Transcript

Transcript of a Press Conference by IMF Managing Director Rodrigo de Rato with Thomas C. Dawson, Director, External Relations Department

December 14, 2005

MR. DAWSON: Good morning, ladies and gentlemen. Welcome to this on-the-record live press conference with the Managing Director of the IMF, Rodrigo de Rato. Mr. de Rato will have an opening statement, and then we will be happy to take questions from you. And I would ask as usual that you identify yourself and your organization when identified to ask a question. Thank you.

MR. DE RATO: Thank you, Tom. Good morning. Thank you for being here. This is the first of some regular briefings that I will give at the end of every six months. The intention is to be able to provide you with an analysis of how we see things going on in the global economy and also regarding the work of the Fund, to enhance the transparency of the institution. And at the same time give you insights of our views of what we see looking forward also in terms of the global economy and the work of the institution.

To start today, December 2005, my main message is that we see a great opportunities for countries all over the world at this moment. The outlook of the global economy has improved since September in our world economic outlook, and we now think that global growth will be slightly stronger in 2005 and also in 2006 than we projected only three months ago. At the same time also, and this is a positive tone, growth has also become more broad-based with a modest pick-up in most industrial countries.

Talking about specific types of countries: emerging markets, the outlook is generally more favorable at the moment. There has been stronger than projected growth in some emerging market economies including China, and the news of the last few hours show clearly that that's a very important case. And spreads on emerging market debt are at historic lows. And also the news yesterday from Brazil shows how many countries are taking advantage of that. And emerging markets are also reaping the benefits of the reforms they made in the last few years. We can see that emerging market economies are certainly more resilient to shocks as we've seen all along this year. And this is a very important question, the fruits of growth are being enjoyed by more people. We see poverty rates falling in countries like India, Brazil and many others.

Regarding low-income countries, there is also a very strong opportunity. They too are beneficiaries of global growth and financial stability and low long-term interest rates, and certainly initiatives like the multilateral debt relief will free up resources and help them make progress toward the Millennium Development Goals.

We see risk, also, in the global economy. We see and the news yesterday showed that that's probably the case, that the United States may be nearing the end of the cycle of tightening policy interest rates, but rates in Europe and in other places have been raised recently. That clearly should suggest to policy makers that liquidity conditions will tighten around the world in the next few months.

Referring to oil prices, they are certainly below the peak we saw in the summer, but they certainly remain at very high levels, and our analysis is that they will continue to be around those levels. Global imbalances are large, even larger as the news this morning shows us, and policy responses in most countries have been at best tentative.

We have to be aware that although we are in a very positive situation with growth accelerating and inflation not being too strong around the world, markets can change very quickly. We saw that in September and that should show us that things can change, and so the opportunity has to be seized now.

In that respect, it is important that all countries take the opportunity afforded by growth in the world economy and in the regional areas, and certainly by the absence of crises, to long-term prospects. Many countries should not mistake that the benign conditions today are going to last forever. So this is a very important [time] to take the advantage of these benign conditions.

On global imbalances, let me say that there are significant risks from inaction, and we see that inaction is still the biggest part of what is happening, and at the same time there are certainly large payoffs from action. Regarding the United States, more ambitious fiscal adjustments will not only make an important contribution to global imbalances, but it certainly will restore room and give room of maneuver in future downturns and leave the U.S.'s fiscal system better placed to cope with the pressures of an aging population, and the debate about Social Security and the health system we believe should be addressed.

In the case of Europe, we are seeing, and we were one of the first to notice it, that the economies in Europe are picking up, although at a modest pace. But to promote better growth performance, that will have certainly a contribution to the global economy and certainly will help Europe address its own very important fiscal challenges regarding the aging of its population. To do that, they should reduce the rigidities prevailing in the labor, product and service markets, and certainly Europe should make a bigger effort to integrate itself, for instance, in the financial sector, but also in the service sector.

Regarding emerging Asia, we certainly see that there is a great scope for greater exchange rate flexibility and increased domestic demand. In that respect, I hope that the authorities in China will take advantage of the flexibility afforded by the new arrangements, and then other Asian countries that bring along more flexibility in their exchange rates will continue to do so to their own advantage. But certainly you also see the need in Asia for structural reforms to deepen the region's capacity to grow, and in that respect, to foster domestic demand in many countries in investment, and specifically in China, in private consumption.

