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Transcript of a Press Briefing by Horst Köhler|
International Monetary Fund
Thursday, November 15, 2001
MR. DAWSON: Good morning, everyone. Welcome to the pre-IMFC press conference. This is live, on the record, of course.
Ms. Krueger, the First Deputy Managing Director, is I think delayed. I'm not sure whether she'll make it. She had another engagement.
And the Managing Director, Mr. Köhler, has an initial opening statement, which I think you've seen the prepared version of, and then we'll be happy to take questions.
MR. KÖHLER: Thank you, Tom.
Good morning, ladies and gentlemen. It seems to be an early morning, so I hope that we are all still fresh.
MR. KÖHLER: Asleep. Maybe we can serve here a bit of coffee. Thank you for coming.
I would like to begin by saying that we are grateful to the Government of Canada and the City of Ottawa for hosting the IMFC meeting, which had to be delayed following the tragic events of September 11. In my view the most important message coming from Ottawa will be that the international community is coming together, and this is the representatives of 183 member countries, to demonstrate common ground in dealing with the critical problems facing the world economy.
The IMFC agenda. This will be a very focused meeting, concentrating on two topics. The first is the global economic situation in the aftermath of the terrorist attacks, and the response that is needed to restore growth and sustain the fight against poverty. The second topic will be the role of the IMF in combatting money laundering and the financing of terrorists.
How do we see the situation in the global economy? First, the situation is clearly difficult, but it is manageable and we continue to expect a recovery next year. Second, the IMF has been working hard to get a handle on the needs of its members, and stands ready to help them to cope with the current situation. Third, the actions of the IMF need to be part of a coordinated response by the entire international community. And I have outlined the elements of that response in my October press statement on the global economy, which you will have seen.
We have to recognize that we face an extraordinary degree of uncertainty in the aftermath of the September 11 attacks. There is no real precedent for this situation, which makes forecasting based on previous experience look something like trying to read the tea leaves. The IMF staff, based on its analysis and extensive information from the various regions, has made an initial assessment. The outcome is that we have again had to revise our forecast downward. As shown in the table we are handing out today, we have cut our global growth forecast for 2001 slightly to 2.4 percent. Our forecast for 2002 is now also 2.4 percent, which means that it has been reduced by a full percentage point. But the staff's best estimate is still that there will be a recovery beginning around the middle of next year, and I see a good chance for the beginning of this recovery in the second quarter.
We can't exclude the possibility of a worse scenario, but we give this a much lower probability because there are a number of positive underlying factors including in particular the policy response that has already taken place, and this means what is already in the pipeline as stimulus and the effects of reforms that were introduced in the wake of the Asian crisis.
Another positive factor is that the decline in oil prices is helping to promote recovery and reduce financing requirements in all importing countries. In addition, while there has been a correction in the high technology sector there is still major potential for further productivity gains from the use of new technology.
So we have reason not to be overly pessimistic. What is needed now is to build confidence through sober analysis and sound policies, while making sure that we are prepared to deal with the worst outcome if that proves necessary.
The advanced economies have a particular responsibility to ensure that their policies support an early return to sustainable growth in the world economy. The aggressive easing of monetary policy in the United States was right, and I welcome the recent moves by the European Central Bank. This will have a significant positive effect, no doubt. The virtual absence of inflationary pressures also leaves room for further easing if necessary. Beyond this the United States now needs to clarify its fiscal stimulus package. The European Union should let automatic stabilizers work fully to avoid unwarranted fiscal contraction. Japan too should avoid fiscal contraction in the present circumstances, and Japan should also inject liquidity more forcefully to counter deflation.
I trust that confidence will get a particular boost when people see that the structural obstacles to stronger growth are being tackled energetically. This is confidence-building if consumers, investors recognize that politics are concentrating on structural obstacles because concentrating on this means to improve further the fundamentals for sustained growth. I would point in particular to the need for European countries to accelerate reforms of labor and product markets, and for Japan to take action on banking and corporate sector restructuring.
Many emerging markets and developing countries are under severe stress, but on the whole, they are in a better position today to cope as a result of reforms adopted in recent years.
I welcome Anne Krueger, a bit delayed.
MS. KRUEGER: Good morning.
MR. KÖHLER: And these reforms adopted in the last years in the emerging markets and developing countries include, amongst others, greater transparency, the implementation of standards and codes for good fiscal and monetary policy, fiscal consolidation, stronger foreign exchange reserve positions, and greater exchange rate flexibility.
