as well as many other emerging and developing countries, yet not all.

So overall, the near-term prospect for the global economy continues to be bright. At the same time, while the sun is shining — not today in Washington, but usually — while the sun is shining, we are seeing more clouds accumulating on the horizon than we did back in October. Let me just take you through some of those downside risks as we see them.

Some of you will remember that back in October, we said it is when the sun is shining that you fix the roof. So first thing, have some governments taken measures to fix the roof? Well, some have, but certainly not all; and more needs to be done to sustain this upswing and foster long-term growth.

The second downside risk, global debt is at an all-time high. It stands at $164 trillion, which is 225 percent of GDP, of which the private sector accounts for two-thirds. Public debt in advanced economies is at levels not seen since World War II. And in low-income countries, if recent trends continue, many, not all, will face unsustainable debt burdens.

Third cloud, financial vulnerabilities have increased due to high debt, rising financial market volatility, and elevated asset prices. A sudden tightening of financial conditions could lead to market corrections, unsustainable debt, and capital flow reversals.

One more downside risk that is on everybody’s mind relates to international cooperation, which has served us so well over generations, helping to reduce poverty and deliver more progress for more people than at any time in history. This international framework is now being questioned, especially with respect to trade.

So with these clouds, they are downside risks. They are not happening at the moment, but those are the risks we are facing. What can policymakers do to respond to that? We are publishing today, and I think you have received a copy of it, our Global Policy Agenda for 2018. In that GPA, as we call it, we outline our recommendations:

First, step up the structural reforms. So once again, when the sun is shining, fix the roof; identify what is going to improve growth in the medium term and what could prevent a disappointing return to this mediocre, that we had identified, for advanced economies; and what will help low-income countries in particular catch up and better develop towards the Sustainable Development Goals of 2030.

So, first, structural reforms. Second, build policy buffers. In other words, create more room to act when the next downturn comes around. How do they do that? By reducing government deficits in a growth-friendly way and by allowing more exchange rate flexibility where appropriate. And third policy, steer clear of all protectionism measures. In that respect, we believe that each country can do more from looking at its own domestic policies to helping those affected by the dislocation from technological change and trade. So that relates to measures that need to be taken at home to improve compliance but also to deal with those that are not benefitting from trade.

We know that unilateral trade restrictions have not proven helpful, and we suspect that they might even dent confidence. So countries, in our view, should work together to resolve disagreements without using exceptional measures. In all these efforts, we at the IMF are supporting our 189 members through analysis, advice, and also by offering a platform for dialogue and better cooperation, because we know that when countries work together in that spirit of cooperation, problems are better resolved, and they are resolved in a multilateral way.

So with that, I very much welcome your questions, and I wish you a good stay in Washington, D.C., for those who have traveled to this city.

Questioner - Good morning, Madam Lagarde. So, protectionist actions started by the U.S. have intensified tensions with its trading partners, including especially China. We are seeing tariffs on steel and aluminum and proposed tariffs on Chinese products, restrictions on investment. How will this impact the global economy?

And my second question is, China has unveiled a number of key measures for expanding reforms, and the country is opening up as China marks the 40 years of this policy this year. What do you make of this direction as China continues its path towards growth quality? Thank you.

Ms. Lagarde - In terms of the impact of the trade tensions, frictions, and threats on the global growth, some modeling has been done; and the actual impact on growth is not very substantial when you measure in terms of GDP. We are talking about decimals in most cases. What is more important is something that is difficult to measure in the short-term, and that has to do with the erosion of confidence. When investors do not know under what terms they will be trading, when they do not know how to organize their supply chain, they are reluctant on investing. And as I told you in the very beginning, growth is currently being driven by more investment than we had seen in the previous years and more trade; so why damage those two engines that are effectively working for growth?

Second, I was actually in Boao in the Province of Hainan when President Xi announced some of the measures that would be taken to open up, remove caps, reduce tariffs. Certainly those are helpful measures. We will be very attentive to the actual implementation and delivery of such measures because this is what actually matters, what effectively happens, what impact does it have on the economy, but it is certainly going in the right direction of removing barriers and facilitating investment.

