Transcript

With Saul Lizondo, Deputy Director, and Thomas Krueger, Senior Advisor, African Department
April 12, 2008
Washington DC

MS. MBOTO FOUDA: Good morning everyone, and welcome to this press conference, centered on the launch of the spring 2008 version of the Regional Economic Outlook Report for Sub-Saharan Africa.

The report itself, a press release, in both English and French, as well as a video on the report were posted yesterday under embargo the IMF's online media briefing center(OMBC)for your convenience. This embargo is now lifted as we start this press conference.

I would also like to welcome those of your colleagues following us through the online media briefing center, and I would encourage them to send their questions in at this point.

Now, let me introduce the panel we have here today of senior staff of the African Department.

In the middle of the table we have Benedicte Christensen, Acting Director of the Department; to her left is Saul Lizondo, Deputy Director in the same department; and to the far right is Tom Krueger, Senior Advisor in the same department.

Benedicte will have a few opening remarks, and then she will be happy to take your questions, along with her other colleagues.

But before giving her the floor, I would just like to remind you that French is on channel 3, English on channel 4, and Spanish on channel 2.

Benedicte, you have the floor for your opening remarks.

MS. CHRISTENSEN: Thank you very much. Good morning and welcome, everyone.

Before taking up your questions, let me walk you through some findings of our spring issue of the Regional Economic Outlook for Sub-Saharan Africa.

The main message of the report is that growth is expected to remain robust, but recent global developments pose increased risk to the outlook.

In particular, rising oil and food prices pose important economic and social challenges. The Region's prospects continue to be promising. We expect economic growth to be about 6.5 percent this year, with oil exporters leading the way. Meanwhile, growth in oil importers is expected to taper off, though only modestly.

With food and energy prices still rising, inflation is projected to average about 8.5 percent this year for countries in the region, setting aside Zimbabwe, of course.

The region is better placed today to withstand a worsening of the global environment. Many countries are less exposed to shifts in global economic conditions than they were in the 1990s. Exercising more prudent economic policies, these countries have built up their fiscal and external positions, brought inflation down, and increased their foreign reserves. All these factors have helped make the Region more resilient to external shocks.

Unfortunately, as you are aware, the external environment has recently become less favorable, so risks in 2008 are tilted to the downside.

The global economy is slowing down. Oil prices have risen to record levels, and global financial markets are unsettled.

If higher oil prices are accompanied by a pronounced slowdown in the global economy, pushing down the prices of non-oil commodities like precious metals, the exports of many countries in Sub-Saharan Africa would be affected.

Also, while African markets have so far shown limited reaction to the continuing financial turbulence in developed countries, there is a risk that private capital will pull out of a few countries, hurting their growth.

The recent spikes in oil and food prices are raising economic and social challenges for many countries. This is particularly hard on the poor. Several countries have already experienced food riots. Monetary policy is responding appropriately in most countries in the region, and inflation remains contained by historical standards.

Policies should aim at helping those least able to cope with high prices, while not jeopardizing the hard-earned gains on economic stabilization.

Targeted social measures for the most vulnerable groups should accompany the passing of higher food and fuel prices onto domestic users. Tax or tariff interventions should be considered only as a temporary measure if other steps are not available quickly enough to address social tensions.

As countries deal with the immediate challenge of finding an appropriate mix of financing and adjustment, the IMF can help with both financing and policy advice. We also call on donors to increase food aid in this difficult situation.

Over the medium term, the main challenge for Sub-Saharan Africa is to accelerate growth and reduce poverty to achieve the Millennium Development Goals. As you know, we are now at the midpoint between the time when the MDGs were set and 2015, and while more countries are enjoying robust growth, only a few seem well positioned to cut poverty in half by 2015. Only with sustained per capita growth can we expect to see poverty become less extreme. In sum, while the recent improved performance in Sub-Saharan Africa is encouraging, the region still has a lot of catching up to do if it is to achieve the MDGs.

MR. MBOTO-FOUDA: Thank you, Benedicte. We are now going to take questions. As usual, please identify yourself before asking your question.

QUESTIONER: You take out the impact of Zimbabwe, but I'd I guess you could quite plainly call it a crisis in the country. What effect is that having in the Region, overall, economically?

And secondary question is, what would a package or aid look like from the IMF or the World Bank to help reverse any kind of difficulties that are being faced in the Region or in Zimbabwe specifically?

MS. CHRISTENSEN: You are right, we took out the particular figures for Zimbabwe because they are distorting the average figures.

