June 30, 2016
PRESS OFFICER: Olga Ilinichna Stankova
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Webcast of the press briefing
MR. RICE: Good morning, everyone. And welcome to this press briefing on behalf of the International Monetary Fund. I'm Gerry Rice of the Communications Department, and as usual, our briefing this morning will be embargoed until 10:30 a.m., that’s Washington, D.C. Time.
Let me begin as usual with some notices of events and calendar, and then I'll come to the questions in the room. And I see we have some questions online also, so I'll do that.
Let me begin with the schedule of the Managing Director, Christine Lagarde, who will be giving a speech at the Paris Club, tomorrow, actually, Friday, July 1st, that will be in Paris. It's the occasion of the 60th Anniversary of the Paris Club, and that also coincides with the welcoming of South Korea to be the Paris Club's 21st Member. That's tomorrow.
The Managing Director will then travel to Aix en Provence, where on July 3rd, which is Sunday, she will participate in a panel discussion at the well-known annual conference of economists in France, Le Cercle des Economistes, and the theme of the discussion this year is, “What Path for Economic Prosperity.”
Then a bit later next month, July the 14th, an auspicious day for some, on the occasion of the 15th anniversary of the Center for Global Development, Madam Lagarde will give a speech there at the Center for Global Development, on the issues facing low-income countries, and highlighting the critical role of global collaboration amongst issues.
This will be followed by a conversation with Nancy Birdsall, who is the Center's President, as you know, and open to the Press. There will be a Q&A, and all the rest of it.
A couple of other things that may be of interest. Today we are publishing a working paper by IMF Staff, called “Syria's Conflict”, and the economic implications of that. It outlines the challenges Syria faces in rebuilding its economy, and that may be of interest, to you.
Secondly, today, also, we are publishing one of our staff discussion notes that focuses on the issue of withdrawal of correspondent banking relationships by large global financial institutions in several regions after the -- in the wake of the global financial crisis, this is the so-called de-risking issue, which I know is of interest to many of you. So the paper is looking at that issue broadly, and I believe we are doing a press call beforehand to give you some background on that if it's useful.
Finally, then, Maury Obstfeld, our Economic Counselor, will present our next WEO Update, World Economic Outlook Update, at a press briefing here at the Fund on July 19. So, not too far from now. The next WEO update will -- again, I know that’s of interest to many of you. So, with that, let me take any questions that you might have.
QUESTIONER: A couple Brexit questions for you. To begin, just a general question - can you update us on the Fund's view of how this impacts the global economy?
MR. RICE: I am predicting that there might be a few questions on Brexit today, including the one you’ve asked. I would like to suggest I take a few, and just for efficiency purposes. I'll take a few, and I'll come back. You know, we can do a follow up, or if I miss something I'll come back. Is that okay with you?
QUESTIONER: Sure.
MR. RICE: I know it's not our norm, but --
QUESTIONER: If that’s the case I have one more. I believe the pound is stabilized today and over the last few days, but it's still down, almost 10 percent since the Brexit vote. We've seen volatility in the dollar and the yen. In the Fund's view has the moving exchange rate been orderly? And if not, what needs to be done to stabilize global exchange rates?
MR. RICE: Good. Thanks. Yes.
QUESTIONER: Hi. So my first question on Brexit would be, you know, that we mitigate the economic impact of the Brexit, do you think that it will be critical for the U.K. to retain access to the single European market? And also a question with a follow up on the previous question. I mean, do you think that the financial volatility will -- so just after the Brexit is going to be short-lived, or do you foresee any other bout of financial volatility, in the coming days or weeks? Thank you.
MR. RICE: Okay. Are there any more? Yes. Good morning.
QUESTIONER: Good morning. There are some other countries who recently announced that they will have a point of exit of the EU. How this will influence the economy? Are we facing another recession?
MR. RICE: Yes, good morning.
QUESTIONER: Good morning.
MR. RICE: I'll take this one, and then I'll come back.
QUESTIONER: Am I on? Okay. Good. How exactly has the IMF been involved in the post Brexit environment? Is it purely technical assistance to the U.K., is it to the EU as well? Has Madam Lagarde been involved in any conversations with leadership, et cetera? Can you describe the nature of IMF's engagement, both in the past week and going forward?
MR. RICE: Sure. So, let me take that package, and as I said I'll come back and if I miss something you can pick me up on that. So, clearly, you know, like everyone else we are still absorbing what has happened, over the last matter of days and, you know, we are still assessing in many respects what the impact might be. But let me, having said that, give you a, you know, kind of a status from our perspective.
