Transcript

Transcript of a Group Interview with Managing Director Dominique Strauss-Kahn and Middle East Journalists

April 7, 2011

MR. STRAUSS-KAHN: It’s a pleasure to meet with you. [Let me start by saying that] as many other people, we do believe here that it is a historical moment for the Middle East and North Africa on one hand, of course, because of this very important move, with citizens looking for freedom and democracy, and, on the other hand, also because it sets up very new challenges not only on the political side, of course, but also on the economic side. And especially in period which can be difficult for other reasons. But nevertheless, if you look at the region, it’s clear that oil importing countries may suffer more than others, and so we have to try to assess how important the shock can be.

At the same time, many of these countries, including Tunisia and Egypt, of course, are relying a lot on tourism, and tourism has significantly decreased during the first quarter. Will it last or not? What’s going to happen during the summer? Nobody knows. Of course it has a lot of consequences, also.

At the same time, it’s clearly understandable that new governments will be keen to try to provide things that people are asking for, especially at a time when food and fuel prices are increasing. And on the one hand, it’s understandable. On the other hand, it may create challenges ahead in terms of subsidies and budgetary and fiscal impact.

So, all this leads us to a global assessment, which is, I think, important for the coming weeks. We just don’t know what’s going to happen. We just have -- it’s public, as you know, a mission in Egypt these days. And so we are trying to look at this very closely. Masood Ahmed, the head of the Middle East and Central Asia Department, is today in Damascus, where the meeting of the finance ministers of the region took place, and we’re trying to be as close as possible to the different countries and trying to be helpful if needed.

Of course, when the IMF tries to be helpful, as long as technical assistance is concerned it’s fine. Countries are happy to see us, and we do it, of course. When the question of financing comes, then they’re not that happy to see us, because it means that they have problems. We know this all around the world. So, it’s nothing new. But recent experience shows clearly that it’s better to try to fix it sooner than later, and you never improve the situation by waiting. So, I’m not sure that any of this comes as it would have any kind of financing need, but it may happen.

So, our concern today is more focused on technical assistance and policy advice, trying to understand the needs, and at the same time to avoid creating problems down the road, because it will not help any kind of new government to have problems in six months or so, because for good reasons too much would have been spent on the budgets already. But for some of them we have an estimate of something which is as big as 3 percent of GDP, which is huge in terms of subsidies and support to the more vulnerable part of the population. And they had good reason to do it, but 3 percent of GDP is a lot. At the same time, the growth focus has been revised downward, of course, for the whole region. But for oil exporters the year will be good, but for oil importers it will be difficult.

And there’s another point. One of the big reasons certainly after the evolution of the political situation in countries has to do with inequalities within the countries, but the crisis and what’s happening now may also increase the inequalities between the countries, because oil exporters will benefit from the situation, and we see the current account surpluses of those countries as a whole doubling, something like this, in 2011 compared to 2010, which is a huge amount. At the same time, for the oil importing countries the situation will not be as good as this year. So, discrepancies may increase and that would add to the problem. So, that’s the global view.

Everybody has, of course, addressed it and are concerned by the big move that it represents in the Middle East and in North Africa still on the economic side, which may appear to some not the most important issue right now, but which is still an important one. On the economic side problems may appear, and we are here to try to help.

MS. ATKINSON: Thanks very much. This is, as you know, on the record, embargoed until midnight tonight. We also have a journalist joining us by phone. Please when you ask your questions, if you could identify yourselves and your news organizations Who would like to start off?

SPEAKER: Thank you. Pierre Ghanem from al Arabiya. I wanted just to check on a specific case of Tunisia. It relies heavily on tourism, but it has somehow a good banking system. Can we say that they have a good banking system? Do they need a lot of help?

MR. STRAUSS-KAHN: Well, I had some discussion with the governor of the Central Bank. We haven’t received any request for help so far and I’m not expecting this request during the coming days or weeks. It’s true to say that the average situation of the financial system in Tunisia is rather good. And the assessment we had before the events on the macroeconomic situation of Tunisia was rather good in terms of growth, inflation, fiscal deficit and current accounts. Probably we didn’t look enough and we are now concerned by looking more in terms of distributional effect. But the macroeconomic or macro financial situation was not bad, that’s absolutely true.