As you know, it is a country that currently has hyperinflation; over 100,000 percent per annum of inflation. It has large fiscal deficits, both in the government budget and parafiscal activities. It is also suffering from a number of shortages. It is still too early to say what precisely our advice would be if we were called to advise in Zimbabwe.

But clearly, there is a need to stop hyperinflation. There is a need to balance the budget and also to reduce the parafiscal deficits. I think those will be among the first pieces of advice, and also to remove controls on prices.

QUESTIONER: What do you think is the impact of the falling dollar on the economies of Sub-Saharan Africa given that most of the commodities are priced in dollar? Secondly, do you think that the expectations on the MDGs were realistic in the first place, because most of the economies were stagnant. It was only recently that we've been seeing some kind of growth in that area...

MS. CHRISTENSEN: On the first question, if you look at the falling dollar, among other things, you will note that prices of oil and other commodities have increased. So, if you look, for instance, at the terms of trade in Sub-Saharan Africa, it has actually not declined, in part because many countries are exporters of commodities that are denominated in dollars, the prices of which have increased.

So, there have been increases both of oil prices and also of prices for other commodities.

Of course, there have also been increases in food commodities. Let's take the example of a country which is an importer of food products but it exports commodities that are also denominated in dollars, then perhaps the overall impact on the balance of payments is not so severe, but it depends on each country. There are some countries that are not commodity exporters, and they suffer a terms of trade decline. There are others like Eritrea and Burkina Faso that have suffered or are expected to suffer terms of trade declines. So, it really is country-specific, and we need to take a differentiated look at each country in order to evaluate the impact.

QUESTIONER: There was a target date for realizing the MDGs, but as it is, most of the countries would miss it.

So, my question is were the expectations of the date realistic in the first place, given that, for a long time, there was no growth in all these countries. You know, it was until recently that we started seeing some kind of movements of trade and strong economies.

MS. CHRISTENSEN: I think the goals were set also in terms of what is needed to make a major impact on poverty and the other areas of the MDGs and also for the whole world, not just in Africa.

But certainly, some regions have been able to realize the MDGs. Some countries are very close to meeting them in other regions of the world. There might also be a few countries in Africa, certainly, that will meet the MDGs. MDGs were set for all poor countries, and for some, they might not have been totally realistic. On the other hand, I also think it is good to set ambitious goals and make those countries and the international community aware of what is required to make a dent in poverty.

If you look at the time the MDGs were set, there was an estimate that GDP growth was supposed to be at least 7 percent to achieve the income poverty MDG.

And actually, we are very close to reaching that particular number. At least growth rates have been edging up to that level, and so that in some areas, we might be close to being realistic.

QUESTIONER:I was wondering, has the IMF held discussions within the Africa region, but also including a representative from China, given China's growing role in the region as an importer of commodities and oil. Also, is there agreement between the IMF and China on the manner in which they are investing in the region, or does the IMF have problems with the way that China is investing in the region for sustainable development?

MS. CHRISTENSEN: Our discussions in terms of China's operations in Sub-Saharan Africa take place mainly in the context of the countries in which we are operating.

We are encouraging China, as a donor, but certainly as a country which has important financial operations --joint ventures, private flows--to be part of the discussions that our teams have in each of the countries.

We are also seeking information on financial transactions of China in Africa, and our main concern has always been whether the financial assistance from the official sector is on concessional terms and consistent with the debt sustainability framework in the countries.

But this being said, there are huge needs for financial flows which can help stimulate growing Africa. So, our general view is that we welcome the additional flows from China to Africa.

QUESTIONER:I would like to ask about the Chinese investments in Africa once again. I'd like to know what is the attitude of the IMF regarding the concessional nature of China's financing, particularly in the Great Lakes countries. According to you, these countries do not respect certain international standards. What are you going to do to the extent that China is a member of the IMF and a member of the World Bank, and China comes with enormous amounts of capital? What attitude are you going to have toward China and toward the people benefiting from these credits, especially as you are working to reduce poverty?

MR. KRUEGER: Just to echo what Ms. Christensen said earlier, overall, I think we very much welcome China as part of the investment community engaging in Africa. I think there are large needs, and some of these needs are very welcome being filled by China.

The second point, though, that you are also alluding to and the question is one of transparency, really, and the terms of the investment. So we think that especially as the official Chinese sector is concerned, they also should abide by the rules of the international community. So in particular for the poorest countries like the DRC, we would expect that official assistance is provided on concessional terms and that these terms are also declared in a transparent way.

