Transcript

Transcript of a Press Briefing by David Hawley, Senior Advisor, External Relations Department, IMF

March 20, 2008

MR. HAWLEY: Hello, ladies and gentlemen. I'm David Hawley, Senior Adviser in the IMF's External Relations Department, and welcome to one of our regular biweekly briefings for the press. I'm sorry we're starting a few minutes late today. This will be the last of our briefings before the Spring Meetings, so I'll go over some of the arrangements for them. Let me remind you that as usual, the briefing will be under embargo until 10:30 a.m. Washington time. I would like to thank journalists who are joining us via the Online Media Briefing Center and encourage them to send in questions.

Let me tell you about a couple of events for the Spring Meetings. The analytical chapters of the World Economic Outlook will be released on April 3, and Simon Johnson, the Economic Counselor and Director of our Research Department, will hold a press conference together with the authors of these chapters here at headquarters. The chapters are going to cover the following subjects: the changing housing cycle and implications for monetary policy; climate change and the global economy; and finally, globalization, commodity prices and developing countries.

The press room will then open on April 8 and there will be the release of the other flagship publication of surveillance, the Global Financial Stability Report on that day. Jaime Caruana, the Counselor and Director of the Monetary and Capital Markets Department, will lead a briefing the same day. The following day, on April 9, Simon Johnson and the WEO team will return for the release of the first two chapters, the Outlook chapters of the WEO.

And then finally from our side on the press briefing front, the Managing Director, Mr. Strauss-Kahn, will give his regular pre-meetings briefing on April 10. The IMFC is on April 12, and the Development Committee the following day, April 13.

During the meetings or shortly afterwards, depending on the region, we will be releasing a number of our regional economic outlooks for Asia, Latin America, Sub-Saharan Africa, Europe, and Middle East and Central Asia. Before turning to your questions, let me flag an event in our calendar for tomorrow. The Board will be discussing sovereign wealth funds and the next steps toward developing voluntary best practices. I hope that we will be in a position to brief the media fully after tomorrow's Board. With that, let me take your questions, please.

QUESTIONER: A few questions about Turkey. The Turkish Economy Minister is in town and shortly, I think, he will be meeting with the Managing Director. The other day in New York, he told Reuters that Turkey's private sector would need IMF funds and when the present program expires in May, the successor program likely would not include another standby arrangement with use of Fund's resources. Do you have any comments on the continuation or the format of ties with Turkey after the program expires?

And given the delays in Turkey's social security reform and the little time left before the normal expiration of the present standby, would you consider the 7th and 8th reviews to be conducted together? And any comments you'd like to make about Turkey in these days in turmoil?

MR. HAWLEY: That's three questions. Let me take them in order. We have not yet had discussions with the authorities on Turkey's post-program relationship with the Fund. As you know, the IMF serves its members in many different ways, and we are ready to be guided by the government on what is best for Turkey. Right now, the focus both of the authorities and the IMF is on completing the upcoming reviews under the current arrangement, and in that context you asked about the progress of the reviews. Staff are discussing with the authorities ways to bring the program to a successful closure. We had, as you know, originally thought we could conclude two more reviews before the standby arrangement expires on May 10. However, it is more likely that the remaining reviews would be combined into one.

QUESTIONER: Will the Managing Director and the Minister today be discussing the format of the next program and second, is the ongoing review to be combined with the rest?

MR. HAWLEY: The meeting between Minister Simsek and the Managing Director has not yet taken place so I can't give you a readout on its content. As I've said, we are considering combining the remaining reviews into one. On Turkey generally, I would offer the following observation. The economic performance in recent years has been very strong, thanks to sound policies and structural reforms, but also until recently, a broadly favorable external environment, and growth has been robust, net public debt ratio has fallen sharply, and foreign direct investment has surged. The policy priorities are to consolidate the success of recent years by reestablishing fiscal discipline and continuing with prudent monetary policy to bring inflation down to the 4 percent target range over time. And secondly, revitalizing structural reforms to durably raise growth rates seen in the fastest-growing emerging markets.

QUESTIONER: May I just have a follow-up on that one? The remaining reviews, how many remaining reviews are there? Two?

MR. HAWLEY: Two.

QUESTIONER: My actual question is, the Fed took the decision, and as you know, it's been a busy week in the global markets with the Fed taking a decision to lower rates further. What is the IMF's comment on that? And also do you see that the actions taken regarding Bear Stearns and the Fed's help with that, do you consider that a little concerning, considering that Mr. Lipsky, just the other day, was talking about moral hazard and was advising everybody saying that the Fed, he didn't necessarily name the Fed, but that there shouldn't be bailouts for all the private sector?