We see the near-term risk for the U.K. and the EU and the global economy arising mainly from the macroeconomic and financial market impact, of a sizeable increase in uncertainty, including on the political front. One notable source of this uncertainty concerns the terms of the future relationship between the U.K. and the EU, and these relate to questions about how long it will take to decide those terms, how the new relationship will impact business, and other actors.
And that is why we have encouraged both the U.K. and the EU to work collaboratively toward a smooth and predictable transition. You may have seen Christine Lagarde's statement to that effect.
Let me also say that the IMF strongly supports the commitments made and the steps taken by major central banks, that includes the Bank of England, and the European Central Bank, the U.S. Fed, the Bank of Japan, and others, to provide liquidity and curtail excess financial volatility. Market movements immediately following the referendum were large, but not excessively disorderly, and I think I would apply that same characterization to your question on currencies.
More broadly, we think policymakers need to stand ready to act, should the impact of financial market turbulence and higher uncertainty, threaten to materially weaken the global outlook. Decisive policies will make a difference.
We have said that the Fund will continue to obviously monitor developments closely, and we are engaging with our members to maintain a global stability in the period ahead. We also stand ready to provide support to our members as needed, so a lot of this dialogue and engagement with our members is taking place on a daily basis in the context of our regular consultations, and it’s active and it’s ongoing.
I don’t have for you a specific example of a country or region, but I can tell you that active engagement and consultation is very much the order of the day.
He asked about the impact. Again, I would say Brexit has created significant uncertainty, and we believe this is likely to dampen growth in the near term, particularly in the UK but with repercussions also for Europe and the global economy.
Prolonged periods of uncertainty and associated declines in consumer and business confidence would mean even lower growth and again, policymakers in the UK and the EU have a key role to play in helping to reduce the uncertainty during this period.
Let me perhaps finally mention, and then I can come back, that I mentioned the WEO update, July 19th, so we are, as I said, assessing the impact of this.
We will be reviewing that WEO analysis in that light, and clearly we will have a bit more detailed analysis in that update in a few weeks’ time.
I think that answers most of those questions but again, you can come back.
It’s on the lines of the protracted period of uncertainty and the turbulence, you know, again, we are watching this play out.
It’s been a matter of days, and we want to see everybody doing as much as they can to mitigate that but of course, we can’t predict that at that point.
On the whole issue of the UK and the access to the single market, that’s something that is being discussed between the UK and the EU.
It’s very active. We’re all reading it in the newspapers, so I won’t speculate on that.
I will and can point you to a very detailed, very recent Article IV on the UK which had a special detailed analysis on the potential implications of Brexit, so it’s pretty comprehensively covered, and again, I wouldn’t speculate on your question about how this is going to affect others’ political decisions.
We will be looking at the economic financial dimensions of this and basing our analysis on that. QUESTIONER: Yeah, just to follow up on -- firstly on his question. Is there a need for sort of a coordinated central bank action to stabilize exchange rates at this point and time?
Secondly, you said that policymakers need to stand ready to act.
You said that in the context of the central banks, saying they are ready to provide liquidity and intervene with necessity -- is that what you’re talking about when you say policymakers need to stand ready to act? And finally, you said that you were viewing the WEO analysis and that the Brexit will likely dampen growth, not just for the UK and Europe but also globally.
Given that there is -- I can see no offset for expanded opportunity and for growth elsewhere in the globe, does that mean that you are going to have to downgrade your global outlook? Thank you.
MR. RICE: Okay, let me take those and -- on the question of action by policymakers, let me clarify. I was not specifically or only referring to central bank action. I think, again, it’s the early days here.
We are watching how this event plays out, and I think that policymakers need to be ready to act potentially on a broad front or as needed, but I wasn’t just referring to a central bank action.
On central bank action and potential need for more or other action, again, as I just said, we very much welcome the actions that have been taken already by central banks. I think there is a speedy response.
We think it was an appropriate response and we support that.
On the WEO, and I want to leave it to the team for absorbing, analyzing, assessing everything that is coming in. I have characterized it as you said, we think there has been -- this is likely to lead to a dampening of growth, and as I said, particularly in the UK but with repercussions for Europe and global economy, but I don’t want to preempt that analysis that will come in the WEO. I think he had something -- or him, sorry?
QUESTIONER: I just want to follow up. Can you be more specific on the recommendations that you are making to the countries in Europe and also, more specifically, do you think that to remove some of the uncertainty related to the Brexit would be crucial for the UK to trigger the Article 50 as soon as possible?
MR. RICE: Yeah, on the, you know, UK Prime Minister, Mr. Cameron, has made it clear that he will leave the decision on the Article 50 to his successor.
I don’t really -- it’s a decision for the UK, so I don’t have anything to add on that.
