Transcript of Press Conference on the International Monetary and Financial Committee Meeting

Christine Lagarde, International Monetary Fund Managing Director
Tharman Shanmugaratnam, IMFC Chairman
David Lipton, IMF First Deputy Managing Director
Gerry Rice, Acting IMF External Relations Director
September 24, 2011
Webcast of the Press Briefing Webcast

Mr. Rice: Well, good afternoon, everyone, and welcome to this press conference of the International Monetary and Financial Committee, with Chairman Tharman, with the Managing Director of the Fund, Christine Lagarde, the First Deputy Managing Director, David Lipton. Before I turn the table over to the Chairman for some opening remarks, let me just remind you that we do have simultaneous interpretation. Channel 1 is English, 2 is French, 3 for Spanish, Channel 6 is Arabic. Can I also that we keep the questions short so that we can have as many as possible, and that you would identify yourself in asking the question. With that, it is my pleasure to ask the Chairman to make some introductory remarks.

Chairman Tharman: You have received the press communiqué and I thought what I would do is say a few things about the nature of our discussions and what we discussed, and give you a feel for the sentiment and extent of resolve that was demonstrated in the course of the last two days amongst all my colleagues.

First, let me say that there was very clear recognition on the part of ministers, clear recognition of the gravity of the situation we are in. We are in a precarious situation. We face a confluence of sovereign debt and banking risks, with the epicenter of that being in the euro area. But it is underpinned and complicated by the fact that we also face a weakening global economy, especially in the advanced economies, including the U.S., and signs of that already having knock‑on effects in the rest of the world, including emerging economies and the poorest economies.

So, it is a combination of financial risks with a weakening economy. And contributing to that is a problem of lack of confidence, in particular lack of confidence in policy actions to arrest the crisis.

There was very strong recognition of this around the room in all our discussions, amongst all my colleagues, those in the euro area, those in the United States, those in the emerging markets. And, there was very strong resolve. There was not just individual resolve, but a collective resolve that we will do what it takes to prevent an escalation of the crisis, an escalation of the financial crisis that we face in the weeks and months to come, and that we will also do what it takes to avoid the prospect of a prolonged period of stagnation in the advanced economies, and therefore a prolonged period of weakness in the global economy.

So, the resolve was with regard to both factors, arresting the crisis, and preventing it from escalating much further;  and second, taking the medium‑term steps in fiscal policy and structural reforms to ensure that we do not end up with what is otherwise a very real possibility of stagnation in the global economy.

The euro area, as I mentioned, is at the epicenter of the current crisis. But, there are weaknesses globally. In the United States, in the housing market, in consumption. There are weaknesses in Japan. And there are structural problems in the emerging economies where it is also very much a work in progress, the effort to get past those structural problems.

What was very clear is that we know that no one is going to be immune from problems in any one part of the world, and problems in the euro area in particular are problems that will affect  all of us. It is not decoupled world.

We spent a lot of time discussing the steps to be taken, and what we all felt was critical, was the implementation of the euro area leaders's agreement on July 21st, which is now going through a process of ratification. The implementation of the July 21st agreement was to all of us critical, including the agreement to enhance the size of the EFSF and to increase the flexibility of its use so as to maximize its impact, which we also referred to in our communiqué.

But there was also a willingness on the part of players outside the euro area, all of whom, as members of the IMF, feel that we have got to ensure that we not only address the problems in the euro area, but prevent this from becoming another major global crisis. There was a willingness to see the IMF playing a key role in resolving the crisis, and importantly in rekindling growth in the global economy over the medium term.

We were encouraged by the fact that the IMF stands ready to provide stronger support where necessary.

So, that is what I would like to say by way of my opening remarks, and I turn now to Ms. Lagarde for her comments.

Ms. Lagarde ‑ Thank you very much, Chairman. I actually share the views that have just been expressed, so I'm not going to repeat what Tharman has just indicated.

Let me just say that in addition to what is often regarded as a dry communiqué, there was a lot of coming together in the room. And that is something which is difficult to reflect in a communiqué. But, there was clearly a common recognition, common diagnosis of what is happening at the moment, and a shared sense of common purpose. There was no denial, no finger pointing. It was about recognition, and it was about support.

