Transcript

by Anne O. Krueger
First Deputy Managing Director
International Monetary Fund
Moscow, Thursday, March 21, 2002

MS. KRUEGER: Well, thank you. It is a great pleasure to be here. I arrived Tuesday night, and the main purpose of my visit or the thing that determined the timing was the conference held by the Institute for Economies in Transition, where I had been invited to participate and which was very interesting.

But I use the occasion, as well, to have some meetings with some of the very top officials here to learn more about Russia, including Prime Minister Kasyanov, the new Central Bank Chairman and Deputy Finance Minister Ignatyev, and then also the Central Bank First Deputy Chairman, Mrs. Paramonova, and met with the Deputy Accounting Minister. I also met with some of the leaders in the Duma, Mr. Shokhin, Mr. Zhukov, Mr. Zadornov and Mr. Nemtsov. So I've had quite a series of meetings.

The purpose of my trip really was to be my introduction in my official capacity to learn more about Russia and to find out how circumstances are here, to get an exchange of views on macroeconomic policy with people, economists, and government officials here.

So, in any event, as you know, Russia is no longer in the position of being a borrower from the Fund. We now have normal relations, where we want to do what we can to support the authorities in their efforts to get better economic growth and better standards of living here. And so, basically, we just had an exchange of views, and I tried to learn as much as I could about the Russian economy, the prospects for reform.

And that is basically what I have to say by way of the beginning. I will be happy to take questions.

QUESTIONER: There is some kind of [statement] from the Treasury Secretary anticipating that the Argentinean economy is basically in a position to get the IMF [support]. Have you seen those comments? I was wondering if you could [address] this question about what Argentina needs to do to get new loans and whether you think it will be able to do it and the size of the loans it may get.

MS. KRUEGER: Well, as to what Argentina needs to do, I mean, there is a very short answer, but that short answer hides more than it says. And the short answer is that what the Argentine authorities would need to do would be to work out a program of economic policies that gave promise of a way out of their current economic difficulties that would be sustainable or, to say it in another way, that basically what would have to happen would be that the Argentine authorities would have to work out a program in conjunction with the Fund under which, yes, they might need some support from us now, but within a very short period of time, their own economy would be generating the revenues and other resources that they need for their own resumption of economic growth. That, of course, would involve changes in some aspects of fiscal policy so that their fiscal deficit, prospectively, would be diminished, and adoption of a monetary set of policies that would lead to great stability as soon as possible, some measures within the foreign exchange market and with regard to debt rescheduling. And, in addition, there are a few other things within the system that, in our judgment, would almost have to change, most notably of which is their bankruptcy law.

Now, in fact, we did have a mission going to Argentina to work with the Argentine authorities that returned to Washington just last Friday, and the Argentine authorities and our mission are agreed on what needs to come out of this, and the general broad outline of what would have to be done, and they are now working very hard, as are our people, working on some of the technical aspects to see what can be done.

And, of course, telephones are easier when you're going north and south than they are when you're going east and west, so it's fairly easy to keep in touch and have our people talking to their people every day, going from north to south, but we expect that within a couple of weeks or we hope, I guess, would be a better word, that there is enough been worked out at the technical level so we could begin negotiations.

As to the last part of your question, which is how much would the program be, we are not yet at a stage to have mentioned any numbers, and I think at one point there were some numbers mentioned by the Argentine authorities, but I think they have backed off of those and said that those were actually not in any sense official. So, as of now, there is not even an indicative number as to what a program might be.

QUESTIONER: Just to make sure [you said], to begin negotiations on receiving a loan?

MS. KRUEGER: To begin negotiations on an IMF program.

QUESTIONER: You said at the Institute Conference yesterday you gave some fairly optimistic figures for prospective GDP growth in Russia for next year, and they seem to be slightly higher than the consensus figures among analysts in Russia. On what is your optimism based, especially in the light of the slowdown that we saw at the end of last year and the beginning of this year?

MS. KRUEGER: Well, I think there are several factors, most of which you know. Quite obviously there have been a lot of reforms undertaken here, and I think we, even in these past few years, have seen some economic growth in response to those reforms, quite aside from whatever else was going on, and some of that momentum should continue.

In addition, of course, we are looking toward an upturn, well, already I suppose in the United States we think that things are beginning to pick up a bit, but we see probably by the second half a pickup in Western Europe, so the world economy should become somewhat more buoyant, and that will help. And so basically on those—and then the underlying macroeconomic relations and looking at the macroeconomic stability that has been achieved, we think our numbers are quite reasonable.

QUESTIONER: Could you elaborate a little bit on the Article IV consultations.

MS. KRUEGER: Sure. Well, the Article IV consultations were finished, as you know, a couple of weeks ago. The Executive Board received the staff report, which reported, obviously, the great strides toward macroeconomic stability, and Directors, of course, were very pleased with Russian economic growth over the past several years and urged, going forward, that the structural reforms continue and that effort be taken to continue the move toward a lower rate of inflation.

QUESTIONER: A couple of issues which I am sure came up in your discussions yesterday with members of the government and of the Duma; one of them, the rate at which the ruble should be depreciating or, in real terms, appreciating against the dollar. Can you shed any light on what you felt the attitude of the policy makers was there and whether the IMF [inaudible] macroeconomists, whether that fits with your point of view?