QUESTIONER: You don’t think it’s a source of uncertainty, the fact that no one really knows when the UK will effectively exit the EU?
MR. RICE: You know, I think it depends. You know, a quick agreement that is prudent and acceptable to all would of course be optimal, but on the other hand, and I want to emphasize the other hand, that rushing to a bad outcome or a negative outcome would not be in anyone’s interest. So again, I think this is very much a matter for the UK and the EU to work out and that process seems to be under way.
On specific actions that you asked about, I am glad you did ask that question because clearly this is very much a country by country, in terms of effects of the Brexit, and it depends on very country specific factors, you know, the extent of trade, the extent of financial exposures to the UK, the effect of the uncertainty that I talked about, risk aversion in particular places.
All those things, it really depends and it will also be affected by what you just asked about the new economic relationship between the UK and the EU, which we don’t know at this point what that is -- what that is going to be.
So again, the effects will vary from country to country. I mean what can I say? Broadly, you know, it underscores clearly the need for all members of the EU to pursue and enhance their efforts, both individually and collectively to lift potential growth, to boost economic resilience, and to foster inclusiveness. We stand ready to support those efforts as needed.
Is this on Brexit? I’m going to take one more from you, okay?
QUESTIONER: Sure. You mean on Brexit?
MR. RICE: One more on Brexit.
QUESTIONER: Thank you.
MR. RICE: You can even ask about something else.
QUESTIONER: Who knows? I want to reserve my right to bug you about other things. How concerned are you about -- the uncertainty that you are saying is potentially weighing on financial markets triggering another banking, let’s not call it a crisis, let’s call it further banking turmoil in the EU? Does this risk warrant direct bank recapitalization by the EU? Such as Italy is calling for?
MR. RICE: I don’t want to -- I won’t speculate on, you know, what the period of uncertainty might lead to. What I have said, Ian, is that we see the uncertainty right now as probably the biggest risk to the global economy. That that uncertainty is a major risk, and, you know, we just discussed here why that makes it so important that there’s concerted action to mitigate that risk. As I said, decisive policies will make a difference.
On the question of European banks, you know, aside from what has happened with Brexit in recent days, you know, we have said that continuing to strength the banking sector in Europe is a major priority, addressing the NPL issue, the non-performing loan issue, in particular, is key. We talked about this very recently in our concluding statement consultation on the Article IV for the Euro Area. Again, you know, we think a coherent approach is needed, focusing not only on banks, but on structural reforms and, of course, on growth.
Are we good on Brexit?
QUESTIONER: I just have one more.
MR. RICE: Still on Brexit?
QUESTIONER: Yes, it’s still on Brexit.
MR. RICE: Let’s make this the last one then if that’s --
QUESTIONER: Then we’ll move on to the other exit. Does the Fund have any specific recommendations for the Bank of England? You know, because the pound is down sharply, so that presents inflation issues, but obviously, they’ve also got some growth issues. What’s the Fund’s view on how the Bank of England should proceed?
MR. RICE: You know, as I’ve said, we think the action and the communication from the Bank of England has been entirely appropriate and helpful at this point. I understand the governor is going to speak in less than an hour, so I’m going to leave it to him to say any more than that.
I’m in your hands.
QUESTIONER: Thank you. After the Brexit do you see any Grexit or - just kidding.
My first question, it’s about the Article IV and Greece. Usually the Article IV consultations take place once a year. In the case of Greece, the last time, if I’m correct, the report was published on May 31, 2013. Could you please tell usthe reasons the Article IV consultation reports for Greece have delayed so much?
MR. RICE: Yes. It’s not unprecedented by any means that this would be the case. It’s not a statutory thing to do an Article IV every single year in every country and every circumstance. You know, it is the case sometimes when, particularly, when we’re in intense program mode and program negotiations that -- program discussions, I should say, that, you know, Article IVs are delayed or deferred, as is the case here with Greece, as you say.
What is important is that we would have active consultation and, you know, access to economic data of financial institutions and so on. Of course, that has been the case with Greece. We have been and are in pretty active consultations, as you know. So I think it’s fairly straight forward.
QUESTIONER: Ms. Velculescu was in Greece last week and she said, and I quote, ‘Even with the full communication of reform we think this program for Greece is not sustainable.’ She also said, and I quote, ‘That the measures for the debt relief should be quantified during the drafting of IMF’s debt system,’ I read the report. That’s what she said.
How are you justifying your presence in the Greek program since the European officials said many times that the debt relief measures would be decided at the end of 2018. Of course, after the elections in France and Germany?
MR. RICE: So we talked a lot about this last time, but let me, perhaps, just reiterate in response to your question. You know, we have said repeatedly and consistently that the primary surplus targets in the ESM program are very ambitious, and, you know, to reflect the evidence political and social constraints, and ensure more realistic and credible targets over the medium term.