MR. HAWLEY: The Fund's position is that the decisive action by the Fed has been appropriate as the Managing Director noted earlier this week in Paris. I've mentioned the decisive action by the Fed in the case of Bear Stearns with JP Morgan.

QUESTIONER: Then how do you respond to the criticism from a lot of developing countries that you give different recipes and advice to them when they experience a crisis in their nation than to the biggest shareholder when it runs into difficulties?

MR. HAWLEY: The motivation is to protect the integrity of the financial system and we regard as appropriate the actions of the Fed in this case.

QUESTIONER: Right. What about the financial systems in those countries? What about the people who are suffering in those countries? The stability of their system was not a concern?

MR. HAWLEY: In the Asia crisis?

QUESTIONER: The Asia crisis.

MR. HAWLEY: The stability of the financial system in the Asian countries crisis was of course a concern and the Fund's policy advice in those cases was intended to restore confidence in the financial system.

QUESTIONER: But the policy advice was not only quite different, it was like diametrically opposed to what is suggested now. At that point, austerity was advised. This time it's the stimulus. Why is it so starkly different?

MR. HAWLEY: The Fund's position on the stimulus as described recently by management in respect of the U.S. is that timely, targeted, and temporary stimulus is warranted. In the Asia crisis there was also some fiscal stimulus after an initial time.

QUESTIONER: You have a mission, I understand, arriving in Kiev today or maybe is it already there. What is the purpose of the mission and how do you assess the overall situation in Ukraine?

MR. HAWLEY: I'm sorry, I don't have an immediate briefing on Ukraine for you, but I'll get back to you.

QUESTIONER: I'd like to ask you about the leadership vacuum at the Bank of Japan. For the first time since World War II, Japan is left without a central bank governor when the global financial crisis deepens. I'm just wondering if the IMF is worried that the lack of the central bank chief in the world's second-largest economy could harm international cooperation with other G-7 countries as well as with the IMF that may need swift and prompt action in case of a worldwide financial emergency.

MR. HAWLEY: We don't expect that the delay in appointing a new governor of the Bank of Japan will affect the conduct of monetary policy, and look forward to an appointment being made.

QUESTIONER: So you don't worry about the delay of the selection of the new Bank of Japan governor?

MR. HAWLEY: As I said, we don't expect it to affect the conduct of monetary policy by the Bank of Japan.

QUESTIONER: Following-up on the question that was asked about the Fed action, I always have to ask what's the point of view of the IMF at this moment on the lack of action of the European Central Bank. The last time I asked this question, if I'm correct, I was told that the importance is that the European Central Bank is ready to act if the situation changed, at this point the rate differential, the exchange rate between the dollar and the euro, this gap is deepening. What's the IMF's view at this moment?

MR. HAWLEY: As you know, we are currently accessing the outlook and risks for all regions and countries in the context of the World Economic Outlook. And as we've said before, the ECB needs to stand ready to respond flexibly if downside risks were to intensify and inflation risks decline.

QUESTIONER: About quota reform, do you expect to reprise that in the Spring Meetings more or less?

MR. HAWLEY: As you know, the Board had a productive discussion or proposal to reform Fund quotas and voice last week by better aligning members' quotas with their weight in the world economy and by enhancing the participation of low-income countries. In light of that discussion, IMF management will return to the Board shortly with a new reform package in line with the Singapore resolution. So the next stage is that the Board needs to consider the proposal.

May I take a question from the Media Briefing Center? "An IMF mission has just finished a visit to Managua, Nicaragua. The administration's officials have said that there are still some points that need agreement before the country's next economic review can go before the IMF Board. Can you fill us in on the background on all those points?"

In response to this, I would note that an IMF mission visited Managua on February 25 to March 7 to conduct the first review of the Fund-supported PRGF program. The mission found that program targets through to the end of 2007 were met, reflecting the continued implementation of prudent macro policies by the administration of President Ortega. Important progress was also made in reaching understandings on policies for this year, 2008, to bring down inflation which was at 18 percent in February, and to manage potentially large foreign inflows in an increasingly complex global environment. The next step is that we expect to see a delegation from Nicaragua in Washington next week to continue the discussions with the hopes of reaching agreement at the staff level on the first review thereafter.