From my own perspective, I opened the plenary session of the annual meetings yesterday and as part of my address to the membership, the 187 members of the IMF, I sent a call for action, collective and bold. And, if you look at the details of the communiqué, there is a response. If you look just at the first sentence of the chapeau part of the communiqué: "Today we agreed to act decisively to tackle the dangers confronting the global economy."

There was a dialogue and there was a clear response from the membership.

Equally, and I think you have a copy of that document, I proposed my Action Plan to the IMFC. At the end of the communiqué you will see that the IMFC asks the IMF and the management of the IMF to play a decisive role and to be fully engaged, and that takes very specific forms. In the surveillance area the membership has asked us to be very specific, to be as multilateral as possible, to further the road that we have opened with the spillover reports, with the consolidated multilateral report. And we will do that.

On the resources and facilities, we have also asked that the financial safety net and the toolkits that is available for the Fund be perfectly adjusted to the needs of the membership, and in particular to those countries that are the crisis bystanders, whose fundamentals are solid and good, but who are at risk of potential contagion. And the same goes for the middle income countries that are subject to external shocks. We will do that as well.

So, I'm very encouraged by the strong dialogue between the membership and the IMF. We are tasked to work harder, to provide better surveillance yet, to fine‑tune the instruments that we have. And there was a very strong endorsement by the membership of the directions in which we are proposing to take the Fund.

One final point. Because I'm positively minded, in a way, and however grave and serious the moment is, we know also the global economy is also halfway through the work that needs to be done. Because, if you look at financial regulation, if you look at crisis management, if you look at improved governance, for instance, in the euro zone, if you look at strengthening the capital of the banks, a lot has already happened. If you look at the fiscal consolidation, a lot has been engaged. So, we are at a critical juncture. But, I think that we are halfway through. It is a question of pushing hard to get to the other side.

Voila.

Mr. Rice: Thank you, Managing Director and Chairman for the remarks. Can I remind you again to keep the questions short, please, and identify yourself by name and affiliation. Let's start down at the front here.

QUESTION: This is a very strong communiqué. It is the kind of actions that I think many people expected to come out of the G‑20, that might previously have come out of the G‑7, but forgive my possible ignorance on this point, but to what extent does this actually commit the governments concerned to these actions? This is a full commitment on the part of those governments, is it?

And, one more question of fiscal consolidation. In Europe, in the advanced economies, it seems to rule out the possibility that there could be any new fiscal expansion were the crisis to get deeper in the advanced economies.

Chairman Tharman: First let me say that everyone took responsibility for this statement, and although it is concise, each sentence has a lot of follow through in it. And whether it is about the euro area, or about the United States and what it needs to do with regard to its housing markets, the emerging markets particularly the surplus emerging markets and what they need to do by way of structural reforms to enhance domestic demand, and enhance flexibility of exchange rates, everyone took responsibility for this, and we did not have a whole load of contention in the wording of this communiqué, I can tell you that.

On  the second part of your question on fiscal consolidation. This is something we discussed very actively. Christine can correct me, but my sense of what the consensus was around the table was that, first, credible medium‑term fiscal consolidation amongst the advanced economies, U.S. and Europe in particular, was at the heart of restoring confidence to their economies. And, any delay in embarking on plans that lead to decisive consolidation over the medium term is going to hamper the return of confidence even in the short term.

There was also a sense that if you do that well, if you have clear commitments that the markets believe and our own people believe, will lead to sustainable finances over the medium term, it does buy a little bit of space in the short term. And in the U.S., that means not abandoning fiscal consolidation, but some slowing of the pace of fiscal consolidation. This will vary country by country, as we have stated in our communiqué. But, there is no trade‑off between doing the right things over the medium to long term, and gaining space in the short term. In fact, doing the right things in the medium to long term will reinforce our ability to avoid a sharp contraction in activity in the short term.

QUESTION: What are specifically actions, especially linked to the spillover document and information you gave, that must be fortified. Could you please tell us about what was decided about the IMF reforms?

