Press Briefing by David Hawley, Senior Advisor, External Relations Department, with Reza Moghadam, Director of the Strategy, Policy and Review Department, and Andrew Tweedie, Director of the Finance Department
February 26, 2009International Monetary Fund
Washington, D.C., Thursday, February 26, 2009
|Webcast of the press briefing|
MR. HAWLEY: Good morning, ladies and gentlemen, and welcome to this our regular press briefing, which as usual is under embargo. Today's embargo is going to be slightly later than usual. It will be at 11:00 a.m. Washington time, that's 1600 GMT. I am David Hawley from the External Relations Department.
Before going on to general questions, I'd like to take advantage of the release this morning of a paper on the adequacy of Fund financial resources and options for supplementing them, to invite a couple of staff members who've been working closely on this issue and who can take questions on it before we move on to the general questions. To my right is Reza Moghadam, who is the Director of the Strategy, Policy and Review Department, and to Reza's right is Andrew Tweedie who is the Director of the Finance Department. The staff paper that they'll be talking about, which is being distributed in the room, I believe, plus the PIN, will be under embargo until 11 o'clock like the rest of this briefing. Reza and Andrew are here to take questions, but before doing so perhaps I could invite them to make a couple of remarks about the thrust of the paper and PIN.
MR. MOGHADAM: Very briefly. As you all are aware, we are going through an unprecedented period in the global economy. The Fund is playing a very active part in crisis management both in terms of providing policy advice to its members and providing financial assistance. As you all again are aware, over the last few months we have had programs that provide financial assistance of about $50 billion to some of our members. We are in discussions with others. Within that process the membership has asked us to review the adequacy of Fund resources. The paper that you have is a product of that process. The Managing Director as a consequence of that study has declared the aim of doubling Fund resources and that objective was endorsed by most of the Directors. As I'm sure you have heard, many parts of the membership have also endorsed that objective, and the paper also sets out some of the options for achieving that. Let me turn to Andrew.
MR. TWEEDIE: Thank you. Just to reinforce the point, we currently have in terms of our capacity to lend even after the commitments we've already made roughly another $150 billion of own resources, so this is roughly three times what we've already committed. So in normal times we would have adequate resources and we still do have substantial resources, but these are not normal times and we need to be prepared to play our role in the crisis and have sufficient resources at hand to give our members the assurance that we can meet their needs. Since this paper was discussed by the Board, as you know, we've already moved very quickly to finalize and agree the loan for $100 billion with Japan, so that is additional to the amounts I already mentioned. And as Reza said, we are working actively on the other modalities that are discussed in this paper.
MR. HAWLEY: Thanks. Let's go to questions.
QUESTION: I had a question about the options for raising funds. I'm still a little surprised that the option of borrowing money from the markets issuing bonds is not more popular given that many of the member countries are having financial difficulties and having to raise a lot of money on their own, and also give the fact there is so much demand in the markets for AAA rated bonds. Is it just inertia or the fact that it's never been done before that you think is causing this resistance to issuing bonds in the private market?
MR. TWEEDIE: I can respond to that. I wouldn't say it's inertia. Our financial structure, as you know, is very much geared around dealings with the official sector, lending activities, exchange of assets. We take resources that are contributed by members and lend them. So this is the way our structure is set up. It's quite different to other financial institutions which have a more traditional capital structure, more active in capital markets. We are not. It doesn't mean we could not do that. We are able to do it legally but to make that move would be a bigger change than borrowing from the public sector, which is what we've done in the past when we have needed additional resources. So I think the sense of the membership was we need to move relatively quickly. We should follow an approach that we've done before and has worked well, and that I think that sense should give us sufficient resources.
QUESTION: Mr. Tweedie, what are the benefits of issuing bonds to central banks? What do those countries gain from this? Does it add to their debt? Could you just elaborate on that? Then Mr. Moghadam, do you expect this to be finalized and agreed at the G-20 or a summit, or can you give us any further comment on that?
MR. TWEEDIE: On the first question on what the countries would gain is they would gain an asset, essentially an investment of their foreign assets, so they would hold IMF paper as part of their foreign assets rather than -- in substitute for what they're holding now effectively. So it will be an exchange of assets for them. Some may prefer that to making a loan. It's really a preference of the members and we're trying to accommodate the preferences of the members.
QUESTION: Could I just have a follow-up on that? Could you give me a breakdown of how divided some countries are? We know European countries are not really for this, but we know that countries are. The Middle East has expressed interest. Could you give us a breakdown of who's interested and who is not?
MR. TWEEDIE: We've had general expressions from a number of members and we are now exploring with them what their preferences are. I wouldn't say there are groups that are against. What the Board has said in their discussion is that we should basically explore all these options, so the Board did not rule out any of these options and I think the sense is that we should try and accommodate the preferences of the members.
