Transcript

Transcript of the IMFC Press Conference

October 12, 2013

PANELISTS:
Minister Tharman, IMFC Chair
Christine Lagarde, IMF Managing Director
David Lipton, IMF First Deputy Managing Director
Gerry Rice, Director, IMF Communications Department

MR. RICE: Good afternoon, everyone, and welcome to this press conference on behalf of the IMFC. We have with us today the chairman of the committee, Minister Tharman, well known to you all. Directly to his right is the First Deputy Managing Director of the Fund and to his left, the Managing Director, Christine Lagarde.

Please identify yourself by name and affiliation and keep the questions short if you would. We'll have opening remarks from the Chairman and then the Managing Director and then we'll get to your questions.

MR. THARMAN: Let me say a few things about the meetings we've had, both the formal plenary sessions, which are relatively open, as well as our smaller group, restricted sessions, where we speak without staff being present and it is a direct conversation between ministers central bank governors. I must say, and I'm not trying to talk things up, that we have had a consistently positive and constructive tone in our discussions over the last two days. We know there are problems. We know there are near-term risks, the most obvious one being what is going on in the U.S. with regard to the fiscal deficit. We know there are medium-term risks both in the advanced economies and the emerging economies, but there was a consistently constructive tone on the part of all the major players and the smaller countries as well, advanced and emerging. We felt that we could solve problems together.

The spillovers that come about from large country policies were uniformly acknowledged. Everyone knows that these are inevitable consequences as policies are reset, and there was a consistent view from the emerging market economies that the eventual normalization of monetary policy, you will see that in our press communiqué, as the economies recover in the west, will be a net positive for the emerging economies. And the key task then is to focus on the transition, prepare ourselves well for the eventual normalization. It is not imminent, but it will happen, and the key task is to prepare ourselves well. For both emerging economies and advanced economies, that means refocusing on structural reforms, first and foremost, as a condition for sustained growth, and second refocusing on medium-term fiscal adjustments, particularly for countries with large government debts. Refocusing on coherent and credible medium-term fiscal plans. So, this was a consistent narrative. We discussed lots of details, obviously, but that was the basic narrative. There was also a sense that we will sort out our problems not just by doing the right things for our own economies, but also through cooperation and dialogue internationally.

Some of the risks that we see are what you call externalities, or spillovers, arising from domestic economic policies, including the right domestic economic policies, but there are inevitable spillovers. And quite apart from each of us doing the right thing to ensure our economies are on a sound macroeconomic footing, there will be scope for the IMF to continue to engage in active, forward-looking surveillance, focused especially on the spillovers. There will be scope for active policy dialogue so that we can anticipate the problems and know what each other are going to do. And there will be scope for cooperation by way of financial support where necessary.

MS. LAGARDE: As always, Chairman Tharman is covering the topics beautifully and he needs no interpretation from my part, and no substitution. I'll just use an analogy which I used on a couple of occasions in the course of these Meetings. Our members welcomed the opportunity of a real dialogue, and there was such a dialogue. And there was certainly the sentiment shared around the room that everybody had to put their house in order, that all houses communicated with each other, and that communication was often accelerated and accentuated by the financial flows and the masses of financial flows that circulate in and out and sometimes in a very rushed way. And that is where we critically discussed the monetary policy and its impact at home and abroad.

I would say, second, that there was a clear desire for cooperation. And that means that those countries that will have to gradually exit from their unconventional monetary policies actually care about what it means outside. They care because it has effects on the way back at home. And in the same vein, particularly the emerging market economies but all the other ones too, appreciated that they have to prepare for potential market volatility and turbulence as a result of the tapering of unconventional monetary policies.

The third take-away for me, for us collectively, is that the reform of our governance is a key priority, needs to be completed so that we can move on in the process of mirroring the changes in the global economy.

MR. RICE: Thank you. Okay. Let me begin in the front here.

QUESTIONER: Question to Madame Lagarde. So, as you said, emerging countries are still really concerned about the Federal Reserve's next move, do you think that now they are feeling confident and prepared for the next possible volatility?

MS. LAGARDE: You know the purpose of those meetings is to make sure that everybody around the table understands everybody else's issues, and anticipates a bit what will happen. There was a strong positive sentiment from the emerging market economies in general that they understand what is at stake, what might arise in the future. They are either prepared or will be preparing for that so that they can be strong and their economy can resist those volatilities and turbulences. That touches on their fundamentals, on their fiscal policies, as Chairman Tharman has indicated, as well as on the structural reforms that they have to consider.

QUESTIONER: A question for both the Chairman and the Managing Director. We all can see here that the next meeting of the IMF will be held on April 11-12 of 2014. My question is, if the chronic crisis of the debt ceiling and the budget in the United States persists as it has been for at least a year, what are the consequences and what are the perspectives that you see then?
MR. THARMAN: I think it is a clear negative. And there is a clear negative when we think about the key element of recovery that has to take place in the next one to two years, the recovery of private investment. Private investment hinges on confidence. If we don't get clear resolution on the U.S. fiscal and the debt issue, it is going to be hard to see how that confidence is going to come back anywhere. So it is a critical issue for all of us. Restarting private investment and where it is already in place ensuring that it grows strongly is critical in this next phase of recovery. That is quite apart from the obvious drag effects of having to cut back suddenly and significantly as a result of the lack of resolution of the medium-term.