Even if tourism is a large part, but not such a huge part of the Tunisian economy, I’m rather confident that if on the political side things go normally, which is the point of course, so provided this happens, Tunisia can come back on track rather rapidly. Nevertheless, the forecast of growth we have for this year has been decreased significantly to something which is between 1 and 1-1/2 percent from something which was above 3 percent. So, it’s a significant impact.

But it may [change], you know, forecasts are changing all the time, depending on what’s happening. So, if we see that tourism is coming back more rapidly than we expected in this forecast, we’ll have to revise upward.

SPEAKER: Do you mind if I follow-up on Tunisia? It is rather an economic and political [question]. When the whole thing started, in fact, in Tunisia, one of the things that this story of Bouazizi came up with is that how some people in the country were denied access to wealth, people didn’t really have a lot while [an] elite, if I could say, was, like, having a good life. Is this picture that we have from here for Tunisia is correct or accurate?

MR. STRAUSS-KAHN: Well, I will see even a little broader. Certainly, the phenomenon you’re describing does exist, and that’s part of the problem. But I do remember a speech I had last November in Morocco, at a conference on [human] development. [The speech] was mostly based on the idea that demography was a time bomb for North Africa and partly the Middle East because of the huge youth unemployment that already exists and that will be created. I remember [mentioning] the figure of 80 million jobs to be created to just absorb youth unemployment. And this is another face of the same problem you’re mentioning, that one thing is to have a rather correct growth rate -- a rate of growth of the economy, which was around 4 percent or so, and another thing is to see how it’s distributed among the people. So, you may have the rich will benefit from them, and the rest of the population being denied any access to finance, development and opportunities. Very often that’s the young person. That’s why youth unemployment is so high. A survey in many countries of North Africa, of the Middle East has shown youth unemployment at around 25 percent when it is not more, and for girls reaching sometimes 35 to 40 percent.

So, it’s, on one hand, understandable that such a society will [have] unrests. In some respects, it would be probably easier for a country where everybody would be poor to accept to be poor. But it’s just unacceptable to see that in countries that wealth is growing. Income is there, but limited to a small part of the population.

MS. ATKINSON: Please.

SPEAKER: My name is Fouad ARIF.  I’m from the Moroccan News Agency.

​Sir, in the past you have been vocal in advocating the economic integration between Maghreb countries, specifically calling for Algeria and Morocco to go beyond their political issues.  Now that the region has been swept with turmoil and popular protests, don’t you think that this integration, this economic integration, is more urgent than ever, notably because the youth are asking for a better opportunity?

MR. STRAUSS-KAHN: Absolutely. You’re absolutely right. The Fund has been advocating for a long time, and part of the credit has to come back to my predecessor, Rodrigo de Rato, who initiated a round of conferences, in different Maghreb countries to try to help pushing towards more integration. Myself, I did participate in many of them during the last three years and I must say that it doesn’t go very fast. It doesn’t go very fast for a lot of reasons you know better than I do.

But it’s really a pity because regional integration is certainly one way to boost growth. And to boost growth is the only real way to provide jobs to more people. So, [there are] historical reasons - I don’t judge about this - but it appears to be difficult.

I remember all the discussions about the North African Development Bank and, you know, the nitty-gritty of it, all the different questions, which are small questions but were all impossible to solve. So it took years to make progress. So that’s certainly something which the fact that it didn’t exist sooner is certainly something which contributes to the difficult situation. And taking it the other way around, it’s even more - as you say - than it was before to push towards this regional integration. And certainly Tunisia, Algeria, and Morocco have a lot -- a big advantage to take from working more together.

So, I don’t want to be naïve and underestimate the sensitivity, but, you know, the benefits are so big that, frankly, there’s no choice and no hesitation.

SPEAKER: May I just follow up with a very tiny question?  The King of Morocco has given, on the 9th of March, a speech in which he announced profound reforms of the constitution, among other things handing over or relinquishing executive powers to the prime minister and, I mean, promoting accountability, human rights.  Are you encouraging such moves?  And are these moves the kind of moves that are going to encourage the attractiveness of the business environment?

MR. STRAUSS-KAHN: I think King Mohammed VI has to be really commended for the move he made at the right time. That is probably one, but not the only one, but one of the explanations why the unrest has been in Morocco less buoyant or important than in the rest of the region. Certainly this kind of move, answers or is part of the answer, for the demand by the population of more democracy and a system which will evolve to a constitutional monarchy.

