Argentina and the IMF
Brazil and the IMF
People's Republic of China and the IMF
India and the IMF
Mexico and the IMF
Heavily Indebted Poor Countries -- A Factsheet
IMF Quotas -- A Factsheet
Proposals for a Sovereign Debt Restructuring Mechanism (SDRM) -- A Factsheet
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Transcript of a Press Conference by IMF Managing Director
Horst KÖHLER, The Managing Director, IMF
Anne KRUEGER, The First Deputy Managing Director, IMF
Thomas C. DAWSON, Director, External Relations Department, IMF
MR. DAWSON: Welcome to the Annual Meetings press conference of the International Monetary Fund. I have with me on my far right, Anne Krueger, the First Deputy Managing Director of the IMF, and on my immediate right, Horst Köhler, the Managing Director of the IMF. This is an on-the-record press conference. Mr. Köhler will have a brief statement to make, and then we will be happy to take your questions. I will recognize questioners and I will ask you to identify yourself and your organization.
MR. KÖHLER: Good morning, ladies and gentlemen. Thank you for your interest to be here. We have a very full weekend before us. The world economy faces some difficult issues and it is important that the membership meets, that we meet, civil society meets, in the cooperative spirit of our institutions to look for common solutions. We all need to play a part, governments, the private sector, civil society, these international financial institutions. I hope that the forthcoming meetings will serve as a focal point for our joint efforts. Before taking your questions, I would like to outline briefly where we stand, and what will be the key agenda items for the meetings.
1. The global economy. You have you seen our latest World Economic Outlook and had the opportunity to discuss it with Economic Counsellor Ken Rogoff yesterday. Since the Spring Meetings, prospects for the global economy have clearly weakened amid considerable financial market volatility. But it would not be productive, in our view, to dwell on undue pessimism or even doom and gloom. The global economy has shown remarkable resilience in the face of multiple shocks over the past two years, and there are still good reasons to expect the recovery to continue in the period ahead. What we need now are vigilance and measures to rebuild confidence, and I expect that there will be a positive impetus coming from these meetings.
2. The challenge of globalization. Despite the compressed format of the meetings and the inevitable constraints imposed by heightened security measures, I am confident that ample time will remain for dialogue to allow all segments of these meetings and society to express their views. Tomorrow's all-day program of seminars, in which I will also participate, represents one such opportunity. My message to our critics and the protestors this weekend is straightforward. We share many of your concerns about globalization, the benefits of which have not been equally shared around the world, but the objective should not be less globalization but more and better globalization.
Integration into the global economy, in particular through trade, must be accompanied by investments in making integration pay off for all world citizens, and especially the poor, and that means investments in better national policies, better global governance, better cooperation and, if you want, also a better IMF, and we are working on that.
3. The IMF in the process of change. This weekend's meetings represent a key opportunity to advance our work in these areas. I have provided Ministers and Governors with a comprehensive report on the IMF in the Process of Change—that is the title of the paper—which will be released to you later today. This report takes stock of the progress achieved so far toward strengthening the international financial architecture and, at the same time, outlines a framework for taking these reforms further forward. I expect that my report will be endorsed, and I hope that the meetings will provide further impetus for our Work Program in the period ahead.
Our reform efforts are at varying stages of implementation, but considerable progress has been made in all areas:
· With this objective of strengthening crisis prevention, I am particularly happy with our progress in making IMF surveillance more effective.
· We are enhancing the quality and focus of surveillance, including by paying more attention to financial sector vulnerabilities.
· We are also working hard to enhance the Fund's capacity to respond to crises when they do occur.
· We have a comprehensive Work Program focusing on the establishment of clearer limits on access to Fund resources, more systematic assessment of debt sustainability, and the strengthening of the legal framework for sovereign debt restructuring.
· We are reinforcing our support to low-income countries, with more emphasis on country-owned policies, all of this in a context of a near revolution in transparency at the IMF and a steady increase in the release of economic information by our members.
