Argentina and the IMF
Brazil and the IMF
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Press Briefing by Thomas C. Dawson|
Director, External Relations Department
Thursday, November 7, 2002
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MR. DAWSON: Good morning. We have handed out a news release which includes the latest six-month work program of the IMF's Executive Board. The Executive Board sets its work program every six months, and we have been releasing details of the program for the last couple years to give the general public a sense of what activities the Fund and, in particular, the Fund Executive Board are undertaking beyond country-specific issues. It's a good road map for policy deliberations by the Board, which represents our 184 member countries.
And now I'm happy to take your questions.
QUESTIONER: Has the IMF had any contact with the newly elected government in Brazil? There has been one nomination in Brazil, Antonio Palocci, who is going to be the coordinator of the transition team and the point of contact with the IMF. Has there been any contact?
MR. DAWSON: It is known that the Managing Director did write a letter of congratulations to the President-elect of Brazil and indicated our looking forward to working with the new authorities as they work to develop and refine their program. With regard to contacts with the incoming administration, I would simply note that there is a Fund mission that will be going down to Brazil, I believe over the weekend, starting work in Brazil next week, and I think it's reasonable to expect that they will be in contact with the transition as well as the existing administration during the course of the already scheduled program review.
QUESTIONER: Who is going down?
MR. DAWSON: I believe Jorge Marquéz-Ruarte is the head of the mission. I believe Lorenzo Pérez is going as well. And I'm not quite sure who else. Just as a matter of clarification by omission, Mr. Singh is not going at this point.
QUESTIONER: And the purpose?
MR. DAWSON: It's a regular review. It was announced when we announced the original program that we expected there would be a review at this point.
QUESTIONER: So the basis of what has been agreed with the government that's outgoing now will still be the basis for the conversations?
MR. DAWSON: There is an existing program, the framework of which was endorsed by all of the candidates, or three of the four candidates last summer, and that is the basis on which the review is being conducted. But, clearly, this is an opportunity both with the existing government and with the prospective new administration to review what's been going on in the program and how it should go forward.
Obviously there's great interest in hearing the plans and the thoughts of the new administration, the prospective new administration, and that's what we will be doing.
QUESTIONER: Something interesting has been happening that for a long time the markets in Brazil have been just going crazy because of Lula. And suddenly the atmosphere has changed, and it has become Lula, the people, and everybody just adores him and there's some hope. And I was wondering if you can give us just a little bit of how the IMF is seeing him, not as the President but as the person, and just a little bit more of how people talk about him...
MR. DAWSON: I think it would be rather difficult for us to do that since indeed we have not had meetings with either the transition authorities or with the President-elect. However, I certainly would note that it is fair to observe the markets have responded quite positively after the election, with the results, and with the expectations going forward. And as we have said from the beginning, quite consistently, we look forward to working with this new administration as they develop their program.
In terms of the market reaction, there is an old saying on Wall Street: "Sell on the rumor, buy on the news." And I think that for those who may have thought that the markets were overreacting prior to the election, this would be perhaps some reflection of that. But, of course, I would never be one to judge or question the markets, at least not while I'm in this job.
QUESTIONER: President Duhalde has talked on the phone with Mr. Köhler, and apparently there was a draft of the letter of intent that went to Buenos Aires and an answer that came back. I would like to know what the next step is.
MR. DAWSON: Indeed, we did, at least I did at 8:31 last evening, get informed of the delivery of the response from Minister Lavagna to the draft letter of intent that we had sent down on, I believe, Monday evening. And, indeed, we will be looking very intensively at the letter that was sent up last night.
We are, as I've said, we are in close and continuing contact with the Argentine authorities and working very hard with them. And I think the statement that I read in Clarín Online this morning did note, among other things, that there were some issues outstanding and it did note `amparos' as an issue outstanding, which is certainly the case. But we continue to be engaged with the authorities on a more or less continuous basis, and I don't think it would be appropriate for me to go into particular detail at this point.
