Transcript

Washington, D.C.
Thursday, March 28, 2013

MR. RICE: Good morning, everyone, and welcome to this press briefing on behalf of the International Monetary Fund. I’m Gerry Rice, the Director for the External Relations Department. As usual this briefing will be embargoed until 10:30 a.m. Washington time.

Now since this is the last press briefing we’ll have until our Spring Meetings, which will be in April, I have a few announcements to make. So bear with me and I’ll go through these and then we’ll get to your questions in the room and from our colleagues online.

So firstly, in terms of the Managing Director, Christine Lagarde, she will be travelling to Hainan, China, to attend the Boao Forum for Asia’s 2013 Annual Conference on April 6-8. And while in China, the Managing Director will meet with the authorities and other country authorities from within Asia. So that’s April 6-8 in China.

Christine Lagarde will also deliver the Spring Meetings’ curtain raiser speech on April 10 at 12:15 p.m., and that’s an event organized by the Economic Club of New York. So that’s going to be in New York City on April 10 around noon, and we’ll be posting more details on these events obviously.

Next Tuesday, that’s April 2, the IMF in partnership with the World Resources Institute will host a lecture by Lord Nicholas Stern on fostering growth and poverty reduction in a world of immense risk. The Managing Director, Christine Lagarde, will give opening remarks at that event, which is open to the media and will take place from 2:30 p.m.-4:00 p.m.. So that’s next Tuesday, April 2.

On events related to the Spring Meetings, let me just go through a couple of the releases scheduled and the dates. I hope it’s helpful to you.

As usual, we have the release of the analytical chapters of the World Economic Outlook, the WEO, and they will be published on April 9. There will be a press conference here at the Fund at 9:30 a.m., April 9 for the WEO analytical chapters.

The press conference for the analytical chapters of the Global Financial and Stability Report, the GFSR, will be on April 11 and that will also be at 9:30 a.m., but that’s on April 11.

These chapters will be posted under embargo for you by the end of the day on April 5, and you’ll be able to find those on our Press Center.

You can also find the agenda of events for the Spring Meetings online as of now, and again, our Spring Meetings begin that week of April 15. That website includes the official meetings as well as the different publication dates for the flagship documents, press conferences, seminars, and so on.

Finally, one more thing that may be of interest to you; Olivier Blanchard, our Chief Economist and Chief Economic Counselor, along with a number of other economists, luminaries let me say, including George Akerlof, David Romer, and Joe Stiglitz, are hosting a conference called Rethinking Macro Policy II, First Steps and Early Lessons. And that event is going to be April 16-17. So that’s that week of the Spring Meetings, just as they get started, and that will be webcast live ebcast and open. So that should be interesting, I think.

So with that, let me turn to your questions in the room.

QUESTIONER: Good morning, Gerry, and welcome back. Gerry, Cyprus as you know is in disarray. The Cypriots don’t have money, don’t have food, and they think that they don’t have future. Why does the IMF think the agreement in Brussels last weekend is the best solution for Cyprus?

MR. RICE: I think it’s important first to step back and remember the exceptional situation that Cyprus was facing, with an oversized banking sector, the two major banks deeply insolvent and high and rising public debt. So Cyprus was already facing a crisis situation. The agreement reached in Brussels deals with these challenges upfront. It focuses on dealing with the two problem banks and fully protecting insured deposits in all banks through a clear strategy that insures the debt sustainability and does not excessively burden the Cypriot taxpayer.

Now, the adjustment that the plan will entail, as the financial sector downsizes and the economy adjusts accordingly, will be a difficult process for the Cypriot people over some period of time. We are mindful of that, but it will ultimately result in an economic model that is more sustainable and growth promoting.

QUESTIONER: Gerry, how are the relations between the IMF and Cyprus, because there are people that are saying that Cyprus has damaged its relations with the Troika. And why do I say that? Because there are a lot of reports out there saying that the President of Cyprus had a “fight” with Ms. Lagarde and the President of the Eurogroup. So can you tell us how are the relations?

MR. RICE: Just stepping back as a reminder for us all, the agreement that was reached in Cyprus was an agreement that has the full support of the Cypriot authorities, the entire Eurogroup, and the three institutions referred by us as the Troika. So I think that’s important just to note and to remember.

On the Fund’s relationship with Cyprus, what I would say is the IMF has the highest respect for the government of Cyprus, for the people of Cyprus, and the challenges they’re facing. Our engagement reflects that respect, and we are there to advise and to help.

QUESTIONER: Do you think that what happened in Cyprus should be used as a model in the rest of the Eurozone?

MR. RICE: Well, I think the case of Cyprus was very complex and unique in nature. It would be difficult to extend the case to the rest of Europe or to the world. More generally, however, I think it showed the need for Europe to continue moving towards a banking union that includes not only the single supervisory mechanism, but also a single resolution mechanism and centered on a single resolution authority.

