Transcript

Transcript of a Press Briefing by International Monetary Fund Managing Director Dominique Strauss-Kahn with First Deputy Managing Director John Lipsky and External Relations Director Caroline Atkinson

April 23, 2009

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MS. ATKINSON: Good morning. Welcome to everybody to the IMF.

We're just beginning our spring meetings, and there will be a number of news events going forward. We have already had the GFSR on Tuesday, and the WEO yesterday.

On my right is Mr. Dominique Strauss-Kahn, Managing Director of the IMF, and to his right, John Lipsky, the First Deputy Managing Director.

This is an on-the-record, live press briefing. The Managing Director will begin with some remarks accompanied by graphics. Then we'll turn to your questions.

I want to let you know, also, that the Managing Director will be speaking this afternoon at 1:30. We expect to post that speech ahead of time under embargo and to distribute copies in the pressroom.

MANAGING DIRECTOR: Thank you, Caroline. Hello everybody. Before starting this press conference, I would like to just use a couple of seconds to pay tribute to Eddie George. He passed away last weekend. He was a great governor of the Bank of England. I just wanted to pay tribute in front of you.

We are now beginning the spring meetings, and basically have three messages for this press conference.

The first one is, despite some red lights and some green lights, despite a mixed situation, our belief is that the crisis is far from over. And, of course, the different things which have been undertaken, especially economic policies, action concerning stimulus and others, I will elaborate a little more on this later, give some results and that is why we begin to find some green light. But nevertheless, we have still long months of economic distress in front of us.

What is the current situation? You know it. As Ms. Atkinson just said the day before yesterday the GFSR has been released, and yesterday the WEO, by Mr. Viñals for the first one and Mr. Blanchard for the second one.

So, a lot has already been said. I don't want to elaborate too much. I think the two important figures are the following: From the GFSR, $2.8 trillion. I have seen in most of the newspapers, on the wires, and the TV, you are making headlines on the 4 trillion figure. But in fact, I really believe the 2.8 is more important. Why? The 2.8 figure is a figure in a time series. We started one year ago with $1 trillion expected as possible losses, and difficulties coming from the subprime market and these figures increased to 1.4 [trillion] in October, 2.4 [trillion] in January, now to 2.8 [trillion]. What is important is this increase, even if the increase is slowing down, from 2.4 in January to 2.8 today, which is part of the good news. The 4 trillion figure is extending this measurement to the rest of the world, so it is not directly comparable to anything, and that is why I do believe that the 2.8 is more significant and more important than the 4.

The second figure, which is interesting, is in the WEO, our outlook for global growth, which shows a shrinking in the global economy of 1.3 percent for this year.

The reason why I think it is very important, first, because it is worse than what we have had before. But, also, because I want to make a few comments about the fact that forecasts are changing every day, and you may ask why we can be confident in these forecasts when every month we have a new forecasts. The fact is that those forecasts are changing very rapidly because the data are changing very rapidly. And when we have new data, we have to take account of this new data, and because those new data are worse than expected, it has as a result that the overall forecast is deteriorating.

So, it is not that the forecasts are not accurate enough. It is the fact that the global economy is going very fast. News is coming very rapidly. And so, when you have new news, you need to take it into account. I don't have to explain to people like you that new news is important.

For instance, let's look at the last available information that we have to take into account. I would like to have the first slide to show you something.

This is a look at the previous crises. In the different previous crises, the average of the previous crises, we figured the import demand from advanced economies, plus China. And you see that in the box on the left-hand bottom of the chart that finally, even during this crisis, the import volume by those big economies still remained high, above average. So we have the crisis, it was a time of crisis that the average of the crisis between 1980 and 2007, but even in this crisis, trade was decreasing sometime, but not that much.

Now, when you look at the same chart for this crisis, the next one, we are all in the blue.

The blue being the cold. What does that mean? That means that in this crisis, exports from this one, imports from the others, decreased a lot and this collapse in trade is bad news, and rather recent news. So, we have to take into account this kind of new news to make our forecasts and that is one of the reasons why every two months or so we have a new set of forecasts.

