Transcript

Transcript of the Press Briefing on the Global Financial Stability Report

April 17, 2013

Webcast of the Press Briefing

Ms. Stankova - Good morning. Good day to those who are watching us from different time zones. Thank you for joining the press conference on the release of the April 2013 GFSR, one of the IMF's flagship publications.

On the panel with us is Mr. Viñals, who is the IMF Financial Counselor and Director of the Monetary and Capital Markets Department; Mr. Robert Sheehy, Deputy Director of MCM; Mr. Peter Dattels, Assistant Director, and Mr. Matthew Jones, Advisor in MCM.

On interpretation, channel 1 is English, channel 2 is Spanish, channel 3 is French, and channel 4 Arabic. With that, I will pass the microphone over to Mr. Viñals who will make opening remarks, and then we will take your questions.

Mr. Viñals - Thank you very much, and good morning to you all. It is great to welcome you here at these meetings where, as you can see, spring has clearly arrived, and spring has also arrived to global financial markets where after very rainy days and threatening clouds, we are beginning to see some blue skies and more sunny days.

So, the issue is why is it that we had experienced this improvement in global financial conditions and in global financial stability more generally since we last talked six months ago? I think that the answer to this is that there has been decisive policy actions that have been taken in different parts of the world, and which have reduced acute risks.

In the euro area, policy makers have averted a financial cliff. In the United States, the worst fears of a fiscal cliff have been averted, while balance sheet repair and the continued monetary easing by the Federal Reserve have supported the economy and financial markets. In Japan, the new policy initiatives launched by the new government have captured the imagination of global markets that Japan may at last escape the deflation valley in which it has been living for quite a long time.

But, the report concludes that improved financial markets and the recent gains to financial stability will not be sustained, and indeed new threats are likely to emerge, unless policy makers address some key underlying vulnerabilities. These vulnerabilities are of two types. Old risks, old vulnerabilities, which are the legacy of the crisis. And new risks, which come from the easy monetary policies that have been put in place precisely to fight the crisis.

Let me start discussing the old risks, and then I will turn to the new risks.

Regarding the old risks, the first one, and a very important one, is the euro area, which still needs to be fixed. Despite the substantial improvements in market conditions that I have mentioned at the beginning, credit is still not flowing in the euro area, to the real economy, and this is particularly so in the context of the periphery. And, the periphery corporate sector is also facing a considerable debt overhang which was built up before the crisis.

The report identifies a weak tail of companies, nonfinancial companies that need to reduce their debt overtime. The required debt reduction by these companies in the periphery amounts to a fifth of the total debt of periphery corporates in our sample. This is something that poses challenges to their economies and financial stability, and these are challenges that need to be addressed.

Second, banks. Five years into the crisis, we do not have yet healthy banks to support the economic recovery. Banks are healthier today. But of course, different parts of the world are at different stages. If we look at the United States, the process of bank repair is largely complete, but in the euro area it is not yet the case. Many banks in the euro area periphery, which are making progress, still need to make further progress in strengthening their balance sheets, and important banks in the core are still too dependent on wholesale funding markets.

At the same time, the global financial regulatory reform agenda, which is so fundamental to move to a safer financial system, is incomplete, prolonging regulatory uncertainty, and this is something which leaves banks less willing to lend.

Let me turn now to the new risks.

The easy monetary policies in advanced countries have been essential, in my view, to support the economy, and they remain essential to support the economy. But, their use over a prolonged period of time may cause side effects such as excessive risk taking, leverage, and asset bubbles. So, the question is, are we seeing evidence that those risks are growing? And the answer is ‘yes’. We're seeing some evidence in the United States as well as in emerging markets.

In the United States, corporate debt underwriting standards are weakening rapidly, even though corporate fundamentals are strong, and leverage is in line with typical historical patterns. And, continued low interest rates in the U.S. are leading some pension funds and insurance companies to take further risks in order to close the widening funding gaps.

