Questions in the News
Responses to Questions About IMF Policies and Country Operations
Crisis prevention and surveillance
Last Updated: September 6, 2007| Question: Regarding the actions that central banks are currently taking--the European Central Bank recently leaving rates unchanged and expectations for the upcoming meeting of the Fed--do these actions of the banks concur with the expectations and the indications of the IMF. |
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MR. AHMED: We believe that the market turbulence is still a process that is underway, and that during this period the actions that a number of major central banks have taken to provide liquidity to help the functioning of markets has helped to create a climate during which this adjustment, the reappraisal of risk that is taking place, can be done in an orderly way. So we have been supportive of the actions that have been taken.
September 6, 2007 Transcript of a Press conference by Masood Ahmed, Director of the External Relations Department, IMF |
| Question: Do you have an assessment or first evaluation of the economic impact of the recent period of market turbulence? |
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MR. AHMED: What we have said so far is that the process is still unfolding, so bear that in mind, and it is a bit early for us to come out with a definitive assessment of the impact. The second thing that we have said is that it is important to remember that this period of turbulence comes after an exceptionally long period of benign conditions in international economic markets, with high levels of growth in most countries around the world over the past few years. Having said that, we can already say that there will be some downward revisions to our growth projections, more so next year than this year. We can already say that the downward revisions are likely to be the largest for the United States, but we will also see some impact in the Euro area. We have already said that we think growth prospects for the emerging markets as a whole will remain relatively robust not least because of the fact that many emerging markets have much stronger fundamentals today both in terms of policies and balance sheets than they have had in the past. But the balance of risks to global growth has tilted to the downside and we should say that among emerging markets there are some pockets of vulnerability particularly countries that have relied heavily on external financing or have allowed short-term financing to feed domestic credit booms. Overall though, even with some downward revisions, we can envisage a relatively strong global growth performance continuing partly for the reasons that I set out at the beginning which is that we are starting from a relatively sustained period of high growth. In terms of process, we are now going through a process of looking at our projections and estimates for growth country by country. As you know, the IMF process helps us because we do have relationships with 185 countries and so our estimates are going to be built up beginning at the country level and that process will lead to a new set of country, regional, and global forecasts, estimates, and projections that will come out with the World Economic Outlook in the middle of October--the week before the Annual Meetings. In the Global Financial Stability Report (GFSR), which looks at financial markets, we will be looking at the issue of trying to understand better how the current financial market turbulence and crisis came about, and in that context obviously we will be looking at the subprime market issues, but we will also be looking at the channels by which it has been transmitted from that particular market to other markets in the financial area, and we will be looking at what preliminary lessons one can draw in terms of market practices that might need to be revisited to draw upon the learning from this period. The GFSR is expected to be released towards the end of September. September 6, 2007 Transcript of a Press conference by Masood Ahmed, Director of the External Relations Department, IMF |
| Question: Was there any one thing that caused the IMF to decide that it needed to update the 1977 Surveillance Decision? How did the Fund arrrive at the point where this was necessary? |
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MR. AHMED: In terms of what led us to this point, bear in mind that this replaces a Decision that was approved 30 years ago, which was a different world than the one we're operating in now. The 1977 Decision reflected the key concerns of that period that were focused on preventing exchange rate manipulation for balance of payments purposes and on gaining an unfair competitive advantage or avoiding short-term exchange rate volatility. If you look at that by contrast with the most prevalent exchange rate-related problems since 1977, these have either been maintenance of undervalued or overvalued exchange rates for domestic reasons or, more recently, capital account vulnerabilities. So, the international economic framework within which countries are carrying out their macroeconomic management policies has changed, and the surveillance focus of the Fund needs to be updated to address that. The second part is that surveillance is the core business of the IMF, and it's important that the legislative framework that underpins this core business brings together in one comprehensive place the rules of the game, and updates it to reflect best practice. The process involved lengthy discussions amongst the membership as to how best to go about that and then, in the end, there was an approval by an overwhelming majority of the Executive Board representing low income countries, developing countries, emerging markets, advanced countries, all of whom feel that this is now a good framework to take forward. Most important now for us is to take this forward and implement it in a way that achieves the objectives that have been laid out and does so in an even-handed way. June 21, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, with Carlo Cottarelli, Deputy Director of the Policy Development and Review Department, IMF, and Tessa Van der Willigen, Assistant Director, Policy Development and Review Department, IMF |
| Question: Regarding the 2007 Surveillance Decision how do you assess that a country is manipulating its currency and, if so, what are the next steps? Is there an expectation that a country will then change the way it operates its system? If it doesn't, what happens then? |
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MR. COTTARELLI: Essentially manipulation requires two things: first of all, that a country attempts and actually manages to affect the nominal exchange rate and, second, that in doing so it does so for the purpose of securing what we call an unfair competitive advantage, which means trying to achieve an undervalued real exchange rate to increase its net exports. So, in plain language, a country is trying to keep an undervalued exchange rate to boost its net exports on the balance of payments. This is something that can be assessed through various techniques to assess whether the exchange rate is undervalued. These are not new techniques, and we recently issued a paper to describe some of the methodologies. These are recommended methodologies, but we also use a lot of judgment to assess whether an exchange rate is fundamentally undervalued.