Ms. Lagarde: On the IMF reforms I suppose you are talking about the various reforms approved in 2010 in particular. I took the opportunity of the IMFC meeting to just remind the membership of the necessity to implement this reform. It was decided to double the quota, clearly a quota increase that needs to follow‑up from that, and the entire membership has not yet delivered. It was very good to hear from some of the members that they had taken the measures to have their parliament ratify and approve the quota increase. It is a process that needs to take place, and clearly it is an ongoing process, so that as I said in my opening remarks yesterday, the institution mirrors its membership and vice versa, and there cannot be a dichotomy between the two.

Concerning the spillover report, clearly it's work that was encouraged by the membership. And if we have learned something, it is the fact that the prices of assets, for instance, financial circuits play a significant role in amplifying the magnitude of economic trends and variations. We have to continue doing it. And, surveillance can take multiple forms, but it is clearly by identifying the connection between the dots, the connection between the countries, the way in which they are linked to each other that we can best design the policy advice or the warnings that can be helpful in avoiding crisis in the future. So we will continue to do that work.

QUESTION: I was wondering, reading the communiqué when you say the IMF should be ready to strongly support the euro area efforts, if it means that the IMFC wants the IMF to at least keep the same or increase the financial support to euro countries? And, whether you thought it had enough resources to do that?

I have just an extra question for Chairman Tharman, just really a quick reaction, if possible, to the UBS CEO stepping down, since you are the main shareholder.

Ms. Lagarde:  As far as the IMF is concerned, it is ready and it will deliver on any type of resources necessary and available to all its members. It is not just a euro‑area‑focused issue at the moment. There are other countries that are affected, and it is a global occurrence, just happens that the epicenter is in the euro area. By resources, I mean everything that the Fund can deliver, from policy advice, from being the trusted advisor and the facilitator, to organizing facilities that are needed, as I said, with a clear view on the flexibility and the proper adjustment of facilities as they existed today. The Fund will be here.

Chairman Tharman: We are very proper in Singapore about the relationship between the government and the GIC, the Government of Singapore Investment Corporation, which is the shareholder in UBS. And we are quite religious about avoiding statements by the government about any specific investment the GIC makes, because those are the responsibilities of the GIC as a professional management company, and not the government. So, I have always resisted making any comments about any specific investment. And I'm sure that the GIC is in regular touch with both the board of UBS as well as the Swiss regulator.

QUESTION: A question for Madam Lagarde. The communiqué mentions the implementation of the July 21st agreement at the European level, although now this agreement seems to have been overtaken by events, especially for instance market prices for Greek debt. Yesterday, it was mentioned that conditions may have to be changed in the Greek package as the IMF is an important component of that. Could you possibly comment on that. Is there anything more needed beyond the July 21st package, with special reference to Greece in particular but also the EFSF in general?

Ms. Lagarde: The communiqué speaks for itself and it is clearly important that commitments that have been made be delivered upon. So, there was a total agreement within the membership today that that was the course: Implement commitments that have been made and the implementation of the July 21st agreement, and it's implementation of the program that has been put in place in various countries currently under program, and that is the way to go. It is steps in the right direction, but it's implementation first and foremost. No qualification.

QUESTION: The communiqué specifies the fact that emerging and developing economies have exhibited strong resilience in terms of growth and stability during the crisis. There is a very large common currency community in Africa, the CFA zone. Is there any concerns that some of the experiences from the euro zone could be exhibited in the near or long term within that zone, considering that the economies within that zone vary quite dramatically in their performance?

Ms. Lagarde: That monetary zone you are talking about has had the great benefit of the stability of the euro as a currency. I think I have attended a sufficient number of finance minister CFA franc, as we call it, meetings to know that this is a very shared view in the ranks of ministers of finance. And, if you look at the currency itself, of course it has varied over time. But, it has varied also since ten years ago when it was first launched. And it has appreciated over time. It has moved a little bit down in the last few weeks, but in the main ‑‑ and I don't want to pass judgment on what the African countries that are part of the zone think about it, it is really for them to decide, but what I've heard from ministers of finance in the various meetings we've had over the years in my previous capacity is that there were benefits to be had from that alignment with the euro, more than downsides to it.