So I think that what has been announced by the King not only goes in the right direction, but is certainly something that was expected in Morocco for rather long. And so, of course, as always with this kind of things, the question lies in the implementation. But so far, the fact that this very important step has been done, and I think exactly the right thing was to be done.

SPEAKER: Thank you.

SPEAKER: Leila Benradja from the Algerian News Agency. I wanted to ask you, what is your opinion about the current economic situation of Algeria? And the public investment program launched since last year [for] 5 years, about $200 billion. Thank you.

MR. STRAUSS-KAHN: I have discussed this with the prime minister when I visited Algeria a few months ago, and I think that this investment infrastructure is absolutely needed for Algeria.

Our assessment of the economic situation is rather good, and I think that 2011 should be a rather good year for Algeria, specially because of the high prices of oil and gas. But it’s clear that the large part of the resources have to be used in this direction, which is infrastructure, long-term investment, and also another part which has to do with improving the business environment, likely to attract foreign investment.

One thing that is special in Algeria, of course, compared to its immediate neighbors is that it has to do with the very important amount of resources in the oil sector. And this may help, and has to help, to finance the important investment plan that you were mentioning. The reserves that the Central Bank of Algeria has accumulated are huge, so they are protected from any kind of problem in terms of external shock. And so the question now is really to use these resources for infrastructure.

By the way, developing such infrastructure, especially in this location, will have an impact not only on Algeria, but on the whole region. Because Algeria is not only the biggest country, but also the central country geographically of the region, at least for Africa. And so what the linkages -- the links that could be created East- West in Algeria would benefit the whole region.

SPEAKER: Joyce Karam with Al-Hayat newspaper. I wanted to ask you what would your advice be for the Syrian president today? What kind of reforms his government should take to, you know, smooth the exit from the crisis? And on Libya, if Qaddafi doesn’t leave, what’s the economic outlook for Libya and for the region?

MR. STRAUSS-KAHN: Well on Libya certainly did the consequences for what’s going on the economic side will be very important. And of course it’s difficult to assess today because it depends how long it will last and what’s going to happen. But already, the exports in terms of oil have decreased significantly and we don’t see that it’s going to resume very rapidly, even if the political situation clears. Because there’s always a rather long delay between the moment where things come back to normal and the fact that you can go back to the previous situation and count on exports.

So clearly, the economic consequences for Libya will be important, but, frankly, it’s a bit difficult to tell now when we just don’t know what’s going to happen. But if you have information that I don’t have.

And now to Syria. The situation in Syria is a bit different. Well, the problem with the Syrian economy, of course, is the same that we may contemplate with other countries being oil importers and so having to face the problem of oil prices and food prices at the same time because for some of reasons which have nothing to do with North Africa, the food prices are on an upward trend. We are reaching now a level which is almost the same as the one that we had at the previous food and fuel crisis, which was 2008.

And so the costs for the countries are either paid directly by the consumer or by the taxpayer when it’s subsidized by the budget. But at the end of the day, it becomes the same thing, as something which ranges around 3 percent for energy and 1 percent of GDP for food prices. So, that’s a lot. That’s really a lot. And for the country of Syria, that’s certainly a problem.

So the advice is, something has to be done to help the most vulnerable part of the population, but being very conscious not to put in place measures which goes across the board and will benefit to everybody, not only to the most vulnerable. Not only for fairness reasons, but also maybe mostly from the point of view of this institution, because of the cost. And the costs will just be impossible to afford if you put in place measures which are not targeted on those who are the most vulnerable. That’s a real problem to face for a country like Syria or other countries of the region not benefiting from the high price of energy.

SPEAKER: My name is Ezzat Ibrahim from Al-Ahram newspaper in Cairo. I’m just wondering if you have got any feedback or firsthand information from your team in Cairo right now, specially that I just came back from Cairo, and still people are still accusing the former economic ministerial group of following the prescriptions of the World Bank and the IMF. I think this will affect the work with the Egyptian government in the future.

And second question related to that, the coming meetings of the World Bank and the IMF. You mentioned a few days ago about the new approach to deal with these social problems in the world economy, and how to find a new way to deal with this social cohesion in a new way. So?

MR. STRAUSS-KAHN: Well, you answered the first part of your question with the second part of your question. We are used to this kind of criticism, but we are used also to say it is mostly unfair. It’s true to say that we have been approving most of the reforms and the policy put in place by the previous economic team. But the results are good at the macroeconomic level.