As to the second part of your question, when we find a country is running an undervalued real exchange rate and manipulating its currency, we conduct discussions with this country. That is part of our everyday work in our Article IV consultations but also outside our Article IV consultations.
June 21, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, with Carlo Cottarelli, Deputy Director of the Policy Development and Review Department, IMF, and Tessa Van der Willigen, Assistant Director, Policy Development and Review Department, IMF |
| Question: QUESTION: How does one manage market sentiment with regard to surveillance in terms of when you initiate discussions with a country? Do you gesture to the market what is happening and then you discuss it with the country? |
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MR. COTTARELLI: Surveillance is, in the first place, our discussion with the country in question, through which we take into account the views of the country. We discuss its economic conditions, and in the process we report to the IMF Executive Board. Our staff reports are prepared for our Board. As you know, we are now publishing most of the reports for a variety of reasons, including because we think that this is useful, important information for the Fund to provide. It is also important for the market to be informed. We think that more information is actually good for the market in general, so we don't think there is a fundamental inconsistency between providing information and stabilizing markets. Actually, the lesson from the 1990s is that sometimes instability was caused by lack of sufficient information. June 21, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, with Carlo Cottarelli, Deputy Director of the Policy Development and Review Department, IMF, and Tessa Van der Willigen, Assistant Director, Policy Development and Review Department, IMF |
| Question: In the context of the revised surveillance decision, at what point do you decide that you need to take the discussion to a higher level with a country? If, after a country has been brought into consultations, their policies are deemed unsatisfactory, what is the next step? |
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MR. COTTARELLI: It is, of course, as you can understand, a matter of judgment to decide when further discussions will be necessary. So I cannot give you a specific answer in terms of trigger. It's a matter of judgment. It's a judgment that staff has to form based on economic indicators and the seven indicators contained in the Decision and in general the economic conditions of the country. It is also a judgment that fundamentally has to be made by our Board.So there is a lot of judgment involved in this, and I can tell you there is no magic formula. MR. AHMED: On the second question, I think the important point here is that this is a process about clarifying the framework. There are no additional or different enforcement mechanisms as a result. By providing a greater clarity to what is expected of the members in terms of managing their exchange rates and other parts of the economy, in terms of what is acceptable and what is not acceptable and greater clarity about what the focus of the surveillance by the Fund should be, you then have the opportunity for a more focused discussion of that country's circumstances and policies in the Board where all the membership is represented. Then, for many members, the next phase involves their reports—finalized by the staff following the Board discussion—being made public. As you know, now more than 80 percent of the surveillance reports done for countries are made public. As a result of that, there is the additional, public discussion that would follow the IMF Board's review. Dialogue and persuasion are and will be the key instruments that the Fund has in its arsenal. In a cooperative institution where all the membership is represented, those instruments can be quite powerful. June 21, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, with Carlo Cottarelli, Deputy Director of the Policy Development and Review Department, IMF, and Tessa Van der Willigen, Assistant Director, Policy Development and Review Department, IMF |
| Question: What is the IMF's definition of fundamental exchange rate misalignment? |
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MR. COTTARELLI: Fundamental exchange rate misalignment is a deviation of the real expected exchange rate from its equilibrium level, that is, the level consistent with the current account (stripped of cyclical and other temporary factors) in line with economic fundamentals. First of all, we would determine if the current account position of the balance of payments of a certain country is in line with its long-term determinants, what we call the fundamental determinants of the current account after eliminating temporary factors—cyclical influences, any kind of factor that is temporary, including delayed adjustment to previous events including previous movements in the exchange rate. Once we have determined whether the current account is in line with these fundamentals, then we compute what is the exchange rate movement that would be required to move the current account into equilibrium. If this exchange rate movement is broadly zero, we will say that the exchange rate is broadly in equilibrium. Otherwise, it will be, as we say, fundamentally misaligned. But I would like to underscore here, as we do in the fact sheet that minor deviations, low deviations from equilibrium will not be regarded as relevant from the point of our surveillance. We are really talking about significant deviations from equilibrium. I want to underscore that low deviations will not be regarded as relevant. Also, the concept of misalignment does not refer only to countries that are managing the exchange rate. Misalignment may be observed also for countries that are floating, and it may be due in that case to domestic policies rather than to their exchange rate policies. June 21, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, with Carlo Cottarelli, Deputy Director of the Policy Development and Review Department, IMF, and Tessa Van der Willigen, Assistant Director, Policy Development and Review Department, IMF |
| Question: What is the progress on the review of the 1977 Surveillance Decision? Is there a meeting planned given the recent release of the IEO Evaluation of IMF Exchange Rate Policy Advice? |
