Transcript of IMF Press Briefing (May 17, 2018)
IMF News, May 17, 2018
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- Published: May 17, 2018
Argentina: request, program modality, and process
- Timeline and status:
- Argentine authorities requested IMF financial assistance on May 8 th to help strengthen the Argentine government efforts to bolster the Argentine economy in light of renewed and significant financial market volatility.
- IMF staff and Argentine counterparts have continued to work closely with open channels of communication.
- An informal IMF Executive Board session to discuss developments in Argentina and the authorities' request for what the IMF has described as a high-access stand-by arrangement will be held tomorrow (relative to the briefing).
- The informal Board meeting will be followed, after discussion and negotiation, by a formal Board meeting where a decision on the program would be made; no date was provided for the formal Board meeting.
- IMF staff and the authorities will move to program discussions after the informal Board meeting.
- Instrument and modality:
- IMF expectation stated: a high-access stand-by arrangement.
- IMF did not rule out a precautionary SBA; exact modality (precautionary vs. conditional disbursement sequencing) is to be determined in discussions.
- Details on size, disbursement, sequencing, and precise instrument modalities will be developed in coming days and are part of ongoing negotiations.
- Ownership, objectives, and conditionality:
- IMF emphasized the program will be owned fully by Argentina and will support Argentina's priorities.
- The IMF will support efforts to strengthen the Argentine economy and protect living standards, particularly for the most vulnerable groups in Argentina.
- IMF clarified it has not discussed any specific target for the exchange rate in Argentina and would not attach conditionality to any particular level of the exchange rate.
- Argentina has a free-floating exchange rate regime; IMF view: the exchange rate should be determined by market forces.
- Fiscal policy and targets:
- The Argentine government recently announced a new fiscal target for this year, of 2.7 percent of GDP.
- IMF did not provide confirmation whether 2.7 percent of GDP is the fiscal target that will be included in the program; fiscal targets and policy details are part of program negotiations.
- Exchange rate policy and assessments:
- IMF does not comment on high-frequency currency movements; exchange rate assessments are based on medium-term fundamentals.
- IMF reiterated that it would not attach conditionality to a specific exchange rate level.
- Spillovers and regional risks:
- So far financial spillovers from developments in Argentina to the rest of the region have been limited.
- Exchange rate movements in other Latin American currencies have been broadly in line with global trends given the stronger U.S. dollar.
- IMF cited a downside risk to growth in the Regional Economic Outlook (REO): a sudden tightening of financial market conditions (for example, stemming from faster than expected tightening of U.S. monetary policy), which could affect long-term interest rates, capital flows, and financing conditions for the region.
- Context and differences from prior IMF engagement:
- IMF noted the situation today is "vastly different" from 15 or 20 years ago:
- Argentina now has a market-determined exchange rate, strengthened economic institutions, and an inflation targeting framework.
- IMF has greater focus on social protection, inequality, and inclusive growth than 15–20 years ago.
- IMF governance changes (quota reform) placed emerging markets in a stronger position; BRIC countries are now in the IMF's top ten shareholders.
IMF internal process and timing (as described)
- Two-step Board process for a major program:
- Informal Executive Board meeting (staff briefing) — held tomorrow (relative to briefing).
- Subsequent program negotiations, then formal Executive Board meeting for decision.
- IMF intends to move quickly and complete discussions "in short order" per the Managing Director.
Greece: debt relief, timing, and IMF participation
- Current status:
- IMF approval in principle of a program for Greece is contingent on policies and on sufficient debt relief.
- IMF has not provided financing support for Greece since 2014; it has remained involved in consultations and monitoring.
- Remaining issues:
- Debt relief is the outstanding issue; discussions are ongoing and differences have narrowed but not been fully resolved.
- IMF view: more debt relief is needed than currently proposed by European partners; current proposals are not yet sufficient by IMF standards.
- Timing constraints:
- The European Stability Mechanism program under which work is proceeding ends in August of this year, creating a limited time window for IMF financial support to be approved and integrated.
- The IMF emphasized that time is running out and highlighted the importance of upcoming Eurogroup discussions (noted as May 24 in the briefing).
- Policy rationale for IMF involvement:
- IMF participation would signify that the Fund considers debt relief sufficient and would be a boost to Greece, supporting sustainable growth and investment.
- IMF has argued that debt relief is a prerequisite for growth to be sustainable and has advocated for mechanisms (such as conditional additional debt relief if growth is weaker than expected) — noting the French proposal as "promising."
Ukraine program and energy pricing
- Program status:
- IMF is looking to complete the fourth review of its program for Ukraine; more progress is needed on several fronts before concluding the fourth review.
- Key outstanding issues include the energy sector, fiscal policy, and adoption of law setting up a strong and independent anti-corruption court consistent with program commitments and the Venice Commission recommendations.
- Gas pricing:
- Gas prices for households in Ukraine have not been adjusted for two years despite international prices rising considerably, leading to implicit subsidies that are regressive.
- IMF view: gas prices should be determined by the market in line with reforms implemented in 2016.
- The IMF stressed that low-income and vulnerable households must be fully protected from increases in gas prices by the current household support system.
- No date was provided for the timing of the next review mission for the fourth review.
Sri Lanka: fuel pricing mechanism
- IMF assessment:
- The automatic fuel pricing mechanism marks a major step toward completing energy pricing reforms and minimizes fiscal risks.
- If implemented properly, formula-based pricing would eliminate fuel subsidies that benefit the rich rather than the poor.
- IMF Board is scheduled to discuss Sri Lanka's completion of its fourth review on June 1.
Somalia: currency reform readiness
- IMF technical assistance and assessment:
- Over the past two years, IMF provided extensive technical assistance to support Somalia's currency reform project.
- IMF staff assessment letter finds the Central Bank of Somalia (CBS) ready to introduce a new national currency under phase one, limited to exchanging counterfeit Somalia shilling notes currently in circulation with a new currency.
- All proprietary measures agreed between the authorities and IMF staff have been implemented according to the staff assessment; the currency reform assessment letter is posted on the IMF's website.
IMF Annual Meetings (Bali) and security
- Context and IMF position:
- IMF expressed deepest sympathy and condolences for victims of recent terrorist attacks in Indonesia.
- IMF is monitoring developments, working closely with Indonesian authorities to ensure safety for participants at the 2018 Annual Meetings in Bali in October.
- IMF stated cooperation with Indonesian authorities is excellent and that it is confident of successful Annual Meetings.
Other procedural and institutional notes
- Reaffirmation of IMF priorities:
- Support Argentina's efforts to strengthen its economy and protect living standards, especially for the most vulnerable.
- Emphasis on country ownership, social protection, inclusive growth, and protecting vulnerable groups in program design.
- Institutional changes:
- IMF governance changes via quota reform have increased emerging markets' voice and representation within the IMF.
Transcript of IMF Press Briefing, May 17, 2018 — IMF Communications Department