Transcript

Transcript of the IMFC Press Briefing

October 4, 2009

MS. ATKINSON: Good afternoon. Welcome to the live and on-the-record press conference following the International Monetary and Financial Committee, the IMFC, of the Board of Governors of the IMF. We have to my right Dominique Strauss-Kahn, Managing Director of the IMF. To his right, Youssef Boutros-Ghali, the chair of the IMFC, also Finance Minister of Egypt, and to his right John Lipsky, First Deputy Managing Director of the IMF.

I am going to ask the chair, Mr. Boutros-Ghali, to introduce briefly, and then if any of the others have any brief introductory remarks, and then we will turn to your questions, and we expect about 30 minutes overall. Thanks. Youssef.

MR. BOUTROS-GHALI: Thank you, Caroline. Good evening, everyone. We have just concluded the 20th meeting of the IMFC. The meetings have been held in a positive atmosphere. The world economy is recovering. Financial sector risk is abating. Things are on track. We are not out of the woods yet, but we are well on our way. Exit strategies are being discussed, but they are nowhere near being implemented now until we firm up the recovery in the world economy.

The issues that were discussed started centering around the reform of the IMF to be the central organization to make sure that it provides the impetus, the coherence, the clearinghouse function for the policies of the world.

There are several issues that have been discussed, chief among them yesterday, the mandate of the Fund. The mandate of the Fund as it stands at present was formulated a number of years ago, over 30 years ago, and therefore needs to be revisited. The Fund has been very active and has successfully helped the world economy in the period that is just ending now, in the last 12 months. It needs to evolve, and it needs to codify this new role that it has. It needs to establish itself as the main engine of coordination of policies across the world.

We have spoken of issues of governance within the IMF, issues regarding rebalancing the voting shares and the voice of various countries to reflect more the existing realities of the world economy. The discussions were detailed, they touched on the substance. Of course, this is a process that will take time. It will not happen overnight. We are reforming an organization that is complex, sophisticated, and reaching every corner of the world economy.

We essentially established the basic principles of the review of the Fund's mandate and of the Fund's governance and of the Fund's surveillance. We have also gone through what we call early warning exercises whereby we look at the components of the economy and make sure that all elements of this economy are lined up properly.

These issues are important, they are new to the meetings of the IMFC, and we believe that the positive spirit with which we have approached the problems of the world economy, the positive feedback that we are getting from the world economy allow us to be optimistic. We do not want to get carried away. However, things are looking up, growth rates are beginning to return to positive territory. Again, as I say, systemic risks are coming down. Financial sectors are beginning to recover. All of the components of a recovery are there. Now what we need to do is to make sure that this recovery continues, that it goes forward, that it establishes itself so as to allow various governments to start gradually withdrawing their stimulus. Again, I emphasize now is not the time yet to withdraw any stimulus or to implement any exit strategy. It is the time, however, for us to talk to each other and to coordinate our strategies across the world so that when we exit we maintain and preserve the recoveries that we have.

Overall, the meetings were positive. They came to conclusions that will help in getting the world's economy to move forward, both economically in terms of economic policies and institutionally in terms of the institutions that govern world economic policy governance principles. Essentially these were positive meetings, the first nonanxiety-ridden meetings we have had in the last 18 months. They are a welcome feature of the Annual Meetings of the Fund, and I hope they will be followed by many such positive meetings.

Allow me to give the floor to Dominique Strauss-Kahn for a few words. Please.

MR. STRAUSS-KAHN: Well, I have little to add. I would like first to express my gratitude to Youssef Boutros-Ghali for outstanding chairmanship during all this meeting. Having a good chairman is very helpful for me, and I can rely upon him for doing all what has to be done. So thank you very much. I would like also to thank staff of the IMF for having organized all these meetings with the help of the Turkish staff. I think it worked well. Of course, it is not totally over. We still have the Development Committee tomorrow for the World Bank, and then the General Assembly on Tuesday, but a lot already has been done, and I am very happy about that.

I will not talk too much about the recovery. Youssef just did it. Obviously we are at the beginning of the recovery even if—there are a lot of ifs—and even if we have to take care of the sustainability of the process which is launched.

One of the memories I will have from these meetings is that most, not to say all of the members of the IMFC commended the Fund for having done its job during the crisis. Of course, the crisis is not over, but so far I think that we did what we could, and the fact that our members are commending us is always something which makes us happy on one hand and on the other hand creates an ownership of the Fund and a willingness by the members to go on working with the Fund, which I think is one of the main results that has been achieved during the last months.

