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Transcript of a Press Conference by International Monetary Fund Managing Director Dominique Strauss-Kahn with First Deputy Managing Director John Lipsky, and External Relations Director Caroline Atkinson
October 7, 2010
October 7, 2010
Webcast of the press conference  |
MS. ATKINSON: Good morning. Welcome to the opening press conference from the Managing Director, Dominique Strauss-Kahn, of the International Monetary Fund, and First Deputy Managing Director John Lipsky.
We will start this press briefing, which is on the record and being web cast also with a few short remarks from the Managing Director, and then we'll open it up to questions in the room.MR. STRAUSS-KAHN: Thank you, Caroline. Good morning, all of you. You will see during this day and starting this morning that we tried to revamp a little the way we go about the Annual Meetings and I hope you enjoy the new facilities we tried to provide.
At least today you all sit, which is not that bad. Not really all of you.
Fine.
A few words to start with.
The recovery clearly is going on, but as everybody knows it is still very fragile. And, partly it is fragile because it is uneven, and that is probably one of the main features I want to underline first, is that when you look at Asia, when you look at South America, you see very high rates of growth, and obviously for this part of the world the crisis is over.
Even when you look at Africa, where the rate of growth is going back in sub-Saharan Africa to something like 5 percent, contrary to what was going on in the past, where Africa was catching up with the rest of the world with a delay of one year. This time, growth is coming back in Africa at the same rates as other parts of the world, but in Europe, with some uncertainty in the United States.
Europe is still sluggish, and that certainly is part of the concern that we may have. It is still a big part of the global economy, and as a big part of the global economy if doesn't go very fast, it has, of course, an influence on the rest. And, the United States, where the situation is uncertain, we probably need more information on third quarter, fourth quarter this year to see where it goes, really.
As you know, our baseline is not the one of a double dip. Of course, there are downside risks, and risks always can materialize, but contrary to many others, we don't believe that this recovery will end with a double dip, it will go on, probably not as fast as we could hope, but that this risk of a double dip is still existing, of course, it is a tail risk, but it has very little probability to materialize.
So, what are those downside risks? Very rapidly, and then I will be happy to answer your questions.
I would like to highlight four challenges, which in my view are the main risks to the recovery.
The first one has to do with sovereign debt. And, we all know that there are still problems in the fiscal sustainability of some countries where the crisis, starting with already high levels of debt, has increased, has worsened the situation. So, we are strongly in favor of medium-term consolidation, but it doesn't mean that in the short term all and every country will have to tighten fiscal as much as possible. It depends a lot on their own situation. Very country specific. And I hear sometimes people saying, well, the message of the Fund on the fiscal is not really clear and understandable because you seem to say things differently. Well, yes, we say different things because situations are different. Countries are in different situations. Of course, the advice that we could give to Greece is not the same as advice we could give to Germany, and no surprise on that. It doesn't mean it is inconsistent. It means that in the medium term, everybody has a problem of a fiscal consolidation, has to have this in mind, and to announce the way they want to go back to a more sustainable situation, but in the short term it depends a lot on the situation, and because the recovery is still fragile, because in many parts of the world the private demand is still weak, withdrawal from the public support which has been put in place during the crisis shouldn't be too fast where it is possible to wait and still support demand.
The second risk is that growth is fine. And as I said at the global level growth is coming back, but growth is not enough. We need growth with jobs, growth without jobs doesn't mean much for the man in the street. And we had recently a conference in Oslo jointly with the ILO working on this topic that growth may be other not strong enough in some parts of the world to allow the unemployment rate to decrease, or even when the rate of growth is high, the structure of growth and high level of productivity may make it impossible for unemployment to decrease fast enough. Obviously, for us, the crisis will not be over until the unemployment rate decreases significantly, and we're not still there.
