## Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton

_IMF News, October 11, 2012_

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## Bibliographic details
- Published: October 11, 2012

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### Global economic outlook and risks
- The Fund lowered its global growth forecast to 3.3 percent, with advanced economies at 1.3 percent and emerging market economies at 5.3 percent.
- Growth has slowed since the Spring Meetings and is weaker than expected in April.
- The slowdown is affecting both advanced economies and emerging markets, including China, Russia, and Brazil.
- Key drivers of the current situation:
  - Multiple tail risks.
  - A pervasive degree of uncertainty that is hampering investment, job creation, and value creation.
- Recent positive actions: central banks (the Fed, the European Central Bank, the Bank of England, the Bank of Japan) have given strong policy signals that create momentum, but further action is required.

### Immediate regional priorities
- Eurozone:
  - Identified as the epicenter of the crisis where urgent action is needed.
  - Actions already taken include the ECB's LTRO and outright monetary transactions.
  - Continued work needed on fiscal discipline, sanctions, coordinated policy, European banking supervision, and progress toward a European banking union.
  - The European Stability Mechanism is now in operation; practical implementation requires legislative and parliamentary processes across 17-member states.
- United States:
  - Major risks from the fiscal cliff and the debt ceiling that become more threatening as year-end approaches.
- Emerging markets and low-income countries:
  - Need to watch domestic and external vulnerabilities closely.
  - High food prices on certain foods may increase poverty risks.
- Regional political tensions:
  - Absence of some officials (example: reported non-attendance by Chinese officials) is seen as a missed opportunity for cooperation and dialogue at the Annual Meetings.

### Four key policy areas for anchoring future growth
- Completion of financial sector reform:
  - Work in progress; the job is not completed.
  - Variations and discrepancies remain, including in the Basel III definition of capital.
- Dealing with the legacy of high debt:
  - Need credible, medium-term strategies to bring down debt, which in many advanced economies is at levels not seen except in wartime.
- Supporting job-rich, inclusive growth:
  - High unemployment rates, particularly among young people, require policies that create jobs and more inclusive growth.
- Addressing global imbalances:
  - Imbalances remain and need attention because they are likely to widen when growth picks up.

### IMF role, internal priorities, and governance
- IMF agenda includes:
  - New approaches to lending.
  - More effective surveillance that embraces both bilateral reviews and multilateral expertise.
  - Improved technical assistance and capacity-building.
- The IMF will discuss these priorities with its 188 members during the Annual Meetings.
- Governance reform:
  - The 2010 Reform is under way and due to be completed at the Annual Meetings in 2012.
  - Two of three thresholds have been largely exceeded; one threshold remains short and staff are working with the membership to meet it.
  - The reform aims to make the Fund more representative and inclusive and to bring emerging markets into the Top Ten members of the Fund.

### Country-specific engagement and program status
- Greece:
  - IMF team on the ground working day and night to resolve differences across four chapters: fiscal consolidation, structural reforms, financing, and debt.
  - Objective: help Greece return to markets and stand on its own.
- Spain:
  - IMF engaged in design and monitoring of financial sector restructuring; a team will conduct the first monitoring visit.
  - The Fund can operate within a range from standard SBAs to design-and-monitoring roles.
- Cyprus:
  - Identified as “in discussion” with the Fund.
- Greece, Ireland, Portugal:
  - Are under programs with the Fund.
- Egypt:
  - IMF discussions ongoing; a return mission planned in the course of the month with hopes for closure in the middle of next month.
- Sub-Saharan Africa:
  - Less affected than other regions with generally impressive growth rates.
  - Recommendation: maintain and reconstitute fiscal leeway to prepare for shocks.
  - The PRGT (Poverty Reduction and Growth Trust) has been replenished using gold sale profits to ensure concessional lending capacity beyond 2014.
- Latin America:
  - Performing quite well; IMF focus is on providing technical assistance, training, and capacity-building rather than large-scale lending.

### Research implications for policy (fiscal multipliers)
- The World Economic Outlook research on fiscal multipliers indicates larger negative impacts of austerity on growth than previously estimated.
- Policy implications highlighted:
  - Time is of the essence; in many cases avoid heavy frontloading of fiscal consolidation.
  - Consider extending consolidation timetables (example: IMF advocated an additional two years for Greece).
  - Avoid rigid nominal targets; allow automatic stabilizers to operate.
  - These principles are particularly relevant for Eurozone countries pursuing concurrent consolidation.

### Japan and regional cooperation
- Tokyo hosted the 2012 Annual Meetings; last IMF Annual Meetings in Tokyo were in 1964 (48 years earlier).
- Japan’s reconstruction since the Tohoku disaster and its ability to adapt energy policy (shutdown of nuclear plants) have been notable; innovation and cooperation seen as strengths.
- The IMF reduced its forecast for Japan in line with global downgrades; Japan’s export-driven growth is affected by slower global demand.
- On currency-swap and territorial disputes (e.g., with Korea and China): IMF encourages resolution of longstanding differences to allow economic cooperation to support regional and global stability.

### Advice for China and policy priorities
- IMF downgraded Chinese GDP growth forecast from 8 percent to 7.8 percent.
- Advised priorities for China:
  - Be a full-fledged partner in the global economy.
  - Focus on activating the domestic market, with an emphasis on increasing consumption relative to past heavy investment-driven growth.

### Final strategic points
- The recovery requires courageous and cooperative action by members; policy responses should be coordinated and seen as a positive-sum game rather than competitive.
- The IMF seeks to be better equipped financially and institutionally to provide services—lending, surveillance, and technical assistance—to support a sustained, inclusive recovery.

*Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton, October 11, 2012*

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## References

- [Arab Republic of Egypt and the IMF](http://www.imf.org/external/country/EGY/index.htm)
- [Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)
- [Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Technical Assistance -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-capacity-development)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr101112_