Thomas C. Dawson
Thomas C. Dawson

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Argentina and the IMF

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Transcript of a Press Briefing by Thomas Dawson
Director
External Relations Department
International Monetary Fund
Thursday, January 17, 2002

View this press conference using Media Player

MR. DAWSON: Welcome to our first press briefing of 2002. Happy New Year, everybody. This briefing, as is standard, is embargoed until 15 minutes after the conclusion, and we'll set a precise time at the conclusion.

Before I take questions, I'd like to flag a couple of things. First of all, as you are probably aware, the Fund and the World Bank have been conducting a conference this week on the poverty reduction strategy of both institutions. The conference wraps up today with remarks around noon by the Managing Director of the IMF, Horst Köhler, and the World Bank President, Mr. Wolfensohn, in the Bank's Preston Auditorium. The press is welcome to attend, and that event is on the record.

First Deputy Managing Director Anne Krueger departed last night to visit Chile, where she will be giving an address tomorrow at the Central Bank on promoting growth in Latin America. The event is part of a World Bank conference on natural resources and growth. It is open to the press.

After Chile, Ms. Krueger will be in Australia early next week where, in Melbourne, she will deliver a speech focused on the sovereign debt restructuring mechanism. We expect to post this address on the website, and I understand the event is also open to the press.

After Melbourne, she will be visiting Tokyo for meetings with the Japanese authorities, and we expect that she will do a press conference in Tokyo.

This is her first visit to those countries in her official capacity. Details of her itinerary will be posted later today on our website. As you know, each Friday afternoon we do tend to post engagements for the following week.

A last note, Monday is an official holiday at Fund headquarters. If you have any questions, of course, you can still contact the media relations duty officer, and I encourage you to contact the officer and not me, although I will be around.

I would be happy to take questions now.

QUESTION: Is there a set Board date for Turkey as yet?

MR. DAWSON: Late this month or early next month is still what I have.

QUESTION: On Argentina, a couple of questions.

First of all, I believe they are up to around 500 percent of quota. At least their existing program is around that number. Getting the country out of its mess,—assuming that they do all the right things, in your view—it is going to take a pretty hefty chunk of change to get them back on track. And the IMF doesn't like to overextend itself with any one country. So I wonder if it is conceivable to you that the resources available in the multilateral institutions, including this one, would be sufficient. Again, this is all hypothetical. Is there going to be a need for bilateral contributions as well if and when the time comes?

MR. DAWSON: I think it is not only hypothetical but premature. First, I would note that with regard to the Fund's present exposure to Argentina —don't hold me to the precise portion, but I would say about a third of the original program is still not disbursed, so there is money that can be reprogrammed into the context of the new program, should the authorities ask and if it goes in that direction. What might be done additionally we would see at the time.

Now, there certainly seems to be a great deal of interest on the part of the international community to support Argentina at this point in the development of a new comprehensive strategy, as the Managing Director noted last night in his release. And we are in contact with other multilateral institutions, and, of course, a number of governments have expressed interest in and support for Argentina.

The form in which that takes, whether it is multilateral, which has been somewhat more the norm in terms of crisis countries in recent time, or whether there is a bilateral component, I think at this point it is too early to say.

I would also note that there has been a change in the management in the Central Bank of Argentina this morning with Mario Blejer assuming the presidency. Mario is, of course, someone well known to us at the Fund. We congratulate him on his appointment and look forward to working with him.

QUESTION: A follow-up on Turkey, and then a question on Argentina.

In terms of the Board date, for some time now the IMF and the Turkish Government have been saying there should be a Board meeting by the end of January. So is there something holding up the scheduling of the Board date? Is it the signing of the law recently passed by parliament regarding the banking system, or is there yet one more condition to be passed?

And then on Argentina: I would like to know whether—when you said that one-third...

MR. DAWSON: That's an approximate number. I mean, you can pick it off the website, but it is 30 percent or so that is yet undisbursed.

QUESTION: But when you are saying it can be reprogrammed, would that be the limit or is...

MR. DAWSON: No. I am just saying that it is already there. If you want to have a sense—I am not sure the number mentioned before was a commitment number or an exposure number. And I am just saying that there was money already sort of in the pipeline.

