Transcript of International Monetary and Financial Committee (IMFC) Press Briefing
IMF News, October 11, 2008
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Bibliographic details
- Published: October 11, 2008
Meeting context and participants
- Date and location: Washington D.C. October 11, 2008
- IMFC meeting number: 80th meeting
- Principal speakers at the briefing:
- Youssef Boutros-Ghali, IMFC Chair
- Dominique Strauss-Kahn, IMF Managing Director
- John Lipsky, First Deputy Managing Director, IMF
- Masood Ahmed, External Relations Director, IMF (moderator)
- IMFC membership referenced: 185 countries
Main messages and collective decisions
- Endorsement of coordinated G-7 plan of action
- The IMFC “endorsed the G-7 plan of action” and stressed that “because the crisis is global, the solution cannot be local.”
- Emphasis on coordination, consistency, cohesion, and a global response across developed and developing countries.
- Mandate to the IMF
- The IMFC asked the Fund “to take the lead in drawing the lessons, the policy lessons from the crisis and recommending effective action to restore confidence.”
- The Fund was called on to “take the lead in initiating discussions with other institutions, with other participants, with other parties, G-20 and others” to (i) avoid repeat crises, (ii) establish warning systems, and (iii) develop policy principles to address the crisis and its fallout.
- Activation of IMF emergency procedures and instrument development
- The IMFC “endorsed the decision I made a few days ago to activate our emergency procedures so that we will be able to act faster than the normal circumstances.”
- The Fund plans to develop new liquidity instruments and has recently revised its Exogenous Shocks Facility; a “new liquidity facility” is being worked on to help countries balance payments.
Assessment of crisis severity and required responses
- Nature of the crisis: described as “systemic,” requiring “systemic measures.”
- Key policy priorities highlighted:
- Use “all available tools to support systematically important financial institutions and prevent their failure.”
- Unfreeze markets, guarantee money markets and deposits, support secondary markets, and recapitalize banks where needed.
- Coordination across countries even where legal and institutional arrangements differ; leave implementation modalities to national governments.
- Scale of fiscal and balance-sheet responses
- Collective government actions to date were characterized as “well beyond the trillion” when adding amounts pledged by the U.S., European Union, and others.
- Funding and market functioning
- Restoring bank funding was identified as “the main question” and the immediate priority for unfreezing markets and restoring lending and liquidity.
Emerging markets, low-income countries, and spillovers
- Vulnerabilities and IMF readiness
- Concern that the financial crisis could have a fall-out on emerging markets and low-income countries.
- The Committee signified resolve “through the Fund” to assist countries that need emergency instruments and emergency funding.
- The Managing Director: “The Fund has plenty of resources available now to be able to face all kind of demands,” and the Fund can turn to shareholders to increase resources if needed.
- Drivers of requests for IMF support
- Many countries face drying up of private capital inflows and reductions in trade finance and credit lines, prompting requests for IMF support.
- Country example — Egypt
- Anticipated spillover channel for Egypt is via the global real economy slowdown affecting exports; Egypt’s banking system was described as less exposed to impaired international assets.
- Egypt’s recent reforms provide policy cushion: budget deficit “although large, is in control,” current account “is still in surplus,” and growth strongly supported by domestic demand and regional foreign investment.
- Food and fuel price concerns
- The Managing Director emphasized ongoing effects from higher food and energy prices on emerging and low-income countries, noting “the bill for those countries as far as food is concerned, for instance, is still higher than it was before.”
- IMF support provided so far: “we already helped about 15 of them with our financing facilities, some others are in the pipeline.”
- Appeal to donors: concern that pledged aid for food crises may be at risk as advanced-country budgets face strain; appeal not to cut such assistance because of severe consequences like malnutrition.
Financial sector structure and regulatory issues
- Derivatives and risk management
- Reference to prior concerns about the derivatives market (cited figure: $416 trillion estimated value by the BIS) and acknowledgment that markets intended to transfer risk more efficiently suffered “failures of risk management, regulatory weaknesses.”
- The IMF’s Global Financial Stability Report had documented emerging risks; downside risks “have emerged and need to be dealt with in a very serious way.”
- Recapitalization and coordination risks
- Recapitalization programs (example: U.K.) raise concerns about capital flows and competitive distortions if not coordinated; IMF and IMFC stressed the need for coordination to avoid damaging cross-border flows.
Communication, confidence, and expected near-term effects
- Confidence restoration
- Collective endorsement by all IMF members of the G-7 actions was presented as critical to restoring market and public confidence: “We are all, 185 members of the IMF, we are all committed to the plan of action.”
- Explicit market-signaling commitments included that “no one is going to let an important financial institution fail.”
- Implementation and timing
- Expectations expressed that a number of measures “will be in the coming days coming forward” and that decisive actions would unfold “in the coming weeks.”
- IMF operational posture
- The Fund activated emergency procedures and is already assisting countries that have requested support; new liquidity instruments are being developed to be activated as needed.
Transcript of International Monetary and Financial Committee (IMFC) Press Briefing — October 11, 2008