Two initiatives are of particular importance to me at this stage of the discussion. After a long and constructive debate over two years now, which has drawn widely on public comment, including civil society, the Fund has amended its guidelines on conditionality, which will be published later today. These guidelines, which form the framework of IMF lending to its members, had been last changed in 1979. Three key principles have guided the amendment: first, country ownership of reform programs; second, streamlined and focused program-related conditions; and effective coordination with our multilateral institutions, in particular with the World Bank. I am pleased that the first report of our Independent Evaluation Office has confirmed that we are moving in the right direction in our reform of IMF conditionality. We have established an internal task force to follow up on the Independent Evaluation Office's suggestions for further improvements.
A second area in which significant progress has been made is in our support of low-income countries. A review of the PRSP/PRGF (Poverty Reduction Strategy Papers/Poverty Reduction and Growth Facility) process earlier this year was encouraging. Consistent with the Monterrey consensus, the PRSP approach has created a participatory process, which brings together member country policymakers, multilateral and bilateral donors (for better coordination of donors), and civil society in a country-owned and results-based approach to sustainable development and poverty reduction.
Ladies and gentlemen, there is still a lot of work ahead to achieve a real breakthrough in the fight against world poverty and for sustained growth and more stability in the international financial system. We are absolutely not satisfied with many things, but we do think we are on a good path. There is ambition to work hard, and I have no doubt that this, at the end, will pay off also for a better globalization which is in the interest of all, particularly the poor.
Thank you. Now I am happy, together with Anne, to take your questions.
QUESTION: Mr. Köhler, the new U.S. national security strategy published last week made reference to the role of the IMF and the World Bank. Do you welcome this, or do you see this possibly as an attempt to make these two institutions more overt instruments of U.S. foreign policy?
If I could ask Ms. Krueger, do you expect to see any real progress at these meetings on advancing the cause of the SDRM [sovereign debt restructuring mechanism], given the amount of opposition that it seems to have generated?
MR. KOHLER: Well, I take this mentioning in the U.S. strategic paper as an expression that the U.S. Government, the U.S. Administration feels it is good to have this institution, the IMF. They are, as you know, a major shareholder at the IMF, so it is quite natural. But you can be assured that this institution has a membership of 184, and it is our policy to take into account all our members' interests.
MS. KRUEGER: If I could just add, that section of the national security report focused on economic growth and its importance, and has simply reiterated the U.S. position, which we have known right along, that they see the IMF and the World Bank as leading institutions for achieving sustained economic growth in developing countries. I don't see that in any sense as anything different than what we already knew; just a reaffirmation of continuing policy where they see economic growth in the rest of the world as important for U.S. security interests.
As to the sovereign debt restructuring mechanism, I think it is planned that there will be a discussion of that at the IMFC [International Monetary and Financial Committee]. We are hoping and expecting that the IMFC will ask us to work as quickly as we can, moving that mechanism forward in a conjunction, of course, with continuing work also on collective action clauses.
QUESTION: Mr. Köhler, in the context of the need to reduce current account imbalances across the major economic areas, the IMF has been calling for the U.S. to establish a clear medium-term plan to return the budget back into balance. I am wondering, given the World Economic Outlook's reference to very conservative forecasts of future non-defense discretionary spending in the U.S. over the next decade. Does this mean that you think the U.S. Administration ought to rescind the tax cuts that are to be phased in over the coming years?
Mr. KÖHLER: I think the major issue is to contain expenditure, and this is our advice. The issue of current account deficits here is also an issue for the global economy and for others. Therefore, I would like to take this opportunity again to advise our European members, our member Japan, to accelerate their growth, because that would also, and in my view even for the most part, help to reduce the current account deficit here in the U.S.
QUESTION: Mr. Köhler, what is your opinion about the decision of the European Commission to delay the stability goals of the European member countries? The stability pact is now under discussion. It is a new scenario for the world economy and the policy mix in the euro area. Do you welcome this, in this situation of the world economy?
MR. KÖHLER: I think it is the right decision, because it demonstrates that there is a tension and vigilance to the European economy. On the other hand, I understand it as a confirmation of the Stability and Growth Pact, that means the appropriate implementation in a particular situation. That is also my advice to the Europeans, to stick to this pact and not to undermine it.