When I look a little forward, I see this Annual Meeting as a unique opportunity to reshape a post-crisis world. That is exactly what is at stake. We know now that unless there is something totally unexpected, we will progressively get out of the crisis and that in maybe 10 months, 12 months from now when unemployment will begin to decrease in most countries—it will take that time—but in 10 or 12 months, then the crisis will be behind us.

And so it is time to begin to think about what's next, what's coming after. And certainly it is part of the role of the Fund to work on that—to try to reshape what will be the world after the crisis, and the communiqué that you already have, at least on four points, begins to build a foundation of what the role of the IMF can be in this post-crisis world or to say it in another way, to define what kind of economic cooperation we want to have in this post-crisis world.

One thing, Youssef already said a few words about it, is the mandate. The mandate of the Fund was defined 65 years ago, mainly on the problem of financing and balancing the current account. It is still a very important thing for the Fund, but obviously we have more to do, and this crisis was neither a crisis of current accounts, nor a crisis on the currencies. It was, nevertheless, the biggest crisis since the Great Depression. So, obviously, the Fund has done work outside the question of currencies, and it is fine to redefine the mandate. The way it is drafted even if it is very quick in the communiqué is very broad, touches on all the questions of macro-financial, prudential, and a large scope of questions concerning economic and financial questions. So obviously our membership recognized the fact that we have to work at all in the large field of all the questions having to do with economic and financial stability. That is the paragraph 7 in the communiqué, and I think it is very important for the future.

The second point is that maybe you haven't noticed that I am talking for several weeks now about the question of building on the success of the FCL, the flexible credit line. The flexible credit line was created six months ago. Six months ago Mexico was the first country to take advantage of it. Then Poland, then Colombia. And I emphasize this point because this flexible credit line is something totally different from what we did in the Fund before because it is really the seeds for an insurance, and it has been seen by Mexico, by Poland, by Colombia as an insurance, paying a fee, and having the possibility to tap on Fund reserves if necessary. You do not need to accumulate your own reserves, you just buy a right to get the reserves if you need it. It is exactly an insurance. So the FCL is limited in scope, concerns only a certain category of countries, but now we need to reflect and think about the extension of this idea of insurance.

It is very important. Why? Because as you all know, one of the big questions before the crisis, also during the crisis, but will come back after the crisis is the so-called question of global imbalances, which has to do with countries accumulating huge reserves at the same time other countries are having huge deficits, and if you want to fix this problem, you need to understand why countries are accumulating big reserves. And one of the reasons, maybe not the only one, but one of the reasons is that they want to avoid what happened in Asia, for instance, ten years ago which is to be squeezed by any kind of speculation and not having reserves enough and be obliged to rely on other countries or the IMF. So if we want to avoid countries, including China, to build such big reserves contributing to global imbalances, we need to find another system, and the idea of a pool of reserves is a simple idea which is finally the idea which the founders of the IMF had when they were talking 65 years ago about the lender of last resort. So it is easier to explain in a few words than to do it. So we need to work on it. It is far from being done, but the communiqué opens the door for the IMF to think about it, and I think it is very important for the post-crisis world because it is one possible way to contribute solving this global imbalances problem.

At the same time, we all know that growth after the crisis on average might be lower than the average growth before the crisis, so we need boosters for growth, and among those boosters for growth we have using these huge reserves which are in some way sterilized when they are used as reserves and could be used to finance infrastructures, development, and all these kind of things. So it is connected to growth and connected to imbalances. It is a huge topic, this question of managing differently the reserves at the global level, and that is the second point which is stressed in the communiqué.

The third one is that the IMFC has endorsed what the G-20 had proposed; namely, that the Fund will work with the G-20 on a kind of new multilateral surveillance. We will report on this at the G-20 in St. Andrews in November, how to do it, but this idea which has been called at the beginning peer review, then multilateral surveillance, then finally the framework on sustainable growth. But whatever name you use, the idea is that the G-20 wants to go on and work in the surveillance business with input from the Fund. So we need to work on that to know how we are going to do it, but of course to be able to play this role, which will be a very important role, we need it to be endorsed by our own institution, which is the IMFC. So it is very helpful that the IMFC, and the third paragraph which for me is very important in the communiqué goes ahead with this new role for the IMF.

