Transcript

Transcript of the IMFC Press Conference

October 11, 2014

SPEAKERS:
THARMAN SHANMUGARATNAM: Chairman, IMFC
CHRISTINE LAGARDE: Managing Director, International Monetary Fund
DAVID LIPTON: First Deputy Managing Director, IMF
GERRY RICE: Director, Communications Department, IMF

Webcast of the press conference

Mr. Rice - Good afternoon, everyone. Thank you for coming today to this press conference on behalf of the IMFC, the International Monetary and Financial Committee of the IMF. It is my pleasure to introduce to you today the Chairman of the IMFC, Chairman Tharman. Also with us today is the Managing Director of the IMF, Madame Christine Lagarde. And to my right, at the end of the table, our First Deputy Managing Director, Mr. David Lipton.

Can I ask you to identify yourselves with questions and keep them short and we will do as many as we can, and we will begin with some brief opening remarks from the Chairman and Madame Lagarde, and then your questions.

The Chairman: Let me summarize some of the substance and also the spirit of our discussions over the last two days. First, where are we now compared to where we were during the financial crisis? We're clearly in recovery, globally as well in most parts of the world. But it is an incomplete recovery. And that means there are some real positives, but also some real challenges. We have achieved something, but there is lots more work to be done. The largest of the advanced economies, the United States, is clearly in recovery. Some smaller advanced economies are seeing the payoff coming out of reforms and Spain comes to mind. Importantly, some of our lowest income members are also seeing a new vibrancy and a new confidence, and we should never lose sight of that. So, across the advanced world and emerging and developing world we have seen real progress since the crisis.

But there are some challenges that remain, and very important ones. The eurozone is still barely out of recession, it has been a very weak and faltering recovery, and we face new financial challenges, in both the advanced and the emerging world. Some important downside risks. Particularly those coming out of the growing role of the non-bank sector.

So what is our key concern? Our key concern is to look ahead so that we avert what the Managing Director has spoken about, which is the very real risk of a prolonged period of subpar growth, or a new mediocre, as she puts it. That is our key concern, what we do to avert this risk. It has been an incomplete recovery, some pluses, some minuses, but it is not just about today, what happens from quarter to quarter, it is how we avert the prospect of a prolonged period of subpar growth. It is a real risk. If we have low growth sustained over a long period, we will always be vulnerable, vulnerable to geopolitical risks because there is that much more impact on growth, on jobs, on confidence. We would be vulnerable to biological pandemics, and we would be vulnerable to “financial Ebolas” which are bound to happen from time to time.

So, whether it is geopolitical or biological or financial, these risks will happen from time to time, and there will be a risk of contagion.

The global policy agenda that the Managing Director set out was the focus of our discussions, and the key part of the agenda is how do we address the challenges of both today and tomorrow, how do we address the challenges of lifting today's growth and having sustained growth into the future? And the substance and spirit of our discussions was very much on focusing on tomorrow. In other words, focusing on the reforms needed and the structural reforms in particular, that are needed to address the challenges of tomorrow. And, if we don't do that, then we can't solve the problems of today. In other words, to solve today's growth problems we have to lift potential growth, and that means reforms that don't pay off immediately, but reforms that build confidence over the medium to longer term path of the global economy and our respective economies.

In other words, bring the long-term into the short term. If we don't address tomorrow's growth problems today, we will be left with today's problems tomorrow, unsolved, and tomorrow's problems, if left for the future, will just get larger.

So we have got to put much greater urgency on the structural reforms required to solve tomorrow's problems toward achieving sustainable growth, and toward averting a prolonged period of subpar growth. And we had extensive discussions of this, but everyone within the eurozone, the other advanced countries, amongst the emerging economies was on that same page, the criticality of structural reforms at this stage of the recovery. We all have to focus on it. It has been too slow. We recognize that structural reforms have been, with some exceptions, too slow, and we have to pick up the pace. And there are ways of doing it which do not lead to a short-term reduction in economic growth, that do not inflict more austerity and we discuss many ways. There are ways in which we can have growth-friendly fiscal policies without a major fiscal expansion or without slippage from fiscal rules. There are ways in which we can liberalize labor markets. Some very important reforms are afoot, including now in Italy, which can enhance job creation, as well as improve productivity growth, without an expansion of fiscal budgets. There are ways in which we can liberalize service sectors, again to boost productivity and enhance competition. Again, without having to expand fiscal resources.