We have called for lowering those targets, again, over the medium term. They would still be ambitious, but we think they would be more realistic and credible, and complemented by, need to be complemented by substantial debt relief. So I think we’ve been consistent on that.
We’re not participating in the program with financing at the moment, but we remain fully engaged in the process and the policy discussions with the Greek authorities and the European partners. As you say, in terms of next steps, we’ll continue to discuss the quantification of debt relief measures with Greece’s European partners. Then on this basis we’ll update our DSA later this year. An assessment of the debt will be, obviously, that’s what that will be.
It will be on that basis then that we would make a recommendation to the Board on a potential program before end year. So I think that speaks to your scheduling point as well. Did you have anything else? Let’s just finish on Greece then if you have one.
QUESTIONER: Yesterday the biggest supermarket company in Greece, Marinopoulos, closed down and 13,000 people in one day are out of work. As you understand, this is a huge number for Greece. Many companies closed because of the crisis. The unemployment, as you know, has reached 30 percent. Do you think that you have some possibility for this tragedy at least?
MR. RICE: You know, clearly, the objective that we share with the Greek authorities and the European partners is precisely to help Greece get back on the path of sustainable growth and employment, you know, so that these kind of things don’t happen. That’s been the goal from the beginning. That continues to be the goal. That’s why we are working so hard with the Greek authorities and our partners to have a program that’s credible, and that can produce the right results for the Greek people, including on jobs. So, of course, it’s a concern. Of course, we want to work with others to alleviate that as much as possible.
QUESTIONER: I mean, this is Brexit related, but it’s about the global economy.
MR. RICE: You said it was the last one. I was pleased.
QUESTIONER: Can I just get you on the record on this. George Soros said today that the world is undergoing a slow motion financial crisis. Can I get you on the record on whether the IMF sees this as the start of a financial crisis?
MR. RICE: I can only repeat what I’ve said, that it has clearly created a significant uncertainty for the global economy that we think is likely to dampen growth in the near term. We need to be ready, all of us policymakers, with decisive actions that can help mitigate that as not just a possibility. I’m just repeating what I’ve said.
QUESTIONER: But to be clear --
MR. RICE: This is definitely the last one on Brexit, okay? Go ahead.
QUESTIONER: But to be clear, I hear what you’re saying. What you just said is a very clear, concise statement, and yet, you did not say no, the world is not in a slow-moving financial crisis.
MR. RICE: What I’m saying, it’s been less than a week since this event. You know, it’s been a matter of days. I think what I’m saying is we’re all still digesting. I think we’re assessing. I think that’s the right thing to do. I think it would be imprudent and inappropriate to rush to judgment on exactly what is or is not happening.
You know, I think we need to do our job, and part of that job will be assessing the data and taking a comprehensive look. We will reflect that very soon in the upcoming WEO. It’s going to be a matter of weeks. Again, I think that’s the appropriate way to proceed.
Anything else in the room? Then I’m going to take a couple of things online that are non-Brexit related, believe it or not. There is a question about the Portuguese economy asking, are you worried about the evolution of the Portuguese economy?
You know, we had just today, earlier today, issued a statement on that. Let me refer you to that. It’s got a lot of detail. Portugal’s economic recovery has entered its fourth year. The country enjoys favorable access to financial markets having successfully completed the adjustment program. I’m quoting from the concluding statement. The pace of growth has softened recently. Increased market uncertainty in the context of heightened risk aversion following the referendum in the UK could persist for an extended period.
Again, I’m just quoting from the concluding statement. This reinforces the importance of a credible policy framework. So I think the IMF view on the Portuguese economy is well-elaborated in that statement.
There’s a question also from Africa on Angola. It’s asking about, is Angola still interested in the technical and financial support that comes with an EFF? That’s the question.
I talked about Angola last time here. The IMF staff team in Luanda finished on June 14. That was the mission concerning the possibility of an EFF. However, more recently, the president of the Republic has informed the IMF of the government’s decision to continue their policy dialogue with the Fund only within the context of the Article IV consultation and not through discussion concerning an EFF supported program, so there is a change there.
Going forward, discussions concerning the possible EFF supported program will no longer feature in the IMF staff engagement with the authorities. That said, a staff team will visit Luanda again, possibly in October, for the 2016 Article IV consultation.
With that, I’m going to thank you very much for your flexibility and your patience today. I really appreciate it, and it was helpful to us all. I hope it was helpful to you. Have a good long holiday weekend, those of you who are in the U.S. and get to enjoy it, and we’ll see you in a couple of weeks’ time. Thanks very much.