The reforms have also made the international financial system as a whole more resilient. It will be important for emerging markets and developing countries to stay the course of sound policies and structural reforms since markets will have little tolerance for weak fundamentals, and the more the countries stay this course, the earlier investors come back or enhance their engagements.
Now the IMF stands ready to help its members. As I made clear in my October 5th statement, the IMF stands ready to help its member countries deal with the current situation, and this is through our policy advice, our technical assistance, which gets more and more important, and additional financing. In an extraordinary surveillance exercise, we have worked very hard to get a good overview of the situation, and we can see from our detailed country-by-country analysis that there is a very differentiated picture. This means that we should be careful to avoid basing policies on blanket judgments or generalized judgments. Most countries are benefiting from low oil prices, but some of course would be vulnerable to any further significant decline. Many countries are already suffering from declines in the prices of other commodities, export volumes and tourism receipts. Some can cope without external assistance, but others will need our help. While the estimates are subject to great uncertainty, our overall calculation is that the Fund has flexible instruments and adequate liquidity to meet the prospective needs for additional financing. We will of course have to keep this situation permanently under review.
I believe that the IMF needs to have a flexible and proactive approach to help members cope with the current world economic situation, and I hope that the IMFC in Ottawa will endorse this proactive flexible approach.
The international community should not let the downturn in the global economy derail the efforts of low-income countries to reduce poverty. What is needed now is comprehensive support for sound growth-oriented policies in low-income countries by the international financial institutions, by Paris Club creditors, national export credit agencies and the donor community. All have to share in this coordinated collaborative approach to deal with the situation.
Regarding the IFIs, the international financial institutions, I have been staying in regular contact with the heads of the World Bank and the regional development banks, EBRD in London, African Development Bank in Cote d'Ivoire, Asian Development Bank in Manila, and of course with the IDB in Washington and Jim Wolfensohn with the World Bank. And since September 11, we have nearly biweekly telephone video conferences to ensure that our actions are mutually reinforcing.
The IMF here, the staff has analyzed the situation in 60 low-income countries together with the World Bank and expects to field missions, and about 40 of them, before the end of this year.
Ladies and gentlemen, the situation again varies considerably from country to country, but where there is an adverse impact, it is imperative to respond swiftly in support of good policies. Our best estimate at this point is that the need for additional lending next year from our concessional lending window, the Poverty Reduction and Growth Facility, will be on the order of up to $2 billion. I am really grateful for Japan's announcement this week that it will provide one billion U.S. dollars in loan resources to this facility. Japan's contribution, along with similarly generous contributions by 8 other countries—and I was eager to put the countries in this note, that the public knows about these countries—assures that the Fund will have the minimum amount necessary for the continuation of the PRGF Facility, but we need to be ambitious in supporting our poorest members, and I would strongly encourage other nations to follow these examples, and I will approach them in Ottawa again.
The IMF and World Bank have also made it clear that we stand ready to reassess debt relief for countries reaching their completion points under the HIPC Initiative in cases where prospects for debt sustainability have been compromised by exogenous developments in the world economy.
We can all be happy about the decision at the WTO meeting in Doha to start a new round of trade negotiations which will provide a further boost to confidence and prospects for economic recovery, but I also want to be clear—and this will be a permanent feature of the IMF's surveillance work—it will be crucial to ensure that the words of the Doha Development Declaration are translated into concrete action to open up markets in areas of greatest importance to developing countries such as agriculture and textiles, and to eliminate trade-distorting subsidies in the advanced countries. I do not think it is any more acceptable that the rich countries, with their huge billions of subsidies, are distorting markets to the disadvantage of the poorest. So any talk about poverty reduction in the advanced countries, which is not tackling this issue, is in my view then disclosed as rhetoric and even maybe cynicism.
Making globalization work for the benefit of all requires that we are also active in safeguarding the stability and integrity of the international financial system, and recent events have shown the need for stronger international cooperation to combat terrorism. For these reasons the fight against money laundering and the financing of terrorism will rightly be the second topic on the IMFC's agenda and it is agreed already in the Board of the Fund that the Fund will step up its activities in this area.
Drawing on cooperation of our global membership we will work with all of our members to put in place the appropriate legal and regulatory frameworks. The main vehicles for this are the IMF's financial sector assessments and its technical assistance. We also intend to step up our cooperation with the Financial Action Task Force as well as other international bodies dealing with these matters. I expect to receive the IMFC's endorsement for these initiatives.