The third point I want to underline has to do with the financial sector reform. A lot has been done and recently the rules, the code of Basle III have been released. There may be discussion on the content of this Basle III, but that is not my point. I think a lot has been done on the regulation side. And our problem, and the problem I want to mention to you is that the IMF has been repeatedly insisting since the beginning of the crisis that to repair the financial sector, we need to do a lot on regulation, but we need also to do a lot on supervision, and we need do on crisis resolution. And, on these two last fields, it would be unfair to say nothing has been done, but very little has been done. And, of course, supervision, for instance, is as important, in my view even more important, than regulation, because you may have the best rules in the world. If you have no structure, no process to supervise that they are correctly implemented, then you have almost nothing. Same thing for crisis resolution. Still a lot do, and we shouldn't believe that there is enhancement of regulation that has been announced, we have solved all the problems with that.
The last point, you won't be surprised, because I already, many times, have underscored this point, is that in my view one of the main features of this crisis has been the emergence of a willingness to work together, of a new kind of economic cooperation at the global level which never had existed, never happened in the past. And, this was very strong in London, very strong in Pittsburgh, still strong in Toronto, and I think it is fair to say that the momentum is not vanish, but decreasing, and that is a real threat, because everybody has to keep in mind this mantra that there is no domestic solution to a global crisis, and in a globalized economy, in a globalized world, there is no way to find its own solution.
So, what has been a success at the climax of the crisis, coordination, consensus, willingness to work together, is a bit abstract. Many are talking about currency war. Myself, I think I used this vocabulary, which may be a bit too military, but it is true to say that many do consider their currency as a weapon, and that is certainly not for the good of the global economy, of course. It is understandable that facing some volatility and destructive volatility, countries want to react to this, but it doesn't mean that in the medium term we should try to avoid a movement and change in the currency value, because it just reflects something which is the main goal, which is rebalancing. What we all want is the rebalancing of the global economy, and this rebalancing cannot happen without consequence which is a natural consequence of it, which is a change in the relative value of currencies. To oppose this in the medium term is certainly something which wouldn't help the rebalancing.
So, this question has appeared a lot in your headlines during the last weeks, and we will discuss this a lot, I guess, during this meeting, how we can bring about a stronger dialogue among countries, and certainly the IMF has its role to play in this. And how we can try to launch and organize our work in a way that would be helpful to face this kind of question.
Of course, to do this, and this is my last point, after the four challenges that we face, to do all this, the Fund, which in my view -- it is a bit pretentious to say that, but if you say it, so sometimes you say it, so I want to thank you, the Fund has shown its relevance during the crisis, but it is still a question of legitimacy. And the legitimacy has to do as you know with the governance question and we are in the process of a review of the quotas. At the same time the question of the Board composition has been raised. I think we are making progress on this, and have no doubt that we will find a solution, and certainly the discussion during the Annual Meeting will be helpful for this. The result, of course, aims to give a greater voice to emerging market economies which just reflects fairly the change in the global economy.
That is what has to be discussed. It is a lot during this annual meeting, and I guess that all the meetings that have been organized, official ones, the less official ones, the totally secret, will be useful to try to fix, at least, the, to make progress, on all these questions.
MS. ATKINSON: Now I'll turn to your questions. If you could please identify yourself, the mic is coming around. Your name and your news organization.
QUESTION: Secretary Geithner yesterday made a very pointed call for the IMF to take a more aggressive role in resolving the currency dispute, and I think leverage was the word he used, I believe. I'm wondering, what role do you think the IMF with can play in this? What more can you do? Do you seem to have some new powers in mind, something like that? And, what sort of pressure have you felt from the administration to step up your role in this?
MR. STRAUSS-KAHN: Well, I read this in your comments. What Secretary Geithner has said was directed to the membership. When he makes something, which makes a sense, which is a link between the need to rebalance the economy, to have a more cooperative way to manage the global governance and a change in the IMF, he is certainly right. He is saying to part of the membership, if you want to have more say, more weight in the IMF, then you need to take more responsibility in the stability of the system. But this message is directed to the membership. It is not directed to management, even less staff of the IMF. We're a part of this debate on quota and chairs. Of course, we try to help, we try to provide technical assistance, but it is mostly something among the members of the, the countries of the Fund. I understand the message from Secretary Geithner as something which concerns directly some members with which he has a very well known debate on this question.
The second remark I would like to make is that what I like in what Tim Geithner has said is that obviously he believes, I think he is right, that the IMF is the right place to try to make progress on this question. Right to say that during the last three years, I think we have been the only institution repeatedly to say, for instance, concerning China, which is not the only problem, but one of the questions which is at stake, that we believe that the renminbi was substantially undervalued and something has to be done to fix this problem over time.