Now the likelihood is you would have a new program. Reprogramming is just an informal use of the phrase. But what I meant was, keep that in mind, because this is not unusual. One of the ways some of our critics sometimes score Fund activities is sort of the number of programs, et cetera, et cetera. The reality is just simply that when there is a significant change we develop a new program. But quite often, in reality, some of the money that goes into that program was money that had been anticipated in the other program. So they are not exactly additive. They are in some sense complementary.

On the question on Turkey, as far as I know, that is not the case. Indeed, the reports that I have heard in the last few days indicate that progress on a number of the structural reform measures has been faster than anticipated. So I do not believe there's any hang-up. In addition, the notes that I was provided for this don't indicate that, and I have heard no such discussion. So I don't believe so. If that is not the case, we will let you know.

QUESTION: I just want to know if you could comment on the mission, the technical mission that is in Argentina. I was wondering if they have made progress. How are they evaluating the measures, the last measures taken by the government to get out of the control of the banking section?

MR. DAWSON: I am not sure—I mean, we have a number of contacts planned. I don't have a report on a mission, particularly. We expect that we will be talking with the authorities on a number of issues, and I think that there is a good sense of the agenda for technical assistance that the authorities have asked us for.

I'm sorry I don't have more information on that, but this is still relatively early stage in terms of trying to launch this assistance effort in a wide range of fields.

I don't know if you had something specific, but clearly we have a good dialogue going on with the authorities at this point, and they have expressed a strong interest in talking with us, talking with other institutions. Arminio Fraga from the Central Bank of Brazil has been down there the last couple days. So I think the quality and the intensity of the discussions have increased, and I think that is good. But, obviously, it is going to take a while for the authorities to develop the comprehensive program that they have indicated they want, and we will provide whatever kind of technical assistance we can, and then we will see where we go from there.

QUESTION: Specifically, I wanted to ask you on the chronogram that they have set to lift what they call "corralito," which is the control of the money supply. So I wanted to know if the IMF considers that this is going in the right direction or if there should be changes.

MR. DAWSON: The direction of trying to free up the markets is certainly the right direction. What the pace and timing of it, whether you are talking about the deposits or talking about exchange rate or whatever, is something the authorities are looking at, and we are giving them the advice and analysis that we can. But I don't have a specific reaction to the "corralito".

QUESTION: I'm wondering if you have any reaction to the proposed changes to the Argentine Central Bank charter. Do you think that this amounts to a credible framework for monetary policy in Argentina?

MR. DAWSON: I will confess up front, I am not familiar with the changes that you indicate. I remember seeing something a couple days ago, but I am not up on that. So I will have to get back at you. I think we certainly view the appointment of Blejer as someone we look forward to working with.

QUESTION: From what I've gathered on the IMF site, Argentina should reimburse the Fund about $4.8 billion in 2002. What share of that can be postponed, either for a year or six months, or whatever?

Then my second question is: Does the IMF believe that the actual reserves of the Argentine Central Bank are sufficient to defend the currency or to continue with interventions as it has been doing over the last few days?

MR. DAWSON: We took the action with regard to the SRF last evening because of the difficulty that repayment would impose on the Argentines. As we go forward, the expected repayments are known and on the Web, we will address those issues when we come to them.

I think it also will be done in the context of working with them on developing a program and whether there is a successor program. But, obviously, we are aware of that burden, but I think we have taken the step at this point that I think provides needed breathing room, and then we'll go forward. I think we have a bit of a breathing space at this point.

Now, the other part of the question was?

QUESTION: Does the IMF believe that the actual reserves of the Central Bank are sufficient to guarantee...

MR. DAWSON: Well the level of the reserves in Argentina is still quite substantial. But, of course, reserves have potentially a number of different uses. And how the reserves will be used, of course, depends on what their exchange rate strategy is.

From a theoretical sense, when you have a freely floating rate, you don't need the reserves to support it. When you have a more fixed system ordual rates, then that issue comes up. That is the context in which I know the authorities and we are looking at the situation, and that is indeed one of the reasons why the Fund does, as I think is well known, have a view that dual exchange rates are not sustainable over long periods of time. On the other hand, they have been in programs. We have had programs that start with dual exchange rates, but, clearly, the direction—and I think the authorities have indicated this as well—is to have a unified exchange rate.

