Transcript of the IMFC Press ConferenceApril 20, 2013
THARMAN S: IMFC CHAIRMAN
CHRISTINE LAGARDE, IMF MANAGING DIRECTOR
DAVID LIPTON: IMF FIRST DEPUTY MANAGING DIRECTOR
GERRY RICE: IMF COMMUNICATIONS DEPARTMENT
MR. RICE: - Good afternoon, everyone. Thank you for coming and welcome to this press conference on behalf of the IMFC. I am delighted to have with us today the Chairman of the IMFC, Chairman Tharman, and also the Managing Director is here, as well as Mr. Lipton, the First Deputy Managing Director.
MR. THARMAN - Thank you very much. First, apologies for keeping you waiting.We have had a very good meeting of minds over the last two days in our various IMFC sessions. I would say that there are a few common strands to the discussions, and a common mission that everyone advocated.
First, there was a very strong desire to see us focus individually in our own countries, as well as collectively, to focus on getting growth back to normal, and in fact raising potential output growth in the global economy. And a very strong desire to see a return to some normality in jobs, to reduce the still very high levels of unemployment in the advanced economies, and to create new jobs in the emerging economies. So, growth and jobs were a very strong focus of our discussions.
We're not fully passed the crisis, but if I compare it to the meetings a year ago, there was a much stronger focus on growth and jobs over the last two days.
There was also a strong and common recognition that achieving growth and jobs cannot rest on one policy alone. There is no single bullet that will get us to normal growth and so normality with regard to jobs. In particular, around the table, amongst all my colleagues, there was a very strong view that we had to place greater emphasis on structural reforms to create jobs, as well as to boost productivity. There also had to be a stronger emphasis on credibility in medium-term fiscal consolidation. That is the second strategy.
There still needed to be accommodative monetary policy in the advanced economies, but an over reliance on accommodative monetary policy, without addressing the need for credible, medium-term fiscal consolidation and without stepping up the pace of structural reforms, was unlikely to lead us back to normal growth and to job creation. So, the emphasis was toward a better balance of strategies--monetary, fiscal, and structural--with a stronger emphasis on medium-term fiscal and structural reforms rather than a single reliance or an overly heavy reliance on monetary policy.
That was the tenor of the discussions. I would say on a better track in the three-speed world, as Ms. Lagarde talked about. We have to use this time to build up buffers, because there is a risk, particularly with capital flows, and a risk that our economies are doing better, that you are going to get a buildup of new problems arising from credit creation as well as problems in asset markets. We have to use this time to build up buffers and start acting on the prudential side to guard against future risks. So I would summarize those as two broad themes in our discussion, for which there was a very good meeting of minds.
No disagreements in views, and we all felt strongly about those conclusions.
MS. LAGARDE - Thank you, Chairman. Let me preface brief comments by thanking publicly the Chairman of the IMFC, not only a rock star as some of you have mentioned in your papers, but he is a voice of reason and a man of vision. He has the ability to bring people together, which is exceptional in the context of the IMFC, because you have representatives from very different corners, with a different pace of development, with different levels of development, with different concerns, as he has just indicated, but some of them have really transcended the discussions that we had over the last couple of days.
Clearly, the one mentioned first and foremost was jobs and growth, whether you look at the MENA transition countries, for instance, or whether you look at some of the advanced economies in the eurozone, or whether you look at Japan, or whether you look at the United States, and some emerging market economies as well, every policy maker is keen to develop jobs and to respond to the demands of the young population in particular. So, anything that works to create jobs---obviously, starting with growth and the good policy mix, which relies on not just one policy, but a set of policies that will include fiscal consolidation at the right pace, structural reforms (which really bonded all members together this morning as we were going through the list of to-dos), and monetary policy, is clearly intended to respond to the job and growth demand that is out there.
One piece of information: we have yesterday concluded a staff-level agreement with Tunisia. So Tunisia will be another country in the Middle East where we will be helping and supporting that country's economic recovery and stability. So that is, from my perspective, certainly a piece of good news from yesterday's developments.
QUESTION: Mr. Tharman, I'm interested, what aspect of the discussion about macro policy and the conditions right now presumes that things went wrong and we can get back to where we were? I'm wondering if you are comfortable vis-à-vis the developed economies with that basic conclusion, that basic presumption, the levels of employment, levels of production, do we understand what the output gap really is, and if we could get back to where we were, or have things changed?