Last point, globalization and the Financing for Development Conference. Finally the global slowdown and the events of September 11 make it clearer than ever that we live in an interconnected world. The IMFC and Development Committee will have a joint dinner discussion with United Nations Secretary General Kofi Annan immediately after the IMFC meeting, and we will discuss globalization and the preparations for next years United Nations Financing for Development Conference in Mexico. I very much appreciate this opportunity to meet with Kofi Annan, because it is important for finance ministers to be part of the financing for development process and because I see this discussion as part of what I call a search process for a policy concept to shape the process of globalization where we can be assured that all people in the world participate in the positive potential of globalization.
Thank you very much. Sorry that it was a bit long, but I thought I should put it into context.
MR. DAWSON: Thank you. If you could demonstrate your normal good manners by identifying yourselves and your organization prior to questions. Right here.
QUESTIONER: Is there any truth to the persistent rumors and comments from Kemal Dervis that the IMF is going to issue a statement on Turkey shortly about support for further financing?
MR. KÖHLER: I don't know whether Kemal Dervis is involved in rumors. I know him as a very solid capable World Bank staffer and now Minister. Reality is that a mission of the IMF was in Ankara, had talks, and as I am informed orally, these talks had produced good results. It is probable that this afternoon we will have a Board Meeting, where first we will listen to the report of staff, and then of course, we'll also have a discussion how to respond to the situation and achievements in Turkey.
QUESTIONER: On Argentina, I wanted to know what is your assessment of the restructuring of the debt plan that has been presented, and if you think, like Fischer said before leaving the Fund, that international guarantees would be necessary in order to consolidate it or to be successful?
MR. KÖHLER: Well, the Argentine authorities face difficult economic challenges. It is critically important that they strengthen the policy framework to put the public finances in Argentina on a sustainable basis, which together with a carefully designed debt restructuring would help restore confidence and create conditions for lasting economic recovery. Moreover, we urge the authorities and their creditors to work in a collaborative fashion through dialog and cooperation to achieve a comprehensive debt agreement that is consistent with Argentina's immediate financing needs and the restoration of medium-term sustainability. The IMF stands ready, as always, to work with Argentina. We are in permanent contact.
QUESTIONER: Mr. Managing Director, I'd just like to ask about the forecast. Ms. Krueger told a group of us earlier this fall that there's a convention in the IMF that anything below, I believe it was 2.6 percent global growth, was considered recession. Is it your assessment that the global economy will be in recession from this year to next? And I'm particularly interested in Japan, which was sharply downgraded. Is that due to basically deterioration in exports, and what types of fiscal actions do you think are necessary for Japan?
MR. KÖHLER: Well, I don't know what Anne said. Maybe she should comment herself. But we do not think that 2.6, or we have now forecast for this year 2.4 and for next year also 2.4, is a recession. There are various definitions of a word or global recession. We expect that the outcome of the slowdown will be less severe than the recessions in '91 and in the early '80s. And as long as we stay above these downturns, we feel it's not the worst-case scenario.
With regard to Japan, indeed this is a serious situation. We have to recognize there are two consecutive years of contraction. This is not good. It has its major origins in the domestic economy, lack of demand, and of course uncertainties for the further course of structural reforms in the corporate and banking sectors. And therefore, our advice is not to contract the fiscal stimulus in this situation, and to start convincingly with reforms in the bank and corporate restructuring.
Anne, would you like to say something about definitions, or is it done?
MS. KRUEGER: We, at the Fund some of us are new and have been checking in the history of what has been declared, et cetera, et cetera. And as far as I know as of this time, based on the last memo I received, there has never been an official definition of worldwide recession in the Fund. The reason, of course is, that most of the time different countries are in different phases of the cycle, and so to have everybody going down at once would be very unusual circumstances which is why a number above zero was sometimes used before. But there is no official number at this time that is used that way.
I believe the number 2½ was the number I had heard earlier, and I would guess that's the number I probably endorsed. I don't think I actually said it, but I trust your memory on that.
QUESTIONER: A year ago in the WEO, at this time last year, the IMF said that the outlook was the rosiest in a decade. What has changed?
