Press Conference Following the International Monetary and Financial Committee (IMFC)with Singapore Finance Minister and IMFC Chairman Tharman Shanmugaratnam with IMF Managing Director Dominique Strauss-Kahn, IMF First Deputy Managing Director John Lipsky and Caroline Atkinson, IMF External Relations Director
April 16, 2011
Ms. Atkinson: Good afternoon and welcome to the press briefing at the end of our spring meeting of the International Monetary and Financial Committee. We'll begin with brief remarks from the Chairman, Minister Tharman, and the Managing Director, Mr. Strauss-Kahn. I'll go straight to Minister Tharman.
Minister Tharman: Thank you, Caroline.
You've seen the press communiqué. I'll just highlight a couple of main strands of our discussion, which are reflected in this communiqué.
First, over the course of the last day, starting from yesterday and much of our discussions today, there was a very strong sense amongst members of the IMFC that although we are in a better position now than where we were a year ago, the recovery has gained headway, there are significant vulnerabilities still in the global economic and financial system. This reflects both the legacy of the crisis that we've had, a legacy that is still very much with us on public sector balance sheets, in the need for bank recapitalization, the legacy of international monetary system that is still not what we would consider to be in satisfactory shape. But, on top of this we have new vulnerabilities and new risks: The tragedy in Japan, the developments in the Middle East, the prospect of higher commodity prices, and other new risks.
So, there was a sense around the table in all our discussions that we are still in a fairly fragile situation. We have to be extremely watchful, but we also need to develop the capabilities of the Fund to address risks proactively, to anticipate possible scenarios that could turn out to be ugly, and to require that countries, including especially systemically significant countries, take actions early to prevent another major crisis.
So developing the Fund's capacity to anticipate crises, and developing the capacity of member countries to collaborate in trying to avoid, or at least reduce the prospect of, the next crisis, was a very important theme in our discussions. And the IMFC has requested that the Fund enhance its work in surveillance, particularly to strengthen the linkage between multilateral surveillance, and traditional bilateral surveillance. And secondly, to strengthen the linkage between surveillance of the financial and macroeconomic dimensions of the world economy: financial markets and macroeconomic dimensions of surveillance.
So those linkages were very important: Connecting the dots between these different vulnerabilities, different risks. We've asked the IMF by the time of our next meeting to provide a consolidated report, what we call a consolidated multilateral surveillance report, quite distinct from the separate pieces that we now see. Very useful products. Very useful surveillance reports that the IMF comes up with. Economic reports, fiscal reports, financial stability reports, but it is connecting the dots that is extremely important and by the time of our next meeting, the IMF will be producing a consolidated report that assesses how much progress we are making toward avoiding the prospect of another major crisis.
I would also like to highlight that we've had very useful discussions on capital flows management. That is part of the new landscape that we're in around the table, whether it is emerging markets, developing countries, or the developed countries, we recognize that we have to be pragmatic about the issue of management of capital flows. This is a major break in the Fund's thinking, which it has made. The staff has done very useful, professional work, and we want to take that further, to develop a comprehensive and balanced approach toward the issue of managing capital flows, both with regard to policies in source countries as well as policy responses in receiving countries.
It is a complex exercise, because each situation is different. There is no homogeneity in country situations, but there is a very useful scope for the Fund to work on developing a comprehensive and balanced approach, based on country experiences, on what works well and what doesn't work so well in the management of capital flows. What is popularly called capital controls, but really not just capital flows in the traditional sense, but a whole range of macroprudential measures to manage the flow of funds into our economies.
So I would like to highlight those two main themes that dominated our discussions over the last day.
Ms. Atkinson: Thank you, very much, Minister Tharman.
Mr. Managing Director.
Mr. Strauss-Kahn: Thank you, Minister Tharman. First, I would like to welcome Tharman. He did during these two days a superb job. The problem with Tharman is that because he is so good, he says everything that I could say.
Well, I went into these meetings saying to you at the previous press conference that the main problem was no complacency, and now I'm even more convinced by that. Why? Because, as I told you before, the recovery is under way, but unemployment in most countries still is too high. And, because as we have just been reminded by Tharman, the downside risks are still there on the fiscal side, mostly in developed economies; in the financial sector, a lot of repair is still needed; [and] because of new phenomena, like overheating in emerging countries, and because for the low-income countries, the question of food and fuel prices.
So, on the first point, unemployment, I was really interested by the breakfast this morning. You know, we have now for several years this breakfast where ministers are totally in a very informal way, and the stress has been put by all of them on the fact that this question of possible jobless recovery was an important one. So, we have some follow up on this in the communiqué. And, I think it is a very important point that ministers made this morning at the breakfast, saying that, first, we certainly need macro-financial sustainability in order to have growth. But, on the other hand, growth is not enough.