I would note that this is something we are actively involved in. I know there's a degree at times of impatience on the part of maybe some in the press or otherwise that there's expectations, that there are particular deadlines or whatever that are governing behavior. I would simply note that we are, as I have said before, working as hard as we can. Sooner is better than later, but we need to have something that is reasonably complete and sustainable.
I also wish to note on a related country issue, but not with regard to the discussions with the authorities, that there is one story I did want to comment on. That would have been out on the 4th, which I guess was Monday. There was a report that Bill Rhodes of Citibank had been in touch with the IMF, in particular with Anne Krueger, the First Deputy Managing Director, on issues relating to the debt restructuring advice to be given to the Argentines. There is absolutely no truth to that story. Mr. Rhodes was at no point in contact with the Fund staff, management, or anyone else. I think that's important to make that clear. We had some inquiries on that, and I just wanted to make that clear.
QUESTIONER: One of the sticking points that's been mentioned in the press has been fiscal issues. I wonder if you could elaborate a little bit on that. Is raising taxes a problem? Lavagna's talking about lowering taxes. And there's also been talk of sort of a fiscal target of a 4.5 billion pesos shortfall for next year, and that would be a problem for the IMF. Could you elaborate?
MR. DAWSON: Obviously we're in discussion with the authorities on these issues. The authorities have a target for the primary surplus for next year with which we are in complete agreement. That's at the federal level. There's also a target in terms of the provincial level, which we are also in complete agreement with. And the issues, therefore, revolve around how one reaches those particular targets. So the idea that the Fund is moving the goalposts in any fashion is simply not the case. We are supportive of what the authorities' targets are. So, therefore, the idea that we are proposing new taxes in some significant broad fashion is not true.
Obviously when you are looking at a fiscal situation, there may be adjustments in one area or another having to do perhaps with exemptions or so on. But the idea that we have any proposals on taxes, tax increases or that the goalposts have been moved in terms of what the overall targets are is simply not true. We are working with the authorities' targets that we think are appropriate.
QUESTIONER: AK Party officials, winners of the Turkish election, have made statements in the last few days. AK officials said they are planning to introduce tax cuts which could probably make it much more difficult to meet primary surplus targets. And, secondly, they announced plans to abolish some of the autonomous boards that were set up under the current IMF-backed program. Do you have any comment on those? What's the game plan with Turkey from this point on?
MR. DAWSON: I think we have perhaps a slightly different perspective at this point. As we have said, we are looking forward to working with the new government, and we, in fact, welcome the statements that we understand, that we have heard from the party, the winners, indicating support for the broad thrust of the Fund program going forward.
It is not at all surprising that when a new administration comes in elements of the program are reviewed. But I would say the indications we have, and certainly the way the markets seem to be taking the indications from the new government, is that there is a commitment to continue the thrust of the program. Whether there are changes made, it is not all surprising. In most programs, when they go through reviews, adjustments are made. So I think the market reactions have certainly been quite positive, and our understanding is that the authorities are looking forward to working with us on the broad thrust of the program, which we are looking forward to as well.
QUESTIONER: On Argentina, can you just say in general terms the fact that a draft letter of intent has gone down, a reaction has come back, does that indicate to you that we are in the final stages of talks at this point on some sort of an interim program? And on Brazil, the review next week, this would be for a release of what amount under the program?
MR. DAWSON: On the former question about so-called final stages, I think I did indeed make the point in answering an earlier question that I think let's not be looking at particular deadlines or expectations of that. On the other hand, it certainly is important and good that we are in continuing contact with them. So there's an obvious exchange of views going on. Let us recall, however, that this is a difficult issue. The political situation within Buenos Aires, within Argentina, is also a difficult situation. While we all would wish for a speedy conclusion, the fact that it has taken longer than we have all wished is not, I think, a surprise and I think we need to keep our expectations in perspective.