But that is the right question to ask, and that is one of the ways, one of the sort of measures that we and others will be looking at in terms of sustainability of policy.

QUESTION: What lessons have you learned from the Argentina crisis, if you think you've learned any, and also if you think that after the Argentina crisis, there might be a new reluctance in other countries in the region to negotiate with the IMF.

MR. DAWSON: I certainly don't sense the latter. I mean, we have an active dialogue with a number of countries in the region and elsewhere about the existing Fund support or the possibility of the support. A number of countries, of course, have programs, so I don't think there is any evidence of reluctance.

In terms of lessons learned, clearly, I think there are lessons for the institutions, the international community, and countries to take out of the situation. We like to say we are a learning institution, and I think the lessons learned out of the Asian financial crisis have been applied, and I think some of them were applied in the case of Argentina.

I read occasionally, including again this morning in one of the news summaries, that the Fund had counseled fiscal tightening in Argentina. I direct you to Box 3.4 in the most recent World Economic Outlook, which noted that, indeed, in the program in late 2000, early 2001, the Fund, in fact, was counseling a loosening of fiscal policy. So I think that some of the simple metrics by which people claim the Fund has a one-size-fits-all approach, I think we have learned from that. I think, in fact, actually the one-size-fits-all rather describes our critics than our own policies.

Certainly one of the lessons in terms of defending a currency board, that you need to have strong policies to defend a currency Board, that is something that we knew. That has been, I think, re-emphasized in this. And I would—it seems like ancient history, but it was about a year ago that the Managing Director and the then-First Deputy Managing Director gave speeches—the First Deputy Managing Director at the American Economic Association conference in New Orleans, and the Managing Director at an EU-Japanese conference in Japan—on exchange rate arrangements, and basically talking about the corner solutions and the need to make sure you have the right policies. It is much harder to defend a currency board approach or various pegged approaches than the floating ones. That is another lesson clearly learned out of that.

And in an almost philosophical sense, I think we have known this—certainly it was one of the lessons of the Asian crisis, is the need for popular and political support for programs to go forward. And the inability under the previous regime to get it passed is something that clearly we saw. Politics is not the Fund's specialty, but it is certainly something that we need to understand. And that is, again, a lesson. Clearly the social costs are something that we recognize. It was noted in the Board discussion and in our statement last night, too.

But I am quite sure that, as we do internal reviews of the Argentine situation, lessons can be drawn. I have absolutely no doubt that our friends and not-so-friends on the outside will be doing that, and I think this is very welcome. I think, though, it is best that if analysis is based on what the actual policies were, what our advice was, and so on at the time. But we have no hesitancy to engage in this sort of both self-analysis and analysis of what happened.

You know, we have seen some analyses by some who are more or less supportive of the Fund's approach. You know, on the left side, Paul Krugman recently. We have had Jeff Sachs commenting on it. We have had Steve Hanke in a column on the 12 blunders of the Argentine program, only one of which mentioned the IMF, so I thought that was sort of progress.

I understand there is also a forthcoming a piece, I believe in "Foreign Affairs" magazine, by Martin Feldstein, which I have seen a draft of, which I think is an excellent piece. He is someone who has traditionally been—not an opponent, but certainly a skeptic on some of the Fund activities. So I think this is welcome, and we will learn.

I say somewhat jokingly in my own job that one of my ambitions in my job in EXR is to make new mistakes, not old mistakes. So, I think that—I think we have learned some of the lessons of the past, but that is not to say that mistakes are not made again in the future. And that is life. That is economics. And that is why it is so much fun.

QUESTION: You said there are no hang-ups facing the approval of the new Turkish stand-by. Now, today is the 17th of January, and until the beginning of next month we have about two weeks. And why don't we still have the time? Are you waiting for something else, or have you started distributing the letter of intent and the staff report to the Board members?

MR. DAWSON: As I say, I don't believe there is any hang-up. There may be issues dealing with Board scheduling, but it is my understanding that it is on track. Again, if that is not the case, we will let you know. But everything I have heard recently is that.