And, secondly, how do you feel about development of particularly the banking sector here which is not addressed all that well, it seems, and was any part of your message to the government, to lawmakers there, one against the emergence of a kind of Korean-style model of chaebols [inaudible], which must serve them particularly well?

MS. KRUEGER: Well, as to the policy toward the ruble, I think there is no question that there are always difficulties in economies in which one has a significant chunk of one's export earnings in natural resources, where obviously there are price fluctuations and therefore big fluctuations in foreign exchange earnings. And there are discussions, as I'm sure you know, debates going on as to the installation of such things as perhaps a stabilization fund or something like this, and these issues were touched upon.

I think the Article IV consultation, and I think staff reports, and other things, all recognize that, at Russia's stage of development, a rapid real appreciation of the ruble would probably not be desirable, but that on the other hand, fighting some real appreciation would probably only lead to inflation, and so finding the appropriate balance is the trick.

But the second part of it is, of course, that the real exchange rate is not really a policy variable in the direct sense of affecting the nominal exchange rate, except in the very short run. And the more important implication is really defined ways of increasing productivity within the economy and especially in the services, nontradable goods, which can help very quickly increase the productivity, living standards and at the same time offset some of the problems that otherwise come up because of the natural resource tilt, if you like, of the economy.

And your second question had to do with the banking sector. When I mentioned structural reforms, I think it was the thinking of many of the people who were urging continuing nation and structural reforms to identify the banking sector as one in which it would be desirable to place some priority. There the issues are things like getting more competition within the system, finding an appropriate framework for that competition, and those issues, of course, we did discuss with officials.

The idea of the Korean-style chaebol relationship with the financial institutions was not discussed or at least it never crossed my mind. So, if there was a reference to it, I missed it.

QUESTIONER: [Speaking in Russian.]

MS. KRUEGER: First off, I met with Mr. Ignatyev yesterday afternoon very shortly after he was confirmed in the Duma, and he wasn't quite sure, and I wasn't quite sure, which hat he was wearing, as he is busy changing his jobs. And, of course, he clearly supports the idea of reform, the need for reform, but I think he naturally wants a little more time before he goes and commits himself in public as to exactly what lines the reform should take.

So, while I think I can say that, yes, he certainly is in the camp that would like to see reforms in the financial sector, I think it's too early, and he wants some time to study before he says what is—

So, while I thank you for your congratulations, had I wanted ideal timing, I should have waited, I suppose, at least another week as to he is the right person for the job. Of course, I was very favorably impressed with him. He is obviously very highly regarded. Everybody speaks very highly of him, so I am sure he is very good, but whether he is exactly the right person, I don't know because, of course, I don't know who all of the alternatives were. But, obviously, he has thought a great deal about these issues, he's very experienced, and by any international standard, he is well qualified, and I think he is going to be a very good Governor of the Central Bank.

QUESTIONER: A mechanism of the uniform bankruptcy mechanism for sovereign borrowers, is that still an urgent problem? Is that still an important problem for Russia? What is the state of discussing that issue? What are the measures to protect in case there is default on these sovereign modifications?

MS. KRUEGER: Your first question, as I understand it, had to do with whether this is urgent for Russia.

QUESTIONER: No, in general—in general.

MS. KRUEGER: Oh, okay. Well, either way the answer is the same, but a little bit less so. I don't think at any point this was an urgent need for the simple reason that even if something does get done along the lines that it should, it is going to take a while to get it done. There was never any hope that something like this could be done very quickly, and I think that, in that regard, there may be some desirability of getting going because it will take some time, but not because we could have anything in place, even if everything went perfectly by, let's say, the end of 2002.

But it's one of those issues that you can sort of describe it fairly simply, but once you get into detail, it gets quite complicated. And given that, what we have started to do was talking with a general idea and, as discussions continue, we are focusing more and more on various parts of it that would have to be put in place. So we do not, as yet, have anything that you could even call a concrete proposal. It's more an outline, a general direction, and I think the discussion have progressed enough so that there seems to be agreement on the part of most people, not everybody, that there is a need to do something, but there is still not complete agreement as to what.

And I think before we go forward, we have to have more agreement than we now have as to what the precise nature of the mechanism would be, but there is no doubt, I think, that if one could find a predictable mechanism on which people agreed and where creditors and debtors both knew that there would be, if you like, a way to resolve issues more quickly and in a more predictable framework, that one could, at the end of some of these difficulties save quite a bit of pain, maybe a month or two, save some capital outflows in the process, and make the pain, while still substantial, less than it now is in these cases.

QUESTIONER: What are your general impressions of Russia and its people? And the second question is what is your personal point of view on what is the major obstacle to large-scale investment in Russia? This is a very sensitive question for us in this country. That is why I ask it.

MS. KRUEGER: Well, my impressions of Russia and its people are very positive. I think the thing that stands out is the great skill, talent, human capital of the Russian people, high levels of educational attainment and great ability, and in a sense the tremendous capacity for fairly rapid economic growth if the pieces get into place. And—

[Interruption for tape change.]

MS. KRUEGER: —being done or that will be done are the reforms that need to happen and that those reforms that need to happen, some are underway, some will be happening, but in the meantime there is a fair amount of uncertainty, and I would guess that that is a part of the difficulty. But as I say, I am a newcomer, and I am learning, and so that is a hypothesis more than it is my personal point of view.

{Whereupon the press conference ends.]