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MR. AHMED: Moving forward with a review and an updating of the 1977 Surveillance Decision is indeed a priority which we have set out. As you say, the recent report that was done on the Fund's advice on foreign exchange in the period 1999 to 2005, makes the point that we need to continue to focus on and strengthen our work on surveillance of foreign exchange, and this reinforces the importance, in our view, of moving forward with the updating of the ‘77 decision. And so, the plan now is that we will have a discussion of that in the Board, I believe in the next four weeks, but the exact date on that will come out in the context of the work program, which will be released in June. May 24, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, IMF |
| Question: Could you elaborate on the multilateral consultation, and in particular on the policies set out by the participants? In the past, G7 proposals of this kind have not been seen to result in concrete measures. What assurance is there that the participants will actually proceed to implement them? |
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MR. DE RATO: The multilateral consultation process is a new experience. I do not recall any communiqué of any gathering that contained references to policies with this level of detail. Also, you have to take into consideration that this is a document that is being put forward not in a meeting of only five economies, but rather in the meetings of the membership of the International Monetary Fund, so this will be part of our policies. Through bilateral and global surveillance, we will monitor the advances. We believe that if these policies are put into place, there will be significant effects on reducing global imbalances in a way that will be to the advantage of not only the five economies here, but also to the rest of the global economy. MR. BROWN: The willingness of the five participants to acknowledge that resolving global imbalances is a shared responsibility and to make commitments about the future is important in itself, and we will be able to monitor implementation over a period of time. There is some evidence that the promises that have been made and set down are already being set in motion, and therefore there is some optimism about some of the reforms. From the world economy's point of view, it is a major advance on a significant issue that has worried policymakers for many years. We have a process that has worked and that has ended with a report. People are happy with the conclusions of the report and accept that they have mutual responsibilities. In addition, in our communiqué, we state that one potential area for future multilateral consultations is financial sectors and financial stability. We look forward to further steps by the Fund to promote dialogue and hope financial markets and innovation can work to foster growth and financial stability, including possibly in the context of further multilateral consultations. We have had one successful multilateral consultation, and we will evaluate it and learn lessons. But it is obvious that there is scope to move forward as the IMF cements its role in crisis prevention and in surveillance on a multilateral basis. April 14, 2007 Transcript of a Press Briefing by UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and IMF Managing Director Rodrigo de Rato, with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of the External Relations Department, IMF |
| Question: When you talk about monitoring the results of the multilateral consultation, could you describe a little bit how you will be monitoring progress on these policies set out in the document? |
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MR. DE RATO: Surveillance is the core business of the institution. We have a very strong engagement of surveillance with 185 countries so this will be part of it. Global surveillance is also part of our job, both in multilateral consultations and in the World Economic Outlook. One should not underestimate the fact that these five economies have voluntarily not only engaged themselves into a discussion with our staff, but also have a willingness to accept a joint communiqué, a joint document, and a shared responsibility on global imbalances. Of course, we will see how things evolve in the future. The fact is that while global imbalances have remained very large, there has been some rebalancing of world demand in recent months. There are many values of this exercise, but certainly the fact that we can very easily read five different boxes with very detailed proposals is a clear basis for following up and having a future discussion both at the bilateral level and the multilateral level. MR. LIPSKY: There was agreement among each of the participants in the multilateral consultation that their proposals were in their own interests as well as in the general interest, and they were willing to state in the cover note their conviction that these plans, as implemented, would make a significant contribution toward reducing global imbalances. April 14, 2007 Transcript of a Press Briefing by UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and IMF Managing Director Rodrigo de Rato, with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of the External Relations Department, IMF |
| Question: On the Chinese commitments on the multilateral consultations in the section on increasing flexibility of the renminbi, it says in the statement that it has appreciated 7 percent against the dollar and 6 percent real effective exchange rate. But I understood that on a trade-weighted basis, the renminbi has actually depreciated. Which is it? Was there concern about the low value of the renminbi being potentially destabilizing to global finance? |
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MR. DE RATO: First, you are right in what you said, but you should read further in the statement where the Chinese government has stated that the exchange rate formation mechanism will be improved in a gradual and controllable manner. Exchange rate flexibility will gradually increase, with attention paid to the value of a basket of currencies. At these meetings, there was no discussion about any currency. Our view on currencies is expressed in different Article IV consultations, with the Chinese or others. It is in the interest of the Chinese economy and Chinese citizens to have a stronger rebalancing of demand and, to do that, monetary policy should be allowed to play a bigger role. In that respect, exchange rate flexibility will be very much in their own interest.
