Transcript

Transcript of a Press Briefing by Gerry Rice, Director, Communications Department, International Monetary Fund

February 6, 2014

Webcast of the press briefing

MR. RICE: Hello and good morning, everyone. Welcome to this briefing on behalf of the International Monetary Fund. I’m Gerry Rice, the Communications Director here at the IMF. As usual I will make a few announcements regarding management travel and public events, and then we’ll get to the questions in the room and to our colleagues online as well.

So I’m actually going to be very brief this morning on the opening announcements. From February 20 to 23, the Managing Director, Christine Lagarde, will be in Sydney, Australia, to participate in the G-20 Finance Ministers and Central Bank Governors Meeting. She will participate in some press events during her visit to Australia, and we will be able to share those details with you closer to the date.

As well, our First Deputy Managing Director, David Lipton, will be in Sydney at the end of the month to participate in those G-20 meetings.

QUESTIONER: Good morning. Ms. Lagarde was questioned by the French justice on the 31st of January. Is it something the Board was briefed on or is it something that Ms. Lagarde planned to report to the Board?

MR. RICE: As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary. However, the Executive Board has been briefed on this matter, including this year, and continues to express its confidence in the Managing Director’s ability to effectively carry out her duties.

QUESTIONER: Good morning, Gerry. The usual question: Is Mr. Thomsen going back? And the second question I have is if achieving a primary surplus means that Greece should get more debt relief? And do you see Greece returning to the markets this year?

MR. RICE: Okay, several questions there. The mission will return soon. Once we have clarified a number of technical issues. Just to remind, the focus is on reaching agreement on a set of policies that would facilitate the conclusion of the fifth review. And we are working intensely with the Greek authorities and our European partners to reach such an agreement.

I think your second question was about primary surplus. Greece’s European partners have agreed to provide debt relief, if necessary, and contingent on Greece being fully on track with meeting its program commitments. And again, just to remind, that is so that the debt to GDP ratio declines to 124 percent of GDP by 2020 and to significantly below 110 percent of GDP by 2022. So, again, as long as Greece is delivering on its program commitments, the European partners have said they stand ready as needed to help Greece meet those numbers.

I think your third question was on markets.

QUESTIONER: I asked if you see Greece returning to the markets, but the second question was: if Greece achieved a primary surplus, would this mean that Greece should get more debt relief?
MR. RICE: I was attempting to respond to that; again, Greece’s partners, European partners, have said they will provide debt relief if necessary and contingent on Greece being fully on track. I was attempting to respond to you there.

And your third question was on possible return to markets. On that one I’d say we’re already seeing renewed investor interest in some segments of the Greek economy, notably the financial system, with determined policy implementation. Such confidence will undoubtedly spread, including to the market for Greek government debt. But it’s difficult to say exactly when this might happen; uncertainty is still large. And, again, the key to this happening remains continued strong program implementation.
QUESTIONER: Can I just clarify one thing you said? You said “if necessary,” which is a change in previous language. Previously you said that it was necessary to reach the debt to GDP targets that you were referring to. Are you now saying that it may not be necessary, debt relief?

MR. RICE: All I’m saying is that it’s the situation, of course, is evolving and the mission is going to be returning to Greece quite soon and make an assessment. And I think we have to look at all the numbers again and the data in light of the evolving situation and that’s normal.

QUESTIONER: According to European officials, the next handout to Greece may include the extension of the rescue loans and reduction of the interest rates. What’s your comment?

MR. RICE: Well, I really refer you to the European partners on that one and really just to reiterate what I’ve responded earlier.

QUESTIONER: You did create confusion because there was always this idea that the IMF would push for these targets of debt. So if you can confirm nothing has changed on Greece and then I have a second question.

We know there’s this need for the program to be fully financed 12 months ahead for the next disbursement. What sort of guarantees do you expect from Europeans? Do you want something like a broad commitment that they will finance it, or do you need precise measures of how they’re going to finance it?

MR. RICE: Just to clarify then, there’s no change in the debt to GDP targets. As I just mentioned, those remain the same. And there’s no fundamental change in the IMF’s position. So, again, just to clarify that; Greece’s European partners have agreed to provide debt relief, if necessary, and contingent on Greece being fully on track with the program.

In terms of financing commitments required by the IMF, that’s something that will be discussed in the context of this upcoming next review. And I’m going to leave the details of that to the review.

QUESTIONER: But how much detail do you need from the people on this 12-month rule? Can they just say we commit that it will be fully financed? We just don’t tell you how? Or do you actually need details?

MR. RICE: Usually, we would require for the 12-month rule issue a measure of specificity in terms of the commitment.