Questioner - Madam Lagarde, in your speech last week and in some of the reports released this week, the WEO, the GFSR, and the Fiscal Monitor, there is lots of criticism, explicit and implicit, about what the U.S. economy is doing, whether it is the tax plans, fiscal plans, and, indeed, the concerns about a trade war. I just wondered, was there anything that you could think of that Donald Trump is doing right?

Ms. Lagarde - Let’s just focus on one in particular, because you started with that one, the corporate tax reform. This is a reform that we have advocated, recommended, encouraged, and that we are very pleased to see happening. You know, for the U.S. corporate tax rate to come back to the OECD average, for simplification to happen, in order to encourage enterprises to operate, this is something that we are very, very supportive of.

On the other hand, what we are also saying is that in order to deal with entitlement, the United States should take advantage of the current upswing, because as you will have noted, we have upgraded quite significantly our forecast this year and next year for the United States given the measures that have been taken. So taking advantage of this upswing, we believe that the United States should try to reduce its deficit and should try to move its debt downward rather than upward. That is all we are saying in that respect. Thank you.

Questioner - Madam Lagarde, just to follow up on the question of the tensions between the U.S.and China, in terms of concrete talks between the two sides, what do you expect here? What is happening right now in that regard? What type of discussions do you expect among members, and how is the IMF getting involved?

Ms. Lagarde - You know, at the time of the Spring Meetings and the Annual Meetings, Finance Ministers gather; Governors of central banks gather. They participate in many of those meetings, seminars, conferences; but they also hold multiple bilateral meetings as well. And my suspicion is that there will be many bilateral discussions to be had between the various parties involved, and I would not limit the discussions between China and the US. All partners have to talk to each other, and certainly we will take the opportunity of some of our sessions, including on Saturday morning when we have the IMFC meeting, to bring everybody in the room. There will be discussions on those issues. That is what fuels — as I said, investment and trade are two key engines that are finally picking up. We do not want to damage that. I do not think that Finance Ministers have any interest in doing so, so they will be talking about it. Now, they are not the trade experts either. I used to be Trade Secretary for France. Finance Ministers have a particular area of competence. They will be interested in trade as an engine of growth. They will not be looking into the mechanics and the techniques of how to establish a better platform, but they will certainly have a multilateral dialogue.

Questioner - Thank you so much. I am from Tunisia. My question is in French.

Madam, first of all, I am very pleased to be able to attend this press conference, and I wanted to say that Tunisia, despite the efforts that have been made and the reforms that have been introduced, several reports have got around that Tunisia still faces a very high-level of corruption. So what can we do? How can we fight against that corruption so that we can relaunch our economy? What are the stages that we should go through? Does the IMF have ideas that they can share with us as to how to resolve this issue?

Ms. Lagarde - Well, I would have been happy if it were not just a Tunisian problem, but governance issues and corruption issues are present in many countries. And that is why with Mr. Lipton and all of the members of the management of the IMF, I have decided that we need to work with all our countries during our annual surveillance exercise. When countries are under program, we need to step up our vigilance with regard to governance issues and also corruption. I have seen too many situations in which all of a sudden contracts appeared out of nowhere and that we had off-balance sheet commitments suddenly surfacing, so this is a situation that is untenable and cannot be allowed to continue. So the IMF has decided to work within the limits of its competence on that area. Thank you.

Questioner - Good morning, Madam Lagarde. A question, of course, about Greece and eight years of sacrifices passed and difficulties for issuance of Greece have been made, as you know. I am sure you agree, Madam Lagarde, that the eight years are too much, and the Greek people want to hear today and also hear it from you if there is a real light at the end of the tunnel. And my question is, are you confident that Greece can return to a state of normality soon, and how can the IMF be supportive?

Also, you talk many, many times about the debt relief. It is extremely important for Greece. What are you going to do to reach an agreement with European? Thank you very much.

