Transcript

Transcript of a Press Conference by International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn at the Group of 20 (G-20) Summit

April 4, 2009

MS. ATKINSON: Good afternoon. We are at a press conference here with Managing Director Mr. Dominique Strauss-Kahn, and First Deputy Managing Director, Mr. John Lipsky. Mr. Strauss-Kahn will open with some remarks, and then we will go to questions. Thanks.

MR. STRAUSS-KAHN: Well, good afternoon. I'm going to say a few words in English, and after that—for the French-speaking people, I will make some comments in French.

Maybe some of you were in the IMF press conference at the end of the Annual Meeting last October. And if some of you were there, then you may remember that what I said at that time is that IMF is back. Today you get the proof when you read the communiqué, each paragraph, or almost each paragraph--let's say the important ones—are in one way or another related to IMF work.

The IMF is first back as a forecaster, and you may see that IMF forecasts are the reference—of course, there are institutions making forecasts, all very good—but the fact is that the IMF forecasts are the reference for the G-20. And in paragraph 10 of the document, for instance, you will see that the G-20 relies on the forecast we have that growth will resume in 2010 and could go to over 2 percent at the end of 2010. So that's the framework in which the G-20 is working.

What are the right policies (to assure growth will reach levels forecast)? The first one is certainly global stimulus and I must say that I'm really happy to be the head of an institution which more than one year ago—it was last year in January, when we asked for this global stimulus. At this time no institution, nobody was able to see that the crisis would be so deep that it would need a global stimulus.

We answered that, and we have been followed, and that's a very important thing because I heard a lot of things about the lack of coordination and so on. In fact, this is the most coordinated stimulus ever. It has never been in our history, those countries, those having some fiscal room, allowing the fiscal stimulus at the same time to face the same crisis.

So the problem is really not the lack of coordination, because coordination did take place.

Of course, we cannot go only with stimulus; we also need to work on the regulations, regulations of the financial sector, regulation of different non-cooperative jurisdictions, or the rating agencies—all of this is in the document, and I think it's very helpful because it would affect confidence. Everybody understands that this crisis has some technical roots. That it also is a crisis of confidence.

And the last point, maybe some of you have listened to me during the last week in a written interviews, or radio, or TV, I always say the same thing, which is that the stimulus will not be effective, or effective enough, if we are not able at the same time to clean up the balance sheets of the banks. The cleansing of the financial sector is obviously today on the minds of all the heads of states and governments. And I was really—I won't say surprised, but happy to notice that all of them are saying the same thing: We have to recommit ourselves, and we have to clean up the balance sheets of our banks. And that's absolutely essential. All the experience of the IMF shows that you never recover before you complete this cleansing of the financial sector. So I'm really confident when I listen to the heads of states and governments today that they go back home having in mind that that's the right thing to do.

The IMF is also back as a policymaker, and not only is this recognized by the text, when the text says, for instance, in paragraph 6, that this is an “unprecedented and concerted fiscal expansion”. This just explains what I said before, that as a policy advisor the IMF has not been recognized—I'm not saying that there are governments after G-20 summit that are going to do all the time what we think is the right thing to do, but at least we are the partner to discuss with and to realize what kind of policy should be implemented.

The IMF is also back in terms of work—of course, forecasts guide our work—but also other kinds of work. I'm thinking especially about the surveillance process. And if you have read the communiqué, you have seen that the surveillance process of the IMF is a central piece in this communiqué, the central piece of what the G-20 is relying on. So surveillance and as a sub product of the surveillance, the early warnings together with the new FSB, the former FSF, that's something which is totally central to what the G-20 wants to do.

[Inaudible]…We may have things going worse. So, of course, they don't like it. But on the other hand, that's our role, and all understand that even if they're sometimes upset by pessimistic forecasts, or when we say, this part of the world, or that part of the world is at some risk, they have to accept that and that's part of the exchange between governments and IMF.

And what is very important for me is that it has been a clear affirmation, it was clearly stressed in this communiqué, that we are asked to monitor the process in the action plan and on regulation.

I have often said we don't ask—the IMF doesn't ask to be the big regulator. I don't know if we need a big regulator at the global level or rather at the national level or regional level, but even if we needed one, there's no reason for the IMF to be this. We are monitoring the rules which are defined by the FSB, and then implemented in the countries.