I think that Secretary Geithner, I want to thank him for saying that it is in the IMF that the discussion has to take place. We already did, I think, a lot in this direction. Maybe some of you have read the Article IV on different countries, including surplus countries, that has been raised a lot in the last month, clear opinion on what should be done. But we also changed a lot of things during the last month including something like what we call the spillover report where we'll study not only bilaterally the policy of the different countries to see if it is consistent with its own stability, but also the consequences of the economic policy of a country on the rest of the world. So, we're going to develop this kind of spillover report, and all that I think will help, I believe, to understand better that as I said at the beginning, there is no domestic or national solution to global problems.
So, we have to launch a kind of systemic stability initiative to go further in this direction. We have the different tools, analysis to do it, and I think that if the membership is willing to participate in this kind of discussion, we can make progress in the coming time. But, of course, as Secretary Geithner said yet yesterday, I think, this problem is not going to be fixed in five minutes. It is a long-term problem. Progress has to be made. Certainly can be made more rapidly than has been made up until now, but it will take time to fix the problem.
QUESTION: Specifically on currency, do you think it makes sense to have a Plaza-style accord, a currency accord reaching across the world, or separately an accord among Asian nations where China would agree to appreciate its currencies while other satellite currencies would agree at the same time?
And also, just to make sure I understood your last answer, do you think personally, do you think as the Managing Director that a country's role, specifically China's role, a greater role for China in the IMF ought to be dependent on them pursuing market -oriented exchange rates?
MR. STRAUSS-KAHN: Let me start with the second part of your question.
We have a lively number of market economies, and obviously I see very little economies in the world today which are going in the other direction. So the question is not much to have a market-oriented policy globally or not, but specifically on what you say on the currency, to have intervention on the currency, or not to have intervention on the currency. We have seen a very well-known market economy in the last week, I have in mind Japan, having an intervention in the markets. It is not because you may have some intervention in your currency market that you are not a market-oriented economy.
The question is, do these two questions need to be linked? My answer, as I said before, is that there is no formal link, but I think it is right to insist on the fact that the more emerging countries will have a voice and representation in the Fund, the more they have responsibility in the stability of the system. You can be at the center of the system, or you can be at the border of the system, but if you want to be at the center of the system, which I understand is a request by many big emerging countries that want to have more say in the IMF, which is absolutely legitimate, it goes with having also more responsibility on what you do and the consequences of what you do in the global economy.
QUESTION: [Off mike. Related to whether a global currency policy accord should be undertaken along the lines of the Plaza and Louvre accords of the 1980s.]
MR. STRAUSS-KAHN: I'm not sure the need is to have a new Plaza or Louvre accord, even if the French name rings nicely to my ears. It was more than 25 years ago, something like this, so we're in a different time today. But the fact that the IMF can help to try to narrow the position and to have a better understanding of what should be done by each party, each stakeholder, and at the end to have a kind of consensus, is maybe too strong a word. But at least consistent policy by the big shareholders in the Fund, this, I think, can be done by the IMF.
QUESTION: Sort of a follow-up to the previous question. I'm sitting here with my colleagues from China and Brazil. I know that for many countries the question about the representation issue is not about individual quotas, because they're still smaller for China. The second largest economy in world, still has 4 percent, something like that. So, the question is the overall proportion, developed countries, developing and emerging countries. What should be the proportion in your view and how realistic is the expectation that we can move to that in this session?
MR. STRAUSS-KAHN: I don't know what is the right proportion. But, I'm sure we can move in this direction in the coming days. What I mean is that you have different ways to define the right proportion. We have a formula as you know which is rather opaque and difficult to understand. It happened after long, long hours of negotiation in past, even before I arrived in the institution and afterwards to enhance, refine this formula. And then, everybody says, yes, the formula doesn't really reflect what we want. So, we had to add things to the formula, and so the formula has been topped with different kinds of instruments to take into account many considerations. Why all this? Because it is difficult to know what is the right proportion. It is easy to say what should be the weight of countries in the global economy. Oh, fine. What is the weight of countries? Is it measured at market prices? PPP? Already big differences. Then is it only the weight? The quota also reflects the access of countries to Fund resources. That is why the formula includes things like the variability of the countries, the more variable the country, the more need though access the Fund resources, the bigger the quota.
