Transcript

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

June 11, 2015

Webcast of the press briefing

MR. RICE: Good morning, everyone, and welcome to this Regular Press Briefing on behalf of the International Monetary Fund. I am Gerry Rice of the Communication Department.

And as usual, this morning our briefing will be embargoed until 10:30 a.m., and that is Washington time. We have actually a fairly busier day than normal today at the IMF and the media are going to be involved in that. Let me begin with –- the Managing Director of the Fund, Christine Lagarde, will travel to Brussels for the Grandes Rencontre Catholique Conference to be held there. She will be making a major speech there and we will get that to you as soon as we can.

Madam Lagarde will then travel to Luxembourg to participate in the Euro Group meeting. That will be on June 18th where the primary focus of discussions will be the preliminary staff conclusions of the IMF's Euro Area Article IV consultation for this year. As you know, we've been in that cycle of major Article IV consultations, staff consultations and now it's the time for the Euro area.

I'm turning to our Deputy Managing Director, Mitsuhiro Furusawa who currently is traveling in Asia. He is in Vietnam today and will be in Indonesia June 15 and those are official meetings basically. Finally, looking ahead to October and to Lima, Peru the media registration for the 2015 annual meetings is now, you know, coming due, coming online. And our media relations division will be in touch with you shortly about a media advisory for that and look forward to seeing you all in Lima, I hope.

So with that, good morning.

QUESTIONER: Can you please give us an update of the (Greece) negotiation status? Because it seems in the last few days things are moving quite slowly.

MR. RICE: As you know there's been quite a bit of public discussion on the various proposals, the discussions have been ongoing. What I can tell you in terms of the status is that there are major differences between us in most key areas. There has been no progress in narrowing these differences recently and thus, we are well away from an agreement.

Let me add that, you know, as our Managing Director has said many times, the IMF never leaves the table. We remain engaged but the ball is very much in Greece's court right now and I understand Greek authorities are preparing some further proposals. So that's kind of the status of where we are, yes.

QUESTIONER: It is my understanding that in the case of an agreement, the IMF will not release money. It seems that the ongoing negotiations are aiming at a European solution.

MR. RICE: I think we have to wait for the discussions to continue and to see where we come out, you know, at the end of the process and I wouldn’t speculate as to what you've proposed. So let's just, you know, see how the process plays out.

QUESTIONER: Could you please explain what has changed and what you're currently seeing as major differences given that the Greek government, as I understand, has given you and the Europeans a couple of proposals about their own understanding of what they're prepared to do?

MR. RICE: I think there’s been public commentary from, I think, all of the institutions on the Greek proposal. What I can tell you is, and again, I don't think it's a surprise that there's been a lot of public discussion of these issues that some major obstacles remain in the discussion of the reforms and the programs.

These are around pensions, taxes and then, the third element is the financing and, as you know we said before and others have said at the end of the day, the whole thing has to add up.

Now, maybe just a word on those things, you were asking what are the main obstacles. So on pensions just again a bit of perspective. We've discussed this before but a few facts. Pensions and wages account for 80 percent of Greece's total primary spending. So it's not possible for Greece to achieve its medium term fiscal targets without reforms and especially of pensions.

So I think it's been acknowledged on all sides, that the Greek pension scheme, system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.

But I want to say one more thing on pensions because there's been some misreporting and misunderstanding on the issue of pensions and particularly in relation to what the IMF has been asking for.

Now, I've laid out some of the basic numbers but I want to emphasize to you that social fairness and social balance is something that the IMF has been emphasizing in the program from the very beginning. And on the issue of pensions, what I want to say is that for social reasons, basic pensions that are targeted to the most vulnerable groups are being protected. And with the planned rollout of the national safety net, that will further ensure that protection.

So again, I think there's been a bit of misperception, that we are looking to protect the most vulnerable, the lowest income pensioners even as we advocate reform of the pensions. So that's on pensions.

On taxes, the policy of increasing already high rates on a low tax base, again, is not sustainable. So it's crucial to significantly broaden the tax base in Greece. And again, from the beginning the IMF has been pushing for reform of the tax system, tax administration, in Greece. Again, comparators, Greece has among the largest gaps in the European Union on VAT revenues that are actually collected versus VAT revenues that should be collected given the rates.