So there is ample scope for structural reforms that boost growth tomorrow but also help confidence today. And we spent a lot of our time discussing this.

So that was the nub of our discussions.

Our single biggest focus has to be on the reforms that will enable us to lift potential growth and build a better tomorrow, and if we don't focus with urgency on that, we won't solve even today's problems. We have to bring the long term into the short term, that has to be our whole way of thinking about how we complete this recovery process.

Otherwise, we would be left with today's problems tomorrow and tomorrow's problems only get larger.

The Managing Director: Thank you very much for being here, and as usual Chairman Tharman put our whole discussions under perspective and emphasized the issue of collapsing tomorrow into today to address today's demand problems while also addressing the supply side by improving tomorrow's situation.

Let me preface anything I will say with one presentation, which is the button that I'm wearing on my jacket. You can take photos if you like, that's fine. It says, "Isolate Ebola, Not Countries." That was given yesterday to me by President Conde of Guinea.

I will start with Ebola. Obviously more will be said about Ebola later on at the Development Committee press conference, but I just want to remind you all that the IMF went really very quickly out of its way to put in place a facility for the three countries of 130 million dollars; they were made available very quickly so that the countries could have the benefit of budgetary support in order to face the very, very difficult situation that the they are facing; all three are under IMF programs.

I think we took the opportunity of the IMFC actually to remind exactly that principle, that the purpose is to eradicate Ebola but not to isolate the countries themselves.

In that context, I was very pleased to see that the IMFC is calling on the Board of the IMF to expand the zero interest loan facility for the low income countries, and I'm certainly planning to take that up very promptly on our agenda so that the Board can look at the issue and hopefully opine favorably on this call that we have received from the IMFC.

For those of you who don’t know about it, the PRGT, is the poverty reduction and growth facility, and has been working for a few years at a zero interest rate, and the proposal is to extend that by another two years.

Just a few words about the areas of work where the IMFC has endorsed the document that I showed you last time. Maybe you don't need to take photos because you have already taken a photo of that, the Global Policy Agenda, which is what they examined and which they approved. There was a clear priority on the work that we do around growth and jobs. So, growth and jobs, how can those fiscal and structural policies be growth friendly, job friendly, what they are, what their impact can be, the same went for the infrastructure investment that they discussed at length, so that it is efficient, so that it really leverages potential, and there will be additional work done in the course of the next few weeks on this issue of efficient investment in infrastructure, with the adequate public finance institutions in place.

Second area of work that the IMFC encouraged that we do, or that we continue doing is the work we do on spillovers and spillbacks, which is clearly a domain that is very much the core business of the IMF, and where we have special expertise. The ability to examine the consequences of policies decided in a particular country.

And that will indeed be the case given the asynchronous monetary policies normalization that we are very much likely to see in a few months' time.

Third, the IMFC also encouraged us to push on to complete the financial sector reform work that we have been doing, and clearly there is a close link between the IMF and the Financial Stability Board in that regard, but whether it is the global regulatory reforms, the focus on the risks arising from shadow banking development, making sure that the banks are fit to support the recovery, and the macroprudential safeguards which the central banks will probably want to be using going forward.

Finally, there was also support for the international tax work that we do, and that dove tails very nicely with the work the OECD does as well, where we have a special expertise in assessing the spillover effects and how, for instance, the low income and developing countries can be affected by tax strategies and tax changes occurring on the international scene.

Finally, and that is a big project on which we will continue the work, the sovereign debt restructuring work where we have indeed pushed the new and revised collective action clause and on that occasion I was very pleased to hear that both Kazakhstan under U.K. law, and soon Mexico under New York law, will be launching bond issuance with the new wording that the IMF has approved and discussed extensively. We will continue the sovereign debt restructuring work, and we will keep you posted on further work we do.

So, that is what I wanted to really focus on. Thank you.