MR. THARMAN - Good question. I would say by way of a short answer that the commodity that is in shorter supply now is confidence. And again, around the table, certainly from my colleagues from the advanced economies themselves, they felt that we had to address this forthrightly. Confidence needs to be strengthened by stronger predictability in medium-term fiscal policy, in other words the markets need to believe and populations need to believe that there is a medium-term fiscal strategy. This is important because without a medium-term fiscal strategy, in some sense a consolidation will be achieved over the medium term, it is very hard to have short-term flexibility in fiscal policy. And it is also very hard for population to be willing to go through some of the challenges of structural reforms without a sense that there is a coherent medium-term strategy.
Two things were very strongly emphasized. We need to regenerate optimism and confidence and if we rely only on monetary policy to achieve that, it will reduce the effectiveness of monetary policy itself. Monetary policy accompanied by structural reforms that give a chance to young people to get jobs, structural reforms that help companies to upgrade and improve productivity, is much more likely to succeed. And fiscal policy that takes place together with structural reforms rather than fiscal policy focused on short-term adjustment objectives is also more likely to succeed in enhancing confidence over the medium term.
QUESTION: I have a question for the Managing Director about the spillover effects on emerging markets. From yesterday's G-20 statement we can see that advanced countries are intending to extend their monetary easing. I wonder if IMF or G-20 countries will take any further measures to better monitor the spillover effects to address emerging country concerns?
MS LAGARDE - One view that was generally shared amongst the group was that under current circumstances the monetary easing or the unconventional monetary policies that we observed particularly out of the advanced economies is appropriate, not in and of itself, not in isolation, but as Chairman Tharman just indicated, as a composition of the mix, so that was a statement number one.
Then you have this double concern, one that there is more of it, and what will be the consequences, what will be the spillover effects for all economies, not only emerging market economies, but all those that offer the yields, if you will, for capital to flow there, and to be invested, and the second fear, which is exactly the opposite of that one, is what happens when it stops and what is the exit route and how smoothly does that happen? So, the IMF will be doing some additional work to review the consequences of unconventional monetary policy, we call it UMP now, and what will be the consequences of the variety of exit and what will be the good exit, as opposed to the more unpleasant exit for all members.
QUESTION: Madame Lagarde, a question about Slovenia. On one side we have the Slovenian government claiming everything is fine, everything is under control, and on the other side we have media and markets saying exactly the opposite. How can you see the situation in Slovenia, and what should be done in Slovenia for it not to become Cyprus?
MS. LAGARDE - I think the best is to actually verify by ourselves and to rely on the observation of facts, and I think it is our duty to the membership to go to the bottom of the facts and to assess all the components of any economy. We will do that with Slovenia as we do with any other economy.
I would not trust the rumors, the trepidation, whether from media, markets, or otherwise. What we see is the statements made by the new government, led by a woman prime minister, which I find encouraging, to have my own bias on that point. I know that she has indicated that she wants to pursue privatization, that she wants to allow for better management of companies that are on the fringe of insolvency, and that she wants to reinforce the capital of Slovenia banks. Those three principles are not bad principles from which to start. And having said that, we are working in a constant dialogue with all our members and we will do so with Slovenia as well.
QUESTION: Should emerging market economies be encouraged to defensively intervene in the currency markets to offset the effects of monetary policy in industrialized countries?
MR. THARMAN - We can't be purist about it. That applies in both directions. In other words, you can't rely entirely on defensive measures, to keep your exchange rate unchanged, because if you do that, then there is an implication for domestic money supply and liquidity in your domestic asset markets. But neither can we take a view that short-term capital flows which are potentially volatile, should be accommodated fully by movements in exchange rates.
I think there is a pragmatic view that is emerging amongst the emerging countries, which is that you do need to have some flexibility in your exchange rates, but because you are not quite sure how permanent capital flows are, it would be unwise to rely purely on exchange rate adjustments, to cope with capital flows. Particularly when they're portfolio capital flows distinct from foreign direct investment and there has been an increase in portfolio capital flows generally. We are taking a pragmatic view. We have been able to manage so far, but again relying on one instrument, whether it is the exchange rate, or macroprudential controls, or domestic monetary policy adjustments, relying on just one instrument is unlikely to be an efficient solution. You do need a mix of responses, and we have got to do it in country-specific circumstances in a way that is sensible.