Growth is not enough, because the old pattern, following which if you had growth, the rest would follow, doesn't work anymore. We need to absolutely take into account the problem of growth, which is our mandate, but also some ideas in the way growth will become transformed or produce jobs.
Of course, the example of the Middle East and North Africa, and highlighting this question that you may have rather good figures at the growth level without having the sustainability of growth just because of the political problems that can be behind it.
During these two, three days, there has also been a very good discussion between G-7 members and some of the countries in the region, where there was an opportunity to learn a little more about the situation. As I told you, already we have a mission coming back from Egypt, another from Tunisia, and of course we stand ready to help on the technical assistance side, but also on the financing side.
I just had a long look at the figures, and if I take all the oil importers, not the others, oil-importing countries of the region, and if we take as an average the amount in terms of percentage of quota of the programs that we have implemented since the beginning of this crisis, it is a total amount of $35 billion that we are potentially to lend. Of course, not all countries will ask for a program, but this is a rather big amount of money which may help bridge the situation until those countries come back to a more sustainable path.
So, I've been very much impressed by the ministers' focus on this new idea.
Now, on sovereign debt and the financial sector, a lot has already been said. Discussions took place in the case of the European countries--Greece, Ireland, Portugal, and the idea that we are pushing forward for months is that Europe needs a comprehensive plan and that also on the other hand countries with programs have really to do what is in the program, even if it is difficult -- and it is difficult -- this idea has made some progress.
Now, on the financial sector, I'm waiting for the stress tests which are announced in Europe. Of course, with this idea that the stress tests show that there is some need for recapitalization, then the money for recapitalization has to be available, because it is not worth doing the stress tests if you are not able afterwards to fix the problem.
Beyond the stress tests, other ideas the Fund is pushing for are making progress. Regulation is fine, and what has been done by the Basle committee goes in the right direction. But still, on supervision there is a lot to do. More has to be done on the so-called SIFIs, the systemically important financial institutions. That cross-border resolution mechanisms have to be also put in place. All these ideas are new which go beyond the first concern, which was regulation, and capital needed by the financial institutions in the way the Basle committee has said it, all these questions are now making progress, partly because the regulation part has been done. So, it is time to go to the rest.
On inflation, the last risk I mentioned, the question is twofold. On the one hand, you have some concern in advanced economies. You have seen in Europe that the European Central Bank is a bit more worried than it was in past -- that is the reason for the hike in the interest rate. But, the main problem, certainly, is linked to the increase in food and fuel prices, and so the main consequences are for emerging or even more for low-income countries.
On emerging countries, the question is more a question of overheating. Of course, food and fuel prices may have an influence, but the risk of inflation, which becomes serious -- serious is a bit too strong -- which becomes a concern, comes from the fact that most of them reach their potential growth and so that the risk of overheating becomes real.
Now, having said all this, the other point I would like to stress, and I've already gone too long, is to fix all these problems, more than ever cooperation is crucial. As I said at the opening press conference we are in the second phase of this kind of cooperation. I think that is absolutely true. But, the second phase is obviously not an empty phase. The decisions which have been reached at the G-20 for the MAP are very significant, and now we are likely to go forward. Of course, it takes more time than expected. It will not be as easy as we thought one year ago, but I think it is going forward.
More than that, and maybe even more important for us, is that if I had to give one qualification to these Spring Meetings this year, it is that it's a meeting of strengthening the Fund surveillance. The spillover reports, which are not totally completed and won't be completed until June or July, have been a taste of it which has been given to the IMFC this morning by myself, and I think they have been very well received, the kind of things that we can have through the spillover reports. The capital flows discussion, which came through discussion on some of the difficulties. But finally, in the communiqué of the IMFC, confirming what was in the summing up of the Board, the fact that really the stance has changed. Also, something which can be even more important, and Tharman already said a word about it, because it is his own idea, and you deserve the credit for this, which is to ask the Fund to have an overarching new product, a consolidated report, on multilateral surveillance.
So for me, for me, frankly, we are at year one of the new multilateral surveillance for the Fund, and the different products which have been elaborated during the last year, in bits and pieces, the MAP, the spillover reports, the work on the capital flows, will now be put in the same report, the same perspective, creating the basis for a new kind of a multilateral surveillance.