So, finally, the quotas don't reflect only the weight of an economy, but many other factors. So that is why it is difficult. And that is what my answer is. I don't know exactly how big it should be. Following our formula and our calculation, we can have a very significant shift, and I believe that what has been asked by the leaders in Pittsburgh and confirmed by the IMFC here, one year ago, can be done, namely a shift from at least 5 percent from advanced economies to the dynamic emerging economies, and I believe this is possible.
So, some may say it is too much because we are paying for this. Some others may say it is too little because we are receiving it. Fine. I think if we achieve this move of five plus, it will be very good, and I do believe it is possible in the time ahead, which has been proposed, which is, namely, before January 2011.
QUESTION - I want to ask, recently there is more capital inflow going into emerging markets, and I want to know in your sight how the emerging markets can cope with this trend and how different economies can strengthen financial supervision in this regard?
MR. STRAUSS-KAHN: It is one of the very interesting and important features of the last month, even more than that. And, I understand that many economies contemplating huge capital inflows have to take action to avoid those capital inflows to create bubbles and problems in their own economy. So, what can be done? You have action at the individual level and you have action at the global level. At the global level, the immediate answer is to let the currency appreciate. Then, of course there are limits to what you can do in this direction. And, some countries don't want to see their currency appreciate too fast. Nevertheless, the right answer in the medium term is that capital flows are a good thing. Capital flows are helping the global economy to develop. And so, there is no reason to avoid too much capital flows, but by the fact that the prices adjust, and the right price is the currency rate.
One of the big lessons of what has been learned during the last 20 years is that the currency rate is nothing else than the price of an asset. The price has to change when demand is changing.
Of course, in the short term, we may not be able to have a revaluation of a currency enough to mitigate the effect of the capital flow. Then you have prudential action that can be taken. Also, you can accumulate reserves, with consequences of the sterilization and the monetary policy. And at the end, as we say for months now, we can understand that some element of capital controls can be put in place. Of course, this is temporary, because there is no way to avoid long-term flows to change with capital controls. But if it may help to avoid disruptive volatility, then there is no reason not to use it.
So, at the end we are back to the question of rebalancing. Why are these huge capital flows, because you have high rate of return in some parts of the world, you have high growth, and you have low rate of return -- well, link with growth is a bit too simple, but it is one explanation. So, the only way to face the problem in the medium term is that the rebalancing in growth will take place. And then we come to the collective answer to your question, which is that even if I don't believe that we have exactly in mind the answer to [the] question on a kind of Plaza agreement, what we are doing with the G-20 framework, which is trying in the G-20 to have everybody agreeing on a policy which is consistent, and because it is consistent provides more growth at the global level than without this policy, is something which looks like this kind of agreement, not only on currency, but on all elements of the policy.
MR. LIPSKY: The positive aspect of the framework is that it involves both advanced and the largest emerging economies, not just as in the Plaza, just a limited number of advanced economies, and it creates a process of collaboration for developing consistent policies, not a one-off meeting with announced one-off goals. This is a much more hopeful approach than we saw before.
QUESTION: Yesterday Ms. Brooks at the press conference [on the World Economic Outlook] suggested that it would be a good idea for Brazil to reduce its government spending, reducing interest rates, reducing theoretically the inflow of capital country to the country. If the Brazilian authorities decided to ignore this advice, what would be the consequences?
MR. LIPSKY: Could you repeat the last part?
QUESTION: Her suggestion was that Brazil should reduce its government spending, therefore reducing, let's say, the pressures to attract currencies to Brazil. My question is, if the Brazilian authorities just ignore this kind of advice, what would be the consequences?
MR. LIPSKY: I'm going to guess, if you will -- I wasn't there. I doubt if it was exactly to reduce spending, but it would, I think the overall issue she was referring to was fiscal adjustment and control of the growth rate of spending, reduce the growth rate of spending, not actually cut, not suggesting cutbacks.