QUESTIONER: The Hellenic Financial Stability Fund warned yesterday that the delay in the recapitalization of Greek banks is actually hurting their prospects for recapitalization and that the stress tests have been completed, but they’re being held by the troika as part of wider negotiations with the Greek government. I’m wondering if you have a comment on that and whether that’s true actually. Why isn’t recapitalization being pushed forward at this point?
MR. RICE: I don’t have detail for you on that recapitalization. Again, this is going to be one of the issues I would imagine for the review.

QUESTIONER: The last review of Greece ended in July, so is this the longest a review has taken because I believe this one began at the end of September, I mean in the Greek program?

MR. RICE: I don’t have the lengths of time of all the reviews in my head. So we’ll check that for you and give you a clear answer.

QUESTIONER: Emerging markets have been hit with rampant inflation, and some of that inflation seems to be bleeding into countries that previously didn’t suffer from that. How are those inflation pressures changing the IMF’s forecast for emerging markets, if at all? And secondly, are those inflation pressures based on structural problems, fundamentals, or are they based on the weakening currencies?

MR. RICE: You know it’s a situation we’re obviously monitoring closely, and we did issue a statement on this some days ago. I think what I would say in response to your question is that the turbulence that’s ongoing underscores the challenging situation that many emerging economies face as a result of tighter external financing conditions, including softer commodity prices in the context of tapering and initial steps towards normalizing U.S. monetary policy; and to differing degrees, slower growth and higher inflation. As you know, several emerging countries have responded forcefully in recent days while many countries also have solid fundamentals with high reserves, fiscal space, and inflation under control. The turbulence highlights the need for coherent macroeconomic and financial policies, good communication, and in some cases, the need for urgent policy action to improve fundamentals and policy credibility. The turbulence also underscores the need for vigilance in the central banks over liquidity conditions in international capital markets.

QUESTIONER: So you’re saying that more action in some countries is needed to tame inflation, urgent action?

MR. RICE: What I’d say is that the recent increase in market turbulence does not necessarily point to weak fundamentals in all countries affected, and a number of countries have taken measures to strengthen policies, reduce vulnerabilities, and shore up confidence. Other countries, though, need policy action to improve the fundamentals. And I think tangible signs of such efforts will help reduce current market volatility and vulnerabilities to future shocks. So I think it’s country by country.

QUESTIONER: Are the actions in the systemic countries right now -- Turkey, Brazil, South Africa -- enough? Are the actions that central banks are taking, sufficient enough in India, or do they need to be doing more? Are they behind the curve?

MR. RICE: So are you asking specifically now about India?

QUESTIONER: Yes, India, Turkey, South Africa, and Brazil.

MR. RICE: Okay, you’re asking about them all. This could take a while. We can go one by one if you like, but policy responses to market pressures have obviously varied across countries. Some countries have tightened monetary policy to rein in inflationary pressures, which was your question; others strengthened their fiscal policies. In many cases foreign exchange intervention focused on reducing volatility and important structural reforms are underway in a number of countries to raise their potential growth. So, again, I think the renewed turmoil that we’ve seen in late January highlights the need for strong policies, but those policies vary across different countries.

QUESTIONER: Would capital controls be a desirable way of policy in these circumstances?

MR. RICE: Experience over the last few months with capital flow management measures has shown once again that they need to be implemented cautiously. For example, they can be useful when macroeconomic policy space is limited, when volatile capital flows pose risks to financial system stability; however, they should not substitute, as we have said before, for needed macroeconomic adjustment. So, again, I think it’s case by case; it’s country by country. And capital flow management measures, capital controls, not substituting for the fundamentally acquired macroeconomic policies.
QUESTIONER: Gerry, I have a question on the U.S. Tomorrow the debt limit debate will resume. I was wondering how concerned the IMF is on this issue, and do you think that the debt ceiling will be increased in due time?
MR. RICE: You know, as we have said many times, it’s essential to reduce uncertainty by raising the debt limit promptly and in a durable manner. I would add that the U.S. economy has a lot of things going in its favor right now. Growth is strengthening, job creation has been relatively strong, and there’s a new budget agreement. However, there are still signs of weakness. Unemployment is dropping primarily because people are dropping out of the workforce and the recovery in residential investment has stalled in late 2013. So the last thing the U.S. economy needs right now is another confidence shock, such as a prolonged debate about whether the U.S. will honor its debt obligations.

QUESTIONER: Do you think that this debt ceiling mechanism is still relevant for the U.S.? I mean, don’t you think they should get rid of that system like all of the other countries in the world, mostly?

MR. RICE: That’s really a subject for the U.S. authorities to discuss, and I think that’s more of a longer term issue. Given the mechanism that is in place, which is the debt ceiling mechanism, I think our position is as I just mentioned.
QUESTIONER: Good morning. Speaking recently in the European Parliament, Italian President Giorgio Napolitano stressed the importance of changing the tight stance of European budgets. There’s no room to tighten further the European budgets, he said, for the future, if Europe wants to have a future. And I would like to know, what’s the IMF’s position on the fiscal stance of the euro zone also in light of this recovery?