As I said, my initial comment this morning was late January, early February. It is two weeks now before early February. Two weeks is the normal circulation period, but it is sometimes less than that. So I don't think we have a hang-up.

QUESTION: On Argentina, given what you said has been laid out in speeches in the past about the need for strong policies to defend a pegged currency, and given the fact that Argentina failed to meet its fiscal deficit targets at the very first hurdle in the first quarter of last year and the consistent changing of policies and changing of economy ministers and seeming lack of political support from the people, as we saw when Lopez Murphy tried to bring in his spending cuts and was sort of run out of office, given all of that, with the benefit of hindsight, would it not have been prudent to sort of bring this program to an end or to try and renegotiate it more fully than you did and perhaps not have given the money in August?

MR. DAWSON: Well your history was somewhat selective in that. You sort of cut off at the departure of Lopez Murphy. Minister Cavallo's return in March indeed was heralded as sort of a sign of someone who had been quite strong and effective in the past coming back...

QUESTION: I don't believe he met any of his targets either, did he?

MR. DAWSON: No, but he did indeed get additional authority from the congress for additional measures to go forward. And indeed they made efforts to achieve that. So that there was indeed an indication of support, political support for his efforts.

I won't say this is a lesson learned from Asia. I would rather describe this as contrary to the common perceptions of the Fund. The Fund indeed is respectful of a country's choice of currency regimes. And that was very much the case in Argentina. This is a consequence of our approach, and you can read the amended Articles of Agreement to indicate that basically countries have the choice of currency regimes. And the Fund, of course, has the choice of whether to support the regime. The judgments were made at various points during the year 2001 that the regime still had a reasonable chance of success and, therefore, merited our support and the support of the international community.

In the end, as it turned out, the regime was not sustainable. Many are now going back and guessing as to the point at which the Fund should have withdrawn support. But we recognized, as the year went on, how difficult the choices were, and I think it is fair to say that as the year went on, the choices become more difficult.

Reasonable people can differ on this. Mike Mussa has, I think, been publicly quoted as indicating he thought the decision to go ahead with the program in early 2001 was an appropriate decision, and he felt the decision to go ahead in August, which were sort of the two main positive decision points, he thought was—he had some characterization that I won't re-quote here, but you can find—"not the best decision in the history of the Fund," I believe he said.

But, again, reasonable people can differ, and I don't believe—I mean, what happened after August was disappointing, was not what we expected to happen, but was certainly known at the time to have been one of the possible scenarios. But we have to make difficult judgments, and unlike some of the questions, we don't have the benefit of hindsight when we make our judgments.

QUESTION: What in your opinion is the most important lesson of the ten years of transition in Russia?

MR. DAWSON: Institutions. I mean, the need for institutions to develop and to be strengthened. Institution building, which is a phrase you hear a lot within the multilateral institutions, is, as you look at the transition countries, the success in Russia. And as you know, I was the U.S. Director here when Russia, then Soviet Union, then Russia came into the Fund. And I think that has been a very strong lesson as to what is important. But I think that is a lesson that is broadly shared beyond the transition countries.

QUESTION: Is that the lesson that Joe Stiglitz was talking about?

MR. DAWSON: If you have a specific Stiglitz-related question, you might trap me into answering it. But as I listen to his criticisms, I find them rather personal and full of invective, and I don't find much policy content to them.

QUESTION: You just mentioned Mussa a minute ago. I heard him earlier this week, and he was saying that one thing the IMF maybe didn't do enough of was watch the rising debt. He said that Argentina never ran a primary surplus. My question is: Was that—I mean, was that ever in the program that they were supposed to do that? I know the last program was based on the zero deficit law. But, I mean, if Argentina never ran a primary surplus, then does that mean you were a little bit lax there?

MR. DAWSON: I don't quite believe that's true. I would have to go back and check because I have seen numbers recently, I am not sure it's true that they never ran a primary surplus. They, of course, were for quite a period of time easily able to borrow a quite substantial amount of money from private markets. We talk about the 10-year, 11-year Argentine experience. But it was only as recently as 1998 and 1999 that Argentina didn't actually borrow from the Fund, not a single penny in those years because they were still able to access markets. Their growth record, I think, in '91 to '97 was average 6 percent real growth.