And this is because we believe the VAT structure is highly complex and allows for significant leakage in the system. So reforms of the VAT that greatly simplify the structure should allow for tax collection, we think, of an additional one percent of GDP. So these are the main issues and that's why we're saying that there has not been a narrowing in our view, a sufficient narrowing of our differences on these key issues.

QUESTIONER: The one percent target that you mentioned, I understand it stands for both VAT revenues and also pensions. Are you firm on that? Would you negotiate that at all? And you mentioned financing as well as a major difference, but I understand on financing it also has to do a lot with the Europeans and what are you prepared to offer to Greece right now.

MR. RICE: Look, I'm not going to get into different numbers because that's a part of the negotiation that's ongoing. I'm just going to leave it where, you know, with what I've said on pensions and taxes.

On financing, what we have said consistently, again, is that it needs to add up. So there's a tradeoff in reaching agreement in the discussions. The more distant the measures agreed and targets are from the original commitment made in 2012, the higher would be the need for additional financing and, indeed, debt relief to make Greece’s debt sustainable. We talked about this before here. There is an agreed framework in place for dealing with Greece’s debt in the current program. That is with the European partners. There has been no discussion on a change in this framework. We will update our debt sustainability assessment in the context of the comprehensive review of the government’s policies.

Let me emphasize again what the objective is here. The objective is to help Greece, support Greece, get back on the path of sustainable growth, jobs, and better living standards for the Greek people. That’s what all of this is about. Sometimes we can get lost in the various details. That’s what it’s all about. We see these aspects as being crucial to heading in that direction.

QUESTIONER: Can you talk a little bit about their (Greece) fiscal targets? I think their most recent fiscal targets are in fact -- their target for primary surplus is in fact lower than what they had previously proposed. How far apart are you on that front?

MR. RICE: Again, I’m not going to get into details or numbers on various targets, because I think that’s a subject for the negotiations, but as I’ve said, there is a relationship between the fiscal targets and whatever would be agreed and then the financing. It has to add up on both sides.

If fiscal targets are more flexible and the IMF is flexible, we are open to that, but it has to add up on the other side of the equation in terms of additional financing, debt relief, to make the whole thing coherent and again, add up.

QUESTIONER: Just to follow up, when Madam Lagarde is in Europe next week -- obviously there have been meetings of very senior political officials taking place over the last little while. Greece has said it would prefer an agreement brokered by political leaders. It certainly considers Madam Lagarde on that level. Can you tell us anything about any meetings on Greece specifically that she might have next week?

MR. RICE: I don’t have any specifics for next week. The primary purpose, as I said, of next week is that the Managing Director is going to make what we think is an important speech in Brussels, and then on to Luxembourg, where the Euro Area Article IV consultation is the primary focus of discussions, but obviously Greece is very much on everyone’s minds, and I’m sure there will be discussions on the sidelines of her other meetings or otherwise. We will keep you posted.

On the other point you make, it’s our understanding also that the Greek authorities are currently seeking solutions at the political level. Discussions have been ongoing, but the technical discussions right now have stopped, and in fact, our team has returned from Brussels, the technical team.

QUESTIONER: Because they were scheduled to stop or stopped because there was such a gap?

MR. RICE: There is no real schedule here. The discussions have been ongoing. What I can tell you is they have returned to Washington. As you say, our understanding is the Greek authorities are discussing at the political level at this stage.

I’m going to take one or two more questions. I did want to reiterate again that we remain engaged. We are always engaged and ready to resume, but I don’t have a time line for you right now.

QUESTIONER: Who is in Brussels? Has Mr Goyal come back?

MR. RICE: He’s back. Everybody, the technical team.

QUESTIONER: Who stayed in Brussels? Nobody?

MR. RICE: The technical team has returned.

QUESTIONER: You don’t have any representatives in Brussels right now?

MR. RICE: Well, we have a resident representative in Brussels. We do have someone.

QUESTIONER: I see you used very strong language today, first time, in talking about Greece. I see you are asking for things on the Greek side. The real question here is what is going to happen next. You are asking for the maximum, they don’t accept even the minimum. If I say we are in a deadlock, am I correct?

The second question, is the IMF prepared to take a political decision?

MR. RICE: Just a couple of things. We are not a political institution, we’re a technical institution. We have 188 members. We try to be at all times evenhanded in the way that we work with all our members.