So, a lot has been said on Tuesday and Wednesday about those forecasts. Not going to comment so much. The good news is that we still believe that recovery can take place in the first semester of 2010. We didn't change our view on this. We have been saying this for months, and are still on this forecast.

Of course, there are some ifs. Recovery can take place in the first semester of 2010 if. What are the ifs? The ifs are mainly related to the policies which are implemented. Mostly two important policies for all economies. And then I will comment a bit later concerning more emerging economies.

The two big policies which are a concern, the first one, as you know, is the fiscal stimulus.

Now, we are at a point when the average fiscal stimulus represents the 2 percent of the global economy that we asked for; so I'm pleased to see that what has been asked by the IMF has been done. And, moreover, I am pleased to see that it shows, as did the last G-20 meeting in London, a very big and very new economic international cooperation.

From this point of view, a lot has been said that there was a lack of coordination or this kind of thing, which is true. It could be better coordination. Even better coordination. But, I want to underline the fact that it is the first time in history that following the request by a multilateral organization like the IMF, all the countries having some fiscal room did go in the same direction at the same time. And, our Research Department said that almost one-third of the total effect of the stimulus packages comes from the fact that it has been coordinated and that it took place at the same time.

So, for 2009 I think that the effort we have been asking for has been delivered. We will see what is needed for 2010. Of course, it depends on a lot of things and the way the global economy is going to act and to behave in the coming months. There may be a need for more, or not. We will see for 2009 whether what has been done is in line with what we asked for.

Some may ask, okay, but when you define your program in some program countries like Ukraine, Hungary, Iceland, Pakistan, some others, it was six months ago, and six months ago the view of the global economy was not as bad as it is today. So, if it is true that all those programs have been calibrated with a view to the global economy, because the situation in the global economy has worsened, what are the consequences of the program? Of course, there are some. And that is why we are now in the process of relaxing our constraints on the fiscal stance for those countries, because they are facing a global environment which is not, I won't say not as good, even worse than the one which we had in mind six months ago.

A staff paper has been posted this morning on the website, and you can find it, explaining the way for emerging economies, we consider that some relaxing in the fiscal policy can be implemented.

So that is my first message: The crisis is far from over.

We can still find grounds for a recovery in the first half of 2010. It relies a lot upon the policies implemented as far as the fiscal policy stimulus is concerned. What has been done is in line with what we asked for.

As far as the second policy is concerned, which is the cleansing of the financial sector, we are far from what we need. I won't say that nothing has been done. It would be unfair. Already a lot has been done. Not enough. Not enough, in all advanced economies, because it concerns mostly advanced economies, and especially the U.S. and the European Union. And, also, slightly, not as much as the U.S. and European countries, it is true for Japan. More U.S. and the European Union. Let's say European countries, because I'm saying European Union, I forget Switzerland which is of course a big part of it.

A lot has been done. Even more has been said.

I was very much impressed during the G-20 meeting in London one month ago by the commitments by heads of states and governments. They were all very well briefed on this question, saying, yes, we know what we need to do now is the cleansing of the balance sheet. That's fine. Going back home, it is difficult to implement, for political reasons, I can understand. And also for technical reasons. And the resulting effect is, it is moving, but not moving fast enough. I want to say this to you with some gravity: All the experience we have of past banking crisis, and we have a lot of experience with those banking crises in this institution, is that you never recover before you completed the cleaning up of the balance sheet of the financial sector.

You can postpone it. At the same time, you postpone the recovery. And, the recovery in 2010 relies a lot upon the effort which still has to be made in this domain.

So, I'm again asking on the eve of the Spring meetings for more efforts in this direction.

I don't underestimate the difficulties of the task. But the fact that the task is difficult doesn't make it any less necessary. And, everybody has to keep in mind that as long as the credit flows will not resume, as long as the financial sector will stay frozen, recovery, real recovery will not be possible. We may have some good news sometimes, and then a few weeks, few months later we will see that those green lights of good news were just temporary.

So, that is the important thing on which I want to make the first point.

The second point, the second message is that during this period I do believe that the IMF did deliver. First, as a firefighter, which in a crisis is our biggest role. And on the financing front, I think the IMF provided the resources needed by the different countries. I have a slide to demonstrate this.