April 14, 2007 Transcript of a Press Briefing by UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and IMF Managing Director Rodrigo de Rato, with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of IMF External Relations Department |
| Question: Regarding global imbalances, are the risks associated with these imbalances increasing with every passing year? How does the IMF see it and what can the IMF do about it? |
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MR. LIPSKY: Global imbalances are not a new problem or a new issue. They have emerged in this decade in a new way in the context of the unexpectedly favorable economic growth performance of the global economy and relatively low underlying inflation. So the challenge is to preserve this favorable economic performance while reducing risks to sustaining the favorable growth and inflation outlook through reducing global imbalances. In 2004, the IMFC laid out a clear strategy for achieving that goal, and that strategy called on all countries, all members, and all major groupings to enact the policy changes that would produce the structural shifts necessary to achieve that goal. That has been the focus of the multilateral consultations that we will be discussing with the IMFC, and already there is a path toward progress. We see that over the past year there have been signs of stabilization in imbalances and progress towards implementing policies that are consistent with the IMFC strategy. April 12, 2007 Transcript of a Press Conference by IMF Managing Director Rodrigo de Rato with John Lipsky, First Deputy Managing Director, and Masood Ahmed, Director of the External Relations Department, IMF |
| Question: A year ago, the IMF spoke about the urgency of coordinated action to deal with global imbalances. Does the fact that there is less talk of it now mean that you think they can be resolved without international coordinated action? |
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MR. JOHNSON: As described in the WEO report, progress has been made on these global imbalances. For example, our projection on the U.S. current account deficit has come down by about 1 percent of GDP this year relative to the last WEO. That is an important step in the right direction. And I think that the major countries around the world that are involved in these imbalances have been paying more attention to this issue, partly, I believe, because we, along with others, raised it.
April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: Do you see a need for bigger regulation in the hedge fund market? |
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MR. JOHNSON: We are not calling for more regulation of hedge funds at this time. It is the economy that really matters. As long as countries run sensible, responsible macroeconomic policies around the world, as broadly speaking they are, then you will have some ups and downs in financial markets—always have some concerns about speculators. They go by different names in different periods. As long as macroeconomic fundamentals are sound, issues in the financial sector are not going to be of first-order importance. Obviously, there are some particular concerns about whether hedge funds are taking extremely large leveraged bets that could have adverse consequences on banks that might be lending to them. We pay close attention to the fact that central banks and other regulators are looking closely at this, and the IMF is trying to help some central banks encourage appropriate stress-testing for their major banks to so they can really think about these exposures in different scenarios. But we don't see anything in this current situation that would merit a heavy-handed, big increase in regulation across the board. April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: Could you explain what you see as the biggest risks in financial markets at the moment? And on leveraged buyouts, I would like to know if you are particularly concerned about any particular region where leveraged buyouts present a bigger risk, perhaps the United States or Europe? |
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MR. CARUANA: The main risks we're seeing at the moment arethe subprime mortgage market—that is, credit risks—and leveraged buyouts. We stress also that in the emerging markets, the situation has improved, so globally, the risks have diminished, but there are pockets of risk, pockets of vulnerabilities that we need to follow, pockets of exposures of some countries. And in this edition of the Global Financial Stability Report, we have signaled the increasing corporate debt that some of these emerging markets have been issuing. From our point of view, these are the areas that we need to pay attention to. In terms of leveraged buyouts, of greater concern than what is going on in any one region is the question of the extent to which there has been a relaxation of standards and the extent to whidch the companies that are subject to these leveraged buyouts, end up in a more difficult situation to cope with changing economic conditions in the wake of the buyouts. It is more a question of the specific deals than concern related to one region or another. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: There is a lot of liquidity in the global financial system, and everyone seems to be comfortable with those risks. Is the financial system well prepared to deal with those risks and measure them? Are control systems in banks and funds well prepared to deal with those risks? Is this is a source of concern for you? |