I would prefer if you would use the language that I’ve used this morning, which is there are major differences between us in those key areas, and there has been no progress in narrowing these differences, and we are well away from an agreement. That is just what I said at the beginning.

I also caveated that with an important point, that we remain engaged. We are always ready to discuss. The IMF doesn’t leave the table. We are ready to resume on the technical talks, but no timeline on that for you.

QUESTIONER: Just a small question on Greece. How significant is the ruling of the court against Greek cuts to pensions that were made in 2012? I think it was a Greek court that said this was against Greek law.

MR. RICE: I’m not familiar with that ruling.

QUESTIONER: That was a big problem in Portugal, for example, with the IMF program, when the court --

MR. RICE: Let me take a look at that and come back to you. I’m not familiar with that ruling. Did you have a question on Ukraine?

QUESTIONER: Yes. On Ukraine, I was just wondering when you expect to reach staff level agreement and what are the main obstacles? Do you have to wait for the three prior actions Parliament is supposed to do next week or is there something else?

MR. RICE: In fact, the Managing Director met yesterday with Ukraine’s Prime Minister Yatsenyuk and the Minister of Finance, Jaresko. They discussed the recent economic developments in Ukraine and the implementation of the program.

Understandings have been reached on most issues, and discussions are continuing to finalize the staff level agreement, that can be taken for approval then to management.

In terms of the issues under discussion, I will not get into specifics since it is a matter of negotiation. Perhaps just to say a number of issues still have to be resolved before we move forward, the good progress notwithstanding.

QUESTIONER: Just to follow up on Ukraine. I think the original time line for the completion of the review was June 15 or middle of June. Given the fact there is not a staff level agreement yet, would you anticipate that the mission would have to return to Kiev at some point, and given the likelihood of that, would you say June 15 is a little optimistic at this point?

MR. RICE: I don’t have any information as to whether the team would need to return, and I don’t have a specific time line. Everything will depend on how quickly we can move in terms of resolving these issues. As you know, the IMF can move fairly quickly once issues get resolved.

QUESTIONER: Quickly, on the debt restructuring, First Deputy Managing Director Lipton had some interesting comments this week on the debt restructuring. It appeared that his tone softened on whether the debt restructuring needs to be completed. Before the next (inaudible) is disbursed can you elaborate on that and more specifically can you elaborate a little bit more on this lending into arrears policy?

MR. RICE: What I can do is recap, you’ve been quoting David Lipton and I’ll quote him too but a couple of things he said, he has said that it’s vital that Ukraine and creditors reach an agreement in line with the three objectives of the operation and they do so before our review. We want and we expect that outcome. He has said it will be a very important consideration in the upcoming review as we need the financing insurances or the program to be in place and assurances that debt remains sustainable with high probability. You are also right that he said then more recently that if at some point Ukraine finds that it can’t continue to pay its creditors, that’s his private creditors and meet the goals of the program then the IMF has a policy called lending into arrears that allows us to continue lending to a country where it arrears to private creditors and provided other conditions of the policy are met. That’s where we are. I’m going to move off Greece unless you have something else? It’s not about Greece, my copy, you can have the floor.

QUESTIONER: After this bad news about Greece, I hope you have at least good news for Cyprus. Do you have anything on Cyprus? I remember at the last briefing you promised to come back on Cyprus.

MR.RICE: Thank you for reminding me. I do have an update on Cyprus for you. The board is expected to meet on June 19th that’s Friday of next week, and they will consider approving the combined 5th, 6th and 7th reviews of the Cyprus program. That’s what the board is expected to consider. I wouldn’t prejudge of course our boards view on that but certainly the return of growth is very good news for Cyprus and for the people – the (inaudible) people. It shows that their efforts in carrying out difficult reforms are starting to pay off. They have done, I think as you know, a very complex restructuring of the banking system, they have successfully lifted off all capital controls and they have returned to issue debt in the market in the international market, their public finances have improved considerably. Recently they approved the insolvency and foreclosure frameworks which had been an issue. We see them as key to our program reforms and will be critical to get credit flowing again. And again the objective is growth, is job creation, is living standards and it looks like significant progress is being made in Cyprus.