MR. MOGHADAM: On the other issue, as Andrew mentioned at the beginning, our resources we feel are adequate right now for the discussions we are having. One of the G-20 members has already not only pledged, but we have signed an agreement with Japan as you are aware for a further $100 billion to be used as needed. So in a way we have raised 100 of the extra at least 250 that we are aiming for already. Judging by the Board discussion we had, my expectation is that the G-20 countries will be broadly supportive of this aim, and one of them has already contributed. It is difficult to put a timetable, but my hope is that we would make progress during the G-20 discussions from here to London.
MR. HAWLEY: I'll take a question if I may from the Media Briefing Center. She's got two questions one of which you've already gone into about the willingness of other countries to provide money to augment Fund resources. But she also asks about the timetable for plans to sell gold. This is in the context of the Fund's new income model. What is that timetable?
MR. TWEEDIE: The plans there have not changed. As you will know, the Board and the membership approved a new income model for the Fund in April last year that involved a number of elements one of which was a limited sale of gold and using the proceeds of that sale to create an endowment that would generate income for the Fund over time and other elements for broadening the investment mandate of the Fund. That process is currently going through parliaments because it requires an amendment -- some elements of the reform require an amendment of our articles so that process is in train. We cannot go ahead with any of this until we have the approval of the membership for the change in the articles which requires an 85 percent majority. And the sale of gold similarly actually requires a formal decision of the Board. So while the membership has approved it, the Board hasn't yet taken their decision and that is still to come. So that plan is still in train, nothing has changed, and we're effectively going through the approval process and once we have it in place we will move ahead with the gold sale.
MR. HAWLEY: I'll take one more question from the Media Briefing Center. Has the Chinese government offered to increase the Fund's resources in combination with an increase in its share in quota in the Fund?
MR. TWEEDIE: As I said at the beginning, we're talking to a number of members about the potential to contribute to the additional $250 billion that we are seeking, but there is no link between that and the quota exercise. As you know, we've just been through quota and voice reform which involves increases for over 50 countries and that process similar to the new income model is still now going through the ratification process, but the issue of quotas and voices is essentially a separate exercise.
QUESTION: I had a question about the Fund's own income. Not long ago the Fund was predicted to have very large losses over its administrative budget. I wondered when are you guys planning to update your income estimates and what is your financial position looking like now after these $50 billions in loans? And I might just have a quick subsidiary question. When you offer these bonds to governments at current rates, what kind of interest will you be paying to borrow this money from the central banks?
MR. TWEEDIE: On the first question, we are in the process now of updating the income outlook and that normally would come out in the spring around the time of the Spring Meetings. Obviously our income outlook in the short term has improved. I don't know whether I could say, yes, we will be making a surplus or a small loss, but the large losses we were seeing before, obviously that is no longer the outlook. I think having said that, as I mentioned before in the context of the new income model, there is no sense that this is the need for a new income model because that was a more, I would say, fundamental change since the Fund's lending activities are cyclical and the Fund shouldn't rely on its lending to cover the broad range of its activities, it needs a broader range of sources of income and so that is still in train. But in the short term obviously we're doing better and we'll have some numbers on that in a couple of months. Sorry, the second question?
QUESTION: Was how much money are you offering central banks?
MR. TWEEDIE: That was on the interest rate. The interest rate as you will have seen, the Japan loan, they will be lending at the SDR interest rate, which is the same rate basically that we pay in remuneration to our creditors, so that is what is agreed for the Japan loan. We don't yet have any bonds on issue so we haven't gone that far with the details of the other modalities.
QUESTION: What is the SDR interest rate at the moment?
MR. TWEEDIE: It's about 0.6 something percent. It's obviously very low because the SDR rate is a market rate which is tied to the official market rates of the U.S., Japan, Euro Area and the U.K., so it moves with short-term market interest rates for the highest-rated creditors. So because of the sharp cuts in short-term interest rates since the crisis erupted, the SDR rate is now relatively low, but as things normalize one would expect they will move up again.
QUESTION: Is Russia one of the countries you're talking about?
MR. TWEEDIE: I don't really want to get into details of which countries we're talking with. We're talking to a broad range of members on their willingness to contribute.
QUESTION: Also what is your assessment, or what is your estimate of the needs for Fund resources? I'm asking this because the Fund has obviously already given some bailouts, some programs for countries such as Ukraine, for instance, and the program is not even completed yet. It's somewhat stalled. But there is already talk about the program being under funded, that they actually will need more than that. So that's why I'm asking. Maybe Pakistan would be another example. I'm asking what are your projections at this point of how much you will need.