Second, the easy monetary conditions in advanced economies are spilling over to emerging markets. What we're seeing is that borrowing on international markets by corporates in emerging economies has been growing at a record pace, exposing them to foreign currency risks and to rising leverage. This is also what makes emerging markets more sensitive to volatile capital flows.

Third, the eventual unwinding of prolonged monetary easing in the United States could expose these new vulnerabilities and destabilize credit markets. Put simply, we are in uncharted territory.

A key message in this report is that addressing the old risks that I described earlier is essential to leave the crisis behind, but it is also very important to reduce the need for continued accommodative policies, and this is something which will prevent the new risks from growing and from becoming systemic.

So, what needs to be done?

I will conclude this set of remarks in terms of what actions are needed, in order to deal with these underlying vulnerabilities which I have described.

A key action needed is to fix the euro area, to fix it once and for all. This is something that calls for stronger policies to reduce financial fragmentation to help unblock the flow of credit to the economy and to increase the resilience of the monetary union. This can be achieved by completing the process of banking sector repair, which as I said before is not yet sufficiently advanced, in certain parts of the euro area at least, and moving decisively toward a full-fledged banking union.

Furthermore, action should be taken to improve the flow of credit to solvent, small- and medium-sized enterprises, which are the backbone of job creation. Private debt overhang, like the corporate debt overhang I mentioned before, needs to be addressed to complement the cleanup of bank balance sheets.

We also need action at the global level as regards regulatory reform. There, we need to see renewed political commitment both at the national and at the global level to complete the reform agenda and to implement the agreed reforms on a timely basis, across countries, and on an internationally consistent basis across countries, because this is essential to lead to a safer banking system, while minimizing regulatory uncertainty and reducing the possibility of arbitrage, which is essential also to avoid international financial fragmentation.

But at the same time, policy makers need to address the new risks that I mentioned before. In the United States, this means that policy makers must continue to keep banks safe. As regards nonbanks, the authorities must be very vigilant and proactive by restraining overly rapid increases in leverage and by encouraging prudent underwriting standards. All of this requires appropriate and timely microprudential and macroprudential measures.

How about emerging markets? Emerging markets need to keep their guard up against deteriorating bank asset quality and disruptive short-term capital flows. At the same time, these countries need to deploy prudential policies to ensure that buffers in the financial sector are adequate, and they should prevent, also, the buildup of excessive leverage and also the appearance of asset price bubbles.

So, let me conclude by emphasizing that while the recent policy actions that I mentioned at the beginning of these remarks have been essential to buy us, everybody, precious time to address underlying financial vulnerabilities, these vulnerabilities need to be addressed decisively. I think it is clear what needs to be done, so no time to waste. Get it done.

Let me stop here. My colleagues and I will be happy to address any questions that you may have.

Ms. Stankova - We will take questions from the room and please identify yourself and your affiliation.

QUESTION: Two questions. Firstly, on the corporate underwriting standards in the U.S., can you amplify a little bit what you are referring to, and how big a concern this is, loosening of those standards?

The second question was about the EU deleveraging process, you talked about a 1.5 trillion deleveraging process. I wonder whether I could ask a U.K. specific question, which is how much of that 1.5 is attributable to the U.K., and has the recent capitalization or capital review process in the U.K. put the U.K. banking system in a satisfactory condition?

Mr. Viñals - Let me answer two of the three questions you have posed, and then I will ask my colleague to deal with the last one on the extent to which the U.K. is contributing to the deleveraging process.

I think the U.K. authorities have been very clear in pointing out what are the needs of the U.K. banks in terms of what are the capital needs to make them as strong as necessary in order to accompany the economic recovery. One thing which is very important is to realize that in the case of the United Kingdom it is the stronger banks that are lending more, and it is the weaker banks, the banks which are in the process of overcoming problems from the past, which are not contributing to lending so much. So, I think that the stance that the U.K. has taken in terms of making sure that all banks have sufficiently high levels of capital, I think it is essential because only strong banks can accompany the recovery of the economy.

