Transcript

Transcript of a Press Briefing by Thomas C. Dawson
Director, External Relations Department
International Monetary Fund
February 2, 2005
Washington, D.C.

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MR. DAWSON: Good morning, ladies and gentlemen. I'm Tom Dawson, Director of External Relations at the IMF, and this is another of our regular briefings. The briefing is embargoed until 15 minutes after conclusion, and we'll set a precise time at that point. I have a few brief announcements before we have questions and answers.

Anoop Singh, Director of the Western Hemisphere Department, will hold a briefing here at headquarters on Tuesday, February 8th, to brief on the findings of a new occasional paper by the Fund on Latin America. The paper reviews Latin American experience with stabilization and reform over the last 15 years and draws policy lessons for the future. The paper will be posted on the online Media Briefing Center in advance, and Media Relations will issue an advisory with details for the briefing before the weekend.

Regarding management travel and public engagements, the Managing Director will speak this Friday, February 4th, at a Canning House event in London involving Ambassadors from Latin America posted to the United Kingdom and other invited guests. The event is at the Royal United Services Institute for Defense and Security Studies in Whitehall. Press is invited to attend. The Managing Director will then participate later in the day and on Saturday in the meeting of the Group of seven major industrial nations, which is scheduled for London.

As previously announced, in mid-February the Managing Director will be traveling to four Andean countries. He will start his visit in Bogotá, Colombia, on Wednesday, February 16th, and from there he will proceed to Quito, La Paz, and Lima. The visit will provide an opportunity for the Managing Director to meet with authorities from the executive and legislative branches as well as civil society representatives, including labor leaders, social workers, business sector representatives and so on. We have plans to hold press conferences in each of the cities, and Media Relations will provide more information on this once the plans are finalized. Mr. Hawley will be accompanying the Managing Director on that trip, and Francisco Baker will as well.

First Deputy Managing Director Anne Krueger will travel to Stanford, California, on February 10th to 12th, to speak to the Economic Summit of the Stanford Institute for Economic Policy Research.

Deputy Managing Director Agustin Carstens will be in Rio de Janeiro, Brazil, on February the 14th, to speak to a seminar on the Brazilian economy in 2005, organized by the Getulio Vargas Foundation.

And, finally, I was expecting to say good-bye today to Jorge Rosales of La Nacion of Argentina, who's leaving Washington to become an editorial writer for his paper in Buenos Aires. The Argentine Ambassador kindly hosted a reception for Jorge the other evening, and I had a chance to say good-bye to him there. He's not with us here, but I'm sure we all wish him the best in his new endeavor.

I'd be happy now to take your questions on whatever subjects you may have, and for the latecomers, you can look at this on tape. Thank you. And please exercise proper decorum by identifying yourself and your institutional affiliation.

QUESTIONER: It seems there is a delay in the Turkish Government's completion of its prior actions before the Board could meet to ratify the new Stand-By Arrangement. Are you concerned, or do you have anything on this matter?

MR. DAWSON: I think indeed, you know—let me just recap where we were and where we are. The Fund mission in December did, in fact, conclude discussions on a new program with Turkey. The authorities are requesting a three-year, US$10 billion Stand-By Arrangement to support the program, which aims at continuing and building on the sustained growth they've managed, further entrenching low inflation, and working toward debt reduction. The main elements include the 6.5 percent of GDP primary surplus target, containing and reducing social security deficits, improved tax administration, bringing banking supervision more in line with EU standards, and encouraging foreign direct investment.

As [the authorities] indicated, there are a number of steps in the above areas that are needed to facilitate the Board discussion of the new program, as you indicated in your question. These include submission of new social security and banking reform legislation and passage of a new tax administration law. We essentially are waiting to see how this progresses in Turkey and when the authorities are in a position to report that they have adopted the measures called for under the program so that we can go ahead with Board action. I don't have a date at this point for you. When we do, we will let you know.

QUESTIONER: I have a few questions, if I may. We've just been given these new papers on our repayment. Can you tell me what the practical implications of this will be for the IMF and for Russia's role at the IMF?

