Transcript

Transcript of a Press Briefing by Tomasso Padoa-Schioppa, Italian Finance Minister and Chairman of the International Monetary and Financial Committee, and Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, with John Lipsky, First Deputy Managing Director, and Masood Ahmed, Director, External Relations

April 12, 2008

MR. AHMED: Good afternoon. I would like to welcome you all to this press briefing with the Chairman of the IMFC, Mr. Tommaso Padoa-Schioppa; the Managing Director of the IMF, Mr. Dominique Strauss-Kahn; and the First Deputy Managing Director of the IMF, Mr. John Lipsky. The Chairman and the Managing Director will make brief opening remarks, and then they will take your questions.

Mr. Chairman.

MR. PADOA-SCHIOPPA: Good afternoon. Thank you for being here. You have received and certainly read the communiqué. I will be very brief in commenting on the results of today's meeting.

Perhaps many of you were here at the press conference after the IMFC meeting in October. I confess that the result of today goes beyond my expectations in October in spite of the fact that we succeeded then in consolidating the work that the Board had done in the preceding weeks and months.

The objective of reaching an agreement on the two issues of quota and voice and income model in a definitive way in April seemed very ambitious. In fact, we met today in a situation in which the meeting was overtaken by the event. The voting of the package is already under way. I joined the meeting to chair it having already voted for what the Board had agreed.

So, I could almost say that the value-added of the meeting was relatively modest. Well, it was modest because the result achieved before was very substantial and very remarkable. Needless to say that this changing gear goes entirely to the credit of the Board and of the Managing Director sitting near to me. The meeting of the IMFC started in the early morning with an informal discussion in a new style in which there was, in my view, an extremely free and fruitful discussion about the present situation and what the prospects are. It may have started having the financial crisis in mind as the subject that would monopolize the discussion, but in fact the discussion was more broad-ranging.

It went into the issue of the crisis in the price of food, energy crisis, tensions that are pervading the world economy on these three fronts and how they are interrelated. I think it was a truly global discussion in the sense that these multiple subjects made it a much better representation of the challenges of the world economy than sticking to the financial crisis alone, important as this may be.

In the formal meeting, we discussed, as you know, the global economy and the IMF reforms. You know what are the outcomes. I do not go into details. The discussion on global economy and financial markets reflects what is the mood at this moment, the sense that the chain of bad news may not have come to an end.

Many countries were under the impression on the recent forecasts of the Fund that some judged them more pessimistic than their own. I think it is useful that the Fund took a very, say, dry and realistic view of the situation and the prospects. I think it is useful to orient reflections of policymakers around the world.

The main result, of course, is the fact that the IMF reform has been fully endorsed by the Ministers in both its aspects, the quota and voice and the income model. I think this reform and the fact that it went so well in the work of the last months and weeks that was concluded today has to be seen in conjunction with the gloomy picture of the world economy.

The fact that the most relevant economic and financial multilateral institution in the world shows a capability to reform itself in this very moment constitutes by itself a response to the crisis and an indication that a global crisis has to be addressed with a global view and by strengthening the role of multilateral institutions.

So, I do not see this as an accidental coincidence; I see it as a very happy coincidence. I tend to think that probably the severity of the crisis that we are in has contributed to concentrating your minds on the need to both reform the Fund and reach agreement on its representation. I think I will stop here, because I know you know the communiqué and I do not think it is necessary in this introduction to go into the specific details. Thank you.

MR. AHMED: Thank you very much. Let me turn now to the Managing Director

MR. STRAUSS-KAHN: Thank you. Well, just a few words.

I think what has been achieved today is something very important in the life of the Fund. The IMFC, with the chairmanship of Tommaso, has adopted and supports broadly what has been prepared by the Board, namely the quota and voice reform, and the income reform of the Fund. It was really a pleasure for me to listen to a long list of Ministers-Mr. Mantega from Brazil, Mr. Chidambaram from India, and other ones-being so happy of the reform and approving not only the result of the reform, but the fact that the Fund is moving. It goes far beyond these two examples that I just quoted.