QUESTION: Mr. Köhler, I had a question on Brazil, which I would like to ask, but just to clarify what you just said, you said the right decision is to delay the pact but, on the other hand, you take it as a confirmation and the pact should not be undermined. Does that mean that you are agreement with the decision to delay the balanced budget until 2006?
MR. KÖHLER: Exactly. I am in agreement that it is right to achieve this goal. You have in general a balanced budget in 2006, and not to try to achieve it in 2004; that is right.
QUESTION: You agree with that.
The question I had was about Brazil. You have placed a $30 billion bet on Brazil. You have got a situation where the Economy Minister of Argentina, Lavagna, has threatened to default on IMF, World Bank, IDB, and other loans if the money is not forthcoming shortly. That, as you know, came about 48 hours ago. What is your advice to the incoming President of Brazil, whoever he is, and what is your response to the Argentine government that threatens to default on its debt repayments to you if you don't give it more money so that they can pay you back?
MR. KÖHLER: The advice to the Brazilian incoming President is, first, that he should define his policy related to his campaign, his own political objectives. Second, as you know, he has publicly made clear that he supports the core elements of the program we have with Brazil. This is, I think, good news, because it will demonstrate continuation in crucial areas of economic policy, sound economic policy. So, I am quite convinced that we will see a smooth transition of administration in Brazil, so that it proves that Brazil is continuing on a good long-term policy track and, on the other hand, that it is right and timely to support Brazil in this situation.
Regarding Argentina, I look forward to meet with the Minister, and I think I should wait for these discussions.
QUESTION: It is a twofold question. The war is looming around the Middle East, North Africa. Yesterday it was alluded to by Mr. Rogoff and others on the panel that there may be concerns. You talked about how the global weakening, the forecast has weakened tremendously. If the outbreak of war is there, how would that affect your work on a sustained reduction in poverty during a crisis of war? Being that it has already weakened, will the IMF take a position where it just sort of sits back and use the excuse of war to just sort of delay your activity?
The last part of the question is regarding Africa. Yesterday, there was tremendous focus on the Latin American countries in relation to the world outlook, their economic report. Very little is ever said publicly about the efforts in Africa, although the WEO does extensive reporting on Africa; we were told yesterday that you traveled there at least three times. Could you speak to those concerns that the Fund has regarding Africa, the poverty situation there, and what are some of the major initiatives that the Fund is undertaking?
MR. KÖHLER: Well, I will start with the question about Africa. As you know, there are allegations that the Managing Director of the IMF is too much focused on Africa or to have an engagement of the IMF in low-income countries. I think this is not the right allegation. I think in a global context, to use globalization—integration of economies—for stronger growth (and that means stronger growth in industrialized countries, but also, in particular, stronger growth in low-income countries) the IMF has to have a role to strengthen growth in African countries.
This is my commitment, and this is where we are working hard, particularly what I mentioned, in the context of poverty reduction and growth strategies. You may also know of two very concrete further initiatives I have taken. The first is that I and the IMF management decided to set up two new technical assistance centers in Africa. We start with one in Tanzania—Dar es Salaam—this fall, and we had the plan to start the second pilot project in Cote d'Ivoire. Now the situation in Cote d'Ivoire is a huge setback to this project, there is no doubt. It demonstrates that with all efforts the international community (including the IMF) would do, if Africa itself, its leaders, its countries would not show up to get rid of armed conflict and exercise better governance, then all efforts may not be successful.
A second initiative I have taken is to initiate two investors' councils, that is a meeting between business people, domestic but also foreign business people, with Presidents and high officials of government in Africa to discuss directly the investment climate. This, again, happens in Tanzania and Ghana. So, we are very ambitious in what we call a two-pillar approach: first, that the countries themselves in Africa have the primary responsibility to take care about themselves; and second, based on that, that we should be more active to support them.
Our World Economic Outlook makes clear that, of course, the problem is uncertainty in this situation. A discussion about war will not reduce uncertainty, but we don't think that this has an immediate impact on the recovery. We expect the recovery to go ahead, and that the IMF will not be disturbed by these discussions. Your questions had been very hypothetical and, therefore, we should not go in depth further.