And what is important to us is the surveillance process which enables us to exert our surveillance and see if the new rules which have been decided are really implemented in the different countries. Because it's then addressing it from an intellectual point of view: to define new rules to fight against procyclicality or issues like this, but if it's not correctly implemented in each and every country, at least in each systemic country, then there's no use.

So we've come a little down the road. The FSB has to define the rules: We thought of this; we have input in the FSB, but they are in the lead. And when a national government decides to implement it, then we come and we have this surveillance process.

All this shows that the IMF is back. Maybe I forgot something, and the something, of course, is the increase in our resources. The resources of the IMF until now were $250 billion. This amount is going to be tripled up to $750 billion, the first step of $250 billion we are already managing. As you know, we have already finalized with the Japanese a $100 billion loan. The Europeans have committed another $100 billion. And we have other partners to complete the first rung of $250 billion, and then will come the second rung to create this NAB proposed by Tim Geithner, which altogether will increase the resources by $500 billion: $500 billion plus the $250 billion we already have makes—how do you say that?—a fire—

MS. ATKINSON: Firepower.

MR. STRAUSS-KAHN: —firepower, firepower of $750 billion, which is around the size of what the world may need. You have certainly seen yesterday the move made by Mexico joining the Fund and being the first interested in the Flexible Credit Line that we created a few weeks ago, for an amount which is close to $50 billion. Fifty billion is a huge amount, and if we provide this kind of finance to several countries, we would rapidly use this firepower which has been given to us.

And so this is an occasion to underline the fact that we have to work on not only increasing the resources, but at the same time in changing the facilities. Resources are there to be used and to be used, we needed to have tools which are adapted to the new situation. That's why we changed, we created this new facility, which is a more precautionary facility for countries that have a good track report and for which we don't ask for any changes in economic policies as a precondition. We are considering what countries have done in the past, and if we say it's okay, then we don't ask them for any kind of conditionality to provide the resources to them(under the Flexible Credit Line).

We are also in the process of doing the same thing for low-income countries, and in the coming weeks the streamlining of our facility for low-income countries to make it more flexible will also be completed.

And so you're not surprised that in addition to having such an increase in our resources needed for emerging market countries, we also need to have an increase in the resources available for low-income countries.

Maybe some of you have followed the conference in Dar es Salaam, Tanzania, too, three weeks ago, and where a new relation between the IMF and Africa has been set up. I committed myself to be the voice—maybe not alone, there were some Africans in the room, of course—but one of the voices representing the low-income countries in this G-20 conference, and arguing that we need more resources for the low-income countries, too.

So my goal was to double the (concessional financing) resources in line with the expected doubling of the general resources; the general resources have been more than doubled going to $750 billion, the low-income country resources also will be more than doubled, and you will see in the communiqué that we are asked to organize a facility which can go up to five, to six billion dollars, which is more than doubling what we already use for low-income countries.

Of course, that's a different kind of loan because it's a concessional loan, which means that the interest rates are subsidized so that they're lower than the market interest rate that we may use, or the SDR interest rate that we may use for emerging countries.

So the commitment made by the IMF in Dar es Salaam has been fulfilled, and the low-income countries are not lost, not the forgotten countries from this G-20.

The last point is that, as we could expect, the G-20 asked the IMF to speed up quota reform to increase the Fund’s legitimacy. I'm very happy that by this process the G-20 has finally recognized the legitimacy of the change we made one year ago. One year ago we made a first change in quota saying that it was a dynamic reform, and that five years later, namely 2013, we will make another change, another rung. We will speed up the process by not doing it in 2013, but doing it in 2011, so it will take only three year after the first move to make the second rung, which is, of course, better but is the same process which is working. The dynamic that has been launched at the Spring Meeting last year is the dynamic that is now raised by the G-20 to go on and increase again the quota and voice of emerging market countries and low-income countries.

So altogether, if you're looking at the governance of globalization, if you're looking at the resources to deal with the crisis, if you look at the fact that you need to monitor what's going on, on the fiscal stimulus as well as on the regulatory process, at each set of what the G-20 is working on, you will find the IMF. And I think that makes it legitimate, just to recall what I said at the beginning that this is following what I said that the Annual meeting: the IMF is now back.

QUESTIONER: What the G-20 is talking about here is increase in the SDR? I've also pointed out that on the [inaudible] of that absolutely goes on this world process. Is there anything more that’s going on that’s a new mixture of where that money would go to[inaudible].