On the issue of corporate underwriting standards in the United States, let me be a bit more specific on what it is that I meant. In the United States, we are in a very early stage of the corporate releveraging cycle, especially if you compare it with past cycles. We are at the very early stage. But, the interesting thing is that while we are at the very early stage, we are already seeing a deterioration in the quality of issuance which is typical of the late stages of the credit cycle, and which only happen in the United States in 2007.

This deteriorating quality is exemplified, for example, in the very rapid increase of issuance by high-yield corporates, and the proliferation of covenant-light loans which are loans which are of not great quality because they don't offer such big guarantees to those lending the money. And also we are seeing other indicators which suggest that at this early stage of the cycle we are already having a deterioration of the underlying underwriting standards. This is a cause for concern that needs to be monitored.

Mr. Dattels - We have a table at the back of the report, Table 1.1 which goes through the individual banks' plans for deleveraging their assets. It is safe to say that the progress on deleveraging in the U.K. banks has been particularly are proceeding well along those plans. And, largely, for example, they're dealing with noncore assets that are being, have been and are being spun off. The implication for credit for the U.K. economy has been mitigated by the sale of businesses and assets as opposed to credit.

At the same time, the programs that have been put in place by the Bank of England funding for lending schemes, and the diminution of funding stress coming from the eurozone have helped reduce strains on U.K. banks, particularly on wholesale funding. And, if you look at the extent of deleveraging from the wholesale funding side of U.K. banks, they're almost in a surplus liability position. So, that part of the deleveraging has gone extremely well, and that puts U.K. banks in a better position to support the economy. That is why when we look at the phases of the banking system repair, we're putting the U.K. in the middle. So they have done a substantial amount of restructuring, the funding side of the banks is much improved, and now we look forward to issues on improving profitability and completing adjustments in their business models so that they can contribute to the recovery.

QUESTION: I have two questions. First, in the report you mention the concerns on China's shadow banking sector. Could you elaborate a little bit on how this risk can threaten China's financial stability?

Second question, you mention emerging markets should keep their guard up against volatile capital flows. So, under what circumstances would you recommend emerging markets to use capital controls as a tool? And, what are the other tools emerging markets can use against these risks?

Mr. Jones - In the report we discuss the nontraditional, less regulated sources of finance for the shadow banking system, and we say it presents both upsides and downsides, and the upside being increased diversification of the financial system and providing a wider range of financial sources. The downside is the risk of new and less regulated sources of finance that haven't been tested under market stress. Investors may be underestimating the risks associated with some of these products, and with implicit guarantees and no default history that could cause some concerns going forward.

If you look at the new credit that was extended in 2012, approximately 40 percent was through nontraditional sources. For example, trust funds and the corporate bond market. And, trust loans grew by over 100 percent in 2012. We think the recent moves by the CBRC to tighten regulations for wealth management products are a welcome step. But, the growth of the nontraditional sources of finance does reflect to some extent regulatory arbitrage as a way to get around some restrictions on deposit remuneration and loan growth, but also sort of deliberate policy development by the Chinese authorities, so managing that balance going forward is going to be a key issue.

Mr. Viñals - One addition, and then I'll answer your question on capital flows. I think the shadow banking system in China, as Mr. Jones is saying, is posing some risks and the authorities should, as they are planning to, address these risks. But, it is a natural development of capital markets in emerging economies where you have capital markets also playing a larger role in the financing of the economy. So the crucial thing is to have the balance, keep the advantages, while trying to control as much as possible the potential risks.

On the issue of emerging markets and capital flow management measures, the IMF has issued its institutional position on these, and the institutional position is one where countries have a panoply of measures that can be used in order to address the potential complications that become associated with international capital flows. Let's also remember that capital flows bring benefits. I think that for economies which are growing and catching up it is very important to attract capital as a result of their better growth prospects and this is something which is beneficial. Admittedly, sometimes, if there is too much capital coming too quickly, it may pose problems in terms of overheating the economy, and in terms of financial stability.