QUESTIONER: It is a fact that there are 600 companies that do business in Cyprus and Greece is the closest economic partner of Cyprus. Have you estimated if the situation in Cyprus will influence the program of Greece and, in general, the Greek economy? Have you estimated the impact it has on the Greek economy?

MR. RICE: I don’t know of any numbers or estimates on that for you. On Greece, maybe just taking the opportunity to update you on that, teams from the European Commission, the European Central Bank, and the Fund were in Athens in mid-March, and they discussed the third review of the program. Significant progress was made then. A few issues remain outstanding, and the teams plan to resume discussion in Athens during the first week of April. Now, given that that work, that mission, is ongoing, I don’t have further details on those discussions. But that’s where we are in terms of Greece.

QUESTIONER: When will the Troika return to Greece and how long will they stay there?

MR. RICE: Well, as I said, the teams plan to return during the first week of April. And the length of the mission will be as normal for these things.

QUESTIONER: The IMF hasn’t indicated yet how much it will contribute to the package in Cyprus. Ms. Lagarde said that she was waiting for the IMF mission in Cyprus to come back to get more information. But what kind of information do you need and does it mean that there was not a preliminary agreement with Europe about the package and who is going to pay what?

MR. RICE: What I can tell you is that the staff teams of the IMF and the European Commission and European Central Bank are currently in Cyprus and they’re working to complete the technical details of the agreement that was reached in Brussels last weekend. And this will determine -- just to answer your question -- the amount of the IMF financial assistance to be recommended for Cyprus.

We expect the work of that mission to conclude in early April. After that our Executive Board will need to discuss the possible financing arrangements for Cyprus. I would, therefore, not expect a final decision on the financial package from the IMF before the end of April.

QUESTIONER: What kind of information are you looking for over there because I thought that you had a lot of information before concluding or reaching the deal that was reached in Brussels?

MR. RICE: Well, as you know, the final agreement was just reached a number of days ago. So I think there’s quite a bit of follow up to be done in terms of the technical aspects and follow up on that.

QUESTIONER: There have been a number of special payments that were made while the banks were closed in Cyprus. And there’s been an estimated good amount of cash out of those two banks that have left the country. Is that a problem for the amount of recap needs that the Eurogroup has talked about? Will Cyprus need actually more cash to make the depositors that are supposed to be protected whole?

MR. RICE: I don’t have any specific numbers. That would be something that the team on the ground will be looking at in the course of this mission.

QUESTIONER: I know you said that it would be difficult, that Cyprus was a difficult and complex case and that it would be difficult to extend that bailout model elsewhere. But to be clear, markets are unsure whether that is a model. There is not the clarity there, the assurance they would like, that depositors in Spain and Portugal and elsewhere won’t take the hit rather than putting the money on the ESM balance sheet. Can you just be as clear as you can be that the Cyprus situation is not going to be applied elsewhere in the Eurozone?

MR. RICE: I can only reiterate what I said. The case of Cyprus was very complex and unique in nature, and it would be difficult to extend the case to the rest of Europe and to the world.

QUESTIONER: Two things: One is technical, hopefully a simple technical one. Did you discuss with the Russians about the bailout plans for the first one and the second one, and if you can describe what was the response?

MR. RICE: I’m not aware of specific discussions taking place. And in terms of the response, again, I can only say what I’ve been reading in the reports in the press, which is that the response from the Russian authorities at this stage appears to be constructive and helpful.

QUESTIONER: And also like my colleagues from Greece, have you tried to estimate the potential fallout of the events for the Russian economy?

MR. RICE: I don’t have anything for you on that.

SPEAKER: The eyes of Europe are now turning to Slovenia. I’m sure you noticed. The IMF had quite specific recommendations on the needs for bank recapitalization there. Could you give us an update ON how worried you are about the situation there and your current recommendation? Their yields have been going up. And one on a different topic: I’d like to know if the Board was briefed about Ms. Lagarde’s legal troubles in France and what’s the latest you can tell us?

MR. RICE: So, as we always say here, country cases are completely different. So comparing Slovenia with Cyprus… I think these are two completely different cases. That’s the first thing I’d want to say, and I wouldn’t want to make any comparisons there.

On your question about Slovenia and its banking issues, the loans to the construction sector and leveraged buyouts are now weighing down on the banks’ earnings and capitalization. The authorities are determined to address the problem with a clear plan. A publicly owned asset management company will take over nonperforming assets from the banks to have a more efficient recovery while the banks will be recapitalized so that they can start funding the real economy. So that’s on Slovenia.

QUESTIONER: So that’s facts. What about the IMF opinion?