To do this we need three things:
We need to work on three topics, and the conference which took place a month ago here, organized by Olivier Blanchard with a lot of important economists, was part of it. We need to rethink, drawing lessons from the crisis, what we know about economic theory and what was common knowledge before the crisis. We need to rethink, following this, the policies, because of course the policies are directly coming from the analytical work. And then we will need also to rethink multilateralism. You’re not surprised to hear about this, I think. I say this many times. Day after day, meeting after meeting, every six months we are improving the way multilateralism works, and so rethinking the economic and financial theory, rethinking the policy, rethinking the multilateralism is really the program we have to work on in the coming one or two years. Thank you.
Ms. Atkinson: I'll turn to questions. If people could identify themselves, please, and their news organization.
QUESTION: My question is, how do you find the problem of rapid growth of poverty, especially in emerging economies, and the capital flows into the region, which trigger lots of core inflation and also bring lots of financial imbalances?
Ms. Atkinson: Minister Tharman, would you like to say something?
Minister Tharman: It is a concern. It is one of the emerging risks we see on the horizon. And the combination of strong credit growth and some economies that are approaching an overheating situation, when taken together with the possibility of supply shocks in the commodity sphere, does raise significant concerns over inflation, as well as over a possible rise in interest rates; globally, not just in the emerging market economies.
As an example of what the Managing Director was talking about when he spoke about spillover reports, which is a term not all of you might be familiar with, the language of our discussions this time round was very much about spillovers. You start off by looking at one particular risk, so you talk about credit growth in the emerging market economies. But we have learned from very painful experience in the last few years that nothing is isolated, and the risk in one region, in one sphere, rapidly gets transmitted to the rest of the world. What happens when inflation goes up in emerging markets is no longer just an emerging market problem. It is a global inflation and, possibly, interest rate problem. What happens when interest rates go up?
There is another type of spillover, which is the impact of sovereign debt on public balance sheets. What happens when sovereign debt goes under strain? You have problems in significant components in the global banking system, which increasingly see that their ability to raise new funds is impaired when the weaker parts of the sovereign debt market are also being impaired. There is a relationship between the sovereign and the banking.
So, spillovers in many directions, and it requires the Fund to be adroit, drawing on a wider range of information than has hitherto been the case, drawing on expert opinion as well and trying to connect the dots and bring them together in a way that policy makers are forced to look at the risks squarely and ask themselves, "What am I doing about it," so that when we meet in a few months' time, we want to make sure there is progress on the part of all players concerned.
QUESTION: Every year, millions of people around the globe, they are watching with the hope that they will have a better life this year, next year, but poverty and population is on the rise, but food production is on the decrease. I asked the question from India. Many demonstrations are going on about the black market money, or corruption. So, if we can have these answers for those who are watching us.
Mr. Strauss-Kahn: We meet every year, and since the crisis, and in the aftermath of the crisis, things have improved at the global level, on average. That is the problem we are just underlining for a couple of days, which is that on one hand it's improved, on average it's improved at the global level, it's improving as far as macroeconomic figures are concerned, which is true. On the other hand, most people in the street don't feel that their own life has improved. So to fill this gap is not really the job of this institution, but we cannot be blind. The fact that when ministers meet they need to take this into account is absolutely obvious, and I think it has been acknowledged by everybody during this meeting.
One point was to rebuild some macroeconomic stability, which is underway, still with some downside risks. And it is absolutely necessary. Without this the situation would be much worse.
Now, beginning to rebuild macroeconomic stability, we must have the concern you just mentioned.
QUESTION: On the SDR path, you talk about criteria-based path. Isn't the inclusion of the SDR basket already criteria-based, so how would you exactly be changing it?
And, just to follow up, I know you are as tired of answering this question as I am in asking it, because it is the one that is on everybody's mind, not only mine, but the entire world markets, and that is, what exactly do you mean by restructuring? The Fund says it does not want to create restructuring, but yet it is talking about extending its debt facility from a three-year to a 10-year payback. Can you just elaborate on what you mean by that?
Mr. Strauss-Kahn: On the first part, SDRs, it is rules-based, you are absolutely right. There is some criteria which define how and when a currency is likely to be part of the basket. And, this includes convertibility, floating, the share in global trade, things like this.
It is more likely to review if it is necessary. I am not saying anybody made the decision to make this review, but it is not written in stone forever. What has been discussed, I think, is to open the discussion of the interest that may exist for the international community to have a larger basket of currencies. Of course, don't hide between your own finger, everybody has in mind the renminbi, and it is clear if you look at the existing set of criteria, the renminbi fits with all of them but one, which is the fact that it is a marketable currency. So, that is a question which has to be discussed.