Look here, you have what was the outflow in the 1998 Asian crisis, the outflow almost the same. In the 2002 crisis, Latin American crisis, and then, of course, it dropped a lot, because 2006 as well as 2007, or 2005, are years in which very small amounts of loans have been implemented. And, then, you have the situation today, with two parts. One, in yellow is the traditional lending, the traditional programs. Hungary, Latvia, as I said before, Hungary, Pakistan, others, and the orange one is the new facility we just lunched a month ago, for which we now have three countries being interested in, Mexico, Poland, and Colombia. And I believe that there are still others to come.

We are ready, committed for amounts which are twice as big as the climax of the previous crisis. In this respect, I think we can say that the IMF is playing its role, and of course that is the rationale for the tripling of the resources, which has been decided at the G-20, because our resources have to come from the different central banks. And so if we have to lend more, we need to have more resources.

You may ask where we are in this respect, that the plan was a $500 billion increase in our resources. And, I must say we're not exactly at the 500 billion yet, so far. But, I'm confident that this amount will be reached before the end of this year, which is also the plan. We already have a lot of pledges. And, I believe that during the spring meetings some new ones may come. So, rather rapidly we will reach the amount which has been collectively decided.

On top of that, you remember that maybe one of the surprises of the G-20 meeting was the announcement of an issuance of an allocation of SDR for $250 billion. We're working on that. That is a huge decision, not only because it will provide countries with $250 billion of liquidity, especially countries in need, low-income countries, emerging countries, for instance for Africa, the amount will be something like $19 billion, compared to the need which during the Tanzania conference, one and-a-half months ago, I defined as being something around $25 billion.

You see that a lot can be done through this SDR allocation. So, that is a very important thing. As a liquidity instrument. It is also very important in terms of symbolism, because it is a symbol that countries, our membership believes in multilateralism, and I see this increase in SDR more as a commitment to multilateralism, but even then a financing need by itself. It is more than the 250 billion that which represents much more than the billions themselves.

At the same time, to deliver this, the IMF had to change not only the amount available, but also the facilities, the way to use it. And the two big changes already took place, three big changes.

The first one is the FCL [Flexible Credit Line]. I said a word about that already. This is a new facility that appears as a kind of insurance for the countries, where they're not obliged to draw. They just take it as an insurance. And it has been very well received by the markets reacting correctly to the idea of this instrument in the three cases: Mexico, Poland, and Colombia. And also by the public opinion in these countries, which shows that part of the stigma to deal with the IMF is gone. I say only part of the stigma, but it is a beginning. And, this instrument appears as something really helpful for the countries. This relies on previous conditionality, which means that only countries having a good track record can use it, but no post conditionality, which means we agree with the country that the only thing we ask them is to go on with the policies in place, not to change their policy.

The other big change, which is going to be posted on the website of the Fund today, already done, is the doubling in the access limits. You know that for each of our facilities we have an access limit which defines how much in terms of quota a country may borrow, and because of the needs the Board decided to double this access limit, not only for emerging countries, but also for low-income countries. It is a big change because it means that the way we will be able to help our membership just multiplied by two. So, we have the resources and now we have the tool to do it. And that will be the way to channel the $6 billion for low-income countries we are committed to find following the London communiqué, in connection with the sale of gold we have, and consistently with our new income model. So, this work on the low-income countries, which is very important for me, and we really are committed to deliver on, is something which needed to have an increase in the access limits, because there is no need to have extra money to use for those countries if at the same time individually, country by country, you have a ceiling which makes it impossible to lend enough money. Now, by this doubling of the access limit we really have room to help the membership. We are discussing in a different way to do it. I had this morning with my friend Mr. Geldof a very long discussion on this thing, because he is very much interested in funding and financing the low-income countries. We are going forward and are confident that here, again, in the coming weeks all the system will be in place.

And then the third thing, I said three changes. One was the FCL, the second the doubling of the access, and the third thing is the change in conditionality. And that is also something very important for the Fund that finally -- conditionality is very important, because there is no way to lend money without making it work, and having the correct policies in place in the country, but I insisted, and now the Fund is working in such a way, that we are focusing on core conditionality: What is needed to fix the problem of the country, not spending too much time on things which may be good for the country, but have nothing really to do with the problem at stake. Same thing for what I quoted, and I already said a word to you about that, on social conditionality, which aims to take into account the most vulnerable part of the population when an adjustment is necessary, and to define a program with countries so that we take to the poorest part of the population and spend extra money in their direction so that programs will be possible to implement without too many problems for this part of the population.