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MR. CARUANA: We think that over the last years the improvements in risk management techniques and processes in many financial institutions have been very important, very relevant, and very positive, and this has contributed to strengthening the resilience of the financial system. We see these developments positively. There is liquidity in the financial system, and I would like to say that part of this liquidity comes from the innovation of the financial systems. As I said, we think that there are trends that are strengthening the resilience of the financial system. However, the system is becoming more complex, more interlinked. Therefore it requires some monitoring because, although it has been able to cope with some shocks, we think that the growth in some of these elements of markets—for example, the credit risk transfer market—has been dramatic over the past few years.I It has not been exposed completely to a sustained or persistent slowdown or shock. So, again, we view all these developments positively, especially improvements in risk management, but we think that we need to continue to monitor, especially when some turbulence or some productive downturn comes to the market. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: On the issue of leveraged buyouts and the growth of their private equity market. Do you have any advice about how governments should monitor or what remedies they may pursue to make sure that this phenomenon doesn't get completely out of control? |
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MR. TRAN: The concern we have regarding the financing of leveraged buyouts (LBOs) and private equity activities is more from the financial stability perspective. From that perspective, we are concerned with the relaxation of credit standards and credit discipline that one begins to see in some of the financing for LBO activities and dividend-related financing deals, which continued to run very strongly in the first quarter of this year compared to previous quarters. What we see is a sign of relaxation of due diligence by investors, relaxation in the terms of the leveraged loans, including the growth of the so-called government light loans. If we have learned anything from the deterioration in the subprime market segment of the U.S. mortgage market, it is that the relaxation of credit standards will "come home to roost" at some point. So we would urge regulators in the major markets to make sure that lenders and/or investors operating in their regions try to exercise due diligence and make sure that the credit quality of the investment is up to standards. April 10, 2007 Transcript of a Press Conference on the Global Financial Stability Report by Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department, and Hung Tran, Deputy Director of the Monetary and Capital Markets Department, IMF |
| Question: The Peterson Institute of International Economics has said that in order to address international imbalances currency realignment is necessary, and specifically that the Japanese yen and the Chinese yuan should be appreciated. What is the IMF's view on whether currency realignment is necessary in order to address global imbalances? |
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The IMF for a long time has taken the view that the disorderly unwinding of global imbalances is a risk to the economic outlook, and it is something that needs to be addressed. We have also taken the view that this is best addressed in a framework by bringing together the key actors, and that is why the IMFC endorsed and asked us to launch a process of a multilateral consultation. That is aimed precisely at how you can reduce global imbalances while sustaining high global growth—because the important point here is not just to reduce imbalances but to sustain global growth. That multilateral consultation has now been underway since last June. There has been active engagement of participants in that process and constructive discussions. The Managing Director and the participants will be reporting to the IMFC on the progress made in that exercise. Immediately after the IMFC, we will make that statement available. March 29, 2007 Press Briefing by Masood Ahmed, Director, External Relations Department, IMF |
| Question: Do you have an update regarding the Board meeting on the changes to the 1977 Surveillance Decision? |
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As you know, as part of the process of the medium-term strategy, we are looking at how we can make sure that the framework that guides our work on surveillance, which is the core business of the Fund, is brought up to date with best practice. And it is in that context that the Board is looking at whether and, if so, how to revise the 1977 decision, which is one of the core pillars of that framework. There are a series of informal discussions including a discussion at the Board that took place February 14. I think it is fair to say that what that process is doing is ensuring that we have looked not just at the question of whether to revise the decision, but more importantly, how in any revision of the decision one could make sure that the objectives of the exercise—which is to try and ensure that we have a framework or a basis that guides our surveillance work and that is in line with our current best practice—can be best achieved.
February 15, 2007 Press Briefing by Mr. Masood Ahmed, Director, External Relations, IMF |
| Question: Can you provide more insight on what is going on with the multilateral consultations? Will more information become available before the Spring Meetings? |
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MR. DE RATO: Well, first of all, let me say that these consultations, launched in April, are a very unique instrument. I think it has been a very transparent process. We announced then what we were going to do. We announced in June which countries would be part of that process. We always said that it was a process inside the IMF, which means inside the international community. As I just announced, we will be bringing this issue to the IMFC in April. Before that we will have a discussion in the Executive Board. We have been working with participants that are very much engaged in the discussion. They see the discussion as fruitful and important.