MR. DAWSON: Are you going to then get on to the rest of your few questions?

QUESTIONER: [inaudible].

MR. DAWSON: Okay, pre-announcing the follow-ups. Indeed, the release that we handed out this morning indicates that on Monday, the Russian authorities repaid the outstanding balance of their obligations to the Fund. I believe it's a little more than US$3 billion. This brings to a close the obligations and the program obligations that stemmed from the program that first was adopted I guess in 1996, but then continued on with considerable fanfare in the late '90s.

The Fund as an institution is, of course, an institution that has a revolving nature of its resources, and countries all pay into the Fund and have the potential to borrow from the Fund. And countries do shift over time from debtor to creditor standing. Clearly, the performance of the Russian economy over the last few years has been very, very strong. The balance-of-payments reserve numbers and so on are very clear, and it's not at all surprising, therefore, that the Russian authorities would get to a point where they would be paying off their obligations. It is not unusual for countries to pay off their obligations early, so I think this does indicate and is a validation of the strength of the Russian economic performance in recent years.

In terms of what it means for the Fund, it means an extra US$3.2 billion or so into our—I can't exactly say into our coffers because the way we actually work about it is then refund it to the creditor governments that had contributed. While we don't have a formal division of creditor and debtor nations, this does in some sense of the word indicate that Russia is moving into a different relationship with the program now in a quite literal sense history.

We continue, of course, to have a close relationship with the authorities, with the resident representative office in Moscow, and I'm sure that Russia will continue to be an active member of the Fund and participant in Fund deliberations.

QUESTIONER: I may be mistaken, but I had the impression that while Russia was in the position of a borrower, the Fund could not use a certain amount of resources that Russia—like the Russian quota or something.

MR. DAWSON: Once a country has paid back its obligations, it can indeed potentially become what, using Fund-speak—we have not changed this word yet—go onto the currency budget, which means that indeed the ruble could become what we call a usable currency and, therefore, be available as part of the pool of resources that the Fund uses for new lending. And indeed that is one of the implications for that, is they could move into that category. I can't remember the precise number. There are probably 60 or 70 countries presently on the so-called currency budget, and so potentially Russia would move onto that as well.

As I say, we don't have a fixed creditor/debtor, you know, definition here as they are, for example, at the World Bank where you have Part 1 and Part 2 countries. But by analogy in that sense, it does indicate that Russia is moving into what our equivalent of a Part 1 would be.

QUESTIONER: My next question is about this monetization thing, which is the biggest issue of the day back home.

MR. DAWSON: This is monetization of benefits—

QUESTIONER: Monetization of benefits for the pensioners and other benefit recipients. The reform—the experts seem to agree that the reform was needed, but by its action, clumsy action, the government seems to have painted itself into a corner. The easiest way for me to ask this question is: What in your opinion—

MR. DAWSON: You seem to be trying to answer the question while asking it.

QUESTIONER: In the opinion of the IMF, what would be the advisable course of action for the Russian Government at this present juncture and what maybe they should avoid?

MR. DAWSON: Well, first of all, we did indeed—and I think this came up once before—welcome the thrust of the reform since these essentially unfunded mandates were quite distortionary, not transparent, poorly targeted, and very expensive. Payment in cash, which will be standard for most of the federal benefits, should help improve efficiency and transparency of social spending.

I think the Fund belief is that at present, given what is still relatively high inflation and tight conditions in some of the Russian labor markets, it would not be advisable to expand overall government spending and, therefore, the underlying fiscal deficit. So as—if it is needed to offer—becomes necessary to offer additional compensation and additional benefits as this process goes on, we think it needs to be accomplished by a reordering, reprioritization of spending as opposed to further—you know, an increase in overall—as opposed to an increase in overall spending.

QUESTIONER: They seem to take at least part of the money out of the Stabilization Fund, which is legal because the legal capital of the Fund has been reached. So I don't know—

MR. DAWSON: I had noticed that in the press story the other day.

QUESTIONER: It's probably qualified as [inaudible] right?

