Transcript of a Press Conference by International Monetary Fund Managing Director Dominique Strauss-Kahn with First Deputy Managing Director John Lipsky and External Relations Director Caroline Atkinson
April 14, 2011Washington, D.C.
Thursday, April 14, 2011
|Webcast of the press conference|
MS. ATKINSON: Good morning, and welcome to the opening press conference of the Managing Director, Dominique Strauss-Kahn, and First Deputy Managing Director, John Lipsky, of the International Monetary Fund, ahead on our spring meetings.
I'm Caroline Atkinson, Director of the External Relations Department. I'm going to turn to the Managing Director to make a couple of brief opening remarks, and then turn to those of you who have questions.
When you ask a question, please, we'll be distributing mics, please identify yourselves and your news organization. Thank you.
MR. STRAUSS-KAHN: Thank you, Caroline.
Good morning all of you. I will be brief, to have enough time to answer your questions. I guess you have some.
The main point for me this morning is that we must be aware of complacency. Certainly, the recovery is getting stronger, but everybody can understand it is not the recovery we want. It is not the recovery we want because it is still imbalanced between countries, and it also is imbalanced within countries. That is certainly the reason why uncertainty is still very high.
Mr. Blanchard and Mr. Viñals and Mr. Cottarelli presenting their different work in the last few days have shown and given to you what our forecasts are. I'm not going to elaborate too much on this. The main challenge to the forecasts are still there, and those challenges, you know them, it is that for advanced economies unemployment is still high, that there are in these economies fiscal and financial vulnerabilities. The main challenges for emerging market economies have certainly to do today with the risk of overheating. And in low-income countries, the question of the food and fuel prices is coming back with the risk of having something as important and strong and difficult as we had in 2008.
So, we must be aware of complacency and we need urgent action.
I am happy that again the meetings of the IMF and the World Bank, the spring meeting, as at other times the annual meetings, are the place where all policy makers are coming with their own ideas, discussing what should be done and at the end, as often happens, there will be some consensus and some policy guidelines for the global economy.
For advanced economies, what are the urgent actions to be taken? Two directions: Financial sector repair and reform. We all know that a lot has been done. But, especially in Europe there are stress tests looking forward, and these stress tests must be linked with some kind of recapitalization. Also, a lot has to be still to be done in the realm of supervision, on extending the rules to the shadow banking sector, dealing with the SIFIs, the systemically important financial institutions, implementing the macroprudential framework, dealing with cross-border banking resolution, complete the work which has been done on the possible taxation of the financial sector.
So there are a lot of topics, issues which are still open, and for which some completion has to be proposed.
On the other side, for advanced economies, the question of course is the question of sovereign debt. I guess you will have some questions about it. And, certainly, globally speaking, for advanced economies, to put fiscal policy on a sustainable path in the medium term is a real concern. The recent declaration of President Obama is very welcome, goes clearly in that direction. Of course, it has to be done carefully because nobody wants to hit the growth, the recovery, which is still fragile, but that is the challenge: To do it together.
As I said, for emerging markets the question is more of overheating, which from one point of view is good news, but on the other hand overheating can be very damaging. So depending upon the country, it is very country-specific, the need to tighten monetary policy, to withdraw all the kind of stimulus which has been put in place on the fiscal side, is certainly appropriate. At the same time, the question remains on pushing, on rebalancing growth for surplus countries toward more domestic demand-led growth than the export model which we had before.
Why all this? Why did I say at the beginning it is not the recovery we want? Not only because it is abstractly imbalanced, again, between countries with high growth and sluggish growth, depending on the part of the world, or within countries, with income inequalities, which are very high as the recent event in the Middle East and North Africa has shown. It is not only because those imbalances. It is just because, you may remember one year ago, exactly one year ago -- was it in this room or the other room -- my concern was we may have a recovery without jobs. It would be too much to say it is a jobless recovery, but it is certainly a recovery with not enough jobs.
So the question now is jobs, jobs, jobs.
What does that mean?