And of course the fourth point has to do with governance and the big step forward made in terms of governance. Again, the proposal comes from the G-20, but the G-20 is not the body governing the IMF, the IMFC is, and so we needed to be able to carry on what has been done at Pittsburgh through the IMFC, and the membership is not exactly the same, as you may know. So especially on a question like the quota question, it was absolutely necessary to get the endorsement of the IMFC members. Now it is done so we can go forward.

It will not be easy. Let me remind you that the last reform in quota took ten years. Let's say took nine years and a half, and the next reform we have to do it before January 2011, which is not that far, 14, 16 months, and so it's a big job to do to build a consensus not only on the quota but on other governance reforms, and I have reported this morning at the IMFC on the work done by the IMF Executive Board on proposals for governance reform. So we have all this stuff also to deal with, governance including the fourteenth quota review and also other topics. On this point also the communiqué is very clear.

So all together I think it is a very good Annual Meeting which gives us the biggest track to follow to prepare this post-crisis world. I think that it puts on our shoulders a lot of responsibility, of course, but at the same time it creates the beginning of this cooperative world and economic and financial questions that I was talking about when we met two days ago. The biggest outcome from this period of crisis was the fact that countries were able to work together as never before. They obviously want to go on working the same way.

QUESTIONER: The BRIC countries insist on a shift in quota share of at least 7 percent, saying that with 5 percent they would still be under-represented. So I wonder what is your reaction on that. Are they going too fast? Is that realistic?

Secondly, the Brazilian authorities have reacted already on your proposal for a pool of reserves, saying that this would be feasible only if they could withdraw their reserves when they want and automatically.

MR. STRAUSS-KAHN: Let me say first a few words on the second point. It is much too early to talk about details, but of course if you have a pool of reserves, it means that you have the reserves when you need it. The same thing if you have an insurance, you expect that your insurance will repay you when you need it and not arguing at this time that you cannot do it. So it is not the health insurance in the United States which would be the model. We will do something different. But it is much too early to talk about details.

On the quota, the decision which has been made by the IMFC is a move of at least 5 percent, and that was exactly the wording of the G-20. I know that the BRICs are asking for more. Some other countries are asking for less. That is the essence of a compromise. So I think that if we succeed with something which is around 5 percent, it will not be bad.

Moreover, the shift, total shift will be more than 7 percent. Let me remind you that we are still working, implementing the shift of 2008, which is 2.7 percent. So 5 plus 2.7 percent would be in total a shift of 7.7 percent.

QUESTIONER: I just wanted to ask further on building new products inspired by the flexible credit line, more insurance type arrangements. You talked about at least a vision of providing collective insurance for countries even as large as China, but the size of reserves that China has are enormous. Is it possible for you to achieve this vision that you are setting out without a very substantial increase in Fund resources even over and above what's been provided this year?

MR. STRAUSS-KAHN: First, I do not believe that if we are able to build this insurance tool, it will mean that countries will not have reserves anymore. Of course not. So it is only on top of their own reserves.

Second, the reserves China has today are probably exceeding their need in terms of reserves. So you cannot just look at the figure they have to measure how much they need.

Third, you are right, if this process comes to an end, and it may take a long time because, you know, when you have new ideas it takes time to convince that they are right, and it is just fair to study them enough. It will imply a substantial increase in the resources of the IMF to do that.

QUESTIONER: A very brief question. I noticed that the mandate and Fund financing are very important questions, issues. However, the communiqué just mentioned that the committee called on the Fund to report to the next Annual Meeting instead of the next meeting. So why did the committee not ask them to report earlier? Thank you.

MR. STRAUSS-KAHN: Because we have a lot to do.

MR. BOUTROS-GHALI: It is a complex issue.

MR. STRAUSS-KAHN: You know. Well, probably the Chairman would like to comment on this, but you should not forget that we have already a lot to do.

MR. BOUTROS-GHALI: Not only does the Fund have a lot to do, but it is a very complex issue. Don’t forget that the Bretton Woods agreement came at the end of three years of work. You do not change an institution such as the IMF, even though for its smallest detail, without very detailed studies. We are host to 186 countries, all of which have different needs, different problems, different policies, and therefore whenever we touch any of this architecture that receives this country, it has to be done carefully. The issue was debated, and to tell you frankly, some said—like you just did, why not at the Spring Meetings. That is barely eight months from now, and not time enough. We would rather take our time and come with something that is feasible, that works well, than rush into something that we have to fix two, three years later.