With regard to Brazil, the question was what is the purpose and the nature of the review. The review is, I guess, the first review under the new program, and the amount pending is approximately $3 billion. And, I am certain, with the active Brazilian press who are in close competition and activity with my friends in the Argentine press, the Brazilian press will be following the mission closely, and I'm sure we will have the chance to be commenting on that in the coming couple of weeks.
QUESTIONER: Following up on Argentina, Minister Lavagna said also after his discussions here that the IMF had raised the issue of the inability of the political system to come up with the program. Do you think this administration can finalize an agreement with the IMF? And somewhat related to that, if there is not a payment made to the World Bank on November 14th, is that going to complicate the discussions coming up with the program?
MR. DAWSON: Well, with regard to the first part of the question, we certainly are operating and continue to operate on the basis that indeed we can reach an agreement with the authorities, and that is also the perspective of the authorities. So I don't think there should be any doubt about that. And with regard to the second part of the question, I'm not going to answer hypothetical questions regarding other institutions.
QUESTIONER: I have a question on Ukraine. Could you give me an update of what is happening with that country? A general assessment of whether a new program is closer now than a few weeks ago...
MR. DAWSON: Surely. A Fund mission visited Ukraine in late October and the beginning of this month to initiate discussions on a precautionary stand-by arrangement. While macroeconomic developments have been favorable, a substantial acceleration of structural reforms is needed to support sustained economic growth. Discussions will resume after approval of a realistic budget for 2003 and the elaboration by the authorities of their structural reform program.
QUESTIONER: One week ago the Japanese government announced a new package to speed up bad loan disposal. But it was weak and vague compared with original proposal made by Financial Services Minister Takenaka. Do you have any comments?
MR. DAWSON: The reform program that, as you indicated, has been adjusted contained a number of important policy issues, and the key is for the government to fully flesh them out and implement them. I think clearly the prompt resolution of the problems facing Japan in the banking and corporate sectors is essential to strengthen their program. I don't have any more comment beyond that, and I'm not quite sure at what point we will. But certainly this is an issue that we are following closely, and I think the authorities recognize the need to deal as promptly as possible with their problems.
QUESTIONER: Three points about the negotiations [with Argentina]. First, is still the IMF demanding some sort of political backing to the agreement before it is finalized? Second, is the IMF still demanding the reduction of the size of the public bank sector? Third, I understand that the negotiation team of the IMF, and the IMF in general, has been reducing its demands along the last two or three months. At this point, what's the expectation of the IMF about the agreement? Will it be used for what, for avoiding a default or something else?
MR. DAWSON: I think I've dealt with some aspects of that question already. I think in any program, any agreement that we reach in a country, a judgment has to be made, both by the authorities and the Fund itself, that the program is sustainable, and sustainable is in no small degree a judgment that has to be made, both the authorities and by the Fund, that it has sufficient political consensus. So I think that's always been an element. It's an element in every country including in Argentina. So I think describing demands for political backing I think is an overstatement of what the issue is.
In terms of the public banks, the last I had heard on that issue was that it still was an issue of discussion. I'm not up to date, I will be frank, on that one but I suspect it may still be one of the issues under active discussion.
With regard to the nature of the program, we certainly have made it clear that the nature of the discussion at this point is for an agreement that would allow a period to go forward, for the electoral process to go forward in Argentina, for a new government to take office and be in a position to work out, shall we say, a somewhat longer-term program. So in that sense of the word, yes, the discussions that are going on now are for a more modest program, a more modest agreement. But I don't think this is anything new. I think we've made this quite clear for the last, you know, month, six weeks, at least, that this is the nature of the discussions going on, because it is not at all surprising that when a government is approaching the end of its time in office, it does not have the ability to be able to make longer-term commitments, and that's the case in Argentina as well.
QUESTIONER: I'd just like to clear up, the mission going next week to Brazil, you said there's a payment due for $3 billion and that's a $30 billion program?
MR. DAWSON: Disbursement.
QUESTIONER: Disbursement. When will that disbursement happen? Will it happen after Lula takes office?