We see that the role of the institutions of the Fund in promoting dialogue and coordinating action to reduce these imbalances is key. In that respect, we are inviting policy makers and academics to a Conference on Global Imbalances to be held here at our headquarters before the Spring Meetings, just a few days before or even a day before. At this meeting I hope that we will hear different views on the issue, and there are certainly very important views and some of them are contradictory, and doing that, to promote cooperative approaches to address the problem of global imbalances. The Fund as a global monetary institution is the place to tackle these issues, and I'm certainly looking forward to the work we're going to be doing preparing the conference and also to the conference itself.

Later in the year, in September, we will be in Asia in Singapore for the Annual Meetings, and I think that will be a very important time to review what we will be discussing in the spring in the United States in Washington. And at the same time also to concentrate on some specific issues like Asia integration, and I welcome all the recent political movements regarding Asian integration, and at the same time, other specific issues regarding our own governance like the quota issue.

But global imbalances while being a very important part of our work, is not our only work, and certainly let me now turn to emerging markets and the low-income countries.

As I said at the beginning of my statement, these countries have great opportunities in this current favorable climate. They need to keep up reform momentum—and reform has paid off specifically in emerging economies—and address remaining vulnerabilities including high debt ratios and large current account deficits in a number of countries.

Some oil-producing countries can take the actual opportunity of high income to invest in productive infrastructure and human capital, and we advising them to do so. And all oil-consuming countries, industrial, emerging market and low-income countries, should take measures to curb oil demand such as improving conservation and energy efficiency. In that respect, they should make consumers aware of the true price of oil, and in that respect, we've been advising all countries, but especially low-income countries and emerging economies, to contain high and indiscriminate subsidies which often give most benefits to the wealthy and lead to economic distortions, and translate them or change them and substitute them to direct social spending.

In this respect, talking about emerging economies, let me congratulate the Brazilian authorities for the big change that has happened in Brazil in the last few years. Yesterday Brazil announced its intention to make early repayment of its obligation to the Fund. We're talking about US$15 billion. And I, and I think the rest of the institution, welcome very much the decision, which reflects the growing strength of the Brazilian excellent position.

Yesterday when I heard the news I remembered the summer of 2002. It's not that far away. In the summer of 2002, I was Finance Minister of Spain and I received a phone call from the Managing Director of the Fund asking me my opinion about the financial package for Brazil. It was a very, very difficult decision for the Managing Director of the Fund at that time, Mr. Köhler, and my advice to him was to do it, but I understood perfectly his difficult position to make that decision. Many people at that time thought that that was the wrong decision. Reform and good macroeconomic policies have paid off for Brazil very, very substantially and in a very short period of time. Between the summer of 2002 and the winter of 2005, we see Brazil in a completely different position than we saw before, so this is a very important moment for Brazil, and I want to take the opportunity to congratulate not only the government and the previous government also, especially the Brazilian society, but it is also a very good example for emerging economies that reform can not pay off but can make very quick and positive results. And that if you also see not only the performance of the Brazilian economy but the effect on poverty reduction in Brazil, I think that that is a very good example of where emerging economies have to move in the future.

As we are meeting today here, trade discussions are continuing in Hong Kong. This is also a very important opportunity, and all countries have much to gain from a successful and substantive conclusion of this round. Some people may argue that bilateral trade agreements can substitute for multilateral agreements. I think they're wrong. A web of bilateral agreements is economically inefficient and very difficult for the private sector and for the business sector, and that certainly doesn't offer mechanisms for conflict resolution, and that is exactly what the multilateral trade agreement will contribute to, and I think that a return to managed trade would have been worse.

On the substance of the talks, agriculture should be at the top of the agenda, and we are convinced of that. Trade reform in agriculture, including reforms by developing countries, can produce great benefits, and I think the President of the World Bank has been very explicit in this respect, and I agree with him totally. But agriculture should not be the only item on the agenda, and it's not the only item on the agenda. Countries at every level of development have much more to gain than they have to lose from an agreement that covers agriculture, and tariffs on manufactured goods and services, and I hope that the time table for such an agreement will be decided in the next few days in Hong Kong.

Let me now talk briefly about our initiatives for low-income countries, and especially the Multilateral Debt Relief Initiative. We have been working, and I want to thank staff for very excellent work in this respect, on this issue since the proposal was first made at the beginning of June. We are now at the point six months later where we have done most of the work inside our institution so that the International Monetary Fund will be able to deliver debt relief to a large number of countries at the start of the New Year, starting in about three or four weeks.

