Argentina and the IMF
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Transcript of Press Briefing|
By Thomas C. Dawson
Director, External Relations Department
International Monetary Fund
Thursday, June 6, 2002
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MR. DAWSON: Good morning, everyone. I am Tom Dawson, director of the External Relations Department at the IMF, and this is another of our regular press briefings.
We do try to stick to a schedule of every two weeks. This has been three weeks. And it may well be that the next interval will be three, but I will try to get back on track, given travel schedule problems.
Before I take questions, I have a few points to make. In terms of announcements, the Fund's Board of Governors approved on May 30 the resolution with respect to membership for East Timor. East Timor's membership will become effective upon the authorities' signing of the Articles of Agreement, which is expected in the next month or so. Over the last two years, the Fund has worked closely with the U.N., the World Bank, and the international donor community to provide policy advice and to assist East Timor in building institutions for economic management. The Fund plans to continue to assist East Timor in meeting its post-independence challenges through technical assistance, institution building, training to support capacity building, and policy advice in support of sound macroeconomic management. East Timor will be the 184th member nation of the IMF.
I have a few scheduling items also to mention. The Managing Director will participate in the G7 finance ministers meeting in Halifax, Canada, on June 14 and 15. This is a meeting that is preparatory to the Group of 8 summit in Alberta later in the month. To our knowledge--at this point, at least--the Managing Director will not be in Alberta. Global development and economic issues are topics under discussion at both events.
On Wednesday, June 12, we will release the latest quarterly Global Financial Stability Report. Gerd Häusler, director of the International Capital Markets Department, will hold a press conference at 9:30 a.m. on June 12 to review the report. Advance text will be available to press, under a 24-hour embargo. Media Relations Division will be circulating a note on how to obtain the advance text.
First Deputy Managing Director Anne Krueger is appearing later this morning at the Bretton Woods Committee's annual meeting here in Washington. I think it is at the Omni Shoreham. She will be discussing issues related to global financial architecture, including the status of the sovereign debt restructuring mechanism proposal. I am not expecting major announcements in the speech, though.
There are also a couple of pending management travels that are likely to take place before the next briefing. Please keep an eye on the media advisories and we will let you know as soon as we are in a position to post them. It is just that we are not quite ready to post them now, and they will--each of the ones that I am aware of, at least, will have a press event, so we do want to give you the notice.
And now your questions. Please?
QUESTION: Do you have an exact date for the negotiating mission to travel to Argentina?
MR. DAWSON: We expect that the advance mission will be going down most likely time next week. Minister Lavagna and Anne Krueger are expected to speak later today. I suspect the precise time will be set then, but it is my understanding that it would be next week.
QUESTION: Given the rate exchange for the Real in the last days and the recent interview of Mr. Köhler, is the market too paranoid about the Brazilian economy or is the Managing Director too optimistic?
MR. DAWSON: We have a great deal of confidence in [Brazil], and I think the Brazilian authorities have an excellent track record in economic management, and we are confident that they have the tools, the ability, and the will to pursue the necessary policies. Now, certainly there is a great deal of nervousness in the anticipation of elections, I believe, and it is not surprising that markets are nervous. I mean, this is of the nature of markets. Markets react, markets over-react. So I think that we view this still as understandable, and it is up for markets to make their decisions. And who knows, if people make their bet in one particular direction and things turn out differently, they will have lost money. That is what markets are about. But we think the Brazilian authorities have a very good understanding, very good policy framework, one that we have been supportive of, and we think they have done an excellent job.
QUESTION: Could I follow up? The nervousness of the markets can undo years of work in terms of structural reforms easily?
MR. DAWSON: I couldn't have said it better myself.
QUESTION: There is concern in the Argentine government that IMF officials have mischaracterized the support of banks for the deposit bond swap proposal outlined on Saturday. Do you have any response to that? As far as you are aware, has there been a very clear characterization, an accurate one, of--
MR. DAWSON: We are unaware of any conversations between the authorities and the Fund on that subject.
QUESTION: I understand that yesterday Mr. Lavagna phoned Anne Krueger--
MR. DAWSON: Yes, and they had an excellent conversation. I think you can read a report on the conversation from the Argentine press last evening. I believe there was also a television interview that he talked about.
I am sorry, did you say that Lavagna called?
MR. DAWSON: No, no. That is expected for later today. There was a call a few days ago. But Minister Lavagna was on television last night, and he essentially indicated that relations with the Fund were quite cordial and did not indicate any of the questions that were in the premise to your question.