MR. KÖHLER: I can't remember that we said the rosiest. Maybe Mike Mussa, but—
MR. KÖHLER: He was at that time our chief economist. Well, there is clearly a sharp drop in activities in the U.S. which was never seen before; it has to do certainly with a correction in a kind of IT bubble; consumer confidence, now also in other regions. Altogether it is a correction after maybe a development which was exaggerated in the years before, but I still feel it is a process of correction, possibly even needed correction, and based on that, the IMF staff, after having analyzed the situation very carefully, thinks the correction now is going over into a recovery, because major fundamentals in the global economy still are good, have improved, and we should not confuse ourselves now only to embark in doom and gloom scenarios.
QUESTIONER: To follow up on the question on Turkey, Mr. Köhler, does the Board have at least an initial understanding that Turkey's need for additional financing is justified, and when do you think such a package can be finalized?
MR. KÖHLER: I think the Board has a lot of understanding for Turkey as well as for Argentina, and the Board demonstrated this during the course of the last month, and the relationship, the working relationship between the IMF staff and the Turkish authorities, but also between the Board and Turkey, is a good one, but it's the obligation of the Board to look carefully to the analysis and listen first to the analysis and the report of the mission, and this has not yet happened, so we should give them a fair chance to get this report.
But what I have heard on an oral basis is that the Turkish authorities not only complied with the criteria, the performance criteria we have set up in the program, but also seems to have agreed with our staff on a policy outline for the future which is needed to sustain growth and activity. Therefore, I should not preempt the discussion in the Board here at this press conference, but I do think that we will have a positive and constructive discussion.
QUESTIONER: I have a two-part question on Argentina if I may. In your opening statement you said emerging market makes need greater exchange rate flexibility. I wonder what makes Argentina different in your view.
And also now that the governors in Argentina of the main provinces have signed the fiscal pact, I was wondering whether you think that now the program is on track and the mission can go there and talk about disbursements?
MS. KRUEGER: To say that there bigger exchange rate flexibility may be needed does not mean that it is always and in all circumstances needed, so I don't think the Managing Director's comment was to that effect.
The agreement with the provincial governors is so recent that staff are pouring over it as we speak. I'm actually expecting something of a diagnosis later this afternoon. As of the last time I looked, those agreements were not complete and we did not have an assessment of the fiscal situation.
I think until—we're certainly talking with the authorities. We certainly want to get to a point where we can send a mission. There is, however, no point in sending a mission until such time as we actually complete the review, and that means that we need more information on several things including the fiscal side first.
QUESTIONER: I'd like to know where you stand on Pakistan, because there were high expectations from the Pakistani government for some resolution, and then your term on a new program.
And secondly, there were a number of bond issues this week ironically in the emerging markets as you were releasing your report about how thin issuance has been in the last quarter and in the beginning of the fourth one. I was wondering if you think it's time yet to say whether or not the drought seems to be abating?
MR. KÖHLER: I'll take the first part. Anne, maybe you could take the bond issuance.
MS. KRUEGER: Okay, I'll take it.
MR. KÖHLER: But let me first to the general approach. I would like to take this opportunity to clarify that we had been in very good talks with Pakistan authorities before the September 11 happened. And it was already before this event clear that Pakistan had complied with the performance criteria of the standby agreement, and it had already been agreed before that after the stand-by agreement we would embark in negotiations about a three-year medium-term PRGF-funded program. And these talks are in good shape. We are now also seeing that our funding for the PRGF loan resources are better than before, so we feel that a conclusion on agreement is close. I don't know the latest developments about that, but it seems that we can finalize this in rather rapid time.
MS. KRUEGER: On the bond market, it never closed quite completely, and you may recall that Chile was able to issue and Turkey actually issued, I think $500 million of Euro bonds I think sometime in the past month. So it has never been completely closed. But certainly the volume went way down, and basically we are anticipating that we're going to see some activity now, but the real test will be the beginning of next year, as will tell us then much more about at least the short-term outlook.
QUESTIONER: Mr. Köhler, I wonder if you could speak about monetary policy. When you mention all of these things that Europe and America and Japan need to do to build confidence, how does monetary policy work differently in those three areas? I mean, you welcome this aggressive easing in the United States in saying it's right, and in Europe, but monetary policy doesn't seem to have the same effect in Europe. Does it really stimulate growth there? What can you say about monetary policy, its effectiveness as a tool in those three economies?
MR. KÖHLER: Well, first I do think it is right that we understand that monetary policy in this situation is a kind of first line of defense. And in the U.S., I think the aggressive stance was right, because of the U.S. further developed financial sector and the business activities and attention is more to earnings, balance sheets, it was right to do it so.