MR. DAWSON: The review was scheduled to take place during November, and the expectation would have been, and still is, that the disbursement would take place later this calendar year, which would, therefore, be before the new administration takes office. So we are precisely on the schedule that was laid out from the beginning. I can't tell you precisely, however, how long the mission will take, when it will come back; it does require a review by the Executive Board.
QUESTIONER: I know the front runner of the Presidential election in Ecuador, Lucio Gutiérrez, was at the Fund. Do you see any chances for an agreement soon with that country? What are we waiting for? He seemed to be optimistic...
MR. DAWSON: We did see him as part of his visit to the United States last week. He stressed in meeting with the Fund his intentions to deal with corruption, poverty, and competitiveness issues in the context of dollarization if he were elected President. There's a runoff coming. And we look forward to collaborating closely with the new authorities, but, of course, we are, as is appropriate, waiting for the election outcome. And we'd certainly offer to provide technical assistance in the economic area to the transition to any new administration.
QUESTIONER: At this point is there any reason to believe that the disbursement of the $3 billion should in any event not occur?
MR. DAWSON: No, no. The program seems to be on track, and as I say, we are on exactly the schedule that we had expected two months ago.
QUESTIONER: Is this the first disbursement in the program with Brazil?
MR. DAWSON: It's the second disbursement. There's disbursement upon approval, and then there is a review. So it is the first review, but it is the second disbursement.
QUESTIONER: Can you just go back and clarify what you meant about the IMF not moving the goalpost with Argentina?
MR. DAWSON: There have been stories, certainly market commentators observing that we have been changing the conditions, etcetera. I would direct you to the authorities' own 14-point program last April or I believe it was probably Mr. Singh's first visit to Buenos Aires in April, as well as his opening statement indicating the nature of what we are trying to work with the authorities. And so there have been, however, as I noted, questions or allegations, particularly from some market participants, that we were sort of imposing new conditions or so-called moving the goalpost, and I just simply was making the point that that's not the case.
QUESTIONER: What about the tariffs, the public service issue, because that apparently the government alleges that...
MR. DAWSON: It's been an issue throughout the program, I mean, throughout the last six months that I'm aware of.
QUESTIONER: The tax increases that they mentioned, those were not new tax increases?
MR. DAWSON: I don't know what tax increases. You will have to tell me what tax increases people are talking about. I see this reference, but we're not sure what tax increases they are. Certainly there is an issue on the fiscal deficit or fiscal surplus target, and we agree with that. We are not proposing new taxes. There are issues, to be fair, just to take an example, slightly hypothetical. If there, for example, is a broad-based tax and some sectors are exempt from it, it is a perfectly reasonable issue to look at whether the exemptions are appropriate. I don't think we would view that as a tax increase. It's rather an issue either closer to tax reform or a matter of leveling the base.
Similarly, there are issues, in the context of Argentina, regarding tax amnesties, for example. There have been a series of tax amnesties. It's our view that when you have something like 11 tax amnesties in 10 years, that does tend to kind of impact on compliance because expect there will be the 12th amnesty. So that's also an issue of trying to get that kind of a process under control. But tax increases, again, I'm not sure what they're talking about, because, frankly, I don't see a particular tax that people are talking about or recommending be increased, although I have seen some people thinking that utility price increases are tax increases. I don't think that's the case.
QUESTIONER: But the President [Duhalde] said so. Is he wrong?
MR. DAWSON: I've read his quote, and I don't see what tax increases he's talking about, to be perfectly frank. So it's not a matter that he's wrong. I'm not certain what the increases... Some of the comments are also made in a historical fashion. We're talking about the present situation.
I do not believe at the moment that VAT is an issue. I'm not aware that it is. Again, I don't see the specifics coming out, particularly from the Argentine press, who obviously would know it, much better than some of us might know it. But, to repeat, the fiscal surplus target is exactly the same that it's been for months.
Thank you very much.
IMF EXTERNAL RELATIONS DEPARTMENT