A lot of Ministers, Governors representing countries sometimes considered as a bit far away from the Fund are coming back to multilateralism. I was really amazed, listening to all of them, to see finally that they were all expecting that something happened to be able to support again the Fund.

The surprise was that most of them said we had not believed six months ago that this was possible, and if I had heard them six months ago maybe I would not have been a candidate for this position because it appeared to be not possible to make it; but finally the Board did it, probably because it has been well prepared by my predecessor, Mr. Rodrigo de Rato, for which I want to offer tribute, and also because the time was right.

But what happened today, even if the reform is still not approved and we have to wait for the 28th of April to know if we reach the 85 percent vote that we need, I am today much more confident than I was even yesterday or the day before yesterday when I met you for the press conference, because having listened to the different Ministers, I think that there was very little chance that we will not reach this 85 percent which is needed. Some countries who could be expected as voting against or abstaining will probably finally vote in favor of the reform.

So, really, large support, different kind of countries, different level of income, different level of development, different part of the world approving the quota and voice reform, approving the new income model, the commitment by those who had to commit to go on with the income model and the sale of gold, and approving the strategy of the Fund, because we now need to stop looking inwards to the problems of organizing the Fund itself and spend more time looking outwards to the problems of the world, and that has to do with the strategy of the Fund. This strategy also has been broadly supported.

But maybe more important than this meeting of the IMFC is, as Tommaso just said before, what happened early this morning in this new kind of a gathering that I decided to organize, and which will take place at each meeting, the next one being for the Annual Meetings, an informal meeting where Governors are likely to talk freely in an interactive way and discuss the questions of the world.

What was obvious this morning is that there is a kind of revival of the multilateral spirit, the idea that we are facing global problems and that to those global problems there must be global answers. The discussion went about, of course, the financial turmoil, what we can do as far as monetary policy is concerned, as far as fiscal policy is concerned, and what I call the third line of defense concerning the other way to try to bring this crisis to an end.

But the discussion was also about the increase in prices, especially fuel and particularly food prices. Some of the Ministers were very eloquent on the need to be concerned than we were before, but not only by the question of inflation as an economic problem, but as a matter of conclusion of this meeting, the question of inflation, because it may be the root of a lot of conflict in the future.

If food prices go on as they are today, then the consequences on the population in a large set of countries, including Africa, but not only Africa, will be terrible. Hundreds of thousands of people will be starving. Children will suffer from malnutrition, with consequences all of their lives.

Moreover, the consequences will be such that disruptions may occur in the economic environment, trade balances, current account, so that at the end of the day most of governments, having done well during the last five or ten years, will see what they have done totally destroyed and their legitimacy facing the population destroyed, also.

So, it is not only a humanitarian question. It is not only an economic question. It is also a democratic question. As we know, learning from the past, those kind of questions sometimes end into war. So, if we want to avoid that the huge rise in commodity prices, and especially in food prices, has these terrible consequences, then we need to take this problem into account much more than has been done until now. So, financial turmoil, on the one hand, slowdown in the economies, no decoupling from the emerging countries, global problems, that is one of the problems we have to face. Increase in price commodities, especially in food prices, that is the second problem we have to face. To do that, the reform of the Fund is certainly necessary, but we now need to devote a hundred percent of our time to these questions.

What I saw this morning is that the spirit of multilateralism is obviously alive and kicking, and that was probably the best news of the morning. Now, I think Tommaso and myself are prepared to answer all the questions you want.

QUESTION: Paragraph 12 of the communiqué describes bilateral surveillance as the core of the Fund's work. At a time when you are short of money as you referred to in paragraph 10, is it not a complete waste of money to have teams trolling around OECD-type member countries and writing long reports about their labor markets and pensions, and so on, if bilateral surveillance is really an idea whose time has passed with regard to those countries?