Let me just add, on the DRC itself, where the Chinese and the authorities are working on very large projects, we are still trying to get the full information of the underlying deal; but the overall picture is one very much of welcoming foreign investment, including from new investors, but we would like that investment also to play by the rules, including on concessionality and on transparency.

QUESTIONER: Firstly, what are the specific forecasts for Nigeria in the Sub-Saharan Economic Outlook. Secondly, given the depreciation of the dollar, will the IMF advise African governments to reduce their exposure to the dollar?

MR. LIZONDO: On the prospects for the economy, we consider that the economy will continue growing strongly. In particular, we anticipate that there is also going to be a rebound in production of oil, so we are forecasting output growth at about 9 percent in the oil sector and the non-oil sector.

In terms of inflation, we consider that the government will continue with the single-digit inflation, in particular given that the central bank has been tightening monetary policy to control inflation.

Regarding the exposure to the dollar in terms of reserves, I think that this is a complicated issue, and the management of the reserves is something that we have not discussed explicitly with the authorities, about the allocation of the reserves.

QUESTIONER: I'd like to ask about sovereign wealth funds. The World Bank said this week that they would like to encourage sovereign wealth fund investment into Africa. I was wondering what kind of framework, what kind of regulation, and the transparency this would require in order to ensure that these investments are made in the appropriate way.

MS. CHRISTENSEN: We actually have a chapter on capital inflows and what the prerequisites for effective use of capital flows in Africa are in this particular Regional Economic Outlook.

In general, I think that our main concern would be that the financial sector is sufficiently developed, and that there are also prudential regulations in place in order to monitor inflows to Africa, whether they come from sovereign wealth funds or other sources (e.g., hedge funds),the issue is similar. In some countries, the markets are quite fragile, and therefore, even what is considered a relatively marginal investment by some funds can throw the markets off. Therefore, we would consider it important that the markets are well-developed beforehand.

QUESTIONER: I'd like to press you for a little bit more detail on Zimbabwe. The World Bank and the IMF have been doing quite a lot of work on Zimbabwe, and I know there are plans about how you could tackle the hyper-inflation--some ideas of going back to some currency board; I have seen some ideas about free banking, just actually abolish the Reserve Bank of Zimbabwe; and I think another idea is to link Zimbabwe's currency to the South African rand or even the U.S. dollar. Could you give some details on that?

The second question I want to ask is one about IMF relevance to Africa. I know that under the two previous Managing Directors, there was a lot of talk about the IMF's decreasing relevance to Africa because of two factors--the increasing level of private capital flowing into Africa in various forms and also, of course, the increasing importance of Chinese and Indian capital going into Africa, which is self-evident.

I wonder if you could explain the new, or relatively new, Managing Director's view on this. What is he trying to do now with the IMF that will make the institution more relevant to Africa than in previous years?

MS. CHRISTENSEN: First, let's take the question on Zimbabwe. I don't think I can be very much more precise at this point in time in terms of what we would do in Zimbabwe. I think the problems are clear. As we have said earlier in our reports on Zimbabwe, we need to immediately stop hyper-inflation. There are a couple of ways this can be done, whether it is a currency board or through pegging of the exchange rates or through other means. But I think it is too early to say. We do not have any one way of dealing with Zimbabwe. I think the core issue is to stop the money press, in part by getting the fiscal situation under control.

With respect to the role of the Fund in Africa, the current Managing Director has said that the Fund is going to continue to be very engaged in low-income countries and in Africa in particular. The way that he has expressed it is that we need to be focused on what we do best, and that is on areas that relate to maintaining macroeconomic and financial stability. We also need to deal with the changing issues that the continent is facing, for instance, capital inflows. You have mentioned private inflows and China. These issues raise important questions in terms of how is monetary policy, fiscal policy responding to those private inflows. Also, whether it is China or any other donor or major lender, there is an issue of debt sustainability, and this is another area that we should be involved in.

Also , as I mentioned earlier, there is a need to develop the financial sector, and certainly when it comes to banking supervision, how the central bank regulates the financial sector. These are also areas where we would be involved.

So there are changing issues in Africa, and what we hear from our member countries is not a diminishing demand for our services on the continent, but increasing demand in the context of partnership. It is a matter of responding to the needs of our members.

Finally, I should also mention one core area where we have made an important contribution in the past, and we aim to continue this, and that is capacity-building. If there is one area where, really, Africa and its needs stand out from other regions perhaps, it is the need for capacity-building.

So our aim is to build up the capacity in the field, and it is something we have started to do through the IMF's Technical Assistance Centers in Africa, AFRITACs. We currently have three AFRITACs, and we hope to open additional centers.