Mr. Rice: Thank you, Madame Lagarde. Thank you, Mr. Chairman. Questions.

QUESTION: (The interpreter broke into the webcast and interrupted the verbatim transcript.)

The Managing Director: (Joined in progress) ... long-term unemployment and various factors at work in those economies that actually weigh on the potential growth. And what I take out of those meetings is No. 1 that growth is back. Let's face it. We have recovery. It is not the most vibrant and as high growth as we would like it, in order to absorb the job seekers, for instance, but we have growth and we have recovery. And the whole point of that meeting was to put a little bit of fire in the room so that policymakers, governors of central banks, be energized by their discussion, comparing their notes, so that they can go home and, if I was to talk to a reporter, I would say, implementation, be brave. Get on with it. And use all your tools.

The Chairman: Just to add, another way of putting the point is, what explains why Spain is coming out of crisis or making a significant improvement in its economic activity, not just exports, but even domestic demand, what explains why Ireland is seeing a recovery? They undertook serious structural reforms, took some hits, but they're seeing the payoff. And what has been lacking, if I might say, in some other European countries, has been the same. They haven't put enough emphasis on structural reforms and done them early enough, and the lesson we all are getting is the longer you put this off, the larger the problem becomes.

QUESTION: My question is a little bit complicated, and harsh. I'm sorry for that, because in case -- very sharp. Are you ready for the Plan B in terms of governance and quota reform? Because, maybe we won't have a chance to ask it before the end of the year. In particular, are you ready to make a compromise to help the United States to get it ratified at the cost of the compromising and even sacrifice the target you have made, which is the doubling of the quota of the IMF?

The second question is a more friendly one. Are you more willing to have a bigger role in China for helping China to establish a more comprehensive and better defined fiscal reform, given the situation that China has the very bad, fairly poor framework for the fiscal framework in China, according to international standards?

The Managing Director: On your first question, it is not a harsh question. I made a commitment back in April, I made a promise separate from that, but the commitment was to wait until the end of the year. And, to give the U.S. authorities ample time to consider the issue and to hopefully endorse and ratify the governance reform, and the quota doubling, and open the room for the 15th review. So we have until the end of the year. I made the commitment at the beginning of the year, then we will have to consider options. So, let's not put the cart before the horse. There is work under way. We have received reassuring, comforting statements on the part of the U.S. authorities that there is work going on, and I will leave it to that, at this point in time.

As far as our relationship with China, we have an excellent partnership. I will be in China in November on the occasion of the APEC meeting, and I'm sure that we will have a chance to sit down and talk about the policy mix of China. But, we are again comforted by their determination to implement a massive set of reforms in all areas, and we look forward to that implementation taking place.

QUESTION: Chairman, Madame Lagarde, both of you have been quite pessimistic about the medium-term outlook before the meeting. What concrete things can you point to that has happened over the past three or four days that make you slightly less concerned that we are heading to the new mediocre in the future?

The Chairman: I'm not someone who likes painting a pretty picture for the sake of it. What was critical in the last three to four days was not that the situation had changed. But, there was a good meeting of minds. Everyone was focused on the real challenge, which was that of structural reforms, much more than macroeconomic policy. There was constructive discussion about the types of structural reforms that can engender confidence in medium- to long-term growth. And it was a very specific and detailed discussion that indicates discussions going back in respective capitals as well as discussion taking place within this multilateral forum. So, the situation doesn't change overnight or even over three or four days. There is a real risk of subpar growth persisting for a long period of time, but what is important is that we know it can be averted. We know it can be averted. And, it will require some political courage, some will, some degree of realism on the part of national legislatures, but it can be done.

The Managing Director: Same here. By the way, the virtues of these meetings is that instead of having each policy maker in his own country or talking to his immediate neighborhood, as it happens, they all talk to each other and they compare notes and to have the authorities of Mexico, for instance, indicate very clearly under what circumstances bad growth numbers -- with what political courage and applying which message they went about reforming telecommunication, energy, education, and so on, so forth, and how it embeds short-term gains as well as medium-term benefits. There were several of those around the table. I think it gives a bit of impetus to those who, when they're back at home amongst themselves tend to commiserate a little bit.