QUESTIONER: I wanted to turn to the surveillance or monitoring or whatever it is now called, peer review. You've been doing surveillance or monitoring since you were founded, and there have been various exercises including on rebalancing very recently. Does this imply any change whatsoever in the way you approach this question for these countries, and if so what precisely might that change be?

MR. STRAUSS-KAHN: No, in my mind it does not change the way the Fund exercises surveillance on its members. It will go on with bilateral surveillance as we did before. Already we started to have some kind of regional surveillance, for example for the euro zone or the set of countries, but it was a bit shy. We did it a little, not so much. So what we did traditionally will go on. But we have to create a new kind of thing. I cannot imagine that the G-20 wants to do surveillance country-by-country looking at one hundred -- even at the 20 countries of the G-20 itself. So it is certainly something that we have to define now in the coming weeks, but which in my view looks more as identifying systemic risks that may appear in this part or another part of the world—generally at the regional level that cannot that regional if it concerns the US or China. For instance, that is a region by itself. But maybe the regional example of Central Europe, of course, is a good example, and this process is something which we will learn by doing. I mean, the principle has been endorsed by the heads of state in Pittsburgh. How we are going to manage, how we are going to make it is something that we have to define precisely, and probably for the next meeting there will be good things and some other things which will be criticized. I know we will improve it.

But directly to your question, the traditional way of having surveillance in the Fund will go on, probably be improved also, for instance, on the size of the FSAP. I would like to have more FSAPs, to have them integrated into the Article IV when they take place. I will say that is improvement of the traditional surveillance, and this is a new kind of surveillance.

QUESTIONER: Mr. Strauss-Kahn, did you have any doubts when Poland applied for an FCL facility? And do you think that because we were granted this money it had share in the growth we have? Thank you.

MR. STRAUSS-KAHN: No, if I understand your question well, I myself have no doubt on the two parts of your question, no doubt we should do it and no doubt it has been helpful, but maybe John, who is more in charge of that one, wants to add something.

MR LIPSKY: Obviously it has been very positive, as the Managing Director said, and as it is contained in the communiqué. The FCL is a crisis prevention instrument that has a real chance of success in a world dominated by securitized finance, and in the case of not just in Poland but in each of the uses so far, the market reaction has been positive. It has been clearly helpful to the view, constructive for the view of the economy in financial markets, and therefore has added to flexibility and chances of success of Poland and the other users.

QUESTIONER: Could you tell us exactly what was done so far on the early warning exercises because that also seems to be a quite elusive objective?

MR BOUTROS-GHALI: Well, the early warning exercise is an exercise that uses the comparative advantage of the IMF. It is an exercise that manages to look at all countries at the same time. It complements what each individual country does when it drafts its own policy by looking at the impact of this policy on others and the impact of others on a particular country. It is an innovation, and I must commend both the Managing Director and the staff for having come up with an instrument that, frankly, is new to policymakers. It is an instrument that allows us to see the interaction, the economic and financial interaction among countries, and that allows us to maybe not predict but at least evaluate any risks that may be coming from outside the borders of any one country. It is a complicated exercise, it is an exercise that requires substantial knowledge, in-depth knowledge of various statistical techniques but also of each economies. And it helps establish the probabilities of what we call tail risks, events that come out in the periphery that look innocuous to most countries but in fact have massive impact on the world economy. It is an exercise that is extremely sophisticated, and it is an exercise that relies on a pool of talent in the IMF that is unparalleled in any other organization and that could not be done unless we had this pool of talent.

Can I ask you, ask John Lipsky, who has taken the lead in this, to talk about it a little more.

MR. LIPSKY: The idea of the early warning exercise is not predicting crises. The idea is to, in effect, take a look in a multilateral framework at the stress, call it a stress test of the global system, and to ask, are there potential vulnerabilities? What could be done to make sure that they are anticipated and faced? And it is an exercise, as the Chairman said, that is a complex one, a novel one. It is still in development and process. But I think it has been a useful way of putting together information, understanding where we need new data and new analysis, and has helped to focus our work, and I think to provide a useful dialogue for our members. It is one that we will continue to develop. Thank you.