Transcript

Transcript of IMF Managing Director's Press Conference

October 12, 2017

Participants:

Christine Lagarde, Managing Director, IMF
David Lipton, First Deputy Managing Director, IMF
Gerry Rice, Director of Communications, IMF

Mr. Rice ‑ Good morning, everyone. Welcome to these Annual Meetings on behalf of the International Monetary Fund.

I am very pleased this morning to introduce to you the Managing Director of the IMF, Madam Christine Lagarde, and we also have with us, as usual, the First Deputy Managing Director, Mr. David Lipton.

I think you all have a copy of the Managing Director's Global Policy Agenda, which is being released right now.

With that, I will ask Madam Lagarde to make a few opening remarks, and then we will get to your questions. Please keep them as crisp as you can.

Thank you, Madam Lagarde.

Ms. Lagarde ‑ Good morning to all of you, and welcome.

I thought I would start this morning with a little bit of poetry. A week ago, I referred to John Fitzgerald Kennedy's famous sentence about the fact that you have to fix the roof while the sun is shining. And having been outside earlier today, I would defer to autumn, rather than summer, and quote poet Shelley who said: "There is a harmony in autumn."

And there is a certain degree of harmony in global economic growth, and I will come to that in a second, about the things which have changed and the things that have not changed. But certainly, our goal is to turn that harmony that we see into a season of action. So that is my reference to fixing the roof while the sun is shining.

So let me give you a little bit of the current picture.

What we are seeing is a recovery that is stronger, that is much more broadly based than in recent years. And we expect higher global growth this year and next: 3.6 percent this year, 3.7 percent next year. So in both cases, 0.1 percentage points higher than our July projection and certainly much higher than the 3.2 growth that we had in 2016.

Now, measured by GDP, nearly 75 percent of the world is experiencing an upswing, and we are seeing the broadest ‑‑ it is the broadest‑based recovery in the last 10 years. Added to that, it is actually driven by investment, by consumption, and by trade. And it is shared between the emerging market economies which, as you will remember, were providing about 80 percent of growth in the last few years; it is shared between the emerging market economies, still active; but also with other countries, like Europe, like Japan, and the U.S. So that is a change.

What has not changed, though, is that the recovery is not complete. Last year, 47 countries experienced negative growth on a per capita basis, including many small and fragile economies. Far too many people across all types of economies are seeing their aspirations limited by the impact of technology and the repercussions of excessive income inequality. The result is growing political tensions in many places and increased skepticism about the benefits of globalization.

So our suggestion is that it is not time to be complacent; it is time to take those policy decisions that will actually enable more people and more countries to benefit from that recovery that should be made sustainable. And that is the question that we will put to the policymakers, to the Finance Ministers, and to the Governors of central banks who will be attending the Meetings as of today.

So what can be this season of action? My Global Policy Agenda, which you have received a copy of, is where we outlined the steps that we recommend. Policymakers can use this moment to provide more certainty and provide for the future risks.

The first priority, as we see it, is to actually secure that recovery, and that includes monetary policy that continues to support the recovery while also recognizing risks created by easy finance conditions. And that is a subtle balancing act which will be determined by the situation of the country based on the independence of the banks and their mandate.

On the fiscal front, countries with healthier finances should invest more in their own economies through infrastructure spending, strengthening safety nets, investing in education, and allowing women to access the labor market. Other countries should use this moment of better and stronger recovery to reduce public debt relative to GDP.

Now, this is not it. You will remember the three‑pronged approach that we recommended. We are still using this reference to the three‑pronged approach: monetary, fiscal, structural reforms. And many of those structural reforms will actually come easier and more efficient because there is recovery underway. Our research has demonstrated that.

Now, structural reforms will vary depending on what country we are talking about, and they will include: reform of the labor market, reform of access to the service markets, removing the rents that sometimes cripple those markets, removing barriers. It will include: investing in research and development in order to improve the productivity that has been lagging behind, shrinking disparages in access to health and education, and promoting lifelong learning.

Many of those challenges ‑‑ not all of them but many of those challenges ‑‑ actually cut across borders. That is why we need to make progress on a range of issues, and those are the issues that, in our view, have a global nature and require cooperation: fighting corruption, protecting the progress made on financial regulatory reform, tackling climate change, improving the global trading system, adjusting to the impact of the combined breakthrough technologies that will impact markets ‑‑ in particular, the financial markets. Fostering this kind of cooperation is the way that we can best serve our 189 member countries in order to help them build a more inclusive, more resilient global economy.