Now, if other currencies were to be included, then other criteria would have to be reconsidered, including the share in the global trade. Because only the renminbi, so far, is over the threshold in terms of that. So, depending on the willingness of the membership to extend, not at all, somewhat, or even more the number of currencies than the renminbi, the discussion will take a different direction. But, the point would be to start this discussion. Starting the discussion does not mean it will be completed soon.
On your second point, I have said everything I can say about this. But, you like me to repeat things, so I'm going to repeat it, and then you will say the wording of yesterday and today are different, and say one word is different, so it means something. It just means nothing.
We have built -- let's talk about the Greek program, the program with the government, following the assumption, which was the assumption of the government, that they really want not to restructure the debt but to repay the debt. That is the hypothesis around which the European program and our support to this European program has been decided. Nothing has changed. Period.
The market can talk for hours about the usefulness or not of doing this or doing that. There is always, whatever the policy measures you consider, pros and cons. So far, we work with the program as it has been established.
This program, for it to work, we need two things: We need the country to do exactly what is in the program, even if it is difficult and we need the other partners, in this case namely the Europeans, also to do their homework in terms of crisis mechanisms. That's it.
QUESTION: I want to know what impact the latest inflation data from China, India, Europe, also, but particularly China and India, has on your thinking, is it reinforcing your significant concerns about the recovery, or is it heightening them?
And secondly, is it possible for China and India to continue to grow at 8 to 9 percent, if they are experiencing these inflation surges?
Mr. Strauss-Kahn: Well, there is concern, of course, which was absolutely acceptable. We have been arguing for a long time, and very happy when it has been implemented, that Chinese policy had to shift to a more domestic consumption-driven policy. No surprise. Then, when you put in place this kind of policy, it has some impact on prices. And, so, the question is, to keep this inflation under control. It certainly is a concern. It was expected.
At the same time, it comes at a moment when growth produces its results, namely that people have more purchasing power, of course, when you have more purchasing power, at the level, absolute level, which is not very high, all this is used for more consumption; so rightly it produces inflation.
So, we are working with the Chinese authorities, namely through the FSAP that has just been completed, on the consequences of higher inflation on the whole system. As I said before, I haven't changed my mind, I think it is a concern. Still, it's under control. And, I don't expect that it will be out of control. But, it would be ridiculous to say that it is not one of the problems that the Chinese policy makers are now facing. Of course, because of the influence of China in the region, it spills over on to some other countries in the region. So, it is not only a Chinese problem but a problem for most economies having high growth, and that is exactly what I had in mind when I was talking before about the risk of overheating.
So, it is a problem. It would be very surprising that an economy like the Chinese economy, Indian economy, as the gentleman just asked the same kind of question, could rise at, I don't know, 8, 9 percent a year without ever facing the question of inflation. It is absolutely normal. They have to manage it.
QUESTION: (Interpretation not available).
Mr. Strauss-Kahn: I guess everybody speaks French here.
You don't need any kind of translation.
The point was about growth in Africa, and inflation in Africa, this gentleman is saying rightly that growth in Africa has picked up, but with inflation, and with almost no jobs or not enough jobs, and so, asking what kind of strategy has been discussed during the meeting to try to address this problem.
Well, first, it is right. It is part of the general problem of the so-called jobless recovery. Depends upon the part of the world, depends, even in Africa, what country you are looking at, but it is true, it is true.
The good thing for Africa is that contrary to what we have contemplated with past crises, the recovery in terms of growth comes earlier than it comes in the past episodes, where it took at least one year to 18 months for African growth to pick up when the recovery was already underway elsewhere. It wasn't the case this time, and growth in Africa came back very soon.
But, still the problem of having growth with not enough new jobs would be a bit too much. The policy may not be exactly the same in advanced countries as in Africa. The question is the same. The policy with Africa, and we are working on that with the African Department and many African governments, is to be able to put in place training policies that are likely to help people to benefit from the growth and to have jobs.
We have especially one experimental mission in Zambia these days with the ITUC and the ILO, to see how we can use good practices, experience that have succeeded elsewhere in terms of labor market policy, to be just able to use the wealth created by the growth, and the growth coming back, to use resources to be able to put in place the right policy that may help create jobs.
Zambia is an example, because this is a bit of learning-by-doing process, but I think it works well. And, of course, even if, because of the differences between the countries in Africa itself, you can't just translate what is good for Zambia to another country, it would be a source of good experiment that we can use elsewhere.
But you are right in saying that this problem is a problem that all across the board most countries will face.
Ms. Atkinson: Thank you very much. I know there are lots of questions, but Minister Tharman and the Managing Director have to leave now.