QUESTION: So, as far as you are aware of, there has been a very clear depiction of the local response to this proposal?
MR. DAWSON: Absolutely.
QUESTION: A few questions about Turkey. Do we have dates for the IMF Board meeting discussion on Turkey, and do you still keep your view that you have no view on the potential elections in Turkey? And are you satisfied with the latest inflation figures and the economic outlook?
MR. DAWSON: As you know, the mission for the second review returned about 10 days ago. We do expect the Executive Board to discuss the review and the agreed letter of intent in approximately two weeks' time. We do not have a specific date. We will let you know. The approval of the review would release a disbursement of about $1.1 billion. The mission for the third review is scheduled to take place in July.
With regard to the elections issue, as we have said earlier, we wish the Prime Minister a speedy recovery. And we would note again that it is not our place to comment on elections or take part in the speculation to that effect. Our main concern is that the program is in place, which it is, and is on track, which it is.
And with regard to the last aspect of your question, I think the economy seems quite robust. The level of interest rates remains below expectation. The 2002 targets of 3 percent GNP growth and 35 percent inflation are within reach. The May CPI was 0.6 a month, again, lower than expected. Foreign reserves are well above program levels, and the government has been able to borrow more the minimum required amounts both domestically and internationally.
QUESTION: It is not clear to me what happened with the three preconditions for Argentina. Apparently the government is saying that they have accomplished the three of them and that they consider the mission should be a negotiating one and not an advance team, but the Fund apparently has some objections to some of them. I would like to know which exactly is the state of this.
MR. DAWSON: Well, first of all, that is a false distinction, between and advance team and the negotiations. An advance team is part of the negotiating team. It is very common for us to send missions in stages with, quite often, the head of the mission arriving a few days after the mission itself arrives there. So that is quite common practice in the Fund, so there is no doubt that the process that we are on is the one that the--
QUESTION: Sorry. Can we say that the negotiation is starting, then?
MR. DAWSON: Well, the mission is not quite there yet, but that is what they've agreed they will do. I think that probably we will have--and I am sure you will get out of Buenos Aires as well--a read-out from the conversation later today between the minister and Anne Krueger. So I think that is something to look forward to and if we have something, we will let you know.
With regard to the three elements, and then go through each of them--they were the bankruptcy law, the economic subversion law, and the issue of the provincial fiscal situation.
To go briefly over each of them, the bankruptcy law was a law that was adopted early this year that had a provision in it that included that if a company approached bankruptcy and debtors and creditors could not reach an agreement after 30 days, the debtors won. That is not a very friendly approach towards international or domestic investment, and so that was clearly a concern not only of the Fund but, I think, of the government, as well as of international investors and other international organizations and countries. So that was an issue that has clearly been dealt with.
The anti-subversion law, which, as I understand, is a law that had existed some time ago--I believe it was passed during the military regime--and it had a provision which basically said that if a manager of a business contributed to the loss of assets of the business, this was essentially a jailable offense. That would basically mean if you bought a stock and the stock went down, you could go to jail. That, again, is not conducive to a friendly international business environment.
And that is the more recent piece of basic legislation that was repealed, but there were some elements of sanctions that were transferred into the penal code, and we do need to take a look to see precisely what happened. That is not something that can be done instantly. But I would stress that, notwithstanding that we still have the question of needing to understand it better, that provision is not stopping us from proceeding to go ahead with the negotiations.
I should add, in the government's 14-point program from late April, the first two elements that I just mentioned were in the government's own program, as was the third element, in terms of the relations with the provinces, where I think we are up to 16 or so provinces that have signed and I think a few more are expected later this week.
And again, that is a substantial progress. It is well over 80 percent of the economy, in terms of size, of those three provinces. And that does provide us with enough of a feeling that we can go ahead with the process. So in that sense, there were--those elements, all of which were in the government's own program, have been achieved to a sufficient basis on which we can go ahead and proceed with this negotiating process.
QUESTION: Do you plan to ask the Argentines for more conditions?
MR. DAWSON: Well, a Fund program does traditionally have a number of elements to it. It has a monetary program, it has a fiscal arrangement, it has exchange rate arrangements. That is what the negotiations are about. The negotiations are about that.
Now, broadly speaking, much of that is in fact encompassed in the government's own program, because the 14-point program sets forth, you know, a much broader than just these three conditions, objectives and policy. But Fund programs do have targets, do have measures, and that is indeed what the negotiating mission is going to be about.