MR. STRAUSS-KAHN: It seems to me that the crisis originated in an OECD country. Do you mean that this is exactly the kind of surveillance we should not have? I think exactly the contrary. We need to have surveillance activity as important as previously in emerging and developing countries, but we certainly need not only because of evenhandedness but because it is needed for the financial stability of the world to exert surveillance also in OECD countries.

QUESTION: On the economic outlook, you mentioned that some countries are disputing the outlook that you provided a few days ago. Obviously, the U.S. has made no secret that they think that the IMF was pessimistic. Do you have an understanding of the basis of the U.S. complaint, and what do you think of it?

MR. STRAUSS-KAHN: If I remember well, it was a word by Keynes, who said long ago that forecasts are difficult, especially if you are talking for the future. So, in this period, of course, forecasts are even more difficult than at other times. So, I do not think really that the difference about 0.1 or 0.2 has such an importance.

Moreover, I think that what is important is not really the outlook, but the risks looking forward. So, we may have some differences in the outlook, and I think we are right. Maybe some others are right, and the difference is very small. What is important is to know whether or not we agree on the risks, downside risks, some upside risks but mostly downside risks we have in front of us, and I think from this point of view there are no differences.

QUESTION: After the stage of reform on quota and voice, do you think it makes sense for the Euro Area to have in the future a single seat on the Board?

MR. STRAUSS-KAHN: I should let Tommaso answer, because I am in a very difficult position, not because I am the Managing Director of the institution, but because 10 years ago I was the Finance Minister of my country and I proposed to our German friend to share the same chair as a starting point for a euro chair.

Finally, my German counterpart agreed with that and we tried to go on, but for reasons I cannot confess having to do with the role of the Foreign Affairs Minister in France and in Germany also, the project collapsed. But the idea is still there.

Now, is it a living idea in Europe or not? I think Tommaso is in a better position than I am to answer.

MR. PADOA-SCHIOPPA: The idea is certainly still there and the reluctance is also there. Let me perhaps say the following two remarks, or three. For institutions that are qualified by the word "monetary," it goes strongly against common sense to think that an area that has been capable of making a huge change of moving from many currencies to one, the simple corollary of having a single seat is so difficult to achieve. I think that sooner or later this contradiction will be corrected.

But the second remark is that it is in fact the case that part, maybe a relatively large part of the issues that are being treated by the IMF are not, according to the treaty, a community competence in a legal sense in the same way in which, say, trade issues have been made an EU competence. So, there is in fact some reasons to have these difficulties.

The third remark is, and it was vividly illustrated by what the Managing Director just said, there is no need to have 27 countries deciding to go for one seat. Two of them could go, or three of them. Of course, the demonstrative effect of such a move would be immense. To make such a move, there is no need to take any decision in Brussels. It could be taken by just two or three countries who are bold enough to make this move.

MR. STRAUSS-KAHN: The beauty of that-it is just a comment which is an off-comment-is that the Articles of Agreement creating the Fund said that the Headquarters of the IMF has to be in the country-which is a problem of definition-being the biggest shareholder. So, it can give me some ideas.

QUESTION; Mr. Strauss-Kahn, in the recent weeks, you yourself, Mr. Lipsky, and your Chief Economist, Mr. Johnson, have talked a lot about the third line of defense, about the possible need for direct public intervention to sort out some of the problems in the financial markets and potentially housing markets.

I wonder if you could talk a little more to us about what discussion there was on those themes this morning. I looked in vein for a reference to these issues in the communiqué. Could you enlighten us as to why there was no discussion in the communiqué?

MR. STRAUSS-KAHN: Do not look; you will not find. We are arguing that the housing market in the United States has prices still falling and that is a concern because, while the prices are going on falling, consequences on the financial sector still remain. That is the analysis, and I will not say more because what possibly could be done has to be done by the U.S. government, not by the IMF. We are just providing, on this kind of question, analyses, sometimes advices which can be followed or not, but it is the responsibility of the U.S. government or the U.S. federal system. It is not my responsibility. So, I will not make any more comment on this.