MR. DAWSON: I will have to consult with Teresa Ter-Minassian on that one.

QUESTIONER: Okay. And one last thing. There seems to be a new—a renewed interest for whatever reason in this rather notorious loan of '98. Again, the question of whether the money was used correctly or misused, tied in with some so-called oligarchs' names, is being discussed in the Russian press. Can you tell me once again what the Fund thinks about that old loan?

MR. DAWSON: I'm not going to talk about what we think about the old loan, but I will talk about the story. Indeed, it does seem like a circle has kind of been completed because in my case, I started here in the summer of 1999 when allegations broke out that the Fund money had been either misused or, in a more extravagant version, stolen. Well, if it was stolen, I think this press release this morning indicates that somebody decided to repay it.

Indeed, because of the accusations, there were a number of investigations, including the Central Bank of Russia retaining PricewaterhouseCoopers to take a look at how the funds had been used. And, indeed, we saw no evidence of any diversion of funds from the approved purposes. There was, of course, at the time some sensationalist press reporting. Indeed, the authorities at the time used some of the funds to support the ruble, and that is exactly what IMF money is supposed to be used, is to support currency.

I think actually there's a lesson for the Fund, and I think perhaps a lesson for journalists as well, is when stories like this come up, as they did in the summer of 1999, it's incumbent on the Fund in particular to quickly and in a timely fashion respond and explain what actually happened, and I think perhaps we can be faulted for not having done that as quickly as we should have. And indeed I hope—but you don't have to vote on it right now—that our increased transparency, including these briefings, over the last five-plus years has opened kind of a channel of communications with the media so that when questions or accusations like this come up, they can be quickly responded to. And I certainly have a sense not only by the regular participants in these briefings but the other press who cover us regularly that, you know, when they do have questions like that, they call us and we answer as quickly and as fully as we can.

I think this is a story that will continue coming up time and time and time again, and we will—we still have the same answers. The answers we were giving five years ago are still the same answers, and hopefully, you know, people will begin to accept it. But sometimes our memories are a little short. And there's also some turnover. Some of the reporters involved in this no longer have their jobs.

QUESTIONER: But for my own part, since I have been involved with it from the beginning, I thank you for being here for us and answering those questions.

MR. DAWSON: But as I say, in the summer of '99 we weren't quite equipped as we are now, I think, to answer these questions.

QUESTIONER: I would like to ask the Argentina question. I wonder if you have received an indication from the government whether they want to renew their agreement with the IMF, whether they want to negotiate a new one. Also, do you have any comments on the issue of the expected payments of Argentina, whether they're going to ask for a postponement or not? And what do you think about the process that is going on the debt offer?

MR. DAWSON: Okay. In terms of—you referred to postponement. I think you were talking about the switch from expectations to obligations. Again, we haven't changed Fund-speak from one to the other.

I don't have anything for you on that. I think everyone is expecting that is what will happen. You can look on the website and see when the payments come due, and we will let you know when that action has been taken. It does require the Board to approve it.

In terms of the status of relations with the Argentine authorities, you know, as we've indicated before and as the authorities have indicated, at this point they're focusing their efforts on completing the debt exchange. We continue—at their request, but we also continue to expect that discussions would resume after the closing of the debt exchange. I think Anne Krueger was quoted to that same effect while she was in Davos.

The conclusion is still expected for the end of this month, end of February, but we do, nonetheless, continue in pretty close contact with the authorities on all of the issues in the program.

Your last question had to do with the status of the debt offer, and I just will repeat what I've said before. You know, we don't—we will not comment on the substance of the outstanding offer or on the prospects for it. But we would simply reiterate that we do believe that completion of a comprehensive and sustainable debt restructuring agreement with the private creditors is critical for Argentina's continued economic progress and prospects.

QUESTIONER: I was late so I apologize if I—

MR. DAWSON: I didn't announce anything about the Italian Article IV.

QUESTIONER: I'm not asking anything about the Italian Article IV.

MR. DAWSON: Is it February 7th? Is that what it is?