MR.RICE: I want to turn to the online questions and then I’ll come back to the room. We have a few questions and I want to get to them. And they help us to look at the rest of the world where important things are happening. A few questions, our colleague at the U.N. in New York and he says do you have an update on Nepal? Which I do and it’s that the fund has received a request from the Nepalese authorities for financial assistance under our rapid credit facility.

I can tell you that a mission will be going to Katmandu later this month. And that will coincide with the international donor conference for Nepal scheduled for June 25th and our mission will be discussing the possible fund assistance under the rapid credit facility, the RCF, a reminder for those who don’t follow it so closely the RCF is the funds zero, zero interest line. No interest charges. It’s our primary tool for providing rapid financing with limited conditionality to low income countries facing urgent BOP, balance of payment needs due to an exogenous and external shock including natural disasters.

Nepal would conceptually be able to access about 50 percent of its quote per year, that’s about U.S. 50 million. And 125 percent on a cumulative basis which is about 124 million so if indeed this is – this discussion is completed during the mission then we think we could move as I was saying earlier, the IMF can move pretty quickly on this and get the support, much needed support to Nepal.

There is a question on Jamaica and it is that, Please comment on the criticism that the percentage of people in poverty has grown alongside the IMF’s program. And that last year Jamaica paid the IMF over 136 million more than it received. So just on the numbers and the lending and the disbursements in 2014 - 15 there were U.S. $259 million in IMF disbursements and U.S. $422 million in repayment to the fund. The net purchase was a net outflow of U.S. $163 million to the IMF. However, in 2015, 2016 the direction of the net flow is the opposite with net IMF inflows to the country, positive flows to the country projected at $127 million and in 2017-2018 the net flows are projected at $176 million, okay? So that’s just on the numbers which I hope helps. I would dispute the correlation between the IMF program and increase in the poverty rates in Jamaica; I don’t think that’s correct.

The context is that in many countries included in the aftermath of the great recession, the percentage of the population under the poverty line increased. In fact that the World Bank indicates from 9.9 in 2007 to almost 20 percent in 2012. Of course, the IMF we are mindful of this high poverty rate. We are concerned about it and indeed that’s one of the reasons for then the subsequent program that has been put in place. And amongst other things it has set a floor on social spending expenditure to protect the most vulnerable Jamaicans and as growth and confidence continues to increase in Jamaica they program is on track, the poverty rate is expected to decrease over time so we’ll monitor that as we go forward. Again disputing the correlation between the IMF program and increased poverty rates, I just don’t think, I don’t think that’s right.

There’s one last question then I’ll come back in the room. And that is on, that is one Ghana and it is the Ghana’s minister of finance says the government intends to issue a billion dollar 10 year euro bond in 2015. What is the status of talks with the IMF in this regard? This euro bond issue was indeed envisaged under the program with Ghana. There is a context to it for countries at high risk of debt distress like Ghana reducing the debt burden and associated vulnerabilities is a priority. So the authorities have to be very selective with regard to new non-concessional borrowing. Since that can escalate debt obviously, so fund policies are flexible, the can accommodate some

on non concessional borrowing, if indeed it's intended to finance critical and profitable projects for which concessional financing are not available. So, again, in that context, this Eurobond issue and the rationale for it was envisaged under the program that was agreed in Ghana earlier this year.

Let me come back to the room, and take a couple of questions. Are we on Greece?

QUESTIONER: Because I'm trying to understand what's happening so and because the needs that Greece has in the next months are huge, it is our view that a kind of agreement must be reached soon, before the end of June. Would the IMF be a part of it, and also with the situation the way you just described it, are you optimistic that you will get your money back at the end of this month? And if not, what's the procedure that will follow?

MR. RICE: The best I can do is repeat that we remain fully engaged and, you know, trying to be as supportive and work as hard as we possibly can, and working with our European partners, and working with the Greek authorities. And, you know, we are fully engaged, and fully apprised of the urgency of the situation, that’s very clear.

On payment issues, the Greek authorities have said, publicly and explicitly that their intention is to make good on all their obligations, so I would leave it at that. Maybe just to say, you know, that -- and again, I think, it's a bit what I said earlier about focusing on details and sometimes missing the big picture.

You know, it's not really about the IMF, it's about Greece, it's about the Greek authorities and their objectives and their reform proposals. And as I said earlier our understanding is that they are considering some further proposals at this point.