QUESTION: This year's world economic report is very critical of India in terms of the fiscal deficit, the slow pace of reforms, and other aspects of the economy. I wonder whether you can elaborate on this. On the one hand, many reports also say that China and India are among the best performing countries and, on the other, you also say that the country is not doing very well as far as reforms are concerned. Could you elaborate on that?
MR. KÖHLER: To India, I would like to ask Anne Krueger to respond, because she is really an expert there.
MS. KRUEGER: I am not a expert. In any event, there is no question that India's economic performance, especially in the latter half of the 1990s, was very good. As you know, the growth rate since that time has slowed somewhat. In our judgment, the reasons for that slowdown have to do, of course, somewhat with temporary factors, but possibly also with the fact that the momentum of reform has slowed. Earlier this year we were heartened with the progress with regard to disinvestment—which is the Indian term for privatization, for everybody else—and that seemed to be going very well but, as you know, there has even been a setback on that front with the oil.
The other problem that we are very concerned with is not something that has happened so far—well, it is not something that so far has caused damage but, if it continues and is not corrected, could constitute a very major problem. That is, of course, the size of India's fiscal deficit, which is over 10 percent of GDP on a consolidated basis. Indian debt, at first, was relatively low, so when that started it wasn't necessarily all that detrimental and India could afford that for some years. But now debt to GDP has risen; I think it is about 70 percent. When the fiscal deficit is 10 percent of GDP, that is already at a very high level, and rising. So, of course, we are very concerned, and believe that the outcome of that could be a squeeze, which could either reduce necessary government expenditure and infrastructure and other investments, or otherwise lead to difficulties in terms of growth.
Finally, I should just say that I believe India is fully capable of growing at 8 percent per year, which is what is necessary if poverty is really to be reduced quickly. On current policies, and so on, the growth rate is around 5 percent and, I believe, could go a lot higher. So we would like to see that.
MR. KÖHLER: I would like to add two sentences about China and Asia. Indeed, China is, through its growth, well-performing growth scenario, contributing to stability and growth in Asia. What is also encouraging is that in Asia there is now an intra-regional trade expansion, which is good for the global economy. So, one of the factors when I mentioned that there are good reasons that the global economy will pick up again in the period ahead is that, if you look to the regions, there is a lot of uncertainty and weakness certainly in Latin America. But there is strength now in Asia; there is certainly a stable situation in East Europe, in the transition countries. So, all over the map, the picture is not as bad as sometimes the doom and gloom scenarios would look like.
QUESTION: I have two questions for Mr. Köhler. The first one is about the package. Interest rates in Brazil are higher than before the package and the exchange rate is worse. Did the package fail? The second question is about the debt burden in Brazil. It is very difficult to reduce the debt burden because it, itself, generates high interest rates. How can Brazil return to growth with this constraint?
MR. KÖHLER: I don't think that the package failed, because the package is still in place. What happens now, what we can observe now is no surprise. It was always clear that there will be volatility. That has a lot to do with the election campaign and the discussions there. So, no surprise. I still feel the package will work. The debt burden clearly is high, but if you look to the potential of Brazil in terms of growth and productivity, I do think it is a sustainable situation. What I hear from the candidates, all candidates, including also Mr. Lula [da Silva], that he wants to exploit this growth potential, that is the best vehicle, avenue to move forward and to keep the debt situation sustainable.
QUESTION: Two questions. One of them is about the quotas. Does the IMF demand an increase or revision in the money for quotas from the Assembly of Directors that is taking place this week? The other one is about the report of the independent office, because I think one comes with the other. The independent office yesterday said that there are some prolonged users of resources of the IMF, so why are you asking money from us if you don't stop this kind of use of funds of the Fund. Could this be linked to the situation, for example, like Brazil or Argentina, or even Mexico? Mexico has just stopped two years ago from being a prolonged user.
The last question is about Mexico. Now it is a impressive situation, but the government refused to be a CCL [Contingent Credit Line] candidate. The CCL is one of the main issues that you put on the table three years ago, two years ago; now, does any country like that line?