QUESTIONER: February 7th. You were so kind to provide already the text of the [inaudible]—

[Laughter.]

MR. DAWSON: No, I believe the text came out of Rome, and the last time I checked, we don't have a resident representative office there. I'm sure you already know Mr. Padoan's number. You could call him and ask him what happened.

QUESTIONER: Okay. But I have—

MR. DAWSON: Mr. Padoan, for the record, is the Italian Executive Director.

QUESTIONER: I have two questions which are not related to Italy. The first one: Does the Iraqi election impact in any way the way you are dealing with the Iraqi authorities or your program for Iraq in the future?

And second question: Do you share the urgency for reform of the security social system in the United States, and do you share the idea of a privatization of this system?

MR. DAWSON: I think this is a leaping non sequitur in the questions, but anyhow, it's not a follow-up. It's something else.

With regard to your first question, we continue in close discussions, policy discussions, as well as technical assistance, you know, with the Iraqi authorities in the context of the ongoing emergency post-conflict assistance and additional assistance, technical assistance, particularly in the area of institution building.

We certainly welcome the success of holding the elections in Iraq, despite the difficult security situation. We look forward to the formation of a new government and hope and expect to meet with their representatives to continue the policy discussion once the government is formed.

You know, that discussion will focus initially on the implementation of the emergency post-conflict program for 2005, and subsequently would go on to discuss the policy measures that could form the basis for the negotiation of a follow-on stand-by arrangement, and this is the sequencing as well as the timeline that has been planned ever since the previous Managing Director's speech in October of 2003 in—Madrid? I believe that's right. So we are basically still on the same timeline that we've been—it might have been September. I don't remember.

And the second question, why don't you repeat it again, see if I can [inaudible] my way through it.

QUESTIONER: Does the IMF share the urgency for reform of the social security in the United States? And does the IMF share the idea of a partial privatization of the system?

MR. DAWSON: I mean, I think I would direct you to the—in particular, to the Article IV and the summing-up of the U.S. Article IV consultation. Discussions took place in August, and both the report and the summing-up came out—the PIN came out shortly thereafter. Certainly in looking at the U.S. fiscal deficit and imbalances, that is an issue we certainly are looking at. I don't think it is appropriate for me to weigh in on particular options. I think we have a common understanding with the authorities in terms of areas that need to be worked at. And the social security situation is one of the areas that needs to be worked at, and I think I would just leave it at that. It is obviously a discussion under intense discussion within the U.S. at this point, and I don't think it's appropriate for us to intervene in this sort of a context. We put our views out in a fashion that allows it to be looked at by those who are interested in it, both in the U.S. and elsewhere. And as I say, I think I would just leave it at that.

QUESTIONER: When is your next Article IV on the U.S.?

MR. DAWSON: It's an annual Article IV, so it will be—the next Board discussion would be approximately in August.

QUESTIONER: And the actual mission?

MR. DAWSON: They don't have to buy airplane tickets. Typically, the mission takes place three, four months ahead of time, so basically I would think in the spring.

Now, of course, not only because we are headquartered in the United States but because of the systemic importance of the United States, we are, of course, in a regular dialogue with the authorities, both at the management and staff levels. But the Article IV process, as I say, gets under way in the spring and goes forward, and it typically includes meetings with both the fiscal and monetary authorities.

QUESTIONER: Just a follow-up. Would the IMF's, you know, scrutiny of the U.S. budget and so on, would that happen during that Article IV? And the social security plan, would there have to be a plan in place for you to comment on that?

MR. DAWSON: No, we typically discuss—in fact, you know, this is an annual exercise and one that takes place on that kind of a basis precisely so it doesn't get caught into sort of particular, you know, this or that proposal, this or that plan. But the debate is a debate going on in the United States. The issues are issues with which we're familiar because many countries are grappling with exactly the same issue. You can look at papers virtually every day and you will see stories on particularly other industrial countries but emerging market countries as well facing these issues. And if you will look at our consultations, because more and more of them are published, as, of course, is the United States, you will see this is an issue we regularly grapple with. So, no, it does not need a particular plan to get commentary.