MR. MOGHADAM: In the paper that you have there are various scenarios you will see. Again it's difficult to be specific about each country, what their needs are. We have done scenarios. You will find them in that paper which gives you ranges of the financing needs of the Fund and that is based on scenarios on the demand side. So are not breaking those down by country. I think we are doing it as an aggregate and it's based on those scenarios that the current proposal is undertaking.
QUESTION: What is the range?
MR. MOGHADAM: The figures are there. I think they range between 65 billion and 200 billion SDRs.
QUESTION: I gather that the Fund has lent $50 billion now and so you have 200 still, which is a big amount. I'm wondering why do you need all this money. Is there a fear that the big emerging countries might have to come to the Fund and not these smaller countries? That's my question.
MR. MOGHADAM: As you mentioned, we have another 150 billion as Andrew mentioned, and on top of that we have the Japan agreement. I think our attitude is to hope for the best but prepared for the worst. The current economic environment is very unpredictable. I think as Andrew mentioned we think our resources are adequate, but we want to be prepared for any eventuality.
QUESTION: Mr. Tweedie, would those bonds be issued in SDRs or is it possible that you could issue them in renminbi and all different kinds of currencies?
MR. TWEEDIE: I think the intention would be that they would be issued in SDRs. This was one of the issues that was discussed by the Board. I think the sense was quite strongly that the Fund should be borrowing in SDRs. This is the denomination of our assets and our liabilities and this means the Fund is essentially not taking on exchange rate risk, which is the traditional way we have carried out our financial arrangements.
QUESTION: Listening to you talk about the SDR rate, I was just wondering if that's presumably another appeal at borrowing from governments because however wonderful and creditworthy the IMF is, I'm guessing you could struggle to borrow money at 0.6 percent in the markets. Was that also part of the calculation, how cheaply you can get the money?
MR. TWEEDIE: No, I don't think so. I think it was more an issue of what we can do relatively quickly without the need for at least significant if not changes in our financial structure, certainly going through issues that would probably take months to resolve and I think the sense, as Reza said, is that the Fund wants to be prepared for what may be needed in this crisis, if it's needed, and we hope it is not, and we want to have the resources available quickly. So there's much more a sense of what we can do relatively quickly.
MR. HAWLEY: Thanks a lot. Thank you, Andrew. Thank you, Reza. And we'll move on to your regular briefing. Thanks a lot.
As usual I'll start with a couple housekeeping announcements before turning to your questions. Next Wednesday, which is March 3, the Managing Director, Mr. Strauss-Kahn, will give a public speech at the Brookings Institution here in Washington on the impact of the financial crisis in low-income countries. He will present in this speech the findings of a new IMF study on this subject. And of course he will be talking about the Tanzania conference, which will held on March 10 and 11 co-hosted by the government of Tanzania and the IMF. That, as you will recall, is on "Changes: Successful Partnerships for Africa's Growth." The Brookings speech starts at 10:30. Also next week on March 4 the IMF and the National Bank of Kyrgyzstan will host a regional conference in Bishkek on the impact of the global turmoil on the South Caucuses and the Central Asian countries. This conference is attended by officials from the region, but it will conclude with a press conference, and Media Relations can give details on that if you're interested.
MR. HAWLEY: I'll get Media Relations to give you the conference details. I'd also like to welcome Ismaila Dieng, a new press officer. Ismaila has just joined Media Relations and he's going to be responsible for our Africa outreach. He has come to us from Senegal and he has long experience in the media and in NGO work. He was with OXFAM and I look forward to your working closely with him on Africa. With those remarks, let me take questions.
QUESTION: Do you have any update on Ukraine, whether a mission is going there, and any comments on the Ukrainian government wanting to increase the budget deficit to 3 percent? Does the Fund think that that is feasible and with or without external financing?
MR. HAWLEY: I'm going to take a pass on that because we're going to do a briefing on Ukraine tomorrow morning. So Media Relations will announce the details of the briefing and at that point we can take up those questions.
QUESTION: A follow-up?
MR. HAWLEY: Sure.
MS. WROUGHTON: I've heard that the Fund is reengaging with Argentina. Could you maybe give me details on that?
MR. HAWLEY: I don't have much by way of detail, but in the context of the global crisis we're working closely with all our members and of course interested in deepening our dialogue with Argentina.
QUESTION: How much is in dollars the 65 to 200 billion SDR range?
MR. HAWLEY: We'll get you the answer [regarding the dollar amounts projected under scenarios for additional Fund resources that will be needed] and put it in the transcript.
[Answer: About $95 billion to $295 billion, according to the scenarios referred to on Page 13 of the "Review of the Adequacy of and Options for Supplmenting Fund Resources" staff paper released today.]