I think at this point, particular concern is directed toward the importance of establishing a good monetary anchor to prevent a recurrence of hyper-inflation and allow some confidence to return into the financial sector. But there are always fiscal elements as well as exchange rate policy elements in any Fund program.
QUESTION: Could you update us on where things are with Ecuador, please?
MR. DAWSON: Yes. We are continuing our discussions with the authorities on a program that could be supported by the Fund. I can not give you a date yet when a program could be brought to the board, though. Our basic concern is the consistency of policies and the need to bring down quickly the high rate of inflation, over 13 percent a year, in an economy that has been dollarized for more than two years. So we see a need for a strong medium-term fiscal framework, which will boost savings.
There are still important differences between the Fund and the authorities on the path to follow. Our view is that Ecuador should avoid excessively expansionary fiscal policies. For example, the primary expenditure of the consolidated public sector in 2002 is going to be something like 18 percent higher, in dollar terms, than last year, including a 29 percent increase in the wage bill and a strong increase in capital outlays.
It is not a matter of one or two specific measures causing concern, but the overall picture resulting from a high number of higher outlays and the gradual cancellation or postponement of a number of critical structural reform initiatives that initially were contemplated to be this year. On the broader context, there is also the issue of the strengthening of the medium-term fiscal framework through a fiscal responsibility law beyond just this year.
A Fund mission it is actually there now--to explore ways of coming to agreement with the authorities on this point.
QUESTION: It is well understood that you are not going to express your opinion on the election speculations in Turkey. But there is going to be an election, whether it is an early one or an on-time one. Will the IMF ask from the coming government the same commitment in written form as the leaders of the three coalition members have signed and given to the IMF?
MR. DAWSON: I am not in a position to accept the premise to your question, so I just think I will just have to duck it. I think I gave a very full answer to the first question.
QUESTION: What is your understanding about what the provincial governments in Argentina have agreed to? And why do you feel now that there is a basis for resolving this issue sufficiently to go ahead negotiation?
MR. DAWSON: Well, as I indicated, in terms of volume, in terms of economic weight, the number of provinces that have signed on to the agreement contained in the 14-point program of the government is now well over 80 percent in terms of size of the economy. So that is a critical--I think it is fair to say that is a critical mass. What they are talking about are measures for the implementation of these fiscal adjustments.
I would note that this is a process that has taken place though negotiations between the central government and the individual provinces. The Fund is not a party to those arrangements. And indeed, in the case of at least one major province, the agreement was--in terms of the reduction of deficit over the previous year, which was one of the benchmarks that they had set up for themselves--was different than what was originally in the agreed. That is not an issue for us. I mean, it is something we can live with that then fits into the overall fiscal program.
So we need to make a judgment based on whether sufficient progress has been made in terms of an agreement between the provinces and the federal level, so that we can then go forward and look at putting together a program. Because a program could not possibly be negotiated with a government that was not cognizant of, taking into account, the relations with the provinces. So it is pretty straightforward. It is both arithmetic as well as practical.
QUESTION: Could you elaborate a little more the expectations of the IMF for the next G7 meeting? Will Mr. Köhler bring to the ministers an update of the world economic look, and do you expect a final communiqué as optimistic as it was last April?
MR. DAWSON: Well, it is easy to answer the first part of the question. Certainly, the Managing Director will be discussing with the ministers our latest views on the world economy. That is the traditional role that the Managing Director plays in these meetings. And in terms of what the G7 communiqué would say, well, I like my job. I do not think I will speculate on that.
QUESTION: This is on Argentina again. Since this economic subversion law has been on the books since 1974, why has it become an issue now?
MR. DAWSON: Because of the application. It had not been applied in this fashion previously.
QUESTION: Has it been applied now?
MR. DAWSON: This is what the concern was, that it was being applied in the course of this year and maybe late last year too. It was starting to be applied in a fashion which it had not been applied previously and that we do not think was consistent with generally accepted international practices. I am unaware of any other country in the world that has such a provision.
QUESTION: Can you say how much the additional funding for Uruguay is going to be?
MR. DAWSON: No, I do not have anything for you at this point on that. As you know, we did have a mission down there. We are working with them on an augmentation of the program, and when we have something more for you on that, I will let you know.
QUESTION: You talked about, as part of the negotiation with Argentina, that the monetary anchor would be one of the key things looked at on hyper-inflation.
MR. DAWSON: To avoid the possibility of it, yes.