I would also note that typically these issues are also discussed in the context of the World Economic Outlook, which will be coming out the middle of April, our semi-annual World Economic Outlook.

QUESTIONER: Yesterday Treasury Under Secretary John Taylor said that at the G-7 meeting this weekend there would be discussion of—and I can't remember the acronym, but it's the monitoring arrangement, the IMF monitoring arrangement, the thing—it's called the facility that doesn't involve money?

MR. DAWSON: Oh, yeah, I'm not sure of the present, the most recent acronym, but there's a non-borrowing arrangement, is one of the phrases.

QUESTIONER: Right, right. I was wondering if you could remind us what the status of that is. Did it get—it sort of got discussed a little bit at the Annual Meeting. Is there anything going to happen at the Spring Meeting?

MR. DAWSON: I think the best people to ask about the U.S. proposal is the U.S. But indeed that was one of the issues discussed. It's been discussed in the Board, and it was discussed at the Annual Meetings, which is for those countries for whom, for whatever reason, there is not a Fund—a financial Fund program, there be some other mechanism whereby goals, targets, monitoring, performance criteria even, can be established.

There are a number of variations on that theme. The Fund traditionally has had things that have been described, for example, as enhanced surveillance. We have already post-program monitoring. So there are a variety of ways that have been proposed, including by the U.S., to take a look at how the Fund can maintain a close relationship, close dialogue with countries on their performance, including setting, you know, objectives and measuring them.

In terms of the discussion at this weekend's G-7 meeting, I believe that it may well come up. We don't have a published agenda for the G-7 meeting, so I think you'd have to ask someone who's actually attending the meeting, or preparing the meeting—the U.K. is the Chair now—as to the nature of the discussion. But it would not surprise me if it comes up, and it is an issue that continues under discussion at the Fund Board.

QUESTIONER: The President, central banker, Mr. Meirelles, has indicated during the Davos meetings that Brazil is not going to renew the agreement. I'd like to know if you have received any formal communication of that, and what's your opinion on the fact of Brazil leaving the Fund?

MR. DAWSON: Well, I think I can tell you at the outset, first of all, we have not received any such formal indication, so, therefore, I couldn't give you a reaction in that context.

Certainly we have—variations of this question have been asked for some time, and, you know, we've indicated it is—the Brazilian authorities are considering what to do about a possible successor arrangement going forward. Certainly the performance of Brazil under the current program has been exemplary, but the decision essentially as to whether they wish to go forward with a new program or what kind of other arrangement or association they want after that is up to the authorities. And we're waiting to hear from them.

QUESTIONER: But the discussions about which would follow after the end of this agreement were not initiated yet?

MR. DAWSON: No, because we haven't been informed of what their decision is. I saw the same reports, but we haven't been informed of what the decision is about a successor arrangement. Clearly, you know, we will continue in a close relationship with the authorities afterwards, but there is a difference, certainly in a public and press media sense, between having a program and not having a program. I know enough about Brazil to know that.

QUESTIONER: Just a follow-up on the soap opera of the accounting rules and what will happen if Brazil doesn't have any more program. There has been some reports of irregularities in some of the—by the tribunal that is public account auditing in Brazil in some of the investments that have been singled out to be accounted for, but not for the private targets, that they say there are some irregularities in this—in some of those public investments so that, you know, if—which would be the reaction of the Fund regarding that? And in which way will these steady—these discussions about public accounting go on if there is no—

MR. DAWSON: Well, okay. With regard to any particular stories about, you know, particular projects or sectors, I'm not aware of that, and I think that's an issue to be addressed within Brazil.

In terms of the effort going on to take a look at the accounting treatment of public infrastructure investments, that is a general issue that's come up. It did not come up either in just the Brazil context or just a program in Brazil context. So our work in that area will continue without regard to whether there's a program in Brazil. Indeed, this work is multi-country, it's multi-regional, so that that will go ahead no matter what.