QUESTION: Mr. Minister, respecting that these are not analogous situations completely, but on a very broad level, are you comfortable that the IMF has treated Europe in the same way that it treated Asia in its financial crisis? Specifically looking at the protections insisted on for bondholders in Ireland, for example, the very prescribed extent of losses envisioned in the private sector initiative for Greece. This is not the same way, I think, that Indonesian investors were treated, for example. I'm just interested in your comparison.

Chairman Tharman: That's an interesting question. First, let me say that the situation we face in the world now, and the types of crises that emerge and the scale of interconnection between crises that emerge in one part of the world and another are altogether different from what we faced a decade ago. Everything is on a larger scale, and everything is far more connected than it used to be. That means that the involvement of the IMF, both by way of resources, policy advice, and intrusiveness, needs to be on a different scale compared to what was the case in traditional, country‑by‑country crises that we faced a decade and more ago. You could go back to the Latin American debt crisis as well, various episodes of that.  So it's a new world and what Christine was saying earlier about the new surveillance toolkit of the IMF was extremely important. The IMFC supported the directions that she laid out to broaden the role of the IMF with regard to surveillance. Not just looking at the traditional balance of payments or current account surveillance responsibility, but to look at multilateral surveillance, not just country by country but multilateral, and to look at the connections between macroeconomics and financial markets, and to look at how everything adds up together.

What is the term you used?

Joining the dots. The game now is always about looking at ways in which dots might get connected in surprising ways before it really happens, anticipating scenarios that involve unusual correlations because the types of tail risks that we now face in the global economy are not the conventional tail risks. The role of the financial sector as a propagator for shocks that emerge in one part of the world is now dominant. That requires an enhanced capability on the part of the Fund, enhanced tools, and enhanced ways of responding to crisis. And by their nature they will be on a larger scale.

QUESTION: I have a question to Madam Lagarde.

Now, it is reported that Poland, Brazil, and South Korea have been intervening in the currency market these days. While you were meeting ministers here in Washington at the annual meetings, the international monetary system has been destabilizing, and I would like to ask you for comments on the intervention situation in the world. And also, how can you deal with this situation, because the IMF is built to ensure a stable international monetary system, but yet we are seeing a destabilizing situation right now.

Ms. Lagarde: Couple of things. First of all, being able to bring more stability into the entire system will be conducive to avoiding those sporadic interventions, so the overall mission that we have, and that the membership has decided to focus on going forward, is critical.

Number 2, I have submitted in my Action Plan that we actually do more work on the financial safety nets. The financial safety nets are precisely intended to avoid, protect, and build up the defenses of countries that feel that they either have to increase their reserves excessively, or take the defensive approaches that you have referred to. So, our action is precisely in that direction. Added to which, and that is a task also under the auspices of the G‑20, the reform of the international monetary system, with a set of recommended guidelines as to how to deal with the excessive inflow or outflow of capital is also in the making. And there will be more later on in the autumn on that front.

QUESTION: First of all, you mentioned the need to implement the July 21st agreement. The question is, will that be enough? Because there are rumors for the need of a larger haircut possibly than the 21 percent. And given the fact that, for better or worse, Greece is at the center of this, I'm just wondering if you feel that the measures that the Greek government has announced will be enough to do the job, and go ahead with the sixth tranche of the loan? And are you worried about social unrest in Greece given the fact that these measures have been quite strong?

Ms. Lagarde: I'm tempted to respond with one single word: Implementation. Implementation. Implementation. The July 21st agreement is about implementation. There is a contract that has been entered into, signed at the highest level of the 17 member states. We were present in that negotiation, and it is about implementation. So, propagating rumors is of no good, not conducive to stability, which is exactly the purpose of the Fund. Don't expect me to speculate on rumors. I'm only focused on what has been agreed. It is the word of member states at the highest level, and they have assured that they will deliver. That is what matters.

I would say for the second part of your question: Implementation, implementation, implementation. And, we are in a constant dialogue with the Greek authorities, and we are confident that implementation will follow the good words that we have had with the authorities.

Mr. Rice: Thanks very much, everyone. Thanks for coming to the press conference, and thanks to the Chairman and the Managing Director.

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