For most people around the world, if you have a recovery in terms of macroeconomic figures that doesn't translate in any way to jobs, and again, the example of Tunisia, Egypt, and from this point of view, where the macroeconomic figures are not bad, but the people don't feel any change in their situation.
So, there will be a lot of challenges to deal with, especially because of youth unemployment. And for the young what was seen at the beginning as just a transitory period, meaning that it will take some time for them to reach the labor market and to be able to find a job, there is now risk that this will be turned into a life sentence, and the possibility of a lost generation that I already mentioned a month ago could materialize. There is a real threat there, and we cannot go on thinking that we're not concerned about these distribution issues.
So the challange is clear, and that is why we need to take action both in advanced economies and emerging markets. The challenge is clear, it is to preserve social cohesion without undermining the macroeconomic stability, and that is really something for which we are standing ready to help, especially in the Middle East where this question is probably more urgent than in other countries.
To do all this, you won't be surprised if I tell you that we need more cooperation. The slogan of the spring meetings is, "Global Challenges, Global Solutions." Some may argue that there are also local challenges that need global solutions. I agree. But what would be certainly wrong is to have a global challenge with local solutions.
The idea I want to stress, again, is that we are now in a world, in an interconnected world which doesn't leave any room for local solutions, and a solution that would be decided by countries without taking into account the consequences it may have on others.
It is probably useless to remind you how this cooperation saved the world from a depression that could have been as deep as the Great Depression. Both the G-20 and the IMFC are meeting in a few days, and I'm confident that a collaborative way to restore sustained growth and more balanced growth will emerge from this discussion. Let me just remind you that it is important that this discussion takes place also at the IMFC because the IMFC represents 187 countries, not only the 20 or 20-plus that are in the G-20.
Fine. We also have to take stock, which will be probably the last question discussed during the meetings, to take stock of what has been said and done on the international monetary system side, to try to prevent instability and crisis.
I think the IMF is moving this agenda forward in a number of key areas, including capital inflows, spillover between countries and the report we're going to release in a couple of months, global financial safety net, more focused as I just said, on employment and equality. All the question of how to stabilize the international monetary system is something that has always be at the core of the mandate of the IMF, but people are now paying more attention these days. We had an interesting seminar in Nanjing, and I think the agenda will go on during the year.
Certainly, the question of capital flows will still create some debate, but it is a very important, very interesting one, and it shows that the institution doesn't shy away from difficult problems. On the contrary, we want to address this problem directly and try to find collective solution.
So, we have much to do. We have much to do and that is why I started telling you that the biggest risk will be complacency. I can assure you there is no complacency within the IMF. And by the same token, there must be no complacency from the international community, and we will take care during this spring meeting that this won't be the case.
QUESTION: As we know, concept can change the reality. I remember last June in Toronto, the G-20 summit, you said that the world is speaking the IMF language, because in the financial crisis the IMF is leading the financial crisis discussion in the world. But now we are in the post-crisis era. I am wondering how will the IMF continue to lead the discussion? And some people said the post-crisis era development will outweigh the stability. What is your view on the relationship between stability and development?
MR. STRAUSS-KAHN: I'm not sure I agree with what you said at the beginning, that we're in a post-crisis era. We're still in the crisis, and the consequences of this crisis are still very strong. Not only in Europe. Obviously in Europe, but not only in Europe. And, the importance of capital flows, for instance, are directly linked to the kind of policy which has been put in place during the crisis all around the world, the need to fight strongly against unemployment, as I said before, is directly linked to the consequences of the crisis.
So certainly the apex of the crisis is behind us. Good. But, but, it will be part of the complacency I'm trying to avoid to believe that we are really in the post-crisis era.
It answers partly your question. It is a good question to know how the IMF will remain at the center of the international economic and financial life after the crisis, but it is a question for tomorrow or the day after tomorrow. We're still in the crisis, and I think from many points of view, we're still at the center.
QUESTION: I have a simple question, I think.
Do you really believe that Greece can make it?