So we will in the next few days encourage the policymakers to consider those issues. We will share with them the results of our research. We will, obviously, comment on the World Economic Outlook, the Global Financial Stability Report in order to help them, hopefully, see that, in addition to the domestic measures that they are considering, the global aspect and the spillover effects of those measures also should be taken into account.

With that, I will be happy to take questions, Gerry.

Mr. Rice ‑ Thank you very much, Madam Lagarde.

I will ask you to keep the questions short. We will try to take as many as we can.

Questioner ‑ Madam Lagarde, my question to you is, to pick up on your fixing the roof comment: The IMF highlighted a few dangers that could derail the current momentum, including protectionism, political strife, and tightening of financial institutions. Could you perhaps elaborate on some of those dangers?

And also quickly on China, what is your assessment on the policy mix by the Chinese authorities to sustain growth while conducting structural reform?

By the way, I am with China Central Television and CGTN.

Ms. Lagarde ‑ I kind of guessed that, actually.

On the fixing the roof, there are a few potential holes in that roof, and we need to address them. And I will identify those where collective action is going to actually deliver some leverage.

One is, a lot of work has been done in the last eight years in relation to financial regulations, trying to keep the banking sector safe and healthy in order to protect us from further risks down the road. We need to continue to consolidate that, and I look forward to agreements that might be coming concerning some of the regulations currently discussed in Basel. But we also need to be open to changes, to disruptions in those areas. And that is the reason why we have been doing quite a bit of work and analytical work on what we call fintech because they will be transforming financial markets. I am not here referring to bitcoins in particular, but I think all sorts of financial innovation and disruptions should be taken into account, and should be taken into account on a global basis as well and supervised adequately in order not to expose people.

The second area where there is a potential risk and where we have to guard against is the risk that would result from a tightening of the financial markets and the potential capital outflows from emerging market economies or from low‑income countries where there has been such a search for yield in the last few years. Now, that needs to be determined by the various central banks independently, as they are, but with in mind what could happen to the rest of the world in terms of spillovers and what could then backfire into their respective domestic territory. All of that should be well communicated, and there should be a gradual process.

The third one is trade. We are seeing a pickup of trade. And this has fueled growth for the last 30 years before it started declining a bit. So this pickup in trade that we see is good for growth, and we need to secure it and make sure that it continues to be so. As a result of that, clearly trying to rein trade, trying to reduce it would not be helpful for that roof which we want to fix.

And then there are long‑lasting issues that we clearly need to focus on which have to do with: lagging productivity; with the low wages that we have seen, particularly in the middle‑income range; rising inequalities that are also a threat to the economic fabrics of our society. So I have mentioned a few. I am sure there are more that we could also mention.

You asked me about the policy mix of China. As you know, we have upgraded our forecast for China, particularly in 2017, and that has been so because of the fiscal stimulus that we have seen. We are also observing reforms affecting the credit expansion of China, which has been a concern of ours, and we certainly welcome the decisions that have been made, in particular by the People’s Banck of China, to actually tame ‑‑ reduce credit.

We also believe that a continuation of those policies is necessary, together with the reform of the state‑owned enterprise sectors. So it was good to reduce capacity. I think it probably needs to continue. But the reform of the SOEs and the continued reining in of credit in order to control the financial risk in China will be most welcome.

Questioner ‑ NAFTA negotiations are taking place right now. The possibility of a withdrawal ‑‑ of the U.S. withdrawing from NAFTA is something that has been floated. I am wondering what sort of impact you think that that would have. Is that a potential Brexit‑like event? Or is it something perhaps more moderate?

And then just more broadly, picking up on this idea of your seasonal analogy. Certainly, growth is picking up, as you have mentioned. It is a broad‑based recovery. But in some ways, it feels like the winter of our discontent. It feels like there is a disconnect between what should be a good news story and perhaps the mood right now over the global economy. I am wondering if you could address that.

Ms. Lagarde ‑ You know, I would certainly not suggest to put in the same category the ongoing negotiations on Brexit and the ongoing discussions on NAFTA.