Now, if I could maybe take part of that question and maybe rephrase it a little bit, I can recall during the summer-fall of—summer, certainly, of 2001 a lot of discussion among various observers inside and outside the Fund about what was the problem. Was it an exchange rate problem? Was it a debt problem? Was it a fiscal problem? And there were a lot of different views on it. My dear friend, Mr. Hanke, will be quoted as saying there never was a competitiveness problem.

So there was a lot of analysis going on at the time, but that as an important issue, certainly by the time of the August program, became clear because one of the components of the August drawing was the potential for a debt operation.

But, again, I am not—I would have to go back and check whether that is precisely correct on the issue of the primary surplus. It may well be. But I assure you that, as we look at the program and as we look at the financing of the program, it is sustainability of financing that is a key to the program.

QUESTION: Yes, I was wondering—economists always like to do scenarios, if this goes wrong, we have another one. I was wondering if there is any scenario now in the Fund with dollarization on the table, or is it totally discarded?

MR. DAWSON: Are you talking in the context of Argentina?

QUESTION: Yes, of course.

MR. DAWSON: I would repeat our philosophy as well as our practice at the moment. The exchange rate regime choice is the authorities'; the authorities are looking at, as I understand their comments, moving at some point to a unified and floating approach, with at this point a dual rate.

The more general issue of dollarization is one that we look at from time to time. I don't see it on the cards. I believe Anne Krueger made that comment in her press interview a couple weeks ago, and in asking the question, you don't show that you have actually read this morning's "Financial Times," where there is a letter from our friend, Professor Hanke, taking Ms. Krueger to task for the assessment that dollarization does not seem to be on the card in Argentina. So you might want to take a look at that question.

But dollarization is been an item of quite a bit of discussion in the Latin American and more general context over the last couple of years. You have got dollarization in Ecuador and in El Salvador. So I am sure it is something that will stay on the table, but my understanding is the authorities have a particular course of action that we are working with them to support, and, to repeat, we don't dictate exchange rate regimes.

QUESTION: The government in Argentina is now in a big dilemma about the banking freeze and the float of the currency. Is the IMF evaluating or doing any evaluation of the sustainability of their promise to give back all the money on the currency they were committed?

MR. DAWSON: We are certainly looking at how the problems of the financial system will be dealt with, and there are any number of scenarios on how to do that, and we are working with them. It would not be appropriate for us to comment on particular proposals. But we are, in fact, working closely with them to make sure that the unwinding of the various measures that have been taken on a temporary emergency basis can be done in an effective and sustainable fashion. So I think that we will have more on that later as we look at what the implications are. The banking system is clearly under great stress there, and how that is best dealt with, there are any number of different scenarios. And I know from my own contacts and reading on it, including overnight, that there are a lot of different measures being considered, and they affect other aspects of the banking system. So I don't have anything more on that, but I am sure that will be an issue that is going to be part of the advice and the technical assistance we give them, and I am sure you can ask me about that again in a couple weeks.

QUESTION: [inaudible].

MR. DAWSON: That's one—that is one of the issues that we will be discussing with them, but it is not the only one. And as I say, there are a variety of trade-offs. And the authorities, of course, are still in the process of fleshing out their measures across the banking system, and there's still some degree of uncertainty as to how particular measures will be imposed. And as noted at the outset, we now have a new central bank governor also, so we'll have to see how all of that plays out.

QUESTION: Just a question about the Spring Meetings. I understand that the date of the IMFC has been set for April 24th. I just wanted—or something like—21st? 24th?

MR. DAWSON: It's the Sunday. The 21st.

QUESTION: 21st. Then will it be taking place in Washington?

MR. DAWSON: Yes.

QUESTION: Can you confirm that?

MR. DAWSON: That's our expectation.

QUESTION: And how long would the Spring Meetings last?

MR. DAWSON: It is the same format as previously, which is that the IMFC meeting is on the Sunday, and the Development Committee is on the Monday. If that is changed, we will let you know. But I have no indication that it's changing at this point.

We'll lift the embargo at 20 minutes after 10:00. Thank you.

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