QUESTIONER: You have differences with Greece, and we understand it, you explained to us, but the big question here, do you have differences with your European partners? Because this is what I understand; you are not mad against the Greeks, you are also mad against the Europeans. Can you tell us if you are in full agreement with the Europeans, or if you have differences with them also?

MR. RICE: Well, I wouldn’t characterize it the way you have at all. And I would just note that the proposal that was put forward to the Greek authorities, you know, just a week or so ago, was a joint proposal of the three institutions. Okay? So, I think that is probably the best thing I can say in terms of answering your question.

QUESTIONER: But you don’t look like you will try with the Europeans, I mean --

MR. RICE: What I'm telling you is that the proposal that we put forward was considered -- you know, after many months of work, as a joint proposal, the three institutions. It was put together by them, together, in a unified way. I'm going to take a few more questions, and then I'm going to --

QUESTIONER: Just interested for any background you have on the Article IV on the U.S. last week. You know, if you look back at past Article IVs on the U.S., I mean, certainly there is commentary on monetary policy, but I don’t think that there was such an explicit call before, I mean you may choose to disagree, but is there any particular reason why the Fund felt it necessary to give the Feds some advice on when to raise rates?

I mean, is that there's something to -- I mean, obviously the Fund has a different mandate than the Fed, I mean, is there any -- can you walk me through the Fund's thinking on this?

MR. RICE: I'm actually glad you asked the question, because I think there has been a bit of a misreading around this. Look, people don’t -- everyone doesn’t follow the IMF as closely as you do here, but the context here is, we advise all of the Central Banks of countries that are members of the IMF, about monetary policy. Okay. We also, as you know, provide advice on fiscal and financial policy.

That’s our job. That’s what we do, that’s what our members expect us to do, it's part of our core, what we call surveillance. So, as the Managing Director said last week, and in coming to your specific point, on the U.S. Article IV, again, the context of what she said, and what we said in the Article IV, we said, and I emphasize first and foremost, that monetary policy should remain data-dependent.

It's right there. It's in the report. Given the balance of risks around normalizing policy rates, we said we think there's scope to defer rate hikes until there are greater signs of wage, or price inflation than are currently evident. Under our current projections then, this would put the first policy rate increase into 2016.

However, as Chair Yellen herself has said on multiple occasions, any specific projection will turn out to be wrong, perhaps markedly so. So, you know, again, context, big picture. That means, what is important is not what our forecasts are pointing to, but rather that there should be greater signs of wage or price inflation than are currently evident in the data.

The actual course of policy should be determined by that data, by what is happening, and what it reveals about growth and inflation prospects looking ahead, and of course, this is entirely a decision for the U.S. Federal Reserve, we acknowledge and respect that.

I think if you went back to -- if you look to our Article IVs, you would find that, you know, with varying degrees of course, you'll find very explicit advice on monetary policy, and in fact, if my memory serves, and I need to confirm it, I think even in last year's U.S. Article IV, we gave some specific advice on monetary policy.

So this was not, you know, an unprecedented announcement from the IMF on the U.S. economy as it's being portrayed in some places, it's actually our, you know, SOP, our standard operating procedure. It's how we -- it's what we do.

QUESTIONER: Thank you. When is the Executive Board planning to discuss the Systemic Exemption Rule? Is it planned for some time in June?

MR. RICE: I don’t have a date for you on that -- for those who haven't been following it -- this is part of the discussions that have been ongoing over the past 18 months 2 years, on sovereign debt restructuring and the IMF's proposal for reform, and the potential reform of the systemic exemption clause is part of that. So, no, I don’t have a date for you. We'll get back to you on that.

QUESTIONER: Okay. It was -- I believe a couple of weeks ago, that, at this room, we were told that it was going to come at some point around next week probably. That’s why I'm asking.

MR. RICE: It won't be next week. I can't tell you that it will not. But I'll come back to you with the date. You know, again, it's not unusual -- for those who don’t follow the Fund -- it's not unusual for Board dates to move around and the deferred contingent on development's preparation of the papers, you know. And put consultations with the Executive Directors and their authority. But I'll come back to you with some kind of final date. I am going to leave it there today.

MR. RICE: I want to thank you for coming, and we'll see you soon.