What we could be criticized for is not to have provided advice, which is probably not our job, but can become our job. That was not our job. That’s why I say the second part of your question answered part of the first part. We haven’t seen our role as requiring providing advice in terms of income distribution or all of the questions which are discussed today. Certainly, we are not experts in this kind of thing, but we can work using the work of others, the World Bank, other institutions being more expert than we are in terms of inequalities, in terms of tension in the society, and so on.

But so far, it’s true to say – with humility -- that it has never been considered so much as the work of the Fund. Maybe wrongly, but it hasn’t. And so, our work was mostly dedicated to try to put the macroeconomy of the country on track. And from this point of view, Egypt is not a bad result. Same thing for Tunisia. So, what can we learn from recent events? Well, it’s not enough. You may have rather good results at the aggregate level. Still, having a large problem, a big problem, of inequality in the country and all kinds of distributional effects. And this leads to political unrest, which in turn leads to macroeconomic problems. So one way for us to say that finally it is our problem, is not to say that we should extend our mandate. I’m not saying this. We don’t need to extend our mandate. But within our mandate, if really we want to look at the region in terms of growth, then we have to take into account the fact that what could be destabilizing for growth is not only the situation of the banks, the inflation, the asset bubble, the fiscal deficit, the current account deficit, but also things that have to do with the distributional effect. And that’s clearly seen these days in Tunisia and Egypt and in other countries where the situation is not as difficult, but looks a bit alike.

So that’s why I made the speech explaining that I was convinced for long that this crisis would have to change the way the Fund is working in terms of rethinking macro-economy. And there’s a lot of fields, domains in which we need to rethink the traditional view we have of macro-economy.

But what has shown the recent events, beyond the question of macro-economy, is that inclusive growth was certainly the only way to look at growth in the medium term. And so not only do we need to rethink the traditional macro economy in terms of interest rate and financial sector and all this kind of thing, but also we have to rethink in a way that non-inclusive growth is certainly not a guarantee for stability.

And finally, what is the mandate of an institution like ours? It is economic and financial stability. So to provide and to help countries in our membership to go towards more economic stability, and then we certainly need -- again using the expertise of others. We’re not going to transform economists in the IMF and specialists, sociologists, or specialists of the political situation of the different countries which is not our expertise. But others do that and we have to cooperate with other institutions to be able to take this into account in our analysis.

Because the forecast, the economic forecast, we had for Egypt or for Tunisia or for others as we could have put them in the paper six months ago would certainly be different now because things have happened. So we should be able to take this into account, even if, of course, the probability of events like this is always very difficult to assess.

Bottom line, I understand. I’m used to it, but I still argue that it is unfair to say that any kind of responsibility of the policy advice from the IMF in what’s happening because it’s not always the case. Sometimes we may be wrong, everybody, but in this case we weren’t wrong. What has been done, really delivered rather high growth and satisfactory current account and satisfactory fiscal situation in those countries. The problem is, that’s not enough. That’s not enough. And so we certainly need to change all this. So I told you 10 minutes ago that I say this with some humility because it’s true. It’s true.

What we learn is that the role of the Fund that has been defined for decades, looking only, you know, at very simple indicators -- growth, inflation, two or three kinds of deficit, some time unemployment as an average, but global unemployment which was linked to growth, but not the discretional effect, -- this way of looking at things is behind us, and we learned a lot about this.

So, this criticism, why didn’t you do this before, is fair. It’s relevant to say that we should have done this before we understood it, but, okay. But the fact the policy advice that we gave these countries hadn’t worked, that’s unfair, because it has worked.

But we should, and we’re going to do this in the future because we certainly learned from this and the institution is changing every day. We’re going to invest more in being able to warn government and give advice. And not only this, but also push more in terms of inclusive growth.

One more point. There is one part of what we already did, probably not enough, but what we already did, which is close to what we are discussing now, which is governance. And many of our programs already had some condition, constraint, advice, call it the way you want, where we tried to improve governance. Probably not enough, again, the same remarks apply. But I have in mind some program we have with some countries in Sub-Saharan Africa, for instance, where a condition to the program was to put in place a public committee on public procurement, new rules for public expenditures, all kinds of things to improve institutions, to improve good governance. So, we did it already, but we have certainly to do it more, because institutions are important. The fact that democratic and transparent institution work is one guarantee, it’s not enough, but it’s part of what is needed to have the system working correctly.