MR. STRAUSS-KAHN: I like this kind of thoughtful question.
Should I give a short answer?
Yes, I do. I do. As I have said several times, it is painful, and I understand how painful it is for the Greek people. But, I think Greece will make it. To do this, we build a program. Of course, this program has to be implemented. And, so, Greece will make it, provided two things:
First, that all what is in the program is really implemented in due time. I understand how difficult it is. No discussion about that. But, that is not the point. It has to be done. And, the Greek government, which was very bold in implementing a lot of measures during the last year, should not run out of steam. So, going on, what has to be done is absolutely necessary.
As we could expect, some part of what has been done is not working as well as we expected. For instance, the richest people in the country are still not paying the taxes they would pay in any other European countries. That is a problem for tax revenue. That is just normal. You have delays on this, but what has been planned has to be done.
Second, what the Europeans are committed to do has to be done, too. And, as you know, we are arguing here in the IMF for at least six months that there is a need for a more comprehensive plan on the European side, that the piecemeal approach dealing with one day interest rates or another day something else is not working well, that a lot of things have to be implemented, and we're still waiting for this to really show up.
So, provided everybody does his homework, including the IMF, I think it will work.
QUESTION: Can you say in what way the international community is being more cooperative this time compared with last year?
MR. STRAUSS-KAHN: I see some kind of irony in your question.
QUESTION: It seems to be that we've gone backwards from a year ago, particularly on the MAP and on imbalances.
MR. STRAUSS-KAHN: I won't say that. I warned everybody in Seoul, last November, that we are entering the second phase of the G-20. The first phase being a very highly cooperative phase because we were at a climax of the crisis. Fine. And, so I warned that the second phase that we were entering at this time will be more difficult, because it is just normal. The crisis being seen by most policy makers as behind us, at least partly behind us, will drive them to pay more attention to domestic problems and less to global problems. That is just normal, and unavoidable.
The question is, is the level of cooperation for the second phase, which is certainly lower than the first phase, but is this level of cooperation for the second phase over the average or below the average of what we can expect for a second phase? Then, my answer is, okay. It is okay, the cooperation we see, including to build the MAP, is at the correct level for a period where we're not anymore at the apex of the crisis.
I expect that during this meeting the guidelines for the MAP will be approved and that we will be able to go on. Certainly, it takes time. And, what will be achieved with the MAP is something which could have been done more rapidly in other circumstances, again because we're now in the second phase, it takes more time. But, that is one way to look at it. That is the half-empty bottle. What is the half-full bottle is that we're going to do something which never existed in the past. Five years ago you would have dreamed of this kind of cooperation where countries come together trying to build up the MAP and providing the guidelines, and if we were starting from the low level of cooperation that existed six or seven years ago, to reach the level we have now, you will see it as incredible improvement. Now you are looking at a starting point which is incredible and unparalleled in the history, a level of cooperation that we had in 2009. It looks, as you say, that it is less than last year. Fine. But, hopefully, it will for a long time be less than last year, which means that it will be for a long time a situation where we're not going back to a crisis like the one we had in 2009.
QUESTION: How would you evaluate the imported inflation risks, and also the hard money risks for emerging markets, and what are your suggestions for solutions for these countries?
MR. STRAUSS-KAHN: There is a risk. There is a risk. I was talking rapidly about overheating, and in many, if not all, emerging market countries, also in low-income countries, for maybe sometimes different reasons, you have this risk of inflation picking up. Already, we see it in many countries, with inflation around 6 percent, 7 percent and reaching the alert level.
First, very obvious answer, it becomes a concern and has to be addressed.