I would not have recommended a full copy of the Fed's policy for the ECB. The ECB is in a different situation, first, because it's a young institution, and the instution´s full—if you want—responsibility starts generally next year. So they are still in the phase of introducing to the world a unified currency in Europe. Therefore they have to balance this building up of a reputation as a new institution, but nevertheless also looking to the economy in Europe and what to do with monetary policy, not only to fight inflation, but also to see it in the context of the business activities.
And in this regard I think it would have been wrong, the same aggressiveness than the Fed, and also, it would be wrong because the structure of the European economy differs from the structure of the U.S. economy. There is still more industrial sector than for instance in the U.S.
Japan is again a differentiated picture because they have, in effect, deflation. And we, all of us, are concerned about deflation, and we feel they should have a more, if you want, a proactive approach to fight deflation, maybe even to set targets when they bring down deflation.
So it varies from continent to continent. Therefore not just one approach. One-size-fits-all is not right, but all together the monetary policy in this situation can and should play a stronger role with this differentiation, and I have no doubt that it will pay off because now there is a lot stimulus, monetary stimulus in the pipeline, and this is one of the factors why I am still confident that recovery will take place.
QUESTIONER: Would you elaborate the reason why IMF revised downward the forecast of U.S. economy, especially the reason why you revised downward significantly for the next year?
MR. KÖHLER: Well, the reasons are rather obvious. Investment is not expanding. Consumer confidence dropped. There is still the uncertainty about how layoffs and early warnings about profits will further influence business activity. So altogether there are good reasons that we had to revise it downward. But in my statement I made clear that there are now even more good reasons to believe that recovery will take place.
QUESTIONER: Two questions. One, Gordon Brown, the Chairman of the IMFC, has called for the surveillance part of the IMF to be separated out completely and given much more freedom to speak. I wonder what you thought of that?
Second, I think it's no big secret in the past some Fund staff have felt that money laundering is an issue best dealt with by an international police force, not a multilateral lending institution. I wonder if you can say whether you think that attitude still exists with regard to the translation of the money laundering issue into the terrorist financing issue?
MR. KÖHLER: To the first question, surveillance or new definition of surveillance in the Fund, I feel that Gordon Brown's suggestion, which I got to read and hear yesterday and today in the newspapers, is a good idea. It's an interesting idea, because it fits with my own thinking that we need to have a process of better early warning based on sound professional analysis without being too much and too early, say, pulled in the politics of rescue operations. And I think sober, sound professional analysis from say good economists is not everything for a good word, but it's a lot, and we should give it even more attention and impact in our activities. So I think it's an interesting idea. Underlying the importance of surveillance, which I feel is a major vehicle and asset of this institution, combined with its excellent say core of staff people, this can be further developed, and I feel we should really carefully discuss Gordon Brown's suggestion.
To the anti-money laundering, of course in my view, there is attention between the clear commitment of the Fund to work to preserve the integrity of the international financial system, and this means to work on legislation and prudential supervisory schemes which make it difficult or impossible for money laundering, but the function of police enforcement or pursuing crime, that is not within our mandate, the second leg. And I feel it is very important also to have an approach to combat anti-money laundering which will not create divisiveness in our universal membership because the most important asset of this institution is the spirit of cooperation and the spirit of consensus building, taking into account the interests of all members, which is an asset to make globalization work for the benefit of all. And I have no doubt that we will find the right line between on the one hand being very proactive in the activities against money laundering, but on the other hand leave law enforcement activities and police functions to the appropriate institutions and agencies.
QUESTIONER: Could you help me understand the part of your statement where you call on the United States to clarify its stimulus package? Does that mean that the IMF believes that another $100 billion or so is needed, or that they just need to explain better what they have done?
MR. KÖHLER: No. What we mean with that is that United States should come to a early decision, and this is to find a compromise there, because the ongoing discussion is not something which is confidence building.
QUESTIONER: Some authorities in Argentina and the region have complained that the Fund hasn't been so eager to help Argentina as they have been to help Turkey. What do you think about that?
MR. KÖHLER: I don't think this is right, and it's also not fair. I'm in the IMF since 17 months, and I was involved now in two major discussions about support for Argentina, and it is just August, end of August, that we decided in the IMF on a new package of $8 billion for Argentina. Who would say that we are not balanced or would prefer to work and to give good things to Turkey, I think it's neither just nor fair.
MR. DAWSON: Thank you very much.
[End of press conference.]