QUESTION: Does that means that you still have concerns about the currency exchange rates and how that is playing out? Is that the issue?
MR. DAWSON: Clearly there has been volatility in the exchange markets. You have a financial system that has been frozen in the process of trying to regularize that. And pressures--you know, the printing of the parallel monies in the provinces is also a well-known issue. So clearly it would be imprudent for us not to be concerned that this could be an issue going forward. And so the--and of course the legacy in Argentina with hyper-inflation is also a historical reality. So I think that it is perfectly natural that this would be a major concern.
And I stress, this is a concern shared very strongly by the government. I know this sounds like an advertisement for the authorities' own program, but please go back and look at the 14-point program. It is quite comprehensive, it is remarkably specific, and it is something that they developed in terms of an agreement with the provinces, and it is something that we wholeheartedly support.
QUESTION: What arrangements has the Fund made for its international staff to be able to follow the soccer championship? Can you--
MR. DAWSON: Well, I did discover only this morning that on my television in my office I can turn on Channel 16 and get, I think it is, Univision. So I was able to watch the game.
But the Fund--I mean, this is always actually--it is a good question. The interest in football--I think we should call it football--is quite strong in the institution. And if you were allowed to roam the building, you would note that in the cafeteria there are a couple of corners where the televisions have been set up, and there also are provisions made in the meeting halls for broadcast of, I think, some of the major games. And indeed, we have had at least some occasions of kind-hearted reporters who have offered access to Fund staff to watch games where they might not have the cable facilities in their own residences--for which we are quite grateful. Not always grateful with the results, I might add, but grateful for the kindness.
QUESTION: No skirmishes, no--
MR. DAWSON: Not aware of any skirmishes, although I think it is fair to say we have more Irish or Irish-ethnic staff than we have German staff, and so yesterday was--there were some tense moments yesterday.
QUESTION: You mentioned that the market reacts or over-reacts. In Brazil's case, do you believe there is an over-reaction or only a reaction? And the second question is, besides the political thing that the mission doesn't like to comment, I would like to know--do you believe that there is any reason to be concerned on Brazil, the economic side in Brazil?
MR. DAWSON: I think markets--the nature of markets is that they take information and constantly assess and reassess. And if markets were always right, you would not have any volatility. So the reality is that things do change.
With regard to the second part of your question, I would repeat what I said, which is that not only the fundamentals are quite strong in Brazil, but performance is extremely strong, we have a great deal of confidence in the economic team, the authorities, and the support for the authorities' program that exists. So, yes, it is something that people keep an eye on, but this is a situation where we think the authorities are doing an excellent job.
QUESTION: On Argentina again, two things. There is a lot of talk in Argentina that the Fund is not happy with the structure of the bond swap, the voluntary bond swap used to lift the banking freeze. And I wondered if you could comment on that.
Also, I know things are in flux and the advance team is going down, but can you give us a ballpark on when the agreement might be reached? Are talking six weeks or eight weeks or--I mean, what is the ballpark figure?
MR. DAWSON: I mean, the latter, you know that is pure speculation. The Managing Director in an interview the other day was asked whether it could be within 45 days and he said he hoped so, but that it is important not to fix on any particular date because it is still important to get it done correctly. However, time has been going on, and so we do indeed feel that it is an important matter.
With regard to the handling, I would not exactly call it a bond swap. It had to do with the deposits and the lifting of the corralito. I think that is a better way of formulating what the issue was. Certainly the Fund did have views on how it should be handled. We presented those views to the authorities. The authorities had their own views. The authorities went forward with a program which, it is fair to say, is not what the Fund was recommending, but that has not stopped us from working with the authorities now to proceed on the basis of what they have chosen in order to try to work on a program. And this in the context of why the monetary anchor is so important. Because as the financial system becomes opened up to some degree, it is very essential that we make sure that some of the possible adverse consequences in terms of hyper-inflation and so on are to be avoided. And that is why the monetary anchor is so important.
QUESTION: About the monetary anchor. How do you envision this monetary anchor? What kind of--
MR. DAWSON: This is the issue that we will be discussing with the authorities.
QUESTION: But is there any ideas on the table--I mean, from either side?
MR. DAWSON: With the advance team just about to go down, I do not think it is appropriate for me to speculate. Certainly there are ideas. We are in a constant dialogue with the authorities. But I do not think this is the time or the place. Sorry.
[Whereupon, the press briefing was concluded.]
IMF EXTERNAL RELATIONS DEPARTMENT