The relief from debt owed to the Fund, amounting to about US$3.6 billion beyond that [of] the initial HIPC Initiative, will free up resources that governments can use to help meet the Millennium Development Goals, and the experience of the HIPC Initiative shows clearly that this is the case. So we're doing a very important initiative.

Right now, what remains to make the initiative fully effective is to obtain by the end of December, consensus from the bilateral contributors to use the resources [of the PRGF Trust] to partly finance it, and we're working on this. Also this year the Fund has put in place the Policy Support Instrument and the Exogenous Shocks Facility. Those two initiatives add to the tool kit of instruments from which low-income countries can choose their desired form of engagement with us. But I'm focusing on the implementation of the multilateral debt relief today because it is something that we are very pleased to have been able to accomplish this year, and we think that it will be a big help to some of the poorest countries in the world.

Now let me talk about us, about the Fund, and what will be our most important work of the next few months. We are working on implementing the Medium-Term Strategy. As you remember, I presented it to the Board of Governors in September and it contains a wide range of elements. Right now we are taking the steps to sharpen the focus of our surveillance including exchange rates, and to strengthen our oversight of financial sector developments. We plan to enhance our monitoring of emerging market economy vulnerabilities to crises, and we are considering again the possible role of Fund financing commitments in crisis prevention.

Another part of the Medium-Term Strategy is to streamline some of the work we do, and also to deepen other areas of our work on low-income countries to help them get the most benefit from debt relief. We will be proceeding with organizational reforms including the way in which we organize our work on the financial sector and capital markets, and I want to thank the McDonough Group for their very important contribution to this, and the system of compensation and benefits for the staff of the Fund. And certainly we are also working with the World Bank to define clearly how both institutions can make their work more efficient and their cooperation more effective.

Finally, another important issue during 2006 will be voice and representation. Addressing this issue is crucial to preserve the legitimacy of the Fund, and I have been stressing this point in formal and informal fora over the last few months, and we will be working hard on it in corporation with our members.

Thank you very much, and I welcome your questions.

QUESTION: [Inaudible] last week approved the first and second reviews, the completion of the first and second reviews of Turkey's program, and what kind of Turkish economy would you expect to see next year, what are the top priorities for the authorities?

MR. DE RATO: Well, I think that Turkey is another example of an economy that has changed in recent years by its own efforts and we are very proud to have contributed to that.

Certainly right now I could say very clearly that the Turkish economy is doing well and its external financial conditions are certainly very favorable. And we see that sustaining this good performance is feasible, but it needs a continuation of prudent monetary and fiscal policies, and certainly further progress in structural reforms, and those are the issues we'll be working with the Turkish government on.

I think the Turkish authorities have responded appropriately to the current account with the fiscal tightening in next year's budget, and a policy of gradually reducing interest rates and a continued build-up of reserves. We see that the important ownership of the Turkish program is a key question, and we see the government committed to its own program and we support that.

On Friday, December 9th, the Board of the Fund completed the first and second review under our three-year, 6.6 billion SDRs, which is around 9.4 U.S. dollars, and that was approved as you may remember last May, in May 2005. And we will be working with the authorities to prepare for the approval of the third review. And completion of the review will enable Turkey to draw immediately on an amount equivalent to 1.1 billion SDRs, which is US$1.58 billion.

QUESTION: Mr. Rato, I wonder if you can expand a little on what you mean by growth, become more growth-based. What does that mean? And how much stronger can you expect global growth to be, and what's driving that mostly?

MR. DE RATO: We've seen clearly signs of recovery in Europe in the news we're getting although it's a modest pace, but we're seeing stronger growth in most central European countries like Germany, France and Italy. We see certainly that the recovery in Japan keeps its momentum, and that is a different view of what we were seeing only a few months ago. So in that respect we see that growth is more broad-based.

We see growth in Asia keeping a very strong performance, even in key countries like China it's accelerating. And we see growth in Latin America also being strong, and in Sub-Saharan Africa.

Regarding North America, we see clearly a showing that the U.S. economy will continue performing on a very strong path with no signs of inflationary pressures. And as was said yesterday clearly by the statement of the Federal Reserve, the evolution of interest rates in the United States probably is coming to a new phrase. So overall I think that countries are in different stages of the cycle and facing different circumstances with coping with challenges, and you can have the example of yesterday's statement of the Federal Reserve in the case of the U.S. economy, but you can also see the example of the Brazilian economy and you see many other examples around the world. So I think that countries that have made greater flexibility and a good use of their instruments and monetary policy to have a more credible anti-inflationary policy are certainly having important rewards in terms of credibility.