QUESTIONER: The Managing Director had a meeting in London this week with the authorities, and Mr. Darling said there was going to be discussion to be carried over to the IMF meetings on a British proposal to deal more effectively with the global crisis and it included better coordination. Do you have a readout from that meeting? And also, is it the IMF's opinion that coordination has been good during this crisis? A follow-up question would be also what else can be done to ensure financial stability?

MR. HAWLEY: I don't have, I'm afraid, a specific readout on the meetings in London yet, but we'll get you one. But to take your broader point, I'd refer you to the remarks by John Lipsky, the First Deputy Managing Director, who spoke at the Peterson Institute a few days ago. He addressed precisely the point you're making, and he spoke then of the need to address contingent risks.

Let me remind you of what he said, "In today's world of contingent risks, macroeconomic policies may not be sufficient to cushion the blow if extreme events occur. We must keep all options on the table including the potential use of public funds to safeguard the financial system." He went on to say that while he is not advocating the use of taxpayer funds to aid individual institutions, he recognizes that there is an appropriate role for public-sector intervention.

QUESTIONER: In Brazil just this week, Lorenzo Bini-Smaghi said that Dominique Strauss-Kahn had overreacted in urging fiscal stimulus and a countercyclical monetary policy in the Euro Zone. In fact, his exact quote is, "I think he got carried away in his interview with the Financial Times and he didn't really mean that. I think what he meant was that those countries that have room should use that room."

MR. HAWLEY: Mr. Bini-Smaghi went on to characterize the Fund's position correctly on fiscal stimulus, that, where appropriate, fiscal stimulus can play a role. We've analyzed which of our member countries possess fiscal space and our preliminary assessment suggests that major advanced and emerging economies accounting for about two-thirds of global GDP could allow automatic stabilizers to operate fully in the event of a deeper downturn and a smaller number accounting for nearly one-half of global GDP have already or would have fiscal room to implement a discretionary stimulus if needed. That was, I believe, the position of the Managing Director that Mr. Bini-Smaghi was referring to. I think what was being referred to was a report in the Financial Times, not an interview with the Financial Times based on the Managing Director's remarks in Davos at the end of January.

QUESTIONER: A small clarification, please. You said that the quota issue will return to the Board shortly. Do you expect that to occur before the meetings, after the meetings?

MR. HAWLEY: I think before the meetings.

QUESTIONER: I have a question about another totally different topic, the Board meeting tomorrow on the sovereign funds. What do you expect to happen? And you mentioned you think you would be in condition to brief the press? Is there going to be a conference call or a press release tomorrow?

MR. HAWLEY: We're working on exactly what the briefing will be, but it could include all of the above. As I said at the outset, the purpose of tomorrow's Board is to consider next steps toward developing voluntary best practices on this issue so I suggest we wait until tomorrow for a fuller readout on the Board.

QUESTIONER: David, has Dominique Strauss-Kahn actually had talks with Secretary Paulson or are any bilateral talks planned with him about what's going on, or either Bernanke, basically, anybody in the administration?

MR. HAWLEY: I don't have details of contact between Fund management and the U.S. authorities at this stage.

I've got another Media Briefing Center question, "President Kirchner has announced a growth rate of 10.1 percent in fiscal year 2007-2008 based on figures of the Bureau of Statistics known as INDEC. The INDEC data has been questioned by the IMF as not accurate. Is that growth index correct and is the IMF still questioning INDEC's work?" I don't have a specific comment on INDEC, but I would note that high-quality statistics are important for decision making in any country and the Fund works with its members on such issues.

QUESTIONER: Just looking forward to the meetings, what do you see as the major issues coming up at the meetings?

MR. HAWLEY: I think you can look forward to extensive discussion of the global outlook, something that occurs as you know at the meetings. Then there are matters related to the institutional reform agenda at the Fund, work that has been underway for a long time now on quotas and voice and the income model. The meetings will assess the state of play on those. It's also an opportunity for the membership to discuss in a forward-looking manner the strategic direction of the Fund in light of the refocusing that the Managing Director is undertaking. The IMFC agenda as you know, is what drives the meetings from the Fund's side. That has not yet been finalized so I can't offer you a more specific agenda at this stage.

I've got one question on the Media Briefing Center, "The Managing Director this week said that the deteriorating financial situation required a global answer. What immediate response does the IMF envisage to the developing crisis?"

I think I've outlined the Fund's response in the context of Mr. Lipsky's remarks which is an analysis on the one hand of the situation, and in light of that analysis, policy proposals in the first line, then fiscal, then if necessary contingent policies. Thank you.