QUESTIONER: Minister Tharman, I was curious, if the dollar did not enjoy its reserve status, how do you think markets would be reacting to what is going on here right now? And given the somewhat strict discipline the U.S. has always encouraged for other countries around the world, how would you rate their current fiscal performance?
MR. THARMAN: It is a sort of question that requires a grading from an elementary school teacher rather than a graduate school professor. And, I think there is clearly room for improvement. However, there is no lack -- I mean, I must say that speaking to our colleagues in the administration, they understand the issues fully. They are very keen to see a solution. That is not just short term, but long term. And we know what the problems in the U.S. are. It is not a lack of understanding.

QUESTIONER: Madame Lagarde, you gave a good speech yesterday, but I think you missed a key part in it. To face the challenges that you described the world needs leadership. The U.S. and the EU currently are incapable of providing that leadership, as we all know, on different fronts. They are more a part of the problem than a part of the solution. And, as for others, they seem to be not willing to claim that leadership because leadership requires responsibility.

So, my question is to you, where do you see that leadership coming from in the foreseeable future? Or, do we have to remain leaderless for the time being?

MS. LAGARDE: I'm not sure it is actually an economic question, but I'll venture a little bit in your direction. Given the challenges that I have identified yesterday and specifically the massive demographic transitions, the new frontier risk, including sustainability, the risk on the environment, and so on, so forth, I don't think that a providential leader will address all these issues. I also identified that we will be in a very multi-polar world where the economic strength and power will be highly dispersed as opposed to concentrated. And it will require multiple and a multi-polar leadership to address those transition risks.

QUESTIONER: (Inaudible).

MS. LAGARDE: The future will tell.

QUESTIONER: The communiqué talks about appropriate capital flow management in the event of volatile capital flows resulting from normalization of monetary policy. Is this a green light to capital controls that the IMF is now giving?

MS. LAGARDE: Thank you very much for the question. No, it is not. It says really what it says, which is that capital flow management can be one of the many tools that can be utilized in particular circumstances. It is certainly not the first tool that should be relied upon, and there are many other tools that are actually identified in the communiqué as well, including macroeconomic and macroprudential measures that should be considered and utilized beforehand.

QUESTIONER: My question is related to China. In November the third plenary session is coming and it is expected to launch a change in the Chinese economy. What do you expect the reform plans or the achievements from this meeting?

MS. LAGARDE: When?

QUESTIONER: What do you expect?

MS. LAGARDE: Certainly, what we would hope is that the Chinese economy does participate in restoring as much stability as is possible in the global economy. And given that it is the second largest economy in the world, we would certainly hope that it is very attentive to the development of its banking and nonbanking credit sector, which has significantly fueled the development of credit lately, both for housing and for local governments. And that is an issue that we know our Chinese colleagues and members are very well aware of. We would certainly hope as well that there is continuation of the rebalancing that we have observed lately and the continuous shift toward more consumption and less investment-fueled and less export-fueled growth going forward.

MR. RICE: We have time for maybe two more questions.

QUESTIONER: (English feed interrupted by an interpreter.)

MS. LAGARDE: (Joined in progress)

...that have been made by certain populations in the eurozone in particular. But that is delivering results. It is the beginning of the process we certainly hope and we hope that recovery is going to be stronger going forward. Provided that there is continued structural reforms, that there is very strong attention paid to the banking sector, and to its necessary repair where needed - in that view we welcome very much the balance sheet review and the stress tests that will be undertaken by the European authorities, including the involvement of a third party in the process. And we believe that the eurozone should send some very strong signals of progress by completing and delivering on the European banking union in the shortest possible time.

QUESTIONER: My question is regarding the Caribbean. How would you assess the safety and stability of monetary and financial systems in the Caribbean, considering that most of these countries are vulnerable, highly indebted and also experience low growth? Earlier this week small island states reiterated their calls for the IMF and the World Bank to use a different yardstick to measure or determine their status rather than having them as high middle income countries, to use all the factors such as the vulnerability indices of these countries to determine their status and give them access to concessionary loans.

MS. LAGARDE: As you know, we have actually produced a special vulnerability study for the low-income countries in general, and as you know as well we have a specific study under way for the small and fragile states that are most vulnerable within that group.

As far as the Caribbean is concerned, I have a special breakfast meeting with them all tomorrow, and that tells you the level of attention that we want to pay specifically to that group, because they encounter not only monetary issues as a result of spillover or otherwise, but they also face issues related to their sort of mono or dual growth sources, be it tourism or otherwise, as well as being exposed generally primarily to the weather incidence that can really damage their tourism, which is one of the main drivers of their economy. We do pay attention to them, and they fall into different categories depending on their per capita income, but we are very attentive.

MR. RICE: This will be the last question.

QUESTIONER: I have a question to the Managing Director.

You now mention the importance of the cooperation between advanced countries and emerging countries. I would like to ask about the economic relations between China and Japan. The dispute over territory between China and Japan has cast a big shadow on the big economic relations. For example, the volume of bilateral trade and mutual investment has considerably decreased. I don't mean to ask you for a political comment. I would like to have an economic view on this issue. Do you think this situation is one of the uncertainties or concerns on the Asian economy, and what do you think is the ideal bilateral relation between two countries with the world's second and third scale of GDP?

MS. LAGARDE: I would say that the less obstacle there is to trade, the less barriers and the best understanding there is between countries, the better.

MR. RICE: Thank you very much.