So, emerging markets have at their disposal a number of tools to address those macroeconomic and financial stability concerns. For example, letting the exchange rate play a role in moving flexibly in order to accommodate some of these movements. Under some conditions, having higher foreign exchange reserves, if you start from a position where the foreign exchange reserves that you have are at relatively low levels. And, in many cases, what you want to do is change your policy mix by adjusting your monetary and fiscal policies. Or, use macroprudential policies, and then there may be circumstances where there is a justification for using some capital controls, if you want. I think that this should be done under the appropriate circumstances. These things can be used, but should not be abused, to substitute for adjustments that need to come from other policies.

Ms. Stankova - I would like to take a question from online, it is to some extent a follow-up to the issue you just have discussed.

Do you have any specific recommendations for Latin America and the Caribbean. What are the micro and macroprudential policy recommendations for Latin America and the Caribbean given the increased risks of vulnerability due to capital inflows?

Mr. Viñals - I will make a general comment and then ask Mr. Jones to follow-up.

One thing which is key in Latin America, most Latin American countries start from a position where the banking systems are solid, where they have good levels of capitalization, and where their economies have been doing very well. But it is also the case that in quite a number of these economies, there has been a very significant increase in credit over the past few years, and this is something which is justified, given that these economies are still in the process of developing their financial systems and there is financial deepening. But one thing that one should be mindful of is that when credit has grown very rapidly in the past, this is something which may lead to higher nonperforming loans in the future. So in general we are calling for the prudential authorities to enhance their buffers in their financial sector, and to be vigilant about potential risks that may come from the increasing reliance of sovereigns, of corporates, and other agents on international financial markets, because there is more leverage, and this makes them more sensitive to sharp movements in international capital flows. So, prepare, just in case, as I was saying before, keep the guard up, and have financial buffers which are sufficiently high. Particularly in banks, given that banks are the key part, core part of the financial sector.

Mr. Sheehy - Let me elaborate a little further on what Mr. Viñals said. I think the general position that we see in Latin America is that there are some hot spots, but we don't see any generalized bubbles or evidence of overheating. That said, I think the key is, as Mr. Viñals said, keep an eye on the debt levels, especially in the corporate sector. We may need some macroprudential measures to avoid overheating in some housing areas, or this sort of thing. But, we don't see any generalized overheating problem in Latin America.

QUESTION: My question is, there is a broad discussion about the bank resolution model that was selected in Cyprus, and my question to you is, do you see this model spreading to other countries of the periphery in the eurozone? And, should this model spread, should the eurozone consider something along these lines, does this promote financial stability or not in your opinion?

Mr. Viñals - Your question is whether the way things were done in Cyprus should be a model or a template. I think that Cyprus is a very special case, very special case because banks had tremendous weakness in terms of their assets. And, because they were very, very thinly capitalized. And between capital and deposits, there was practically nothing, very little. So, you had to go to a situation where you had to put in place quite exceptional measures which affected uninsured depositors. I think this is very, very different from what you can see in other financial systems in the euro area. So, that makes Cyprus a very unique case, and certainly not the model or a template.

One thing, though, which I think is important, and this is recognized in the global regulation which is being put in place by the Financial Stability Board, it is also recognized in the recovery and resolution directive, in the draft proposals under discussion in the European Union, is that it is important to have a fair burden sharing of the adjustment between the public sector and the private sector, so that the taxpayers do not end up paying for mistakes that were made elsewhere, insofar as this can be avoided. This is why the bailing in has arisen and what the bailing in means is that in addition to high levels of capital, you should have sufficient loss absorption capacity in your liabilities side, in your bank, but this should take the form of debt rather than other things. So, it is absolutely of the essence to protect depositors. We are very much in favor of protecting depositors, and this is why Cyprus, I think, is unique and why depositors in the rest of Europe, I think they should not be concerned.

Ms. Stankova - While we're on Europe and the banking sector, let me take one more question from online.