If I look at the NAFTA negotiations, first of all, it is underway, and I would refrain from commenting on the current state of negotiations which always ‑‑ like in any negotiations ‑‑ involve taking certain positions with allowing maneuvering room and organizing the landing area where negotiators want to eventually arrive at; that is No. 1.

No. 2, for a trade agreement which has been in existence for, what, 20 years now, it is not unusual or unnecessary to actually look into it, go under the skin of the agreement, find out what works, what does not work, what can be improved, what new topics should be considered, given the changes that have affected the markets in the last 20 years. I mean, 20 years ago, were we communicating by cell phones, using digital as we do? Were those economies so service‑dominated? Probably not. And that there have been negotiations is certainly welcome.

I, actually, personally think, having been Trade Minister myself for a few years in my country, that trade agreements should constantly take into account changes in order to be adjusted and to continue to facilitate ‑‑ to facilitate trade and to increase the movement. But that is not it because trade cannot be just about accelerating the movement. It has also to consider what regions, what areas, what sectors are going to be affected by trade, and what measures will be taken in order to address those issues in order to help people adjust, relocate, be mobile, acquire the training that will help them also benefit from the situation. And my comment applies equally to trade and to technological changes that are taking place at the moment.

Brexit . Brexit is an ongoing process. And our hope, frankly, is that it be conducted promptly in order to reduce the level of uncertainty and anxiety of people about the outcome and the situation of people first and of business second because this is affecting the people and the businesses.

So I do not know whether the two‑year transition is going to be agreed upon, as it was proposed by Prime Minister May in her Firenze speech, but certainly, clarity on the timetable and better certainty on the three pillars, which are the beginning of the negotiations, would help in reducing this uncertainty.

Questioner ‑ Actually, one word is missing here in this press conference so far, and that is the word "Europe."

Europe is not on the main agenda here. That is clear. But on the other hand, the Europeans are creating their own Monetary Fund now. So, actually, the question is: Do you fear to lose influence? Or how do you think ‑‑ how will be the cooperation between the IMF and the European Monetary Fund?

On the other hand, the German Finance Minister, Wolfgang Schäuble, is concluding his career today or tomorrow here in Washington. And since you are a long‑time friend of his, actually, my question is: Are you surprised that he is stepping back? And how do you think ‑‑ how will you cooperate with the Europeans without Mr. Schäuble? And maybe you have a farewell message for him.

Ms. Lagarde ‑ Well, first of all, I will remind you that I did mention Europe as one of those growth leaders in the current recovery and a region where we have clearly upgraded our forecast, including for Germany, for that matter.

Second, I have no fear. I have no fear. I have expectations. Having been on both sides of the fence, having been Finance Minister, working with the IMF in, you know, 2010‑2011, now being head of the IMF, I know that the cooperation was very much needed and will continue to be needed in a shape or form that will be determined by the European actors.

Yesterday we had a very good meeting between the regional financial arrangements ‑‑ we call them RFAs. And you have them in Asia, with the Chiang Mai arrangements. You have them in the Middle East, with the Arab Monetary Fund. You have the European Stability Mechanism, which might be transformed like the AMF into an EMF. I do not know how many more vowels we can use, actually.

But there is cooperation. I think there will be cooperation. What I have heard repeatedly from all engaged is that the international financial safety net that is so needed has to have the IMF at its center. We will continue to play that role. We will share experience, and we will provide support wherever needed and whenever a country asks for it. That is our mission. That is our duty.

As to my friend Wolfgang, I am sad that he is going. I am sad to have to give up on the good work, sometimes difficult because we did not always agree. But he has been a rock. He has been a giant. He has been unbelievably solid. And for those who will eventually criticize him, we can all be criticized. But in the critical moments, he was keeping the group focused and had this inner strength about him that gave the rest of the room confidence.

Did we all want to go exactly in the same direction? Did we all agree about mechanisms, about backstopping, and so on and so forth? Of course not. But a union which is yet to be a political union needs that kind of strength and determination, which he has displayed immensely. So I am sad to see him go, and I will ‑‑ hmm?

Questioner – Are you surprised?

Ms. Lagarde ‑ You know, I am delighted that he managed to stay that long because there were a few occasions when I was thinking: My goodness, he is taking on so much.