So I really believe that we can do more. We will do more. But, in our role of firefighter, which in a crisis is the main role we need to fulfill, we did what we had to do.

The third message has to do with one of the very important points in the G-20 communiqué in London, which is the request by the heads of state and governments for the Fund to have more and more a candid surveillance process, evenhanded surveillance process, and to give advice to provide early warnings in really a frank way so that it could be useful for the membership.

So, we are working on that. We are working on a new kind of early warnings. We are prepared to provide our membership with new information, and that is very important, to try to have a view of the future, not only growth forecasts country by country, but an appraisal of the risks in some regions, some parts of the world. Can be central Europe. Can be Central Asia. Can be South America. Can be some parts of Asia. Where the complexity of the global economy, and the very strong and new linkages between the different countries, means that surveillance cannot be only business as usual, meaning bilateral surveillance from the Fund with a specific country. Has to take into account the links between these countries and the countries around it.

Of course, the early warning exercise means that we have to be ready for naming and shaming, and say when things are not going well. If not, it is useless. So, in this request by the G-20, we have three steps, and I would end with this:

The first is just for now, we have to make more effort to be more effective in this surveillance. The one is for tomorrow where we have to define, to find out what can be the risk and the downside risk, and that is the goal for the exercise of early warning. The first real exercise will take place in Istanbul, but we already have a methodology and will discuss this methodology with the membership. Of course, the third medium-term goal is that at the same time we need to tell our membership that we were asking for the fiscal stimulus. So we're not backing off, but fiscal stimulus is one thing, but we said, since the beginning, and we are even more insisting today, that this has to be put in a medium-term framework, to take into account fiscal consolidation in the medium term.

I want to show the last chart that has been prepared.

On the right-hand side, you see at the global levels, of course, the ratio of debt over GDP will go increasing, which is in line with the fiscal stimulus. The yellow is the WEO baseline. But, of course, if growth is not as big as or even lower than what we expect, then this ratio will increase even more. And that is the upper part of the figure. This shows that the concern about long-term debt sustainability has to be kept in mind, and that we are totally in favor. We have been at the roots of the fiscal stimulus, but that does not mean that we're not concerned with long-term questions.

On the left, on the left of this slide, you see that for some countries sovereign spreads have risen really high, really in an important way. And some countries, here, show that they're more concerned than others. And that is the reason why we cannot go on just looking at the effects of the stimulus without looking at the consequences of the debt level and confidence.

So, all this is a very important thing for me. Early warnings, giving good advice, seeing what are the risks for tomorrow, and at the same time giving the governments the guidelines to what they should do to avoid problems in the coming years.

And, the problem that you must have in mind is that on a rational basis, everybody is asking for this kind of advice and early warnings. But when you are a government, you don't like so much that the multilateral institutions come and say you will have problems in two years, you should take care; or, you already have a problem today, you didn't do enough. So, the kind of contradiction between the intellectual wisdom of the leaders who asked for this kind of exercise, and the fact that they're sometime a little upset when we say the truth. That is our role, though. I really believe that the role of this institution is to say the truth, as much as we are able to find it, in an evenhanded way, but also in a candid way, and so we will do this in the coming months.

This is the reason why, and this is my last word, is why the institution is really changing. You have read in one of your papers, one of your magazines a week ago, two weeks ago, about “IMF 2.0,” which is a formulation I like. My only concern is that “IMF 2.0” is too little. We are going to work on IMF 3.0 because we still have a lot of things to change and adapt to be really useful to our membership.

Thank you. So now I'm prepared to answer your questions with the help of John.

QUESTION: Thank you, Mr. Strauss-Kahn. I have two questions. The first, interesting that you put China along with advanced economies for this import sources. In that chart do you suggest that China is converting, let's say, its import demand from the re-export to its own demand? And also, do you think that China is going from its own demand, is going to lead the Asian countries out of this crisis?