In terms of if there were not to be a program, the Brazilian accounting—public sector accounting is really quite transparent now so you will—the same numbers are still going to be published by the authorities that are published now, and, you know, people will be able to take a look at sort of what is going on in terms of public investment spending and so on.

QUESTIONER: I wonder if you could give us an update on Bolivia. [Inaudible] payment in December, and I understand there are negotiations right now.

MR. DAWSON: Well, I think you've just about answered the question. Certainly the economy has been performing well. Growth in 2004 was in line with the program targets and inflation targets--and inflation, though, while a bit over—more than expected, still remains in low single digits, about 4.5 percent. The current account had a surplus of around 3 percent of GDP.

Your specific question on the discussions, a mission is, in fact, presently in the field to continue discussions on the Fifth Review, and when we have more, we will let you know.

QUESTIONER: Tom, what's happening with the tsunami? We know—I mean, are there any other countries that have come to the Fund for help, applied for the emergency assistance?

MR. DAWSON: No. We would certainly let you know if that—if they did. You know, I think just to briefly recap, as you know, the Managing Director attended the conference in Jakarta in early January. Anne Krueger has just returned from visits to Sri Lanka and the Maldives, and we put out statements on her visits there. And then late last week or middle of last week, the Fund Board did approve also a proposal to subsidize emergency assistance for natural disasters, so that for those members who are PRGF-eligible, the financing would be made available on concessional terms, which would seem to be more appropriate. So that's what's going on in terms of new requests for assistance, no, but when we get those, we will let you know.

Then we can wrap it up. I have a Board meeting.

QUESTIONER: A belated follow-up to my earlier question. Are you concerned about the delay in Turkey?

MR. DAWSON: I think you've asked me precisely that question numerous times over the last four or five years, and this has been the pattern. The pattern has been that the missions conclude and then the authorities have to consider how to go forward. And in terms of if the question—you know, I guess the answer to that is no, not particularly. Delays happen and this is not a long delay by the standards of what we've had previously, particularly as Turkey continues to have such an impressive, you know, performance. But a delay it is. There's no doubt.

Yes, last question.

QUESTIONER: The Brazilian authorities have always in these past few months said that they're negotiating a project pilot with the IMF regarding infrastructure. Just for the record, there is no such thing as a pilot project in Brazil?

MR. DAWSON: No, we are doing one—we are doing a—we are doing studies in many countries on this issue. Brazil is one of them. It's part of a larger effort being done to take a look at the public accounting treatment of infrastructure investments. So in that sense, it is a pilot project, but it is not related to the Fund program. It would be going on if there had never been a Fund program in Brazil. We visited India. We visited countries in other regions, as well as in Latin America. So it is not part of the program. It is something that we would be doing anyway because it's an issue. I mean, it's an issue that came up in the United Kingdom. So it is not a Brazil-centric issue, although Brazil is certainly one of the countries where we've been studying it, partly because the Brazilians wanted to and the issues has come up a number of times in Brazil, and Brazil makes an excellent, you know, case study.

But yes, we have projects—we have pilot projects as part of a grander study, but it should not be related to the Fund program because it is simply not part of the Fund program. Most of the countries we're talking about this issue with don't have Fund programs.

QUESTIONER: What other countries?

MR. DAWSON: We can give you—there are at least a dozen or so that we have visited, including industrial countries, because this is a big issue in public sector accounting. And it's one where we need to have a common approach.

The history of it, for example—I think it's well known—one of the reasons this came up was a number of countries, particularly in Latin America, felt that the Fund had a different form of treatment on infrastructure, public sector infrastructure investments in developed as opposed to developing countries. We are responding precisely to that concern by taking a look at, number one, whether that is the case and, number two, whether we can make sure we have an evenhanded treatment; and to the extent that it does seem appropriate to have a different accounting treatment, that we set up some procedures for that. And the example in the Brazilian context had been Petrobras where, even before this pilot project set-up, a special allowance was made for Petrobras investments.

Okay. Thank you very much. We'll lift the embargo at 10:20 Eastern time, which is 1520 GMT, for those out there in the Internet. Thank you.