QUESTION: The communiqué makes reference to eventual exit from monetary expansion. Is that aimed at any particular country or group of countries? Because, this language seems to have crept into the communiqué quite strongly in the last few days.
Secondly, given the terrible problem, really destructive problems in the eurozone at the moment, there seems to be very little reference to the really deep-seated problems there. We have had Cyprus, Slovenia, 25 percent unemployment in Spain, the French economy is doing rather badly. You seem to gloss over the very serious problems which is still going on in the eurozone.
MS. LAGARDE - On the issue you raise about exit, it is unspecified in terms of target. We certainly heard from the entire membership that it is unconventional. The central bankers have very much jumped into an unknown landscape, uncharted territory as they have said. And, there is clearly a common view that we should do further work and investigation and academic research to make sure that we identify the risks and the benefits of any exit.
On the issue of Europe, you will remember if you were at the press conference at the opening of the session that I identified three speeds at which the countries were recovering at the moment, and in the lowest speed was clearly the eurozone. So we did not water that down. It was very much front and center of all discussions. And, we heard from our European colleagues, their determination to pursue some of the structural reforms that they have started, particularly on European banking union. They have indicated their determination to complete their draft directive on resolution of banks throughout Europe. And, there is clearly a set of national reforms and national fiscal consolidation going on throughout the region. It is not to say that part of the world is out of the woods. It is the one that is traveling at the slowest pace and which still has work to do.
QUESTION: Question for the Managing Director. You mentioned the breakthrough in Tunisia. Just wondering how will the money be used, to cushion reserves, or something else? Also, do you foresee a breakthrough in talks with Egypt soon in the next few days? Egyptian authorities are giving it a two-week time frame. Can you comment?
MS. LAGARDE - I'm afraid I will let you down on the first one, because I don't know yet the composition of exactly what they have agreed. I think it is US$ 1.75 billion. This was agreed literally late yesterday, so it is extremely fresh news. I haven't yet seen the terms and conditions, and details of the program. That would help me respond to your question. If you are interested, we can follow-up for you and help you with that.
On Egypt, we have been saying many times it will be for next week, so I would rather not plan for any completion or conclusion of our negotiations. I know that the teams have met here, and saw the minister yesterday, seeing him again today. So, I hope we continue the progress we have made. It is a task and we will not give up. We will not leave the table. We have to continue the work and we have to be of support to the Egyptian population. We'll do everything we can. We cannot be the only one to do that. It will take international support and international donors to also help Egypt.
QUESTION: Madame Lagarde, I wish to know if you have in your mind the important momentum of reforms that we have in Mexico and the political agreements? What can you tell me in that respect?
MS. LAGARDE - I have to tell you that we follow carefully what happens in Mexico, particularly since the election of your new president, and I'm very personally very impressed by the way in which he has actually rallied support around a comprehensive program of reforms. And how he has managed to organize the transition so well with his predecessor, how he managed to rally other political parties with the view to improving the Mexican situation. And we have heard from the governor of central bank, Mr. Carstens, and his colleague, the minister of finance, their determination to put in place very wide ranging list of reforms. Speaking from memory, education, the health system, some privatization of various sectors of the economy, particularly in telecommunication. This is most impressive. And, it is a country that has fared well during the crisis, whether there has been a little bit of slowdown in the pace of growth last year, but where we expect that the reforms that have been announced, have been agreed very much by consensus with others, will actually take the country further. We sense that determination in the team and we welcome it. We believe they have the right policy mix in place, very solid macroeconomic policies for quite awhile, and we hope that will help the country.
QUESTION: There are some reports in Europe today, Madame Lagarde, that you and Secretary Lew had a tough talk with Mr. Schauble, because the IMF and the U.S. are asking the Europeans to issue the eurobond. And also that you and the United States are asking for less measures. Is this true? Can you comment on that report?
MS. LAGARDE - I promise you, it is not. You referred to something I have not participated in, and of which I don't know -- I don't know who is inventing it or making it up, but no, not the case at all.