QUESTIONER: would like to have your input on the food crisis in Sub-Saharan Africa. Women and children are crying everywhere about the soaring price of food in Africa. Do you have an answer to that crisis at the IMF?

MS. CHRISTENSEN: I think the issue of the food prices is one of the most urgent and immediate problems faced by Africa. Yesterday, the Managing Director held what is called the African Consultative Group Meeting with selected Governors or Finance Ministers from Africa precisely on that topic. I don't think there is any magic bullet. The fact is that food prices are increasing, not just in Africa, but globally. It is a global phenomenon that also requires global solutions. In the short term, prices are rising, so countries have to face these increasing prices.

We recognize the very dire social consequences of the increased food prices. We also recognize the need for governments to take action to try to deal with the social consequences, say, through building social safety nets, hopefully some targeted transfers to the poor. If it is generalized subsidies and food prices, the experience is that generalized subsidies tend to benefit the relatively affluent part of the society rather than the poorest part.

So we intend to help countries design the best measures to deal with this situation, but it is an area of concern, and it is one that requires urgent action.

MS. MBOTO FOUDA: Let me just add that a joint statement was issued yesterday at the conclusion of the meeting of the African Consultative Group with the Managing Director and that statement is available on the Fund website for your convenience.

QUESTION: My question is, while many African countries continue to make significant growth in their economies, the coverage of Africa typically in the international news media is skewed toward the negative events happening on the continent, and some argue that this actually is a deterrent to economic growth, a deterrent to investors and all of that. Do you subscribe to that view?

MR. LIZONDO: It is clear that, depending on what is the perception in particular from foreign investors about developments in a country, that will be the incentive for those investors to invest and help the growth of the African economies.

So we don't have a view about specifically whether or not there is a bias in the media about how to report, but there is clearly an impact. What we think is important is that when those views are reported in the media, the authorities themselves react to those situations and either clarify the issues or, if there are really some issues that are negative in the country, actually taking action in such a way that they can correct that perception.

MS. CHRISTENSEN: I would like to just add that we have tried also in the Regional Economic Outlook to highlight the progress that has been made in Africa, and I think this publication is actually widely read both in the continent and outside. That is one way that we try to also publicize the progress made so far in Africa.

I also wanted to add that the Managing Director mentioned during his press conference a couple of days ago that he intends to have a conference at the end of the year in Tanzania with all of African countries, where essentially, he wants to build on the successes that have occurred in Africa and also to see what we can learn for the future.

So this is very much on our minds, to try not just to talk about the bad news but about the progress that has been made in Africa.

QUESTIONER: Please permit me to go back to the question on the dollar. I was asking if the IMF will advise African governments to change their trading currencies from the dollar given its depreciation. Will the IMF advise African governments on that?

MR. LIZONDO: We haven't discussed this issue with the authorities, but I don't think that changing the trading currency, I mean, the currency of denomination of contracts in which the country trades, is going to really have any meaningful economic impact in the economy. To the extent that you are trading in goods that are traded in world markets, they are traded in dollars, for example, and whether you invoice your goods in a different currency, that is only going to reflect the exchange rate between the dollar and the currency that you use for your invoices.

MR. KRUEGER: Maybe just to elaborate on the point made by Mr. Lizondo, I think some analysis that we have done here at the Fund would suggest that some of the run-up in dollar prices, in commodity prices, is in effect reflecting the dollar depreciation. So it is already that exporters take into account what are the movements in the dollar vis-à-vis the euro, for example, so you have much smaller increases, but still sizeable increases, in commodity prices also in euro terms.

So the point there is that the invoicing currency, how you price your exports, may actually not be such an important determinant. The commodity price developments are really driven much more by world market conditions of supply and demand.

QUESTIONER: I wanted to get your input on the link between higher price of gas and impact on the food prices. Are those two things related somehow? Could you please answer that?

MS. CHRISTENSEN: There is clearly an impact. First, the increased demand for biofuels, which is related also to higher energy prices worldwide, is something that has also increased food prices. Also, food prices increased higher fertilizer prices. So there is an impact; there is a relationship also between oil and food prices.

MS. MBOTO FOUDA: With this, we can wrap up this press conference maybe on a note by Benedicte...

MS. CHRISTENSEN: Just what I said first, that Africa is still showing strong growth performance, but we see increasing risks to the outlook, in particular from the global environment. That is really the message we would like to convey.

MS. MBOTO FOUDA: Thanks very much to the African Department team, and thanks all for coming.