QUESTION: The IMF released a paper regarding sovereign debt restructuring and you mentioned that the IMF is going to keep working on this issue. So my first question is, what are the next steps you are planning to take in this regard? And my second question is relating to the global economic recovery: Do you think this situation as it is, talking about the sovereign debt restructuring, if it could upset the global economic recovery?

The Managing Director: On the latter part of your question, no. Because, clearly, if there is global economic recovery, the issue of sovereign debt restructuring should be vastly off the table. If the economies are doing well, the sovereigns hopefully are part of that economic recovery, and therefore I don't see why the sovereign debt restructuring should be a heavy topic on the agenda.

Now, on the work we're doing, we want to be as encompassing as we can be in the work that we do. For the moment, what has been really approved and now implemented, or will be implemented in the course of November, as I understand, from Mexico, is collective action clauses that address the shortfall of the interpretation by the New York court, that had been looking at the Argentinean sovereign debt restructuring and its side effects on those that were not in the restructuring process. That is the part that is effectively operational. Everything else is under review, and we will be continuing that work in the context of our programs, the conditions to access our programs, and so on, so forth.

QUESTION: Ghana has been going through some challenges with respect to the economy. What does the Fund think that the authorities in Ghana should be doing to stabilize things and do you sigh a possible Fund program also contributing, addressing the situation? And secondly, you gave a facility to three countries with respect to the Ebola. Did that come under the PRGT facility? And, are there any plans to extend it to other countries maybe Ghana as well?

The Managing Director: Thank you for your question. Obviously the three countries that are affected, Guinea, Liberia, and Sierra Leone are covered under the PRGT. And have the benefit of lending arrangements, different in each country, to the funding of the PRGT. Therefore, zero interest rate loans.

We have had discussions with Ghana as you know. Ghana is facing a challenging situation, and we are going to continue the discussions with the Ghanaian authorities to see what be -- from a fiscal and monetary point of view -- the best policy mix option for Ghana to stabilize the situation, and to restore a better access to financial markets. We had discussions in September, and we certainly are planning on continuing those discussions if the authorities so wish.

QUESTION: I have two questions. Because next month APEC is going to be held in China. My question concerns emerging markets and the second is about the BRICs bank, it has been already set up. What do you think the BRICs bank? Is it new blood, and what can be the effect on the world financial system?

Second one is on the renmimbi internationalization. People noted last year there are series of offshore set in London, and maybe in the U.S. later, so what do you think the renmimbi internationalization to affect the currency system of the world? My question is to Madame Lagarde.

The Managing Director: I don't really want to address the BRICs bank because it is not really the one that we would be working with. I think we are more interested in a way with the reserve contingency arrangement, which the CRA as it is called, which is set up by the same BRICs countries, together with South Africa, as I recall as well, and it is an interesting proposition, one that brings together central banks and that we are seeing more as a group of swap lines coordinated between these countries. And which call for cooperation with the IMF to the extent that this CRA is used above a certain threshold. In other words, if one of the members in that CRA draws on some of the reserves up to a certain level, an IMF relationship has to be put in place. So, I don't see it as some people have said, competing with the IMF. No. It is a complement to and we will be working and partnering with this arrangement if it endures, just as we would be and are cooperating with regional financial arrangements such as the Chiang Mai arrangement, such as the European stability mechanism, and other arrangements of that nature. It is fine.

On the renmimbi and its internationalization, certainly this is work in progress. And, we are looking forward with great interest the advances of that project, which clearly is one that the Chinese authorities are entertaining, and on which they're making step after step real progress.

QUESTION: What has the IMFC discussed regarding the Arab countries in transition, and in particular Tunisia?

The Managing Director: On the occasion of the annual meeting there was a meeting of the Deauville partnership, which I attended, and during which we discussed the situation of each of the Arab countries in transition situation. Tunisia is clearly a country that has made tremendous progress, and that is probably very advanced in that transition. We are expecting the upcoming elections to actually help move toward even more progress, because clearly in this pre-electoral circumstances, there is not a lot of work that can be done. But, the program that we have in place with Tunisia has been, I think, very productive, very positive. We are giving the election time a bit of a lapse, if you will, until we come back to continue solid and serious work in order to make sure that economic stability, financial stability, is restored under the new constitution which I have personally and privately saluted for the role and the space that it gives to the Tunisian women.