MR. KÖHLER: The IMF is not asking in this situation, at this point in time, for an increase of quotas. When you read the report, which will be released to you during the course of today, you will get the report about the status of the discussion. There are views from members saying, we should be attentive and increase quotas timely. There are other members who are saying, there is ample liquidity in this institution; we don't need to raise quotas. I think there is for the time being no request from the IMF, but we should discuss it openly.
I would like to see this discussed in the context of a broader question, and this is the question of how we define a policy concept to make globalization work for all and, in particular, also, to have a policy concept which has the appropriate instruments to help. If you want good performers—if there is a shock coming which is not under their control, in my view, in a forward-looking perspective—we should think further what we can do in order to give good performers with good policy the assurance that there is an efficient safety net available so that they can go ahead with a further opening of their economy with trade integration, and so on. So, no decision for the time being, but a discussion about what is the appropriate role of the IMF to make globalization work for the benefit of all.
The IEO report and review of prolonged use, in my view, is a very, very useful report. It demonstrates not only that the team, under the leadership of Mr. Ahluwalia, is an excellent team, but also it demonstrates that this decision to establish an Independent Evaluation Office pays off already now, because they worked on that. They didn't say, for instance, prolonged use is altogether wrong. They are saying you need to look maybe in some cases, like the transition countries in Eastern Europe or possibly also low-income countries, prolonged use may not be so bad. But, beyond that, they made clear that we have all reason to review how we can end prolonged use where it was the consequence of wrong program design, lack in implementation of programs, all this. This review is already in the pipeline, and we are working on that.
Regarding Mexico: Mexico, in our view, is a good performer. It is indeed right that the CCL did not work up to now, because by markets and by some of these countries themselves who could be eligible for the CCL, the present design is perceived as being a demonstration of stigma: "You need to have IMF support". We need to work on this stigma—say, hesitation—we can find an answer to that. But the basic idea is that good performers, good policies should rely on a safety net, where they know if there is an exogenous shock—they have no control about this and it would be a major setback to their policy)—that there is something which steps in timely and with a high degree of automaticity so that it works.
QUESTION: This question is for Ms. Krueger. A few days ago you said that there will be very serious consequences if Argentina declared a total default. Could you be more specific on those consequences? Also, Minister Lavagna said yesterday that it wouldn't be the end of the world if negotiations broke down. Could you comment on that?
MS. KRUEGER: Let me take that in reverse order. I don't think it would be the end of the world if negotiations broke down, but we keep working and hoping that we can agree with the Argentines on a program that will enable them to provide more assurance that their economy has stabilized and provide a basis for self-sustaining growth. I hope that we will get there sooner rather than later, but that is a question. In the meantime, obviously there are serious consequences if they go into arrears on their debts. I don't think that needs much elaboration. For one thing, there are social programs and other programs of—I think, especially—the World Bank and the Inter-American Development Bank, which would have to be suspended. Some of those finance part of the social safety net, and we are very concerned about that.
QUESTION: Mr. Köhler, in your last public remarks about Turkey, you praised that country for its performance in implementing an IMF program to improve its economy. Now, early parliamentary elections are scheduled for early November. There is a major effort by rebel Deputies in the parliament for the cancellation of that election. If that happens, would it hurt the economy in a major way?
MR. KÖHLER: I expect that the election will happen.
QUESTION: I have two questions. Number 1 is about the call for trade liberalization and openness of trade. I wonder how the Fund reconciles that call with the protectionist practices of the industrialized world, especially the United States.
Number 2, I would like to know if the Fund plays any role in the disbursement of the HIPC [debt relief] and poverty alleviation funds going to the African countries; and if not, why not? I suggest the Fund has to set some benchmarks for the disbursement of these funds, given the tendency for corruption in most of the governments on the continent.
MR. KÖHLER: Well, indeed, I want to underline that trade liberalization, in my view, is indispensable, the most important element for a strategy to promote sustained growth for industrialized countries and for low-income countries. It is also very important, this trade liberalization, to enable low-income countries to diversify their economies. So, it is not just an issue of raw materials but also an issue of manufactured products. There is, in my view, indeed, some kind of protectionist attitude in the advanced countries, which I don't like. That is in Europe; that is in Japan; that is partly also in the U.S.