Nevertheless, there are important challenges and some important risks, and I have mentioned some of them. And policy makers should be aware that benign circumstances can change very quickly and that imbalances, although they're not immediate threats, have increased in size. And that means that the bigger the risk, probably the more costly solution, if policies are not addressing those risks.

MR. DAWSON: Microphone?

QUESTION: Mr. Rato, what would you say that was the main accomplishment by the former Finance Minister of Argentina, and what would you say is the main challenge ahead for his successor? Thank you.

MR. DE RATO: Well, first of all, I want to take the opportunity to recognize the important contributions that Mr. Lavagna and his team has done to the Argentinean economy and to the Argentinean society.

If I have to use my memory again, over the last few years, I remember perfectly well were the circumstances when Mr. Lavagna took office. And I remember perfectly that when he accepted to continue with the new President, it was I think 2002, I told him personally that I thought it was a very important effort he was making for his country.

So I think that not only Mr. Lavagna, but the rest of his team and the whole of the Argentinean country have made a very important effort to get out a very, extremely difficult circumstances that we saw in 2001.

Right now, we are in new environment...[inaudible].

Last week, I had the chance of talking briefly with the new minister, and I certainly told her that the Fund and me personally we are, at her request, to work with the authorities. But right now, what Argentina is facing is a different challenge than it was facing two years ago; it's facing a very important opportunity.

I think that some of the things we've seen happening in other emerging economies that have been able to apply consistently reform policies and prudent monetary and fiscal policy has paid off for others, and I'm certainly--I'm sure it will pay off for Argentina.

MR. DAWSON: In the back? Yes.

QUESTION: You mentioned that you--the IMF expects world economic growth to be slightly stronger than previously forecast for this year and next.

Can you give us your new projections?

MR. DE RATO: No. I will--no, I can't. I will give them to you in--when it's due, which is in spring. But I'm already saying that our last projections will be revised upwards, so that means that we are looking to a better environment. And I think that's remarkable in just a few months. I mean we're talking about the end--the middle of the end of September to today.

So that I think that shows that the opportunity for many countries is very important right now.

MR. DAWSON: Okay. Thank you.

QUESTION: So you are more optimistic today than you were in September. At the same time, you admit that the oil prices and will remain high in the future.

Does your optimism somehow mean that the high oil prices will [inaudible] to be the major negative economic factor?

And my second question, if I may, could you tell [inaudible] about Russia and what should be its top priorities for the next year?

MR. DE RATO: About oil prices, certainly we have been of the opinion for all these years that oil prices will remain at high levels. Certainly, this has been, and it probably will continue to be at high volatility.

And oil prices have had an important effect certainly on growth. But other things have compensated for the high impact.

What I think is remarkable is that not only developed economies, but also emerging markets, and low-income countries have been able to absorb external shocks that were impossible to absorb only a few years ago. And I think that shows that good macroeconomic policies, and especially good institutions, and credible institutions are paying off to societies extremely well.

So the fact that central banks are more independent, the fact that budgetary policies are more medium-term oriented, and less pro-cyclical, the fact that you have better and more flexible markets is not only providing the United States with a great capacity to react, but it's providing middle-income countries and low-income countries with also a very important capacity to react.

And that is happening in a very short period of time. So we're not anymore seeing an environment in which you ask a country to spend 10, 15 years of efforts to get some rewards, but you're seeing an environment in which a country can turn around between the summer of 2002 and the winter of 2005.

So we're talking about very important things for everyday people.

And I think that proves that these types of policies are paying off. And then--well, they will pay off in Russia, too.

So let me tell you we see big opportunities in Russia, and certainly Russia is--has made important efforts in terms of budgetary policy and reducing its vulnerabilities.

We've seen an important response by the Russian authorities in the banking sector. Only last--the summer of 2004, we were in a very different environment regarding the banking sector, but at the same time, and specifically talking about Russia, we see the need for first of all being extremely careful with inflation; second of all, making the non-oil sector more dynamic; and that makes it important that the revenues from oil should not be concentrated on wages, pensions, and current expenditures, but especially on measures that will enhance the growth of the Russian economy.