MR. RICE: Well, you know, I think it’s difficult to give a generalized statement or assessment for all the different countries of the euro zone. And I think it really depends on the individual country circumstances as to what their fiscal stance should be. And for that we do regular consultations. We issue regular Article IV reports, including for the euro area fairly recently. So, perhaps I could refer you to that.

QUESTIONER: I had a question on Ukraine. Could you tell us whether you are in discussions with anyone? It’s hard to know who exactly that would be, but in Ukraine the financial economic situation is worsening every day. Are you ready to do something, be more lenient on the conditions you used to ask for, the program? Where do you stand?

MR. RICE: On Ukraine, the Fund stands ready to support economic reforms in the country that would preserve macro stability and revive growth. The Ukrainian authorities have not expressed an interest in resuming discussions on these matters with the Fund lately.

I have another question on Ukraine online: “What are the prospects for additional financial support for Ukraine?” I guess I would just reiterate what I just said, perhaps just to add that we have been fairly consistent in our assessment and policy advice on measures needed to correct the longstanding imbalances and major vulnerabilities of the Ukrainian economy.
QUESTIONER: Just a quick follow up on Ukraine. At one point an idea was floated that even though Russia would provide the money, the IMF would provide some kind of technical assistance or independent evaluation of Ukraine’s economic policies. Has Russia approached you about such an idea or have you thought about doing something like that?

MR. RICE: I’d say two things: One, our assessments of our member countries is always independent, as you know. Secondly, perhaps just to clarify, as I’ve said before here, there’s no connection between the Fund’s discussions with Ukraine on a possible Fund-supported program and Ukraine’s talks with Russia, the EU, or other countries.
QUESTIONER: Just to circle back to EMs for a second. The turbulence in the last two weeks has dramatically changed the picture for emerging markets since the IMF’s WEO update. Are you changing your forecasts for emerging markets at all?
MR. RICE: You know that will be something that we take up in the context of the next update on our forecasts. I really don’t have a lot more to add beyond what I said to you earlier, that we think the renewed turmoil in late January highlights the need for strong policies. We said before that many emerging markets are now in a much better position to deal with that market volatility. Investors may differentiate among countries based on macroeconomic imbalances and the extent of the vulnerabilities, but again it’s country by country.

QUESTIONER: Have any emerging market countries requested any precautionary credit lines from the IMF?

MR. RICE: Not to my knowledge.
QUESTIONER: On January 27 the Finance Ministers of Germany and France and an official from the IMF participated in a meeting in Brussels about the Greek program and I understand that they discussed the Greek debt. Is it possible to tell us who participated from the part of IMF and what was the discussion about?

MR. RICE: What I can tell you is that, as you probably know, last week there was an IMF team in Brussels to do two things: One was the meeting of the euro group, which I think was on the Monday night, and then there was a meeting on the 28^th to launch the IMF book on jobs and growth and recovery in Europe. So my understanding is that there were some technical discussions on Greece around those events between the IMF and other members of the troika. That’s not unusual, as you know. And I don’t really have a further detail on that for you.

QUESTIONER: On January 28th Mr. Moghadam, the Director of the European Department, met with members of the European Parliament and they discussed the program. According to a source, Mr. Moghadam said and I quote, “That in 2010 the IMF had proposed an immediate restructuring of Greece’s debt.” Can you confirm that Mr. Moghadam was in Brussels and can you tell us if he said what I just told you?

MR. RICE: I know you wouldn’t expect me to confirm or comment on alleged remarks coming out of that meeting. But what I can confirm for you is that Reza Moghadam, who’s the director of our European Department, did address the European Parliament’s Committee on Economic and Monetary Affairs in a closed-door session last week. And the answers provided during the meeting with the Committee will flow into their final report, which I understand will be made public by the European Parliament.

QUESTIONER: Two questions: Just to follow up on Ukraine, you said you’ve been very consistent with the measures that are needed for the economy. One of the big hurdles was a gas tariff. Well, since then Ukraine has been able to buy gas at a lower price from Russia, if I understand it correctly. Does that change in any way the advice or what you would require for funding? And since we’re mentioning the European Parliament, in the Commission there were a lot of talks about the MD being a potential Commission candidate or if she would be interested if she was offered?

MR. RICE: On Ukraine, I don’t have much by way of a change, but just to refer you to the 2013 Article IV Consultation staff report and maybe just a little summary from that. It recommended comprehensive reforms to address the Ukrainian vulnerabilities and to revive growth, including increased exchange rate flexibility, combined with policies to strengthen the financial sector, fiscal consolidation, increases in domestic energy tariffs, and comprehensive structural reforms to improve the business climate and support growth. So our position is, again, fairly consistent on that.