MR. LIPSKY: The discussions are ongoing and are proving to be useful to the participants. There is really no interim report to be given. After all, as the Managing Director said, the process itself was unique and has been evolving as we move forward since it really has no precise precedent.
January 16, 2007 Press Conference by IMF Managing Director Rodrigo de Rato, IMF |
| Question: On the multilateral consultations, could you be more specific about where we are actually making progress as a result of these discussions? What has actually changed as a result of these discussions, whether there are substantive discussions taking place about policy remedies as well as about the broad sharing of insights into the nature of the problem of imbalances? Separately, can you confirm whether there will a specific set of recommendations or findings presented to the IMFC in April and if so whether that will be made public? |
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First of all, I would like to say that, as you mentioned, there has been an initial process in which there has been a discussion to determine whether there was a shared view of the problem. It might look easy to you, but it is not that easy to find an international arena to share views of the significant issues being addressed by the consultations.
I think we have advanced. We have moved toward a shared view of the problem of global imbalances and are now discussing the policies that each participant sees as fit to address that problem. Of course, the discussion includes not only those policies themselves, but also how each participant sees the other policies. This would be the nature of our report to the IMFC and to the Board, and it would be part of my press conference to the IMFC. This is going to be a transparent process.
January 16, 2007 Press Conference by IMF Managing Director Rodrigo de Rato, IMF |
| Question: What is the process of reviewing the 1977 decision on exchange rate surveillance? What changes are up for consideration? What are the mechanics of that decision? |
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What I would say in response to that is that the review process will occur in two parts. There will be an earlier discussion in January followed by a second discussion probably before the Spring Meetings. What we are doing now is reviewing the decision. As you know, the decision is 30 years old. Clearly, the question is: are there elements of that decision, which was crafted at a particular time when the world economy functioned a particular way, that are still relevant, and if not, how best can they be updated to reflect best practice in the way in which surveillance is done today?
As to the mechanics of it, if there is agreement that both a review is needed and on what the elements of that review ought to be, that will be crafted in the form of a new draft decision, which would then have to be approved by the Board.
November 30, 2006 Press Briefing by Masood Ahmed, Director of External Relations, IMF |
| Question: There is some confusion surrounding multilateral consultations that the IMF has organized. We know that the second phase of the consultations is taking place, but there seems to be some confusion about who is taking part and how it is happening. Is there anything you can say on it? |
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The first multilateral consultation started after the Spring Meetings. The five economies that are taking part in that process are the euro area, Japan, the People's Republic of China, Saudi Arabia, and the United States. The consultation has been undertaken in two phases. First, we were going to try and meet with each of the individual members in that group, and then we were going to move to a second phase where there would be discussions among the members of the group, facilitated by the Fund. That first phase is over. We are now in the second phase. How far advanced we are in the second phase, what the exact set of meetings is going to be and when they are going to take place is not something that we have taken a view on making public at this time. Of course, we will give you more information. As we have said, once that second phase is over, there will be a discussion in which the whole membership has an opportunity to contribute their perspectives to a discussion in the IMF Board. At that time, we will be in a position to give you more information on where things stand, but while the process is underway, I think the analogy that people have used before is this is not a soccer match where we are going to give the blow by blow commentary.
November 3, 2006 Press Briefing by Masood Ahmed, Director, External Relations Department |
| Question: Is it the view of the Committee that the central banks have done enough to contain the risk of higher inflation, or are you expecting further action? |
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In the advanced economies, monetary policy will need to continue solidly anchoring inflation expectations and to balance the relative risk to price stability and growth. In other words, we are aware that an inflation problem has been developing. We know that growth is higher than people expected. We are determined to maintain levels of growth, but we are asking countries to be both vigilant about inflation and be aware about second-round effects of energy price rises.
September 17, 2006 Press Briefing Gordon Brown, Chairman of the International Monetary and Financial Committee |
| Question: In what tangible ways is the multilateral consultation process actually reducing threats coming from global imbalances at the moment? |
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I think that engaging five economies in discussing global imbalances in a multilateral institution like the IMF is already a very important step in addressing how to resolve those issues. As you are very aware, global imbalances of savings and investment are not something that can be resolved overnight and it is probably not even desirable that that will happen, but it has to be resolved through changes in rebalancing of demand in many countries, rebalancing demand, rebalancing saving patterns and structural reforms. The fact that five economies, two of them emerging economies like China and Saudi Arabia, are willing to engage in those discussions with us, I think is a very important step forward and a positive one. As Chancellor Brown said, the fact that the constituency of the Fund is willing to see global surveillance as a very important new instrument to enhance good macroeconomic governments in the world will propel us to do more work. I think the fact that we are having discussions on global imbalances is already positive. I think that it will take some time to arrive at conclusions.