QUESTION: I just wondered what kind of form might this deepening dialogue would take with Argentina? How distant had relations become over the past few years and what kind of interaction are you currently engaged in?
MR. HAWLEY: We maintain a regular bilateral dialogue with the authorities in Argentina, including through our Resident Representative in the country.
QUESTION: Also on this issue of Argentina, there hasn't been an Article IV with Argentina for years. I don't recall when was the last one. You have this dialogue, but this is very unusual that you don't do an Article IV with a member country. So what is the next step with Argentina? Should you do that Article IV? What is the process there?
MR. HAWLEY: As we've said before, we would anticipate that we'll undertake the next Article IV consultation in the normal way in the months ahead.
QUESTION: Federal Reserve Chairman Ben Bernanke said in hearings this week that the IMF review of the U.S. financial stability was close to completion. Can you give us an update on that?
MR. HAWLEY: I'm afraid I don't have an immediate update on the -- Media Relations will get back to you.
QUESTION: Thank you.
MR. HAWLEY: I've got a question on Turkey, who asks that discussions between Turkey and the IMF are still continuing. Do you think that Turkey should make a decision soon as possible to take advantage of IMF financial resources? I can say that discussion are continuing with a few to finalizing the remaining issues in connection with the program, and in particular these relate to the medium-term financial reform agenda but also completing discussions on fiscal policy for 2009 and 2010 and policy preparedness in the event of a further worsening of the global environment.
QUESTION; President Obama yesterday presented his vision of reform for the financial system. He listed some core principles as you know. Do you look at those principles as applicable mostly to the U.S. or to the international system in general?
MR. HAWLEY: Are you talking about the fiscal stimulus?
MR. HAWLEY: The financial stability plan?
QUESTION: Whatever. I don't know what the name of that was, but he stood up and said we need to reform the financial regulation system and there are seven core principles that I want to see implemented in that reform. So my impression was, my understanding was, that he is basically preparing for the G-20 in London and I just wanted to check with you to see how you read that.
MR. HAWLEY: I don't have a specific comment on what the U.S. authorities' intentions may have been in that statement, but I can underline that regulatory reform is at the heart of the response to the crisis.
QUESTION: The IMF is looking for more resources because it needs them, and then the organization set up this new short-term liquidity line. I don't remember how you call that. Nobody has applied for it at the same time as far as I know. What's the roadblock there? What's going on with that? Why countries have not applied for that line and why the IMF still needs the money even though countries are not asking for it?
MR. HAWLEY: They are two separate questions. The question on the Fund's resources is what Reza Moghadam and Andrew Tweedie have discussed this morning and I think if I were to summarize that it's prepare for the worst. The question on facilities and whether or not countries choose to borrow from the Fund really comes down this: The Fund has a range of loan facilities for its members. These are changed from time to time in light of the changing needs of the members, and the purpose of that is to make sure that we are responsive as possible to our members' possible financial needs. It's in that setting that short-term liquidity facility was devised. There is ongoing work on the reform of Fund facilities that is designed to make what the Fund can offer financially, in particular to emerging- market countries, as exactly possible, a match to their needs and there is some ongoing discussion on that and we'll come back to you as that comes to a conclusion.
QUESTION: What is the latest on Belarus and their program?
MR. HAWLEY: I'm sorry, I'm going to have to come to you on that. My briefing is not up to date.
QUESTION: I'm wondering about how fast the IMF can move forward first on the funding, boosting the resources. The first approach is going to be approaching the individual members, but the idea of issuing bonds, that's a much more long-term approach isn't it because won't there have to be certain steps approved and that sort of thing, it could take maybe a year to come up with a formula for issuing bonds?
MR. HAWLEY: I think Andrew Tweedie went into that point discussing the timelines associated with various funding options for the Fund and I don't have anything to add to what Andrew said.
QUESTION: May I ask a follow-up on Argentina? You're saying that the Article IV will be discussed in the next months? That a change as far as I know because it has been years without this process. So I guess there is some kind of reengagement there. I was wondering if it has anything to do with negotiations with the Paris Club? It seemed that this issue was resolved with Argentina said they were going to pay and then now they didn't pay so that thing is sort of up in the air and I don't know. Usually the IMF is involved with those negotiations.
MR. HAWLEY: Questions regarding developments on the Paris Club should be addressed to the Argentine authorities themselves.
QUESTION: This issue of the Article IV is new that you are going to negotiate, that you are going to start reviewing that in the next months. Right?
MR. HAWLEY: What I said is what we've said before, that we anticipate undertaking the Article IV in the normal way in the months ahead. Thank you very much. The embargo I remind you is at 11 o'clock. Thank you.