So clearly, the Brazilian economy is performing very well in a favorable economic environment for them, with favorable movements in terms of trade, favorable view of international investors toward the Brazilian economy, strong capital inflows, this is a moment for improving the medium-term fiscal balance in Brazil, instituting structural reforms in the Brazilian economy that will improve its efficiency and take advantage of the very favorable, long-term prospects for Brazil that have been created, among other things, by recent discoveries and the prospect of large-scale energy resources. This is a very favorable moment for the Brazilian economy and the new Brazilian authorities to take advantage for establishing the basis for a sustained, strong growth.
It seems to me that the direction is so clearly in the advantage of Brazil and Brazilian citizens, that this is what they will expect and I suspect that is what the authorities will look for.
QUESTION: I would like to pose to you a very hot question in terms of our Greek economy. The European Commission is going to revise the sovereign deficit about Greek economy. Do you think that Greece has to take further austerity measures in order to accomplish the terms of the agreement with the IMF and the European Union?
MR. STRAUSS-KAHN: It is very unfortunate that the figures are going to be revised, because, of course, it was better to have the correct information earlier. But, as I already had occasion to mention, I think the Greek government has implemented a plan that were defined with the European Union and themselves in a very, very bold way. What they're doing goes exactly in the right way. On many topics they're over performing. Still a lot do, of course. Today, I wouldn't advise anything different to the Greek government. We need to know how big the revision is. What is the revision on 2009? What is the carry-over of this revision in 2010? Is it big, is it not big? Maybe not that big. May change very little, or not, we'll see.
It is only at this moment that we will be able to see if it has a big influence or not on the plan designed. But today Greece is clearly on track, and I think that is the most important thing that has to be underlined.
QUESTION: Two questions, please, on emerging markets. First, if we are to have a concerted and orderly appreciation of emerging market currencies, how is that to be measured to ensure each country moves fairly? Does it require some new kind of global currency unit?
Secondly, on the issue of the managing directorship of the Fund, whether it should be a European, is that something that will be an integral part of the IMF governance reforms? Do you expect to see any early progress on this issue?
MR. STRAUSS-KAHN: I don't understand exactly what you mean by early progress.
This is news that you give me that I'm expecting to leave this week.
So, I think that is one important part of the governance reform, and I think it has been accepted. The idea has been accepted, the so-called agreement between the U.S. and Europe for the leadership of the two sister institutions has to disappear. I think that on that principle, everybody agrees. The question is how will it be implemented. That is another point.
You know, finally, I don't know if it is such a good idea, because when I see that the main discussion today takes place between the United States and emerging countries, I see that a third party may be useful to be more neutral in the middle. But, that is just a personal thought.
Now, on your first question, let me see if I understood well, which is how do we measure the fact. It is very difficult, you know, that we got, we have a different kind of analysis and a model which is published, and everybody knows how we made our own calculation to try to see if the currency is overvalued or undervalued, but it is just fair to say that it is very pragmatic and you have no way to really measure. It's not a question like temperature or length, or weight. The overvaluation or under valuation of a currency, which is something which has a large range of variability, and what is important is to see if really we see a currency going far from its long-term equilibrium, which has to do with the fundamentals of the economy, or not. And, for some currencies we do see this. Tto say if the undervaluation is 28 percent or 22.5, it is a bit ridiculous.
QUESTION:- There is an impression that the only people that have emerged from this financial crisis in a strong situation are the bankers themselves and the banks, it's an impression on Main Street and High Street, something across the world, that profits have gone up, bonuses have returned, that they're up to their old rapacious ways again. I am just wondering whether you felt it was time really for dramatic action to make sure that supervision is put in place? And secondly, that a tax on financial transactions to slow down the pace at which this rapacious way is returned, is in order?