Certainly, there is need for increasing social expenditures, and we not only understand it, but back it.

But to do that, it has to be done in a context in which that expenditure will benefit citizens and will not fuel inflation and inefficiency.

And that's the challenge for the Russian economy. But certainly Russia is another example of things changing in the last maybe not three years, but six years.

So, in that respect, the steps towards reform that had been taken in Russia I think have paid off to the Russian society, and the opportunity of oil prices has given Russian authorities a new framework to do more important things, to make the whole of the Russian economy, not only the energy sector, a dynamic area.

QUESTION: On Bolivia, the IMF has repeatedly said that the country should use its gas resources and so forth, and now, you know there's an election there where the leading candidate has said that he doesn't, you know, he doesn't want that private involvement in the gas sector and so forth.

So my question is, you know, why is it important for Bolivia to let the private sector into, you know, into the gas business and so forth? And what happens if it doesn't?

And if I may ask a second one. On Brazil, are you afraid that this really big political crisis that it's enduring has touched the Finance Minister could derail the economic performance and the economic policies there? Thank you.

MR. DE RATO: Well, regarding Bolivia, first of all, I want to welcome the improvement of the fiscal position and maintenance of macroeconomic stability in 2005.

And I want to emphasize that in a very difficult political environment that Bolivia has lived all through all these years that you all are aware. Well, I'm able to welcome the authorities have been able to keep and maintain macroeconomic stability. So that shows that even in very difficult circumstances, political circumstances, or very volatile political circumstances, there is a growing consensus in many Latin American countries that macroeconomic stability is not a political option, but is a national option. And I welcome that situation in Bolivia.

I was in Bolivia last winter, so I have just to tell you what I said there.

I think Bolivia has great natural resources and it's up to the Bolivian authorities to guarantee that the Bolivian people believe that the scheme they put forward to use the national resources will be transparent and will be efficient for the interest of the Bolivian people.

But it's a fact that to mobilize those national resources, those natural resources, the Bolivian authorities, whatever their political position, will need financial resources that the country doesn't have today.

So they have to put forward a scheme in which there will be participation of private capital in those natural resources--use of natural resources.

There is no one single system to do that. There are many ways you can do that. You have many examples in the world of what to do and you have many examples in the world of what not to do.

And I think the authorities are aware of that, and we are certainly willing, and the World Bank also, to give the authorities our advice not only on macroeconomic issues and sectoral reforms, but also on how to be sure that their--the use of natural resources is transparent and efficient and at the same time that they're able to benefit from financial resources that right now cannot be only obtained through the state of Bolivia, through the national industries in Bolivia.

Right now, Bolivia is in the middle of a presidential election. I have all the respect for all the candidates. I have the honor of meeting them all when I was La Paz a few months ago. And when the Bolivian people will have made the decision, we will be certainly near whoever has the responsibility to provide the advice and the help that they will feel suited.

MR. DAWSON: And Brazil?

MR. DE RATO: And Brazil. Well, I think Brazil has proven in the last few years that through different Administrations, from different political color, macroeconomic stability and the reform of the economy has become, as I said before, not a political option, but a national option.

Of course, you have different political alternatives. That's true, and that's healthy and democratic. But to reduce inflation, to reduce vulnerability, to enhance the flexibility of the markets, and to open the economy, to have a broader tax base, and to implement a more efficient fiscal policy are--were done by the previous government, and have been done very successfully by the [inaudible] government and they were different--from different political environments.

The discussion about political issues in Brazil certainly we follow it very closely, but we see a clear commitment on the actual authorities to both fiscal prudence and efficient monetary policy to reduce inflationary expectations, and we've seen that in the recent months, and also structural reform. And I want to emphasize once again that we all have seen an impressive turnaround of the Brazilian situation in only a few years. And we are convinced that that path will be continued in the future.

MR. DAWSON: Back. Yeah. Okay.

QUESTION: Before the Annual Meetings in September, there was some criticism of your leadership of the IMF, and then there was what I guess you could call your fight back speech at the International Institute of Economics.

So I wonder since this is an end of the year review, do you feel as though you've silenced your critics?

MR. DE RATO: Well, I had--I don't know if it's a long--but, to me, it's a long--it's more than 25-year experience in public life. Criticism is a fact of life. So I mean you should listen to your critics. You should not certainly believe them a hundred percent. But it's--I think it's foolish not to listen to criticism, as it is also foolish to be obsessed by it.