September 17, 2006 Press Briefing by Rodrigo de Rato, IMF Managing Director |
| Question: Regarding multilateral consultations, will the IMF publish the results of this process in lengthy documents like Article IV publications? |
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It is too soon to answer your question, because I think that the Executive Board will have to reflect on how we apply our usual roles to a multilateral consultation in which more than one country is involved. So I cannot answer your question today. I am sure that the participants will have a lot to say on that.
September 17, 2006 Press Briefing by Rodrigo de Rato, IMF Managing Director |
| Question: Regarding the new financial facility, which countries are the most likely to be included in this facility? |
| Answer:
Crisis prevention is a very important element of our work. The best crisis prevention mechanism is certainly domestic policies. There are some emerging economies that clearly have increased their resilience in recent years, and I think that is one of the best news in the world economy, which is to what extent we live in a world in which emerging economies are not only playing a role, but are also on a much stronger footing than before. Nevertheless, vulnerabilities exist and the vulnerabilities can be more dangerous in a more tight financial scenario if the world economy evolves in that direction. I think the international community has to be ready to respond to that type of crisis. It is probably shrewd to think that the types of crisis we knew 10 or 20 years ago are not going to be the same in the future, in terms of size, in terms of the need of quick response, in terms of signaling markets, and that is the issue we have to respond to. And we are working on responding to those questions. Once we arrive at a conclusion, we will ask whether we need new instruments and if we need them, we will have them so that countries can use them when it is necessary. The question is not to make a list right now of countries, but to ask ourselves some questions regarding crisis prevention.
September 15, 2006 Press Briefing by Rodrigo de Rato, Managing Director, IMF |
| Question: To what extent have Asian countries carried out reforms to prevent a recurrence of the crisis, and what more needs to be done? |
| Answer:
Well, there is never an end to reforms. There is always more that needs to be done and we at the IMF always want more. But a number of indicators, for example we have looked closely at corporate governance indicators, seem to suggest that Asia has done quite a bit since the crisis. Now, can it do more? Yes, of course, it can do more, and probably should do more. I think some of the factors that are being done in order to improve resilience, including, for example, improving domestic bond markets and improving the regional sort of links, including through trade, but also through capital arrangements such as the Chiang Mai Initiative, all these are good things which improve the resilience of the region.
If you look at our Asia chapter in the WEO, by and large there is a lot to learn from Asia for the other emerging economies, including the fact, that Asia has kept inequality relatively low and has focused on factors like education and competition. Now, there are areas where more could be done. Certainly, competition in the services sector is quite important for a number of richer Asian economies going forward, because productivity and growth there is slowing. But these economies are going to become more services-focused over time, so opening up more, both to domestic competition and to international competition in services, could allow services to do what manufacturing did in the past. So, I think there is room for improvement but I think there has been a lot that has gone in the right direction.
September 14, 2006 Press Conference on the World Economic Outlook Report, Raghuram Rajan, Economic Counselor and Director of the Research Department, IMF |
| Question: How far does the plan go for a greater role in surveillance of currencies? Will this be adopted or decided in Singapore, or is it something that is an ongoing process? |
| Answer:
The work on surveillance is more of an ongoing work program. There are a number of things that are underway, which I have talked about in previous conferences. Where things are advancing enough we will report to Ministers on the progress that is being made on modernizing the Fund's surveillance function, on focusing it more on the kinds of issues that countries are now facing, particularly in terms of financial markets and exchange rates, looking more at spillover effects and also some of the multilateral dimensions of it. We're not seeking a formal endorsement in the sense of a Board of Governors' resolution, but it is a work program or a direction of travel. We think that having that discussion in the IMFC and having Ministers review it and commit to political endorsement and support would help us take that agenda forward in the way in which we have been asked to do from the Medium-Term Strategy itself.