MR. STRAUSS-KAHN: On the first point, I already said a few words about that. Yes, we believe that it is not the right way to go back to business as usual, and there is a risk of going back to business as usual, despite the efforts which have been made to enhance, adapt regulation. Regulation is fine, capital requirements are fine. All this is good. But, it is far from being all what has to be done. You were mentioning supervision. Absolutely right that we need huge enhancements in the global supervision, and the risk of having a system which are developed in different parts of the world and not totally consistent is an important risk because of this kind of hole and loopholes in system, are the seeds for the next crisis. We are advocating, we are working on this, as members of the FSB, but of course it is the job of the FSB to go further. We are advocating that we need absolutely to work more on supervision. I would say exactly the same thing on crisis resolution, also some progress has been made, that the ESF in the European Union is a step forward in terms of crisis resolution, but still a lot has to be done. And, let's be frank. If in two years or in five years, or in ten years from now, we have another financial crisis, which certainly will be different from the previous one, but we won't be able to say that we fix all the problems that we have analyzed and determined in the previous crisis.
Still a lot has to be done, and I urge all the countries in the relevant institutions to work on this, and to make progress.
That is a very old question.
No, it is not a difficult question.
We have been asked by the G-20 in Pittsburgh to work on this. And, we have produced a report which has been praised, I think, by everybody, not meaning that everybody wants to implement what we say, but everybody is saying that the report was well done.
What does the report say? That for many reasons it could be a good idea to have some taxation on the financial sector. Not in place of regulation. It has to go along with regulation and supervision, by adding a complement. For two reasons. One, being able to provide resources, could be to a fund, could be whatever it is, which would help in the event of another crisis, because, not sure that the different parliaments will agree again to provide billions of dollars, euro whatever to help the financial sector in the next crisis, if needed, for the reasons you say, because the taxpayers are seeing the banking sector going back to business as usual, and I'm not sure at all, really, if it is an understatement that they will be likely to consent to big efforts in this direction. So we need something, because the financial sector in case of a crisis will need to be fixed, so we need a fund likely to be used for this, as a kind of insurance. We thought about that. Second, a tax can be a way, along with regulation and all that stuff, to curb the behavior, the risk-taking behavior, and good reason to try to curb this behavior, because at the end of the day there is no reason why risks can be taken by a small group of people when it is beneficial, it would be for them; when it is a problem, it would be for everybody. But, that is why we propose two taxes to answer these two questions. In our analysis we see the financial transactions tax as not being the best tool to do that, because transaction is a bad proxy for speculation that you want to address. So, this whole idea of the financial transactions tax has a bit lost its steam with the financial innovation in the world we are in today. Yes, we believe a tax on the financial sector is useful. We propose addressing two different problems. But, no, we don't believe the FTT is the best way to do it.
QUESTION: Let me repeat the question I made to you last year in Istanbul, if I can.
Why Argentina still doesn't accept to make the Article IV despite it is a member of the G-20 and a member of the IMF Board? And despite Istanbul; and more importantly, if the staff or the Board are thinking of any kind of punishment or sanction if this situation continues without any change in the status quo?
MR. STRAUSS-KAHN: You asked the question last year. What did we answer last year?
QUESTION: You answered last year that would be the last time that I will have the chance to ask you this.
[Laughter]
MR. STRAUSS-KAHN: Good point. Very good point. So, to follow what I say, I won't answer. I will ask John to answer.
MR. LIPSKY: Let's think of this in formal terms. Membership in the IMF carries obligations under the Articles of Agreement, one is consultation. This is an undertaking that is an obligation to members, not to Fund staff, not to Fund management. So, this is an issue that will have to be addressed by the membership. I am sure that we are all hopeful that Argentina will once again take its place among countries, I think the rest of the membership that have normalized relations and regular consultations with the Fund, we're very hopeful we're moving in that direction.
Of course, as a member of the G-20, Argentina also has accepted, implicitly, the obligations. I don't know if obligation is the right legal word. But, the membership of the G-20 have undertaken to undergo FSAPs, Financial Sector Assessment Programs, every five years. We're hopeful that this will move forward in a positive way. But, again, let me emphasize this is issue for the membership.
MS. ATKINSON: Thank you very much. We've been here for quite awhile. There were many questions. There will be other press briefings and press events. There will be another press briefing from the Managing Director and Mr. Lipsky with the Chairman of the IMFC on Saturday after the IMFC meeting. Tomorrow, there will be the Annual Meetings plenary, which will be open, and various panel discussions, and so on.
Thank you.
MR. STRAUSS-KAHN: Thank you.
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