So I certainly listen to people who tell me that I'm not a hundred percent right. Sometimes I agree with them. Sometimes, even when I think about it, I come back and think they're wrong.

And that's I think is a healthy way to try to do the best one can in a specific job.

Regarding my job here, I want to say that it is--this has been--I mean the first year and half--I think this is more or less. I haven't counted exactly, but it's around that--is a great experience, and I want to thank the people in the Fund for their collaboration and their very professional attitude to their work, and at the same time a very warm personal relationship that I have with all of them. And this is a very challenging job, but it's a very rewarding one, and I'm having a great time.

QUESTION: The Treasury Department called on the IMF to perform a better surveillance role involving China and their currency. I was wondering if there's any further plan for the IMF to take any new role into any investigation of to manipulation of their currency?

MR. DE RATO: Well, let me tell you that I don't agree exactly with your question. I don't think we've been asked to do that. I think the U.S. has expressed its view that the Chinese authorities should take more advantage of the flexibility they have in their exchange rate policy, and we agree on that.

I think the U.S. authorities have also welcomed the Chinese decision in July, and we also agree on that. And I think that the Chinese--the U.S. authorities also see that not only in the question of exchange rate, but probably with more importance in the question of domestic demand, private consumption, is where lies a very important challenge for the Chinese economy in the future that will have effects from the Chinese point of view, but also in the important role that China plays in the world economy.

At the same time, of course, the U.S., like any member country in this organization, has a specific agenda, and has a specific interest that I respect.

Regarding our work with China, let me tell you that I was not here, so more than three years ago, the Fund was already expressing its views about the need for China to have a more flexible exchange rate system, much before anybody else was looking into that; that we've been working with Chinese authorities to address that issue; and that we continue working with them; and that we're certainly advising them, as I said, to make more use and full use of the actual system they gave themselves in July, but at the same time not only to address issues regarding exchange rate flexibility, but also address issues of a more balanced pattern of growth, specifically in the case of China, with more efficient and probably less investment and with clearly more private consumption.

And to do that, the Chinese authorities know very well that they face important challenges in designing a true and efficient safety net, social safety net for the citizens.

The role of the Chinese economy in the global economy certainly is an important one, and I mentioned it when I mentioned the global imbalances. The U.S. is also part of the global imbalances. And the Fund has been clearly advocating a comparative approach to that issue.

As for exchange rate, we--it's a central part of our work. In fact, in every Article IV, we talk about exchange rates. We talk about exchange rates in the case of China, and we talk about exchange rates in the case of the United States, both.

But we've--we had just published the Chinese Article IV of last summer, and it's clearly that we are of the opinion that I have expressed. And I think that in our own medium-term strategy, and specifically in the surveillance and the more efficient and sharpened surveillance, exchange rate issues will be a very important part of it--not the only one, but will be a very important part of it.

QUESTION: Mr. Rato, just like month the Ministry of Finance of Mexico downgraded their projections of growing--economic growing for this year to three percent, from 3.5 percent. That's more in tune with why the [inaudible] project in the latest year. But regardless of that, I would like to know if--I mean that change how much is going to impact or affect your own projections for Mexico for the next year.

And looking ahead, what would you say are the main challenges that the country will face, especially in a critical year where we're going to have a presidential election. There has been a lot of talk. And, by the way, you mentioned the importance of reforms. Mexico has been the--not doing a very--well, they have been not a great advance on the push for reforms in the electrical sector. So I also would like to know what would be your message to Mexican authorities in that regard?

MR. DE RATO: Well, first of all, I want to say that Mexico is also a good example of macroeconomic reform. We all know that, for instance, inflation in Mexico is the lowest in record. That allows Mexico to have a very credible monetary policy and monetary institutions, and I think that it is extremely important for the future.

The macroeconomic situation in Mexico is very healthy. I think there is a consensus in the Mexican society, and we certainly agree with that analysis, that structural reforms are key in Mexico to make Mexico take advantage of that good macroeconomic situation.

And those structural reforms affect labor markets, affect tax system, affect energy sector, among others.

And in that respect, I think that the agenda for Mexico is certainly to take advantage of this good macroeconomic situation that has turned around completely the situation of Mexico only a few years ago, and made the Mexican economy more able to take the benefits of macroeconomic stability and translate those benefits in higher growth, sustained growth, and more shared growth alongside--across society.