On your second question, on the Managing Director, Madame Lagarde has said repeatedly that she’s focused on her position here at the IMF as Managing Director and that she plans to serve out her full term.
QUESTIONER: The European Central Bank today kept rates at a record low, and you’ve warned about that the ECB should try to do more to combat deflation in the euro zone, especially in the periphery where real prices are probably already below zero percent growth. So I was wondering if you think the ECB should do more and what you make of their decision today.

MR. RICE: We think the ECB’s accommodative monetary stance is broadly appropriate; however, as we have said before, given weak growth and subdued inflation, more monetary easing, including through unconventional measures, will likely be necessary to further reduce fragmentation and support demand.
QUESTIONER: It seems that the IMF is currently working, considering, changing its approach to bailout programs by requiring countries to restructure their debt before they get any financial assistance from the Fund. Can you update us on these discussions and are there any timetables? What is the procedure to be followed?

MR. RICE: I won’t go into the detail on that topic, which I did the last time. Just to refer you to that transcript because it gave more detail, but I’m not trying to duck your question. Debt restructuring is obviously a core operational issue for the Fund. We had this review of recent experience last May, and we published the paper on that. What else should I update you on?

QUESTIONER: Is there any timetable?
MR. RICE: Discussions, consultations, are continuing. We think it will be several months before we go back to our Executive Board to discuss this since it is something we’ve been asked to do by the Board, by our membership, with possible policy proposals. Most likely around June this year, which is what I said the last time. I gave a lot more detail the last time and I’ll refer you to that. But those are the key dates, if that’s helpful to you. We expect to go back to the Board around June, and I also said at that time that we didn’t expect that even in June we would be asking the Board to take decisions at that time as it’s felt we’ll need further consultation and discussion before we get to that point. So I think that gives you a sense of the timeframe. I hope that’s helpful.

QUESTIONER: Madame Lagarde called for greater global monetary policy coordination in her Dimbleby speech Monday. Can you elaborate on what exactly she’s talking about? Are we thinking about the major central banks issuing joint statements? Are we talking about something more soft such as through the G-20? I’m not exactly sure what type of coordination she’s looking for.

MR. RICE: We’ve talked about this before and the Managing Director and others at the Fund have talked about this. I think it’s a couple of things and very much in the context of Madame Lagarde’s speech at the Dimbleby lecture in the U.K. the other night that in our increasingly interconnected world, the actions of one country obviously have impacts and consequences for others; that includes central bank actions. So I think it was a call, as we have said before, for central banks to have in mind their actions for their countries, which is their mandate, their respective mandates, but to have in mind the potential consequences for others. And I think, again, she repeated that in a speech. So that’s one thing.

I think a second thing is, again, as the Managing Director has repeated this point going back to at least Jackson Hole last year, the need for good communication, timely communication, clear communication. That is a very important part of the policy coordination. We have also stressed that dialogue is important, and on that I’d say it will be important for advanced country policymakers to continue the dialogue with those in emerging markets. And I would add that I would expect the forthcoming meetings of the G-20 in February and the IMFC a bit later in April to provide opportunities for such discussions.

QUESTIONER: So to be more explicit on the first thing about central banks in advanced countries well, not just advanced countries, but central banks in general being considerate of the spillover effects, is there an implication there that perhaps the Fed should slow down its exit from its bond purchases and perhaps communicate a longer interest rate hike horizon?

MR. RICE: No, we’re not suggesting anything like that. That’s a matter for the Federal Reserve, those decisions. I’d only say that the Fed’s communication has been clear. And markets responded relatively calmly to the December tapering announcement, which suggests the announcement was clear and mostly anticipated thanks to the ongoing communication by the Fed. But, again, dialogue is very important.

QUESTIONER: I understand the communication issue and saying, you know, if we’re going to taper you should let other countries know. But I don’t understand what it means to keep in mind the consequences for other countries because as you said, every central bank has a mandate to focus on their own economy. How would that influence a central bank’s decisions in any way that otherwise they wouldn’t do for their own domestic country?

MR. RICE: I think we know that central banks do engage in dialogue with each other and they’re talking all the time. So I would imagine that in that context, there are discussions of broader implications of one country’s policies, one central bank’s policies, for another. I don’t have a specific example for you.

QUESTIONER: You don’t think there’s any particular country that should do a better job of keeping in mind the consequences?

MR. RICE: I don’t have in mind a particular country right now. And, again, I think the general point is that dialogue and good communication is what is important.

I said that question would be the last one, but I’ve been a bit remiss in going online today. There is one question I’ll take and that will be the last one. “What’s next for Portugal? Any developments on the ground?” What I can say on that is that our Executive Board will meet on the 10^th review of Portugal’s program on February 12. The 11th review mission for Portugal then will start on February 20.

With that I’d like to thank you for coming today and thank you for your questions online.