MR. RICE: I don’t have much for you beyond that. What I can tell you is the Article IV Consultation ended in October 2012. There was a concluding statement published and that’s where we are.

Can I take your second question? As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary. However, the Executive Board has been briefed on this matter, including recently, and continues to express its confidence in the Managing Director’s ability to effectively carry out her duties.

QUESTIONER: Who briefed the Board?

MR. RICE: I don’t have anything beyond that.

QUESTIONER: I’m assuming we’re above being mysterious. This consultation I asked you about it’s no secret. People know that you have them. My question is why do you try to make it look like they never happen?

MR. RICE: I am not aware of the consultations, so it’s just as straightforward as that actually.

QUESTIONER: I’m going to turn to Egypt quickly. I want to know: is there a mission planned to go back? How close are you getting to starting the negotiations again with the government? Has the government officially rejected the suggestion of rapid financing for Egypt? I think that’s about it.

MR. RICE: As you probably know, Masood Ahmed, the Director for the Middle East and Central Asia Department, visited Cairo on March 17. At that time he reiterated that the IMF is committed to supporting Egypt, and it was agreed that discussions would continue with the aim of reaching agreement on possible financial support from the IMF. I can tell you that we are now expecting a staff team to travel to Egypt in the first days of April to continue to work with the authorities on a possible financial arrangement. I don’t have further details on that, but that’s where we are, expecting the next mission.

QUESTIONER: And is that based on the updated material, the budget material that they have submitted?

MR. RICE: That will be based on the most up-to-date information, yes, I’m sure.

QUESTIONER: You said that it would be difficult to extend the Cyprus case to other countries. But does it mean that you would be in favor of extending the solution because to say that it is difficult could mean that you would advocate for the extension of such a solution elsewhere?

MR. RICE: I don’t have much beyond just reiterating what I said. I don’t have anything further on that.

QUESTIONER: But does the IMF support an extension to other countries?

MR. RICE: We support the agreement that was reached in Cyprus. That’s as much as I have.

QUESTIONER: Yes, I know, but what about other countries? Do you think it would be a good idea?

MR. RICE: I’m not going to extrapolate for other countries. As I just said, I think each country is different. The case of Cyprus is very unique, and it would be difficult to extend that to the rest of Europe and to the rest of the world. So that’s where we are.

QUESTIONER: You have just given us some test results from the Italy FSAP, if I’m not mistaken, but I was wondering if the IMF is following the evolution or lack of evolution in the Italian government. We are still without a government, a lot of difficulties to create a coalition in Italy. I know the IMF doesn’t comment on internal political situations, but does the IMF believe it is important at this point that Italy is able to create a stable government for its efforts on the Italian economy and all of Europe? Do you think it is urgent?

MR. RICE: Of course, we’re following the events closely. But, as you know from previous briefings here, we don’t want to comment on the political process. What I can say, though, is to point to our recommendation from last year’s assessment, our Article IV Consultation on Italy, which we have repeated before and still remain valid. Essentially, we feel the important issue going forward is to make sure that the gains made on fiscal adjustment and structural reforms should be maintained. So with some shift in fiscal policy to support growth even more by shifting the composition of adjustment towards lower expenditures based on thorough spending reviews and lower taxes. And on the structural side to accelerate the implementation of comprehensive labor and product market reforms to boost productivity and labor participation, especially for young people and for women. And as you mentioned, the FSAP, the Financial Sector Assessment, concluded last Tuesday and we issued a statement.

QUESTIONER: Do you think it’s important that Italy is able to create a stable government as soon as possible for the spillover on the economy?

MR. RICE: In general, it’s good to have a stable government. That’s important for financial stability. So that principle we support.

QUESTIONER: After the BRICS summit the countries plan to establish a development bank and it is seen as an alternative to the IMF. I wonder if you have any comment on that. Also, I was also concerned with the slow pace of the reform of the IMF. So what is status of the reform, and what is the biggest challenge at this point?

MR. RICE: On the development bank, we’re following this initiative with great interest. The issue it seeks to address, which is the infrastructure gap in developing countries, is indeed a key constraint to sustainable growth, especially in Africa, and hence of direct concern to us. And efforts to mobilize resources for infrastructure and sustainable development in developing countries are important steps.

On the quota issue, as I have said here before and I can refer you to previous remarks, good progress has been made on the 2010 governance reform. We’re very close to the finishing line, to the completion of that, and we’re urging all our member countries to implement that as speedily as possible.

QUESTIONER: So they are urging to finish the review by 2014 or as soon as possible for the IMF?

MR. RICE: Well, we’re still pushing as hard as we can for the finish line, yes.

QUESTIONER: I’m sorry, it’s still about Cyprus. In retrospect, would you say that it was a mistake to impose a levy on every bank account in Cyprus?