We've been advising that to the Mexican authorities in different Article IV's, and well, of course, right now, we're coming into an election. It's a good time to set the agenda for the next few years, and it is a good time to find that maybe some of these issues can be part of a shared agenda by different parties.

MR. DAWSON: Thank you. I think we have questions from overseas, so we'll take one from Japan, and then we'll take two more questions and wrap up.

We have a question [from Tokyo via the Media Briefing Center]: The Bank of Japan intends to end the zero interest rate policy. Do you support this or think the Bank should continue the current accommodative policy?

MR. DE RATO: Well, we have certainly expressed that rooting out deflation is a key question in Japan. And in that respect, we think that the monetary policy follow up by the Bank of Japan in recent years have been very successful in coming to that end.

We are not there yet. But it's clearly that it's more near than it was only a few months ago. So in that respect, we see the need for monetary policy in Japan to continue until deflation is completely rooted out; and at the same time to start facing what will be the new challenges. One of the most important ones is certainly the fiscal position of Japan.

In that respect, we have already advised the Japanese authorities to start contemplating VAT as a good source of reducing fiscal vulnerabilities.

On the so-called reforms, Japan has done important work in that respect. And we see that that has paid off for Japan, for the Japanese society with increased confidence in consumers and investment. So to continue on the path of structural reform will be essential for the future of the Japanese economy that we see brighter and stronger than a few years ago.

MR. DAWSON: Right here.

QUESTION: Do you think that the acceleration of Chinese growth beyond 10 percent is a positive development in the world and to the Chinese economy?

MR. DE RATO: Well, we see the importance of--first of all, we have to realize that China has been growing around 9 percent for the last 20 years. And that is a very important fact and shows how successful the Chinese reform has been. At the same time, we see that looking forward in macroeconomic issues, the future is always more important than the past. The Chinese authorities have very important challenges. It's not only the question of

[inaudible] it is the question of what is the composition of that growth, and we see the need for reducing the rate of growth of investment and making it more efficient. And to do that, structural reforms and financial reforms are going to be key. And at the same time, we see the urgent need for a stronger safety net to be developed to give the Chinese citizens an easier situation to make decisions on private consumption.

Labor market reform, social reform, banking sector reform will also be key for that endeavor.

So, in China, the question is not only the actual rate of growth, the question is the pattern of growth, looking forward. And we believe that important changes in policy have to be made in China, one of them regarding the use, the total use of the flexibility in the exchange rate, but others to make the Chinese economy capable of keeping up with its very important social challenges.

Probably in that respect growth will come down to a more sustainable path, but what it is as important as the whole component of the growth pattern will--should be different looking forward, as I said.

MR. DAWSON: One last question.

QUESTION: You said twice that policy makers need to be aware that market conditions could change very quickly and could go from benign to not benign. I was wondering if you could just elaborate a little bit on what kind of scenario you're talking about there? I mean is it interest rates shooting up or?

MR. DE RATO: Yes. Well, we see that monetary conditions are becoming tighter in most parts of the world, although that is not changing so much right now in long-term interest rates, but that is something that could change, as market participants will have a different sentiment regarding some issues. And that can change very quickly.

And last September, we saw signs of that, when the markets were more pessimistic about the effects on inflation and growth of oil prices.

So globalization gives a lot of opportunities and many of the countries you have mentioned here this morning, from very developed ones to emerging economies, are benefiting from globalization to finance imbalances that were unfinanceable only a few years ago.

That is true. But at the same time, globalization of the financial markets can make the changes occur much more quickly and across the board.

So this is a very good opportunity for countries, both developed and developing countries, to enhance their [inaudible], and I think that some of the questions, some of the issues we have been addressing regarding global imbalances in specific areas of the world address that issue. And we believe that the countries where we take these very important opportunities now will benefit when things will become less benign in financial terms by having more capacity of growth even in less benign scenarios.

MR. DAWSON: We actually have one last question that was submitted in Spanish. And since we'll be leaving for another appointment, the Spanish-speaking reporters won't get a chance [to pose questions]. I may just ask this question, and you can answer it in Spanish.

MR. DE RATO: In Spanish?

MR. DAWSON: In Spanish, yes. Es possible [in Spanish.]

MR. DE RATO: [Answers in Spanish.]

MR. DAWSON: Muchas gracias.

MR.DE RATO: Feliz Navidad. Merry Christmas a todos.