The Spanish banks have finished their adjustment, or do they still have more work to do?

Mr. Sheehy - Let me respond to that.

First, let's take a step back and talk about general economic policy adjustment in Spain. I think the Spanish authorities over the past three years, since the crisis spread to Europe, have been quite proactive in attempting to get ahead of the curve and stay there. And that certainly, if you look at what they have done in terms of the financial sector reform, that is quite evident.

We have just completed a review of the progress of the Spanish authorities under the monetary sector adjustment program that they have adopted. It was concluded just on the 5th of March, so only a month old. And we have concluded that they are very much on track. They have made significant progress in cleaning up the undercapitalized banks, that particularly applies in the caja sector. They have implemented key reforms in other areas of banking policy. In particular, they have put in place the Sareb, the bank that will absorb the bad loans, so that other parts of the banking system can become more healthy and move on. And I think we're quite satisfied with the progress to date.

QUESTION: My question is about the mention of debt overhang or corporate debt, companies in the periphery of the eurozone. I have seen in the report you mentioned especially Portugal, Spain and Italy. Do you have any figures about this?

And, second question is, you mentioned that these companies should sell assets at 6 to 10 percent of their assets, can you confirm this?

Mr. Viñals - Let me clarify this. What do we mean by debt overhang and is this in the report. Yes, debt overhang is the difference between the current level of corporate debt and the level of debt that would be sustainable, meaning that debt is sustainable where corporates can generate sufficient cash flows over the medium term to be able to service the debt and keep the debt bounded, so it doesn't keep going up and up. This is something which is not an immediate issue, but it is something that needs to be recognized and addressed over time.

Now, what we're saying is that corporates in the periphery need to reduce their debt and that their debt needs to be in the sample of firms that we are using, which we think is representative. We think that the corporate debt needs to be reduced in the periphery by about one fifth, by about 20 percent, but that this is something that can be done over time. Let me tell you, and we are not saying that they had to sell assets of about 6 or 8 percent. We can refer you to the specific figure when we described this. But, the important thing is what can be done to address these concerns.

What can be done is the following. It would be very important that the policies that we are advocating for the euro area in order to avoid fragmentation, and in order to allow the peripheral banks to fund themselves in capital markets in better conditions, that these policies succeed in lowering the funding costs of banks so that these lower funding costs can be passed on to enterprises so the enterprises have the possibility of carrying the debt at lower interest rates. These policies to reduce fragmentation, these policies to restore confidence in the monetary union will also help improve the economic environment and will improve the revenue prospects of these companies, making it easier for them to repay the debt, and to keep it bounded. These euro area policies would be very helpful for this.

But other things that can be done and should be done, which is that internally a number of these companies need to do some internal changes, for example cutting costs and becoming more efficient. For example, revising their dividend policies, just in case they are giving out too much dividends. And in some cases there may be a need to dispose or sell some of the assets that they may have, and it would be better if these are noncore assets, assets which are not so central to the business than if they are.

I think that there are some measures that firms can take internally, but I think that something that will be a very important help will be to have an improvement in the overall confidence in the euro area, in a reduction of the fragmentation that we are seeing between the core and the periphery. Pete can now tell you where to look in the report.

Mr. Dattels - Just give you a little bit of background on the study. We looked at about 1500 publicly listed companies for which we can have good access to data. That covers on average about 30 percent of the sector. And, if you look at how we're identifying the weak tail of corporates, we see those corporates which have a debt to asset ratio of 30 percent, and over the projection period are not able to effectively repay that debt, while sustaining their level of dividends, interest payments, and capital expenditures.

Why 30 percent? This is the level of debt to assets that was pre-boom, and it was built up, and is broadly the level in the core. So the underlying message is that the high level of debt and leverage needs to be reduced, more or less to go to the core.