My second question is, how are the negotiations, discussions about these $500 billion new resources going? Is it true that like Mr. Gordon Brown said, China is going to contribute $40 billion?

MR. STRAUSS-KAHN: On the first part of the question, the reason why China is on this chart is because China is a big importer. It is also a big exporter, as everybody knows. Sometimes complaining. But, it is a big importer. And so, the effect of the level of imports in China on the global economy is very important. And the slowdown in China's growth, as in other countries, has in effect a very deep slowdown in the imports, and the effect on the world economy is important. It is more the size of China's imports which are important in this chart.

So it has no direct, I won't draw any kind of consequences on the question of the role of China in Asia and the way China will help, or not, the Asian part of the world to get out of the crisis. It is a global crisis. There is no way for Asia to get out of the crisis without the rest of the world getting out of the crisis. That is why we need a global view, and in this global view, certainly, the Chinese economy today plays a big role.

On your second question, you better ask the Chinese authorities. I have some pledges by different countries which have been announced officially. And, I have some discussions with other countries, but until those discussions will be completed, I won't make any comment about that.

QUESTION: Thank you, sir. It was a great overview you have given on the global economic crisis. This year it is different when we met last year as far as the economic crisis is concerned. My question is different than we had last year. Many demonstrations took place last year and every year people are asking the IMF and World Bank, the money you lend to the countries doesn't always end up with the people, but always goes with the politicians and corrupt ministers, and all that. But, also, at the same time, you provide money for the -- lend money for projects which never get completed. What kind of accountability do you think you have in the future role changing, before when we had all the kings and dictators, all that. At the same time, as far as India is concerned, what kind of accountability you have or where India is leading as far as the World Bank, is one of the major lenders you have now?

MR. STRAUSS-KAHN: That is a difficult question.

On the first one, you are right in saying that our borrowers are sovereign borrowers, countries. And we don't deal with the borrowing to corporate or even less to households. It doesn't mean that the people, the man in the street is not interested in what we lend to the country. Of course, there may be in different countries a problem of governance and the way this money is used in the country, a big concern.

So that is always a very difficult question. Because on the one hand we may say, in this country, the system is such that if we lend to this country, it will be useless just because the money will go, no one exactly knows, but not where it should go. So we shouldn't do it. On the other hand, if we don't help the people of this country to be better off [that is an issue]., So what we do is that as long as we have a member which is still a member of the IMF, working with the IMF, we act and behave with this member in a normal way. It happens sometimes that for different reasons, which are linked, for instance, to interest or loans which are not repaid, things like that, we freeze our relationships with some countries, as in the case of Zimbabwe, and I hope that in the coming week it will be possible to unwind what has been the situation which has been created in the past. But, besides this case, and we know the world is not perfect, but we have already enough to do with our own jobs, so we can't at the same time fix the democratic problem in all the countries.

QUESTION: What is the major cause of the global crisis? Did it start in the U.S., or elsewhere in the world?

MR. STRAUSS-KAHN: We already discussed about this question a lot in this room. Yes, it started certainly in the U.S., but now it is all across the world and it is no longer only a U.S. crisis.

Really, the important thing, and I say to all of you, because it is a question that may arise often, is that our relationship, our only relationship, is with countries. We are sometimes asked to directly have intervention to rescue some banks, or things like that. That is not directly our job.

QUESTION: Couple of days ago when reports of financial affairs was presented, the IMF staff mentioned that probably the most important article for those reforms and all the stimulus programs was in the political arena. So, will you please comment on that?

MR. STRAUSS-KAHN: I can, but John can do it even better than I do, because he knows Mexico better than I do.

MR. LIPSKY: We are very happy that Mexico was able to be the pioneer in using our new FCL that as the Managing Director has explained, and as you know, for countries that have strong fundamentals, strong policies and track record of good policy implementation, the FCL, as we explained, provides an insurance policy that should provide greater confidence in the ability of our strong member countries to follow policies that will build, help support the economy, and help calm markets. And, that should give our member countries, like Mexico, the ability to strengthen their policies, and hopefully that will be a great service to the eligible members.