QUESTION: Mr. Strauss-Kahn, I would like to ask a follow-up question about that. When I brought up your comments about the need for greater public intervention at the White House last week, they declined comment on it. I think a lot of people in this country who read the interview you gave with the FT and these comments, are just not sure precisely what you mean.

Are countries individually all supposed to provide sort of a Northern Rock or a Bear Stearns kind of a bailout in each case, or would the IMF oversee it? Could you elaborate on what you mean by greater public intervention?

MR. STRAUSS-KAHN: I think I just gave my answer on this. Do you remember what Alan Greenspan said once in the past? He said, if you did not understand what I said, I probably did not express myself correctly.

QUESTION: Mr. Strauss-Kahn, you spoke about the spirit of team work today. Keeping that in mind, what is the role of India, considering its inflation is just zooming and food prices are going up? What is the role that India plays in this new teamwork needed to handle the financial crisis?

MR. STRAUSS-KAHN: Well, India has become more and more a big player in the world economy. The Indian economy is hit, as the other ones, by the financial turmoil, on the one hand, and the increase in prices, on the other hand. So, the answers India, as others, are trying to give to the situation are very important ones.

I do not want to make specific comments on it because it is ongoing, but the way Mr. Chidambaram underlined the problem of the increase in food prices, of the consequences it may have, has impressed everybody in the room this morning. He was then followed by many Ministers referring to his first speech and approving what he has said.

So, I think Mr. Chidambaram takes the lead on this question, and it is following his question and his proposal that we are going to work in the coming weeks.

QUESTION: My question is about the currency. Yesterday, the G7 communiqué showed us some concern about the fluctuation of the major currencies and its adverse effect to the real economy and the financial markets. Do you share this concern? I would really appreciate it if you could elaborate the discussion in the IMFC over the recent fluctuation of the major currency issues.

MR. STRAUSS-KAHN: Well, I certainly share what has been written in the communiqué. We are concerned by the different currencies and the global imbalances. The global imbalances are not only the question of the currencies, but currencies are a large part of these imbalances. A discussion has been carried on last year under the name of the Multilateral Consultation on Global Imbalances, and different policies have been defined by the different partners-the EU, the United States, China, Saudi Arabia, others-of the kind of policies that should be implemented to correct those imbalances.

Even if some results, some progress has been made since that time, we have to admit that we are far from having reached the result, and new imbalances may have appeared through this turmoil. So, the question of the global imbalances in the currencies, countries having structural surpluses when some other countries have structural deficits, is a question which is really today at stake. The concern expressed by the G7 communiqué is obviously also a concern for the IMF.

MR. AHMED: Thank you very much. We need to bring this press conference to a close now. I would like to thank you all. The communiqué is available...

MR. STRAUSS-KAHN: Before we leave, I said just before that it was difficult to make some economic forecasts. It is even more difficult to make political forecasts. Nevertheless, I have been told that it was not totally impossible that the government will change in Italy. In this case, of course, Tommaso will then step down from his chairmanship of the IMFC.

If it does not happen-I would be the most happiest in the world and I will be happy to have the next IMFC under his chairmanship. If it happens-the IMFC will have to choose a new Chairman. In this event, I would like to thank Tommaso really, really as strongly as I can for what he did, the leadership he showed during this meeting, I am sure the previous one also, but I did not attend the previous one, but at least this one. And to tell him that a large part of the results that have been achieved comes from the fact that the communiqué, the same as the one we are discussing now, the communiqué from the IMFC in the Annual Meetings had paved the road for what has to be done. Probably it would have been totally impossible to do during the last six months what has been done without this communiqué, which was largely directly inspired by what Tommaso said and did.

So, Tommaso, on behalf of the institution, thank you so much.

MR. PADOA-SCHIOPPA: Thank you, Dominique. You have a great art of persuasion, but you will not persuade anybody that the first name on the list of those who should have credit for this is yours. It is not mine.

Thank you.

MR. AHMED: Thank you all very much.