MR. STRAUSS-KAHN: Thank you for your question. I have to apologize, I'm really tired. I forgot something which is historical. It's so historical that I'm ashamed. You will find in the communiqué that there will be an allocation of SDRs for $250 billion, which is another $250 billion that is added to the process [of making resources available to the IMF and its member countries].

QUESTIONER: Good.

MR. STRAUSS-KAHN: So your question is the low-income countries account in this $250 billion for something which is close to $19 billion. Gordon Brown was right. So that's the different part of the SDR they will receive.

But then the question is can they use more than their share of the allocation? Can they use part of the SDR received by another country, which that country may not use? And that will be the kind of market that may appear between countries. The $250 billion in SDRs has two virtues. The first one is to provide liquidity to the (international monetary) system, and this liquidity can be used by a country to bring confidence, exactly what you were asking.

The other use is that it increases the reserve of the country and by itself provides some stability. So it's the first time for a very long time that we have an entrance of SDRs. A few pessimistic people—which you're not—would say, well, $250 billion of a new currency is not that much. But if you were as optimistic as I am, and especially John is a very optimistic guy, you will see that it's the beginning of increasing the role of the IMF, not only as a lender of last resort, not only as the forecaster, not only as an advisor on economic policy in the old traditional role, but also in providing liquidity to the world, which is the role of a monetary institution like ours.

So from this point of view, the amount compared to the amount of euros, of dollars, of yen in the world is a small amount, but the symbolism of it is very, very historic.

QUESTIONER: How do you see the world economy in five years' time from now? I ask this question taking into consideration your statement of your observation in Dar es Salaam a few weeks ago that the credit crunch creates civil unrest or even war, perhaps, as you said in Dar es Salaam. How do you see that? And also where does the G-8 fit in with the G-20? Thank you very much.

MR. STRAUSS-KAHN: On the first point, I said at a press conference two or three days ago in Paris that we are at a crossroad. Depending on the decision taken by the leaders we can—I won't say get rid rapidly of the crisis, it would be over-optimistic—but we can find the way out, and that relies on our forecast of growth coming back in the beginning of 2010.

But there's also, of course, the possibility where nothing will be done, and especially in some low-income countries what has the consequences in developed countries in terms of unemployment, in terms of a loss of purchasing power. It can have as consequences in low-income countries more a question of life and death, and behind this, as you recalled, social unrest, threatened democracy, and when you have threatened democracy in young democracies, you have also risk of civil war or even foreign war.

So I'm not saying that's going to happen. I said it's one of the possible roads.

Today’s decisions by the G-20 leaders may show that at this crossroads we have taken the right direction. And so I'm confident that what has been decided is a commitment by all the leaders around the table, the stress that they give to the IFIs, and especially to the IMF to fight against the crisis, shows we may take the much better road.

The G-20 and G-8, well, you know, a lot of people, including me, have been a feeling in the past that the G-8 -- G-7, G-8 -- was too small, we should extend it. So everybody has his own recipe -- 12, 13, 14, 15 -- finally it has been 20. Very good.

I think this G-20 is still a little too small, because if we really want this G-20 to be a body of governance of the world, of the globalization, then we certainly need the G-20 to be increased to include some countries representing the low-income countries--and then it would be a rather nice representation of the world economy.

MS. ATKINSON: Okay, thank you very much. I don't know if you want to take one more question from Asia?

QUESTIONER: The question is: If the Chinese commit to contribute $40 billion to the IMF lending resources, would that be bond or SDR, and if it's bonds, would that be issued in SDR?

MR. STRAUSS-KAHN: Well, first, before giving the figure, I will wait for the declaration by the authorities of China rather than Gordon Brown. I love Gordon but he can make an assessment for the U.K., but let's wait for the Chinese to tell us about it themselves. But it will probably be something like this, which represents more or less the size of China in the process.

As you know, we have launched this idea a few months ago that what is written in the Article of Agreements of the Fund, namely the fact that we could issue bonds that has never been used in the past, but it's possible to do, could be used. And so some countries have said that they could be interested in using this vehicle rather than another one. China has said that it could be interesting to use rather this vehicle than another one. So we're going to discuss in the coming days with the Chinese and we'll see at the end finally what is their choice.

QUESTIONER: So it's not decided yet?

MR. STRAUSS-KAHN: It's not decided, no. You should ask the Chinese.

MS. ATKINSON: Thank you very much indeed.