We look at that, Fig. 1.29, which identifies the weak tail, and you will see the countries in the periphery, Portugal, Spain, to a lesser extent Italy, which have a significant share of sizable weak tail, and the 6 to 10 percent the gentleman referred to is the extent to which you need to reduce debt as a percent of assets under the baseline scenario. And, that is in Fig. 1.30.

Lastly, the impact of this on the real economy can be thought of as the potential reduction in capital expenditures, and that is 1.31, under three different scenarios. Plus, the mitigating measures that Mr. Viñals referred to, which include some cutting operating costs and cutting dividends.

Ms. Stankova - I will take a question online, going back to central banks and their policies. Should central banks keep easing to prop up their economies, or stop easing to avoid stability risks?

Mr. Viñals - I think that when the patient is still under treatment you should not suspend the medicine, but you should always be vigilant about the side effects of this medicine. Unfortunately, the international economic recovery in advanced economies is not sufficiently entrenched, and support from central banking policies are needed. So, central banks should continue with this support. But, there are two things that they need to do. One is, policy makers should be very conscious that central banks cannot be the only game in town. And that there are other actions that need to take place. For example, in the case of Europe, I have referred very emphatically to the need to continue making progress to fully repair the banking system throughout the euro area. And this is something that needs to be done. And in addition in countries like the United States, this period should be used to also put the fiscal house in order, and all that. So central banks and these policies are absolutely necessary. Time must be used well in order to address the different problems, structural problems that different areas have, both in Europe and the United States. But, basically, lifting interest rates and exiting from these policies now I think would be extraordinarily detrimental, not only for the economy, but also for financial stability. Because the problems this would cause would be a lot more severe than the side effects that I was referring to and which could be taken care of in the United States, in emerging markets, by appropriate micro and macroprudential policies.

QUESTION: My question is specifically on China, regarding the page 37, Box 1.1. In the paragraph you said, Some companies have geared with total assets above 80 percent for the top decile of firms. From my understanding the majority of them will be state-owned enterprises. Will you agree that state-owned enterprises need reform in this regard, or is my interpretation incorrect on this one?

Mr. Jones - This is a sample of listed firms we have for China, a large proportion of which are state-owned firms. And we have said in the Article IV consultations and in various IMF publications that reform of state-owned enterprises and their business model is a policy priority. So, the analysis we provide in that box in terms of corporate leverage just reinforces the point we made. The balance sheets aren't stressed at that point. You are starting to see some rises in leverage, particularly in weaker parts of the corporate sector. And in particular industries as well. For example, in industrials, in materials, in utilities and real estate. We also note that corporate profits haven't kept up with the interest payments on this larger stock of borrowing that some of the corporates have done, and this is partly a cyclical issue, but also partly some structural issues of overcapacity.

QUESTION: I would like to ask you some questions about Italy, the situation of the banking system in Italy, and about the credit constraint, because in the report you say that in Italy and in Spain credit is shrinking rapidly. And about the banking system, if the capital is adequate to handle another crisis, as you say in the report before, on Italy, on the banking system.

Mr. Viñals - As you know, we are now undertaking an in-depth analysis of the Italian financial system in the context of our FSAP. We had our concluding mission there a few weeks ago, and we issued a concluding statement. Now we're in the process of elaborating the full report, which will be discussed and published in the forthcoming months. And, what we signal in this report is that the Italian banking system is solid, that it has quite adequate levels of capitalization. That when we run stress tests and try to see how the banks will do under very adverse circumstances, that on the whole Italian banks, and the remarks I make is for the whole banking system rather than specific institutions, but overall on the whole, Italian banks have sufficient capital to withstand adverse scenarios which are quite adverse, and that the capital buffers that they have will be enough to weather these very severe storms. It is true that after the storm the buffers will be gone. But, the buffers will be there to help the banks during this storm.

One thing that we believe is very important, given that the key risks in Italy are the state of the economy, which as you know very well is in negative territory, growing in negative territory, and the very close link with sovereign risks, it is very important that the Italian authorities continue with the reform momentum which is essential for the full restoration of confidence in the economy, and confidence in the sovereign. And, that the policy that the Bank of Italy has already started in terms of enhancing the provisions of banks continues, because we think that this is really of the essence.