Ms. Lagarde - You are right that the Greek people have gone through eight years of very difficult policy implementation and that they have certainly, significantly as a result, improved the economic position. And when you look, for instance, at the — we need indicators. When you look at the 10-year Greek bond, it was yesterday below 4 percent, which is clearly an indication that markets and those who eventually will finance Greece, because that is the ultimate purpose, that public financing be substituted by private financing. So markets are looking at the Greek situation much more favorably than they were before. We know that some of that success — and they were good results, often better than expected recently — are attributable to very drastic measures that have been decided by the Greek government, not necessarily with the advice of the IMF, because we have not advocated additional public spending cuts. So much has been cut.

We also believe that structural reforms must actually be implemented, and there is work underway, and the Greek people are going through some of it. We know that it is not yet completed. The European program is expected to come to an end in August. The IMF is committed to continue to support Greece and to help it get back on this economic sovereignty that it aspires to, and we will do the most we can in accordance with our policy principles.

Questioner - My question is about the economic reform in Egypt. It was a strong program in cooperation with the Fund, but this program affected the middle class tremendously. Do you expect measures in the period ahead between the government and the Fund in order to avoid the difficulties faced by the middle class at this time?

Ms. Lagarde - So Egypt has gone through massive changes in the last couple of years, and it has done so with support, assistance, and advice of the IMF, but it was very much a program that was determined by the Egyptian authorities; and it is one of the reasons why it is also making serious progress. Whether you are talking about the floating of the currency, the reestablishment of decent reserves so that the macroeconomic situation is stabilized, whether you are talking about the reduction of the fiscal deficit, all of that is heading in the right direction. And we are clearly seeing a rebound in the foreign direct investment and in investment in Egypt in general.

The fact that the middle class was probably more affected also has to do with the fact that we wanted, in accord with the Egyptian authorities, protection for the most exposed people and the poor, so there was a social protection safety net that was maintained in the program so that they would be protected. It is clear that when you remove fuel subsidies, for instance, all those driving, whatever they drive, are going to be affected; and the cash transfers and mechanisms in place were actually more focused on the poor and the most exposed people than on the better off in the Egyptian society.

What we are seeing is a clear rebound of growth as well, and hopefully the Egyptian economy is back on a productive, positive path that will be beneficial for all.

Questioner - Madam Lagarde, you have talked about stronger global growth. You said not everyone is enjoying the upgrade. One of those countries is Britain, which was at the top of the global growth league and is now towards the bottom. I wondered what you have put that down to. Why has Britain struggled where other European countries, for example, and America have not?

And, also, given that the UK’s economy is weaker than some expected and that you forecast it to be weaker than our competitors, why you thought it was a good time to raise interest rates, or as you said in the WEO, tighten monetary policy? Thank you.

Ms. Lagarde - Thank you for your question. I think it will not surprise you that the cloud of uncertainty that covers the British economy is certainly one of the causes why the British economy is not enjoying the same kind of upswings as the other advanced economies. And hopefully this cloud will clear up as time goes by and as the agreement, whatever that contains — and I am not going to pass any judgment or make any recommendation in that respect — but when the terms and conditions under which Great Britain operates with the European Union and lots of other partners around the world, because there are more than 150 trade agreements, if I recall, and other agreements that need to be negotiated and entered into by the UK past the separation. So once that is settled, and once the cloud has dissipated, hopefully Britain will be in a better position to actually benefit from an upswing.

I am not going to comment on the appropriateness of interest rise in any place in the world, but I would simply observe that independent central banks are generally driven by particular objectives, which for some has to do with inflation and inflation targets. So clearly, to be predictable, to give a level of certainty at that level, it is understandable that a central bank would actually be riveted to its objective and move accordingly with good communication.

Questioner - Good morning. Thank you very much. Madam Lagarde, please, can you comment a little about the Fiscal Monitor recommendation to Brazil to speed up the pace of the fiscal adjustment in the country, especially because the economy is growing a little?