QUESTION: Can you tell us, Mr. Strauss-Kahn, what are the issues on your agenda over this weekend in the meeting with the Chinese leadership? And also, when will you complete the allocation of SDR? Can you give us a timeline?

MR. STRAUSS-KAHN: On the second question, we are working on that. There hasn't been an allocation of SDRs since, for 25 years, something like that. So even less people in this institution have a memory of that. So, there is a lot of work to do. It is something totally -- rather, not totally, but almost new. And, it will have a big influence on what is going on. So, I believe that the coming weeks will be the right time to do so. There will be a discussion during the IMFC lunch on Saturday on this point. We have to explain to our membership exactly what it means, how they can use it, and then the issuance will go on following this process. In some countries, there will be probably a need of some parliamentary approval, so it may delay a little. Out of our control. But, I think the process will go rather fast.

On China, we are discussing a lot with the Chinese authorities on the question which has been mentioned before, which is the contribution to the resources of the Fund. But, also, in going back to the normal surveillance process with China, and I do believe that we can probably resume the normal course of things in the coming weeks, with normal Article IV reviews and having China back in the mainstream.

QUESTION: My question is, there was a previous study about the impact of this crisis in Mexico to determine the amount of the FCL. And also, do you think the measures of President Obama have been enough to accelerate somehow the recovery of this crisis?

MR. STRAUSS-KAHN: Well, there have been a lot of studies by staff to define with the Mexican authorities what is the right level of the FCL. The figures which have been finally decided, I think, are exactly in the middle the range, which was the useful one. And, what I am very much impressed with, and happy with, is that finally, it has been well received, not only by markets, but also by the public opinion, at least the part of the public opinion interested in those questions, in all the questions. True for Mexico, true for Poland, true for Colombia.

Now, I won't comment here, President Obama's declaration, but I think it is the role of leaders to try to restore confidence, and I think that in this country, as in other countries, it is well done.

QUESTION: Let me refer to two points you made in your presentation. The first is, you spoke of your concern with risk and the collapse of the financial community, which is leading to some of the economic problems we now have.

Question I raised before has to do with the derivative markets. The IMF, we see, very concerned with currencies, with so many markets. Will the IMF be taking a stronger stance in terms of monitoring, reporting on, and trying to at least offer positions in regard to the control of the derivative markets?

And final question, your forecast made it clear that not just the IMF, but the entire economic world, is still having great difficulties to put it mildly, when it comes to economic forecasts, and how quickly they can change. Would you not admit that in fact it is so difficult to forecast economic activity that we're all still guessing what is to take place in the coming years?

MR. STRAUSS-KAHN: Let me say a few words on the second question. John will answer the first one.

Of course it is difficult. You know what Keynes said, "Forecasting is difficult, especially if you are talking about the future."

It is even more difficult in this kind of time. The question is, is this useful or not that is the only question? I think it is very useful. Very much. I think the forecasts we had exactly one year ago, which were already pessimistic, and seen by all as pessimistic by many of our members, finally rang the bell and made it clear that the world was becoming, the global economy was starting to have a big problem. And certainly it was part of, not the only reason, but part of the reason which makes the countries come to the fiscal stimulus we asked for.

Were those forecasts one year ago accurate or not? They were as accurate as possible at the time. The problem was, they were showing that things were unraveling, at least deteriorating, and from this point of view they were useful. Today, the same thing. The best forecast we may have today for the global economy in 2009 is minus 1.3. Will it be minus 1.3? Maybe, maybe not. We may have to improve it if the right policies are put in place. It may be worse if these policies are not put in place. The medium term, the medium situation, the best forecast we can have is this one.

What is important is to show that each and every data which comes in shows that things are not going better. On the contrary, they're going worse. Some information shows improvement, but rather few of them. And so, I think it is useful to show this.

I don't know if you attended the WEO presentation yesterday, where Mr. Blanchard certainly explained that we see two kinds of forces at work. One is going down, which is the consequences of the very bad end of 2008. Fourth quarter in 2008 was very bad and all the Canadian effect from this fall along the cliff at the end of 2008 are still at work and that is the reason why we bad results in trade, things like this.