Second, how depends upon the country. In some countries, this comes mostly from commodity prices. And then it is difficult to address because the drivers are out of the control of the country. So, what can be done has to be done, is to try to provide some subsidies to water down the effect of this, to the most vulnerable with the limited course, which is the fiscal room the country may have, it is not easy to manage. In some other countries it has to do with their own overheating, and then the question is clearly for surplus countries to push more on what can be done on their own consumption market than from the outside. You are talking about imported inflation, so the answer is clearly this one. You may say that, but in this case they may switch from imported inflation to domestic inflation, which is not better, which is not totally wrong, so the question is not that easy to manage. But clearly, the fact that prices are picking up in most emerging countries and on one hand the result of a cyclical phenomenon and the fact that recovery is there, is also some shortage, supply shortage which were unexpected, and also some political events as events on oil and the Middle East. Taken all around, this comes on top of the risk of overheating and that is why it is absolutely correct to be now concerned by something which has a bit disappeared from the radar screen over the last two years, which is the risk of inflation.
MR. LIPSKY: What we shouldn't forget, one of the foundations of the exceptional performance of the emerging economies over the past couple of decades has been the persistent improvement in their macroeconomic policy performance, decline in budget deficits and importantly the decline in stabilization of inflation and inflation expectations. That is why to ensure continued progress and strong growth in the emerging economies, it is important not to let this period produce a reversal and a deterioration in inflation expectations, and unbalancing of fiscal policy. This has been a real bedrock of the performance of these economies.
QUESTION: You were talking about job creation, how can that be, it is easy to be said, how can it be done?
MR. STRAUSS-KAHN: The question is how can it be easily done? The answer is, it can't. But it has to. The problem is the following:
Common knowledge, for a very long time, has been that if you have growth, you have jobs. What we have learned is that it is not that easy, and that, too. Of course, you need growth. No question about it. But, you need also the right labor market policy to be put in place. Without this kind of policy, has to do with education, training, unemployment benefits, all this kind of thing, then you may have this risk of having growth without not having enough jobs. The answer is, growth is needed, but having growth you need to do more than that, and that is exactly the kind of -- and then it is very country-specific, because it depends on the reason why the labor market doesn't work in the different countries.
I'm a bit upset with the traditional conflict between flexible labor market and rigid labor market. It doesn't make sense. The question is, you have policies that work, and you have policies that don't work. Of course, it is not always the same, and what happens in the labor market in Egypt is not at all the same what happens in the labor market in Brazil or elsewhere. It has to be country tailored. But, we have to get rid of the dream that growth will be enough and that the market will do the job, and provide the needed labor place.
We need to act, and that is one of the components of the main theme of no complacency. Don't rely only on the idea that growth will be enough. We need more than growth. We need active policies.
Of course, the risk, if we don't do this, is to have growth, but will be not an inclusive growth, not a fair growth. And, then, what is the question? Well, you may have an ethical, philosophical, political point of view saying growth has to be fair or not. I'm not entering into this debate. But there is a debate which is an IMF debate, which is that we have to work for the sustainability of growth, and if the growth is not inclusive enough, it is a threat to the stability of growth, then it is our concern.
So I'm not discussing about the ethical view, which I may have my own opinion of, from all of you, that is not the point. Is it fair or not fair? I'm just saying recent events in your countries and other countries show that when growth is not inclusive enough, then it is a threat to the sustainability of growth. We are concerned about the sustainability of growth, so we have to be concerned about a more inclusive growth, which means about youth unemployment, about income equalities and so on.
QUESTION: In developed countries, the challenge seems to be jobs. In my country, Malawi, the challenge is poverty, how growth translates into poverty reduction. I would like to know how countries like Malawi, where we have experienced high growth in the past four years, how can that translate into poverty reduction? Because as you said, people can see this growth in their daily lives.
MR. STRAUSS-KAHN: Well, you just are adding to my previous comments, which is that the growth is not enough. It is very difficult to imagine that you can't have jobs without growth, but your country is a very good example and many others, where you can have decent growth without having decent jobs. And, so the question, again, is very country-specific. Malawi's economy is certainly not working the same way that many others are, but the problem is that you shouldn't rely on this, and this kind of complacency, saying, okay, it will come along, doesn't work. So, programs that we can help to build have to be defined depending on the specifics of the country to use the benefit from growth, to be able to put the people back to work. And, very often, not always, very often it has to do with a training and education, but it can also do with a different kind of barriers that are active in the market.