September 7, 2006 Press Briefing by Masood Ahmed, Director of External Relations, IMF |
| Question: What exactly has the International Monetary and Financial Committee (IMFC) agreed on multilateral surveillance? |
| Answer:
The IMFC resolved on the recommendation of the IMF Managing Director that in future the IMF should be more able to address global questions with multilateral surveillance, like current account imbalances, the impact of oil prices and financial sector questions, and the IMF should monitor in future more deeply not just country policies but the linkages and spillover effects of one country's policies on others in the global economy. The committee agreed that members shared a general responsibility for global issues and mutual responsibilities to each other that should be reflected in our new approach to multilateral surveillance. Specifically, the IMFC agreed the IMF must focus more on crisis prevention, as well as crisis resolution; that multilateral as well as bilateral surveillance would become of increasing and central importance; and that we would agree an annual surveillance remit built on multilateral and bilateral surveillance of monetary, fiscal, exchange rate policy frameworks and financial sector issues. This annual remit will involve independence of the surveillance work, greater transparency and of course work by the Independent Evaluation Office. The IMF will start working immediately on how that multilateral surveillance process is going to be established. It will not only be a consultation process with some systemic countries, but it will involve, as the process evolves, the IMF Executive Board and the IMFC. April 22, 2006 Press Briefing by Rodrigo de Rato, IMF Managing Director, and Gordon Brown, Chairman of the International Monetary and Financial Committee |
| Question: Could you elaborate on the confidence that you have in the multilateral surveillance process to actually persuade the countries concerned to act on the spillovers and linkage problems that the IMFC referred to? |
| Answer:
The responsibility affecting governmental interaction is on governments, not international institutions. I think we can provide a framework in which consequences of actions can be seen more clearly, and also consequences of inaction. And, I think that to do that beyond the mere analysis and descriptions in the consultation process with governments will be extremely useful. As the IMFC communiqué emphasizes, that would also be done in consultation with the whole membership. So there is going to be a very transparent way of analyzing linkages and spillovers and risks—and solutions—that probably is going to teach us a new way of understanding international cooperation. This is a new instrument that the IMF is going to develop. It is new for us and going to be new also for the membership. And I think we're going to be learning about many things when we get this consultation with the specific governments and, at the same time, when we engage the whole international community on in it.
April 22, 2006 Press Briefing by Rodrigo de Rato, IMF Managing Director, and Gordon Brown, Chairman of the International Monetary and Financial Committee |
| Question: I wonder if you could explain how you envisage the new consultative committee on multilateral surveillance to work. Would it be a permanent committee meeting on a regular basis or would it be an ad hoc committee meeting as and when the Fund thought there was a problem that needed addressing? And how would it dovetail with the existing IMF work, particularly the IMFC? |
| Answer:
It will not be a committee. It will be a Fund instrument, a consultation process. We have a bilateral consultation process that you are all aware of: the Article IV consultation process we have with countries. This will be a multilateral consultation process with systemically important countries who can affect, through their linkages and spillovers, the evolution of global imbalances. That, of course, does not refer strictly to developed countries. There are developed countries and also emerging economies right now that clearly have systemic implications for the world economy, and probably the composition of that group will change over time. It would depend very much on the evolution of growth, imbalances, and savings and investment conditions.
As the IMF is a global institution, all of the countries are members of this institution. That consultation process would allow us to discuss with the governments affected their policies that are affecting other systemically important countries, systemic countries, and at the same time, through our institutions, the Executive Board and the IMFC, that discussion would also allow the rest of the countries to participate. So, what we are working on is a process that will match—at the global level—what we are doing at the bilateral level, and we think that process is what the world economy needs now. We have lived in the last 15 years through different arrangements, formal/informal groups of countries, more homogeneous countries. We think that that time has passed in terms of what the world economy needs. What the world economy needs now is a global institution with the capacity to produce those discussions and those consultations, and at the same time a global institution in which not only are present some number of countries, but all the economies in the world, or most of them.
April 20, 2006 Press Briefing by Rodrigo de Ratio, IMF Managing Director |
| Question: In a recent speech , the Managing Director said that work is underway to enhance the IMF's exchange rate surveillance. Do you have any details on what exactly is being done, and what time frame we're looking at? |
| Answer:
The work on surveillance is a part of the medium-term strategy effort being undertaken by the staff. The Managing Director's report on the strategic review came out last fall, and subsequently a series of working groups were set up. One of those working groups focuses on possible improvements in surveillance. They have to do with the communications aspect of surveillance in terms of making views known, different ways of looking at multilateral surveillance, regional surveillance, and how to make it effective. Effective is a "term of art", trying to encourage governments to adopt some of the issues and concerns on policy implications that come out of the surveillance process. The next step prior to the Spring Meetings is that you will see some indication of what is in these various reports that are being worked on—it will be consolidated and presented in some form at the Spring Meetings. If you want to get the thrust the review, take a look at the Managing Director's initial report that lays out a work program including in the area of surveillance specifically
February 6, 2006 Press Briefing by Thomas Dawson, Director of External Relations, IMF |
| Crisis prevention and surveillance : archived questions and answers |