MR. RICE: What I’d say is that I think it’s very important to look at the agreement that was reached last weekend.

QUESTIONER: Yes, but I’m talking about the first one, as you know.

MR. RICE: And I’m talking about what I think is important to focus on, which is the agreement that was reached because that’s what’s on the table now and that’s what needs to be implemented. And again, as I noted earlier, I think the important thing about that agreement is it has the full support of the Cypriot authorities, the entire Eurogroup, and the three institutions.

QUESTIONER: Did the first agreement get the same support from the IMF? I mean, was it supported by all the organizations, the Europeans, and the IMF?

MR. RICE: Well, I wasn’t in the room. So what I can tell you is that this agreement has the full support of everyone. As I said before, it’s a durable solution. It’s got a number of the things certainly that the IMF was looking for. It’s a durable solution. It resolves the insolvent banks issue, particularly the two major banks. It addresses the debt sustainability issue, which I mentioned before. It includes the full financing of the program. It protects insured depositors and has the least cost possible for taxpayers, both in Cyprus and in Europe. So I’m focusing on this agreement.

QUESTIONER: Are you suggesting that the initial plan was meant to be a preliminary step on the road to the final plan that you are focusing on now? In other words, was this premeditated?

MR. RICE: You know, I’m just going to repeat that what matters is the agreement that now has been reached. I think that’s where the focus should be; that’s where the implementation needs to be now, and it has everyone’s support.

QUESTIONER: Is it true that you did not agree with the first agreement?

MR. RICE: I’m going to focus on what I’ve said, and that’s it.

I’m going to try and also move off Cyprus just for a minute and pick up a question from the Ukrainian News Agency, which asks: “The mission has come to Kiev and started negotiations. What are the chances to sign an agreement on a new Stand-by program and provide the first loan tranche?” On that what I can tell you is that the mission is actually in Kiev as of yesterday to continue the negotiations on the new Stand-by arrangement. And since the mission is in the field, I don’t have a lot of details on that, but we’re expecting progress to be made over the next couple of weeks.

QUESTIONER: On the euro zone in general there has been in the last several weeks an increase in the deficit of certainty and clarity about the general euro zone resolution of the crisis. Markets are increasingly nervous about other depositors taking hits, and euro zone growth, even in Portugal, which has been applauded for its implementation, is still anemic. Is there something that the euro zone should be doing now to reassure markets, something the ECB should be doing or saying, something that Germany should be doing or saying? Do you see where I’m going?

MR. RICE: I think the most important thing is for the euro zone leadership and authorities to continue to implement the measures that they have initiated. And that ranges across the fiscal measures, the monetary measures, and the structural reforms that have been undertaken in each of the individual countries. I think these reforms across that broad array of areas are headed in the right direction, and the key is to accelerate those and move on with the implementation, and I think everybody recognizes that.

QUESTIONER: When the MD goes to China, will it be the first time she meets with the new authorities? And what kind of discussions or what will she be seeking from them in those meetings?

MR. RICE: I wouldn’t want to predict what the discussions would be, but you can imagine that they’ll be talking about Asia’s increasing role in the global economy, China’s increasing role in the global economy, the major economic challenges facing China going forward, and the relationship with the Fund. But I don’t have specific details of what those discussions might be.

QUESTIONER: You talked about the role of China and emerging economies earlier. Just double checking on how the U.S. is going to move forward on the 2010 reforms, please.

MR. RICE: Well, the U.S. has indicated its support for moving forward with the reform as expeditiously as possible, and we welcome that indication. I’m going to make this the last question. Andrei.

QUESTIONER: Listening to the briefing, this urgency in all our questions and inquiries about this thing, I kept thinking that I’m going to find itself in the epicenter of a consecutive number of crises around the world. And my question to you is please describe to us the mood. How do people, the staffers at the IMF feel about this? Are they worried about this continuance chain of crises or maybe are they elated that they’re playing a central role again in the world economy, in the world politics, for that matter, and that this shows the relevance and importance of the organization itself? So please describe to us as best you can the mood and the attitudes among the staffers.

MR. RICE: As you know, we’re here to serve as best we can the membership of the IMF, which is 188 member countries. We share the sense of urgency as to the difficult challenges being faced in the euro zone, but in many other parts of the world also, and that’s an important point. That even if today most of the questions have been about one particular area, in fact one particular country, every day we have concern for our 188 member countries in all regions of the world. So it’s a sense of urgency. It’s a sense of commitment. It’s a sense to try and do our best in the service of those countries. And it’s a lot of late nights and long weekends, but that’s our job.

Thanks very much, everyone, for coming, and I look forward to seeing you in the coming days at some of the events I mentioned and during the Spring Meetings.

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