Many African countries are in the case that you are, because of the good thing of this recovery is that growth in Africa is picking up more rapidly than after the former crisis, where there had been long delays before Africa picked up. That is not the case this time, very good, but that is not enough.
QUESTION: You know there is a lot of concern in France about the future of the institution, about the IMF in France, so sorry to switch in French language.
(Interpretation not available).
MR. STRAUSS-KAHN: As I understood the French part of the question is irrelevant.
The English part of the question about the future of the institution is close to what has been said previously. How do I imagine that the IMF will keep its central role in the aftermath of the crisis? So I already answered.
QUESTION: (Interpretation not available).
MR. STRAUSS-KAHN: (Interpretation not available).
QUESTION: I just want to know how could be resolved the dilemma between capital flows like Greece, or strengthen the exchange rate, and high output prices that put pressure on inflation, and put the central bank in a big dilemma just to raise interest rates.
All the emerging markets, especially the big ones, are just trying to guess which is better, to have capital controls, or even to increase subsidies. They have made the work. They have a good balance sheet on the fiscal side, on the monetary side, what could they do? Is it something that the IMF is going to discuss today?
MR. STRAUSS-KAHN: Thank you very much for this question. It has given me the opportunity to say a few words about capital flows, which is a very important topic.
As you just said, in many countries, emerging countries, capital inflows are very big, and the traditional way to address this problem, which is increase in the exchange rate, reserve accumulation, all thes kinds of tools are at work. Can probably be improved, but have already given what they can provide.
Same thing for the fiscal, adjusted, and still, for many reasons, the drivers of which are outside the country, the capital flows still persist and even sometimes increase. So, something has to be done.
That is why we address this problem in a very pragmatic way, saying that macro prudential measures and sometimes as far as the well-known capital controls, could be useful, depends upon the country. Not always useful, but can be useful, on a temporary basis because it is just understandable that a country where you have a surge in capital flows, which is really disrupting, then you have to do something.
The discussion took place already in the IMF, with very different views. And I'm happy we have this view. The IMF is becoming a more diverse institution, where people may have different points of view and try to discuss together.
We had also the discussion at the Board, where I was surprised, I must admit, that some people were more Catholic than the Pope. And, taking some kind of fundamentalist view, because what is happening? During decades, this institution has said capital controls is just evil. We don't want it. We're fighting against it, and each and every country that is putting in place capital controls will be bashed by the IMF.
As I just said, we are taking a more pragmatic view now, and saying, well, it depends a lot. Sometimes it may be useful. So, all those who think that the capital controls may be useful, should be happy. But, you know, human mechanics are sometimes a bit difficult to understand. And, for a large set of reasons that are not totally relevant to the problem, you may have some dissenters.
The reality is very simple. From the point of view of the institution, yesterday capital controls were not in the toolbox, today capital controls are in the toolbox. There is not a perfect solution to all the problems. It should not be used as a substitute for the right policies to be put in place, but it may happen that it could be useful. So, from this pragmatic point of view, I think it is a real good improvement.
MR. LIPSKY: One word.
We wouldn't want to miss the big point on capital flows. What we're dealing with are temporary problems of capital surges. It is to be expected in a world of success of the emerging economies where per capita income is low and per capita investment is low relative to the advanced economies, that there ought to be, there will be and ought to be, a persistent flow of capital to the emerging economies to fuel investment, to fuel growth, to fuel the convergence of living standards between emerging economies and advanced economies, that we think is a correct goal. So, we also have to think in broad terms, of how to make sure that this investment flow, this capital flow that should be expected not just in the short term, not just as a result of some temporary policy measures, in one country or another, but will be a persistent and positive force in global development for years and decades to come, we need to make sure that we have an international system that channels this capital flow in a productive way.
MR. STRAUSS-KAHN: Don't forgot, this time is not the time for complacency.
MS. ATKINSON: Thank you.