So, I think that a lot of good work has been done. This work needs to continue. But, certainly Italy is doing the right thing.

QUESTION: A question regarding Latin America, specifically for the Caribbean region. Commercial banks in particular are exposed to government debt, which we know in the Caribbean is pretty high in most of the countries. Does this pose a threat to the banking sector in the Caribbean region, especially as government debt continues to increase?

Another question, the offshore financial sector in some of these Caribbean islands is a major part of their economy, but they're also seen as tax havens. More advanced countries are campaigning against offshore financial sectors. How do Caribbean countries, especially those that are forming tax exchange agreements with European countries and countries around the world, balance the act of developing their financial sector, the offshore financial sectors, without being tax havens?

Mr. Viñals - Let me say something, maybe my colleagues want to add. I think that when you have a lot of reliance, when you have economies which are reliant on banks, when you have banks which have a lot of investment in sovereign debt, I think there are two things which are absolutely critical. One is to keep the sovereign debt safe. And, that you do so through appropriate economic policies and through appropriate fiscal policies. So, it is very, very important to keep your fiscal house in order so that investors do not lose confidence in your sovereign.

But it is also very important that your banks are adequately capitalized relative to the risks that the banks have bearing on their portfolios. I think the crisis has very important lessons for that.

As regards to your business model, tax havens, so on, this is an area that we have been looking at. We have been looking at offshore financial centers in the context of our financial sector assessment programs, the FSAPs, and we think that it is very important to have international tax cooperation, and transparency. We have also been collaborating with the Financial Stability Board in analyzing the extent to which national jurisdictions cooperate in the exchange of supervisory information. So I think that for these economies, these offshore financial centers, it is of the essence to have exchange of supervisory information with the other supervisory authorities, to be transparent, and also to keep their fiscal house in order and banks well capitalized. That is something that should serve them well.

QUESTION: My question is, what is the position of the IMF in a country like South Sudan in which its economic state is very poor? Is there a special consideration for it?

The second question is, during the war between South Sudan and Sudan there is a national debt and now that South Sudan is separate, who is responsible to pay that debt?

Mr. Jones - We don't cover these issues of South Sudan in the report, so I think it might be a question best raised at the Friday regional economic outlook briefing.

Mr. Viñals - Let me add one thing which is that the Fund has been very involved in South Sudan in the context of providing technical assistance to set up the monetary infrastructure and the central banking infrastructure, and that we are and remain very committed to helping South Sudan, because we think that having a functional central bank and having an appropriate set of domestic monetary arrangements is absolutely of the essence for any country, and particularly for a new country like yours.

QUESTION: I want to ask about how much do you see the risk in the banks of Egypt which is very much exposed to the T-bills and bonds of the government regarding the emerging political risks, and the decline of the credit rating. That is the first question.

How do you see the trend of the Central Bank of Egypt to raise the level of deposits of the Egyptian pound, as a way to stop the trend of buying dollars.

Mr. Viñals - Let me answer your question in somewhat general terms. I think the issues in Egypt are very important, very large. They transcend economics, and I think that what is absolutely of the essence, and as you know we're having conversations with the Egyptian authorities to see how can we help. But, again, it is of the essence that political uncertainties are clarified in Egypt, and that the authorities basically address the underlying serious economic issues that they have. What is of the essence is to restore confidence. This is something which depends on economics, but also depends on politics. So, I think that the issues which Egypt is grappling with now are issues which are very, very important. You need to restore confidence, which would be very helpful. For the currency, it would be very helpful. For the banking system. So having a set of economic policies which basically goes in the direction of sound public finances and an adequate support for the economy within the context of more political certainty is absolutely of the essence. The sooner, the better.

Ms. Stankova - Thank you. With this, we have to conclude the press conference. Thank you for coming. I would like to remind that the opening remarks are available at the table at the end of the room.