So he has made a huge contribution to his country, and he is going to continue doing so, I am sure, in his position under the new mosaic of political representatives.

Questioner ‑ The Greek program is coming to an end in less than a year from now. Do you think that there is enough time ahead for the Europeans to fulfill your requirement for a debt solution? And if not, will the success of the program and the goal of a clear exit be undermined, given that, in that case, your debt sustainability analysis (DSA) will not change?

Ms. Lagarde ‑ Well, thank you very much.

First of all, let me acknowledge that there has been a lot of work done over the years and huge efforts consented by the Greek people. And it is immensely impressive in that respect.

Second, we have, in July, agreed to a program that is, obviously, subject to the debt restructuring that we have always, consistently indicated as necessary.

Third, we are not asking for any new measure whatsoever. And we will simply be very attentive to compliance with the commitments made by the Greek authorities and, No. 2, continue the discussions with the European partners and the Greek authorities and members of the quadriga to see that this debt sustainability is arrived at and what measures will be necessary in the process.

Mr. Rice ‑ I will take an African question.

Questioner ‑ As you know, half of African countries, francophone countries have not been able to have their own currency since independence in 1960.

What do you think would be the impact if francophone countries, more than 25 countries, had their own currencies? First.

Second question. If you could talk more about Sub‑Saharan Africa, especially Nigeria. It was said that this week, the country will be going on accelerated borrowing. Have you seen enough structural reform in Africa to give creditors enough confidence?

Ms. Lagarde ‑ Thank you for your question. I will answer in English, although I am sure you would not mind a little French to begin with.

There are two currency zones in Africa, as you know, and they are not exactly the same in terms of economic fundamentals. What we are trying to do is to help each and every one of those countries that have asked for our support. And in the CEMAC region, for instance, as you know, all six countries have sought our support. We have four programs in place with four countries and two under negotiations.

Clearly, the strategy is to improve the overall economic situation and to help those countries reach a better equilibrium, where they have increased their reserve, where they do enough fiscal consolidation in order to restore their position, and where they look at diversifying their economies because most of those six countries ‑‑ except Cameroon ‑‑ are clearly strongly oil‑dependent, and that has weakened their position. So that is the strategy that we are deploying, in complete partnership and consultation with all countries that are in that zone.

The other zone is less exposed to the shock of essentially the commodity prices fall and particularly the oil prices fall. So that is what we are working on with the countries.

On Sub‑Saharan Africa, it is one region of the world where growth is way suboptimal. Those countries grow at an average growth of about 2.5 percent. That is too low for the demographic expansion of the region. There are different countries. You know, if we look at Rwanda, it is a different situation from that of Togo, while Ghana is going to be different from Mozambique, and so on and so forth. But it is still too low for the demographic growth. And for that region to take advantage of the demographic dividend of all the young people who are coming and are trying to have access to the economy and have a job, it is too low.

So with all of our country members, we are engaging them in the direction of stabilizing; for those that are doing well, build up their buffers; and more importantly, really diversify their sources of economic growth because what we observe is that those that are heavily commodity‑dependent are faring less well than those that are already quite diversified.

Questioner (through interpreter) ‑ I will ask my question in French.

I am a journalist from Morocco. You say that the economic situation at this time is conducive to reforms. So I would like to know: What are your recommendations for North Africa? What should be the priority reforms implemented? And is it a time to open up in terms of their currency?

Ms. Lagarde (through interpreter) ‑ Once again, it is difficult to give you an example ‑‑ a response that will fit all because in Algeria, Morocco, Libya, and so on, the situations are different.

What I hope for the region is that there will be more interregional cooperation within the area because if there is one thing that is missing in that economic area, it is that.

I see that Morocco benefitted from a flexible credit line that I believe supported it in its efforts on the fiscal level and also on the structural reform level.

Algeria is in a different situation. We do not have a program with Algeria.

Tunisia is also involved in a process that is deep and that is quite painstaking. They are making efforts to transform the rural parts of the country as well as diversify the economy, which does not have a lot of commodities to rely on, apart from phosphates. And it also wants to meet its budgetary commitments, keep the peace, and also ensure that its workforce does not grow excessively or its wage bill, rather, does not increase exponentially. So they need to do what is necessary in terms that are necessary to meet their potential and take into account their youth population.