At the same time, the different plan which has been launched, mainly the fiscal stimulus, gives some beginning of results and that pushes up the forecast. And the balance between the two. The balance may change. We hope the balance will change. If it works as we expect, the balance change, and therefore, the force pushing upward will be stronger than the forces pushing downwards. Then we will have new forecasts. But at the point in time, that is the best forecast we have.

MR. LIPSKY: With regard to derivatives, let's take this in a broader perspective. What have been the sources of the problems from the financial side? There have been many. But, you can collapse them, I think, into three.

First, market failures. One, the failure of shareholder

discipline over management in many financial institutions.

Second, the failure of professional, institutional investors to carry out their fiduciary responsibilities to their clients, by investing in sophisticated and complex instruments that they palpably did not understand on the basis of third party advice. Those are market failures.

In addition, there are broad problems of regulatory, supervisory and legal failures, and we have characterized them in two ways. One, that the perimeter of regulation has been poorly drawn, such that some important risks were put out of the view of regulation. And in fact, in some cases it seems not only out of the view of regulators, but perhaps management themselves may have lost sight of the risks they were taking.

Second, we said there has to be a macro-prudential aspect to financial regulation. It can't be just about instruments. It can't be just about institutions, but also has to take into account systemic effects and the economic cycle.

This view has been supported, for example, by the recent G-20 leaders’ summit explicitly. And, as you know, the Financial Stability Forum has now been expanded to the Financial Stability Board with new members. We are an active member of that group.

We are not regulators. We are not supervisors. We do not hope to be. But, we participate actively with regulators and supervisors in forming new and adequate standards. And our role is going to be, from our membership, to oversee and monitor the implementation of these improvements that will improve not just the usefulness of derivative markets, but financial markets more broadly.

QUESTION: Do you think that countries like Brazil, Chile, and also Argentina, especially South America, can be the first which leave behind the crisis, because of some strong fundamentals? Because of higher commodity prices than the IMF predicted in the WEO published yesterday? And because they are not connected with states like Mexico and other Central America countries?

MR. STRAUSS-KAHN: Well, the forecasts we have for South America, different countries have different situations, but are in line, one with the other one. When you look at the biggest economy there, Brazil, Argentina, when you look also to smaller economies, but very well managed like Chile, for instance, you see that all the forecasts are all globally in line.

I think that recovery can take place. I already said this many months ago, in Latin America, rather rapidly, as soon as recovery will take place in the advanced economies. I mean, the beginning of the recovery has to come from the United States, and will come from the United States. But then, it can follow very rapidly in countries like the ones you were mentioning, because the banking system has not been hit so much by the crisis. They have been hit by the slowdown in the global economy, by the sudden stop in capital inflows, but the banking system is in rather good shape. And so as soon as growth will recover in the rest of the world, they will take advantage of this. All this is very uncertain, of course, but I believe that the situation in Latin America as a whole, South America especially, is not the worst on the planet. The forecast we have for Brazil is minus 1.3, which of course is minus, but there is a global contraction, but not so big. So, we can expect that if, as I mentioned before, global recovery begins to take place in the first semester of 2010, it would also be the case in this part of the world.

QUESTION: Going back to Europe, talking about former communist countries, southeast of Europe. Hungary, Romania, Serbia, they already asked for money. The Republic of Croatia didn't. Is it for political reasons or Croatia really doesn't need help? Can you say a few words about that part of the world?

MR. LIPSKY: Thank you. As you mentioned, I think there are two broad points. You asked a very specific question about Croatia. Croatia is a member that we have very close contact with and we're, of course, in active discussion about financial policy. And if it is appropriate and the country desires, we will be happy to engage in closer discussions about potential support. Again, if it seems appropriate.

Let me make one broader point, which is, of course, that the region, Eastern European region, has been broadly affected by the crisis. They have relied heavily on capital flows, as the Fund has been pointing out for several years, that this created a potential vulnerability in the case of a sudden stop of capital inflows regardless of the policies being followed in those countries. That sudden stop is affecting these countries very much. We are working very closely across the region for a consistent and coherent approach that will help address the problems in that region, where the interactions, both internally in the region and back to Western Europe and the world at large, are of great importance.

MS. ATKINSON: Thank you very much. Indeed, just to remind you that there will be a speech later on.