Ms. Lagarde - What is interesting in a way is that the answer is in your question. What we are finally seeing with Brazil is an upswing, is growth coming back; and it is welcome. It is probably attributable to some of the key reforms which have been undertaken, not all yet. More to come we hope. What we are saying is when growth is picking up, and given the fiscal position and the debt burden, it is time to actually do this intelligent fiscal consolidation, gradual over time and growth-friendly, so that while continuing to encourage this growth process that is taking place in Brazil, it is also very cautious with the way in which public spending is spent and collections are being made. It is a subtle exercise for all Finance Ministers in charge of that exercise, because they have to build buffers; they have to prepare for whatever is the next downturn, but at the same time, they do not want to put a brake on growth going forward. That is the sense of our recommendation.

Questioner - Good morning, Madam Lagarde. I wanted to ask you about India’s economic reforms. Has this been inclusive enough to benefit the women of the country? I am asking you this question in the backdrop of the series of protests that have been going on in India for the outrageous gang rape against the 8-year-old girl. Thank you.

Ms. Lagarde - Let me give you two answers to one question because those are two different topics. We have seen and we are seeing — I am not sure that we will be seeing in the next few months given the elections that are coming up, but we have seen and we are seeing major reforms that we had recommended and advocated for a long time, whether you talk about the Goods and Services Tax (GST), whether you talk about the reform of the bankruptcy law, those are good reforms; and hopefully it will continue to position India in order to reap the benefit of the upswing, continue to develop its internal markets, and generate this excellent growth rate of 7.4 percent, if I recall, which is one of the highest in the emerging market economies. We expect more, and whether it is in the banking sector or in other sectors actually, more reforms are expected.

On the other hand, what has happened is just revolting, and I would hope that the Indian authorities, starting with Prime Minister Modi, pay more attention, because it is needed for the women of India. When I was last in Davos, after Prime Minister Modi’s speech, I did tell him that he had not mentioned the women of India enough. It is not just a question of talking about them.

By the way, this is not an IMF official position. It is my position.

Questioner - Back to the trade question, when we look at sort of the tariff threats that have come out from both the United States and China, they have not been implemented yet; so at what point do you consider us in a trade war? And if we get to that point, who is most vulnerable to this? Is it China? Is it the US? Is it countries that are supplying commodities to these two economies? Where is the first impact likely to come? Thank you.

Ms. Lagarde - I am not in the business of identifying casualties. At the IMF, we try to establish dialogue, encourage dialogue, have this platform in place so that people with policy responsibilities can talk to each other and be informed by the work that we do. As I said earlier, if you boil it down to the GDP decimal and you associate that with that threat or the other threat, some people might say that it is not particularly meaningful. What is extraordinarily meaningful is the questioning of the overall system under which operators have been operating for decades. It is the confidence of that risk being eroded, and hopefully that can be remedied. It does not mean to say that only one party has to do something. Everybody has to do something. As I said, each and every member has to look at its own countries, at its own rules, at its own barriers, at its own caps, at its own threats, and try to address them. And it would not be something that would affect two countries, because the world is so interconnected. The supply chains are involving so many different countries, regional, intraregional, interregional, that it would affect the global economy. So as Churchill used to say: It is better to jaw jaw than to war war.

Questioner - Thank you, Madam Lagarde. You moderated a very interesting excess on digitization, asking the question of whether we are now facing a new gilded age. I heard from your panelists on what they thought of that question. I am not sure I heard from you as to whether you thought we were in a new gilded age. I also wondered, do you think it is time, given the market penetration that we are seeing of companies like Amazon and Google and Facebook — yesterday we learned that Amazon has 100 million Amazon Prime members just here in the US. Do you think it is time to break up some of these monopolies or to think about breaking up some of these monopolies, and do you see them as posing a potential economic threat?

Ms. Lagarde - First of all, we are doing at the IMF a lot of work on those issues. How do new technologies, ranging from artificial intelligence to distributed ledger technologies, how are they affecting financial stability? How are they promoting prosperity? How are they affecting the workplace? All of those issues, we try to really renew our thinking and be open to a new paradigm, because this is what we are seeing at play at the moment.