Questioner ‑ Your Fiscal Monitor yesterday has been reported as suggesting that to tackle the inequality issue, one of the best levers is to increase taxes on the rich. I just wondered if you could answer the question about whether you think that is a way forward for reducing inequality: increasing taxes on the rich.

Just on the Brexit negotiations, what do you think the economic impact would be on Europe if Britain were to leave the European Union with no deal?

Ms. Lagarde ‑ Thank you for those two questions.

On the first one, I will tell you that I disagree with that point which you just made, that, quote‑unquote, taxing the rich would be the most efficient way to reduce inequalities.

I think the most efficient way to reduce the inequalities would be to actually close the gender gap between men and women, and that is a no‑brainer. Whether it is access to the labor market, whether it is access to finance, whether it is the gender gap in terms of compensation, that would achieve a lot in order to reduce inequalities. And that applies across the world, whether countries are developed, advanced, emerging, or in development.

I think the second point that you referred to, which is the study of the Fiscal Monitor that has been done by the Fiscal Affairs Department, is their demonstration that, given the significant drop in average tax rate in most advanced countries, increasing the higher brackets would not prejudice growth. Now, from that, any policymakers have to decide what they want to do in terms of policymaking, but there are countries where, clearly, reducing excessive inequalities would support growth.

So that is where I am coming out on that particular front, but I would suggest that focusing on the women in all economies in the world would significantly reduce inequalities.

Now, the scenario of Brexit and the U.K. exiting from the European Union with a hard deal ‑‑ and I am not exactly sure what it is, but I suppose it is on March 15, the fact that WTO rules suddenly apply and nothing else. I just cannot imagine that that would happen because I am ‑‑ you know, for the people, themselves, what does it mean? The Europeans who are based in the U.K. The British who are living and residing in the European Union. The WTO does not provide for such rules.

When I think of the airline industries, the landing rights in various European countries, I mean, there is so much that has been brought together between the continent and the United Kingdom that it really requires a very specific approach that will reduce the uncertainty that is damaging, you know, potential.

Questioner ‑ I know you are heading there, Madam Lagarde, next month, and it will be your second trip in recent times.

The IMF has kind of held up Jamaica as the poster child for performance under the IMF and now the current Stand-By Agreement.. But recent statistics are showing that poverty is actually increasing, and last quarter, there was negative growth. Is this an indication that while the program may be working for the creditors, it is not working for the people? And are you disappointed in these new statistics?

My second question is: What is the IMF's position on debt relief for hurricane‑affected countries in the Caribbean and/or concessionary financing for those countries designated as middle‑income that cannot access concessionary financing?

Ms. Lagarde ‑ Excellent question.

Yes, I am heading to Jamaica, and I will very carefully look at the numbers that you have referred to. I do not have those statistics in front of me.

Certainly, what we have tried to do in very close cooperation with the Jamaican authorities ‑‑ successively, different political parties because our program went through a political transition, and whether they were in power or in a position, they successively supported the program. OK? So it is not as if it was forced down the throat of anybody. It was endorsed by the political parties in both situations.

The Jamaican authorities and the Jamaican people have done incredible work in order to restore their public finance situation, which was terribly damaged.

My certainty is that in the program that we have designed with the Jamaican authorities, we have made sure that there would be a social safety net so that people could actually be supported in their day‑to‑day lives, but I will look at those statistics. And I would not attribute necessarily, you know, the increase or decrease of living standards to the program, itself.

It just so happens that when we have to put in place a program, we look at two things. One is: How do we restore the public finances of that country so that it can sustain itself, reaccess the financial markets, and work out? And second: Do we have in place the social safety net that will protect the most exposed and poor people? So I am sure we have done that in that particular program.

For the countries that have been through the horror of the two hurricanes or the three hurricanes, actually, for that matter, what we are looking at in a dialogue with the authorities ‑‑ and I have seen the Prime Minister of Dominica the day before yesterday ‑‑ is: How we can organize financing, including concessional financing when that is available? And how we can manage to refinance the existing financing that they have had the benefit of? And we will do everything we can to help them.

Questioner ‑ Thank you, Madam Lagarde. I am afraid we have to finish for the day, but we look forward to seeing you in the course of the meetings and on Saturday for the International Monetary and Financial Committee (IMFC) conference.