SPEAKER: Thank you. Mina if you would like to ask a question, then please do.

SPEAKER: Thank you so much. Mina Al-Oraibi with Asharq Al Awsat. I just wanted to follow up from the last question in terms of what indicators will be used to assess how a country’s economy is doing going beyond the macroeconomics. I mean, are you going to be implementing these changes or have you already tried implementing these changes in terms of “creating with others,” other institutions, and assess the economic situations in countries like those in other regions?

MR. STRAUSS-KAHN: Okay. No, I think it’s a very good point because the traditional macroeconomic or macro-financial indicators are rather simple to define. The way the society receives what’s happening and the distributional effect always, in economic theory, has been a part which has been much more difficult to analyze and to measure because the interference with human behavior, perception is more important than when you look at dry figures of increase in inflation or increase in growth. But that’s why I say we are not specialists in this.

But there are many, including at the World Bank, and we’re always working very closely with the World Bank, but not only the World Bank, there are other UN agencies, the NGOs which have worked -- done a lot of work on that. So there are many, many ways to do it and to try to include this kind of assessment and the view we have of what’s happening in different countries.

We are going to try to do it. Of course, we’ll be tentative at the beginning and we certainly will go as we’ll be learning by doing process, but we are going as soon as tomorrow morning begin to try to use more information in the Article IV. You know, Article IV is the name of the report we make every year. It has the role of the surveillance of the economies of the different countries. Already we have included in the last years more about unemployment and this kind of thing, but it was obviously not enough. And we are going to do it in a more systematic way and, as you say, try to define some useful indicators that will make us more able to have a correct assessment of the situation. But that’s really a work in progress.

MS. ATKINSON: Okay, thank you. Maybe just one last question.

SPEAKER: I wanted to follow up on Syria, if you don’t mind. Have they made -- I mean, at least over the last 10 years of -- under Bashar al-Assad, have they made any real progress? Are they in a position to receive advice and to make changes that they need? The system is not very known in Syria to be very open.

MR. STRAUSS-KAHN: Well, you know, that’s the general problem of the IMF. We provide advice and then the question is, who wants to listen to the advice? And the more our advice is tough -- well, I won’t say tough advice, but at least our view is -- includes some criticism, the less the governments want to listen to us. And when a country has big troubles and is asking for financial support, then, of course, we have more leverage, but when countries don’t need support, or at least doesn’t ask for any kind of support of the IMF, our role is only -- is limited to giving -- gives advice. The other part of the role is that it’s a multilateral institution so there may be some kind of peer pressure because when something is saved by the IMF, it’s, in fact, saved by the board of the IMF and the board of the IMF is representing the 187 members of the institution. So it’s all the peers who are saying to a country you should do this, you shouldn’t do that because this is dangerous. But at the end, when a country doesn’t want to listen to for many reasons, which may be that they don’t want to listen to anybody, then we don’t have a lot of way to enforce it. That’s the general problem of a multilateral institution. If you want to transform the IMF into the kind of dictator of the world economy, I can’t agree, but that’s not the case today.

So, there is no way for us to have a government listen to us when it doesn’t want. But when really he needs us, then, of course, the situation is different.

SPEAKER: Do the Syrians want to listen to you?

MR. STRAUSS-KAHN: Well, I think that owing to the recent developments in the region, the different governments are more likely to be willing to listen to us than they were before.

SPEAKER: Do you have any fears that there is perhaps a far left movement coming through these revolutions that want more, perhaps, closed economies? I mean, there have been a lot of pictures of Guevara there.

MR. STRAUSS-KAHN: Good question. Good question. There’s always this risk, but I’m not sure it will materialize.

Look, during the global financial crisis we went just through, at the beginning many were afraid of the possibility of an increase in protectionism. It didn’t happen. Why? Because, I think, that most governments, maybe not all of them, but most governments and most people, man on the street, have understood that there was no good solution in this direction. I’m not saying that everybody agrees with this, but most had understood that the closed economy were not the way to benefit from global growth and certainly from investment. And we’re in a globalized world, so there is no domestic solution.

Even China has understood during the last years that it was in its own interest to have a more open economy. It’s going to take time, but they are in this direction. So, when an economy is much smaller than the Chinese economy, then the idea that you can find your own solution on your own is -- certainly is wrong, but which is more and more understood. So, the risk you are mentioning does exist, of course, but I’m not sure that the worst will happen.

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