But you should not forget that, particularly in this country, Bob Zoellick, the Trade Representative, managed really—and, of course, President Bush—to get now Trade Promotion Authority, and this is a very promising decision. I have no doubt, looking to the history and the tradition of this country, being strong believers in free trade, that this trade promotion authority at the end will be very, very helpful for the global economy and also for the low-income countries.
Regarding HIPC, first, I would like to underline that, as you know, the World Bank and the IMF made really a huge effort to bring this HIPC process to implementation. Now we have 26 countries who have reached the decision point, and I think 8 already the completion point. That means a lot of debt relief, which already pays off for more spending in the social area. We know, for instance, that social spending in 1998 was altogether, in the HIPC countries, 6 percent of GNP. Our calculation is that this ratio will increase this year to 9 percent. That is a tremendous increase in the freeing up of resources for more spending in health care and education.
Of course, there is a problem, and we are working on that. It is still not easy to track debt relief to expenditures, to education, and health care. We are very hard working on that, together with the World Bank, because there is a problem of corruption, of bad governance, no doubt. I am so happy that the Africans, for instance, themselves, in their NEPAD (New Partnership for the Development of Africa), have made good governance as their own linchpin for improving the situation. So, it is up to the low-income countries to work on that, but the IFIs use all possible means, and this includes, say, technical assistance for better public expenditure management to make sure that debt relief moves to more spending for education and health.
QUESTION: Do you think it was a mistake for Mexico to wait for the U.S. recovery, or we must be supportive on our own recovery?
MR. DAWSON: Could you perhaps repeat the question, rephrase the question?
QUESTION: I want to know if it was a mistake for Mexico to wait for the recovery of the U.S. and to integrate into this recovery, or we must do our own homework to recover by ourselves?
MR. KÖHLER: I don't think that Mexico—the Mexican government—just waited for the U.S. recovery. They are working hard on a reform program. The situation that there is a kind of slow pace recovery in the U.S. makes their life certainly more difficult, because Mexico is very linked to trade with the U.S. But there is a reform policy in place. There are further plans; they should be implemented. I have, in principle, no basic concern about the Mexican situation.
QUESTION: Mr. Zoellick hinted last week that he believed that he or the World Trade Organization can probably do a better job of encouraging developing countries to put in place a number of reforms in their economies, certainly a better job than the Fund and the Bank, because it is a two-way street. Could you weigh what you see are the respective strengths and weaknesses of each organization's approaches?
MR. KÖHLER: Well, I think they should complement each other. I should say that Bob Zoellick is a very ambitious person, so I wish him good luck in his endeavors.
QUESTION: The IMF has hinted in its annual report that the risks to global stability are on the downside, and a lot of those risks emanate from the wealthy countries, perhaps especially the United States. Could you comment or elaborate on that?
MR. KÖHLER: Well, it worked out over, I think, the last decade that the U.S. economy has increased its weight in the global economy. Therefore, if growth is slow here or uncertain—particularly here in the U.S. economy—that is, of course, a shadow for the global economy, more than ever. But you should not forget the positive side of this, and this kind of more impact of the U.S. economy means also that we should not underestimate the potential of a recovery of this country or economy for the rest of the world. There is still a lot of technological potential, which I feel is also a potential for more products and services. I do think that the flexibility of this economy is still unmatched by other countries. I still feel, and I say it because my own brother is a U.S. citizen, that the people are more forward-looking compared to many other regions in the world. This forward-looking spirit is also, in my view, a component why I have possibly a bit more, as Ken Rogoff expressed it, cautious optimism. So, he underlines the caution. I have a bit more optimism. But certainly it is an environment of uncertainty and, therefore, a need for vigilance
MR. DAWSON: Thank you very much. We look forward to seeing you throughout the weekend. Have a good day. Thank you.
IMF EXTERNAL RELATIONS DEPARTMENT