QUESTION: Madame Lagarde, I heard the beat of the drum in the hall and I had to dash out to see if the U.S. congress had passed their IMF quota reform. Seriously, there has been a great emphasis on infrastructure the past several days, debt finance infrastructure and I'm wondering why so much focus on Keynesian stimulus when it seems that investors and households are mostly concerned about the lack of growth potential. That is a problem that seems to me can only ultimately be fixed by overhauling outdated economic models. Can you also give us, since you named some countries that have done so well, which are the particular countries that are creating problems?

The Managing Director: I'm going to focus on those countries that have done so well, actually, and that have even applied that principle that both structural reforms and infrastructure investment can address both the demand short-term side, and the supply medium-term issues. And clearly, infrastructure is one of those areas where you can actually reconcile the two. Mexico is one case that comes clearly to mind. In the developing world, I would certainly mention Rwanda as one that has conducted those reforms to actually change the economy and make sure that there is both social transfers as well as creation of value with fiscal discipline. Countries that have moved the needle clearly in terms of labor market reforms, I would mention certainly Canada, Japan is heading in that direction, Spain is one. Italy is in the process and is looking much more positive these days, with the recent vote of the Senate in that respect. So, there are changes under way that, as I said, would both look at the short-term demand problem, as well as the more medium-term low growth potential issue that we are facing, and the supply side. And to the extent that a country like India, for instance, which looks a lot more promising in terms of forecast, decided to address some of the bottlenecks issues, or decided to expand massively the bankability of its population, as it is currently considered, that would most likely unleash short-term growth as well as deal with some of the bottleneck issues that the country faces.

The Chairman: Could I say something to add to what Ms. Lagarde said? We tend to focus from time to time on one or two countries which are viewed as laggards or as being the spoilers. There is a bitter taste of the mouth. Today France is getting a lot of attention. We have to think of structural reforms quite frankly, it is a problem across a whole range of countries, advanced and emerging. And, you can look what are evidently the better performing advanced countries, United States, Germany, very extensive need for structural reforms to lift potential growth. Remember, we're not talking about today's growth, but whether they are achieving their full potential. And, I don't need to get into specifics, but everyone knows the case for services stabilization in the parts of Europe doing relatively well. Everyone knows the case in the United States for more sustainable pensions and social security. Everyone knows the case in the emerging economies for educational reform, so that a demographic bulge, that is a very large group of people who are still young, have a chance to have good jobs, and earn a good living. And we are quite far away from implementing the types of structural reforms that we all need. So, in a sense, to answer your question about having to identify the countries that have not been success stories on structural reforms is that it is virtually everyone, we just haven't focused enough on this task of lifting potential growth for the medium to long term.

QUESTION: Madame Lagarde, you mentioned the Ebola crisis, you mentioned the money that has been put on the table. We know that time is of the essence here. The virus travels faster than the bureaucracies, so how confident are you that you're hitting the right buttons here? Are you prepared to do more if needed?

The Managing Director: You know, the right button is the one that is pressed by the countries themselves, and what I have heard from both [Liberian President] Helen Johnson Sirleaf, whom I had a long conversation with a couple of days ago on the phone, and with President Conde, whom I saw last night, is that we came at the right time with the right amounts of money, and cash was in the bank, very promptly, because they had to pay the bills, they had to pay the wages, they had to keep people on the job. They had to give incentives to the health workers that had tough decisions to take. So, that is what we are good at and that is what he with could do expeditiously thanks to the strong attention of staff, their dedication, and the focus and the support of the Board. If more is needed, we'll be there. We will partner with those countries. No question. You know, this is what needs to be done short term. Then of course there is the longer term issue of rebuilding the health system, having the infrastructure in place, making sure that the development efforts focus on what will be helpful to those countries, to defeat those threats and those risks, but we have to look first thing first. How do we stop it?

Mr. Rice - Thank you.