There are multiple groups working on these issues, and we have already begun publishing on some of those. It would require a lot more time to discuss as to whether or not we are back in a gilded age. History does not repeat itself, and certainly one of my takings from yesterday’s panel, and my personal conviction, is that competition is needed. From competition, we see productivity; we see innovation. Too much concentration, too much market power in the hands of too few is not helpful in the medium- to long term, neither to the economy or to the well-being of individuals. You remember yesterday one of the panelists was talking about people having a sense of controlling their destiny and being in charge and in control. Well, those are important matters and have economic ramifications. I am not sure that breaking up some of the tech titans in this country, but in other places as well, would actually be the right answer. It used to be the right answer. Now when most of the assets have intangible value and when the benefits from those assets are derived using particular mechanisms that themselves are completely intangible — how do you do the breaking up? How do you facilitate access? How do you enable market disrupters to actually be able to operate — I think that is where a lot of new thinking has to be done. It is not only going to happen at the IMF, but we certainly want to be a player in that debate. It will require multiple fields, from competition, to tax, to finance, and probably many others, including fields that are not necessarily ours, such as sociology and psychology and economic behaviors and so on and so forth, but it requires new thinking for sure, and quickly.

By the way, I just want to add something because it is also an important matter to us. We have seen flourishing of crypto currencies — I think I published a blog which was released a couple of days ago — more than a hundred of them. That has stability implications eventually. We do not think it is systemic at this point in time, but we believe that regulators and supervisors have to be watchful, have to be attentive; and we are certainly doing work in that regard, and we will be making proposals.

Questioner - Thank you very much, Madam Managing Director. I am an independent journalist from Congo Brazzaville. My country, of course, as you will understand, is relevant to the question that I have. I am wondering about the conclusions recently of the Fund with regard to its work with my country. And my second and last question is about the discussion with regard to devaluation of the CFA franc. Do you support this devaluation, or would you advise against it?

Ms. Lagarde - With regard to Congo Brazzaville, I am pleased that there have been lengthy discussions and a great deal of very arduous work and that work on the draft program concluded yesterday by the mission team. The draft will then be submitted to the Executive Board; and following discussions in the Executive Board, we will then know exactly what the financing conditions will be and what the details of the program will be.

With regard to CEMAC, we expect that these negotiations lead to the issuance of all necessary documentation. I can tell you that we do have some requirements with regard to governance. Those requirements need to be met as soon as possible following approval by the Executive Board. These requirements are to ensure the proper utilization of public funds and also to ensure that program objectives are met.

With regard to the CFA franc, I am not in a position to comment on that, but I can tell you that we support financial stability in the zone. Thank you.

Questioner - Good morning, Madam. Last February you came to Indonesia. What is your impression of Indonesia’s economy, especially because next October we host the Annual Meetings. What are your expectations? And the second is, what are the main issue, so maybe we can have new [perimeter] to face the challenge in the next [cold] economic. Thank you.

Ms. Lagarde - First of all, I think everybody is delighted that the next Annual Meetings in October will take place in Indonesia, and my hope is that by going there, we will contribute to the improvement of economic growth of Indonesia. Many of you will be there, and we are looking forward to it.

The economic situation is certainly in a much better place. We are very happy to see that the Indonesian growth is above 5 percent, that the economic circumstances are very much under control; and we are certainly very impressed with the determination of the authorities to, number one, invest in infrastructure, to, number two, invest in health and security. And I am really impressed by the determination of President Jokowi to remove many of the subsidies that were in place only three years ago and to shift that public finance from subsidies to infrastructure, to public health.

Third point, we are also impressed with the way in which the authorities are using digital, are using new information technologies, in order to reach the people of the 17,000 islands of Indonesia. As you know, I visited with President Jokowi one of the hospitals; and to know that more than a third of the population is now benefitting from access to free health benefits through the use of a plastic card, which is a smart card, I think that is a great indication of his drive and his determination to include people and to spend rightly.

Mr. Rice - Thank you, Madam Lagarde, and thanks to all of you for coming today. We will see you in the next few days.

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