Washington, D.C., January 17, 2013
Christine Lagarde, IMF Managing Director
Gerry Rice, IMF External Relations Director
MR. RICE: Good morning everyone, and welcome to this first press conference of the new year with the IMF, delighted to see you here. This morning we will be on the record. I would ask you to keep your questions fairly short, to identify yourselves by name, and affiliation.
With that, it is my pleasure to introduce this morning the Managing Director of the IMF, Christine Lagarde. I will ask the Managing Director to make a few opening remarks, and then we will turn to your questions in the room.
MS. LAGARDE: Good morning to all of you, and happy New Year. Welcome back to the Fund, and thank you very much for being here in 2013.
A few comments maybe to begin with, on our take for 2013 given that there are a few comments from various corners on what it is going to be like. I was trying to think of a formula to actually encapsulate how we perceive 2013, and my sense is:
We stopped the collapse.
We should avoid the relapse.
It is not time to relax.
Nice buzzwords for me, but it does encapsulate what we’re trying to say.
Clearly, the collapse has been avoided in many corners of the world, thanks to policies that were decided, quite often by central bankers, often eventually by government authorities, particularly in the advanced economies. Whether you look at the eurozone or whether you look at the United States of America, often at the last hour, the right decisions have been made and as a result the collapse has been avoided.
Our sense is that there is still a lot of work to be done, and I will come to that in a second, which is why we should avoid the relapse, and make sure that none of the decision-makers, and none of the authorities actually relax, assuming that because there is a bit of recovery in sight and because the markets in particular have clearly anticipated good news, it is time to just slow down, slow the pace, and go back to business as usual.
So, what does it mean in terms of policy? I will mention three key areas:
First of all, it is important to follow through on policies to put uncertainty to rest. For those of who have followed carefully the work that Olivier Blanchard and his team do, we are trying to really associate uncertainty and confidence, and while this is not clearly definite yet in terms of investment, it is yet much more certain in terms of consumption, removing uncertainty plays a key role in rejuvenating confidence. So, putting away uncertainty by following through on policies is important from our perspective.
What does that mean?
Key common challenges amongst the advanced economies will be about restoring fiscal sustainability. I’m sure you will have questions about this issue and I’ll be happy to take them. In terms of fiscal sustainability, we are particularly concerned about the medium-term plans. There are clearly short-term imperatives that have to be adjusted on a country-by-country basis, at the right pace, with the right chemistry around it, but we’re particularly concerned about the medium term in order to bring public debt down at a pace that is atune to each and every specificity of the country.
That is a common feature for all economies, particularly the advanced economies.
As far as the euro area is concerned, we think that a lot has been achieved in terms of policies, in terms of new tools in the toolbox that the Europeans have available to fight crises. Yet, firewalls have not yet proven operational. Progress needs to be made on banking union. And, clearly, continued, if not further monetary easing will be appropriate in order to sustain demand.
For the United States, we think that all sides should pull together in the national interest, avoiding further avoidable policy mistakes, that is failing to agree on increasing the debt ceiling on time, and prior to that preferably. And, reaching agreement on medium-term debt reduction which I mentioned earlier.
For the non-advanced economies, and I’m putting together the emerging markets as well as the low-income countries, clearly those countries are faring at a much better pace in terms of growth, but everywhere I’ve traveled in the last few months in Africa, in Latin America, and in Asia, there has always been a concern about the unbalances and the lack of decisive action to address the advanced economies’ crises. So, those spillover effects, including in terms of confidence building, are clear.
Given this increasing interconnectedness, particularly with certain markets, reducing this uncertainty is going to be key to the health of the global economy, and to allow those regions that are still very dynamic to continue to grow at a pace that is sustainable and necessary for the well-being of their population.
This is excessively too general, because when you go down the list of the emerging market economies and the low-income countries, some of them are much more vulnerable and open to the risk of spillover effects from advanced countries. Others are more interconnected regionally and less prone to those risks, but overall in the main there is that clear risk which leads us to recommend to them that they actually improve and increase the buffers that they have already used and which they need to replenish.
That is the first imperative I just mentioned, which is to follow through on the policies in order to eliminate the uncertainty.
The second point, which is in our view critical, because it has been at the heart of the latest development of the crisis, is to finish the reform of the financial sector. We recognize that there has been progress, but the process has been very time consuming, and continues to contribute to uncertainty.
We sense signs of waning commitment. There is still momentum, but it is probably not as crucial as it was, and we regret it. You can see that when you examine the content of reforms where some of them are slightly diluted, softened at the margin, where implementation is delayed. That is clearly the case with Basle III for instance, where there are inconsistencies of approaches that lay the ground for possible arbitration.
We believe that it is important for the regulators, for the supervisors, for the authorities to actually resist aggressive industry pushback.
What things do we see in that regard? Further weakening of capital and liquidity standards. There has been, as you know, discussions on the liquidity coverage ratio, which has concluded as it did, and it could have been better. We do not see enough progress on the cross-border resolution scheme, which has been recommended, as you know, by the FSB [Financial Stability Board], but has not yet resulted in actual deliverables at the regional and country level. And, we certainly see delay in regulation concerning both shadow banking and derivatives.
The ultimate goal of that financial regulation massive work that needs to be completed, that needs to be done on an accelerated rather than slowed-down basis clearly has to do with the growth of the real economy. And that is my third key point. That clearly authorities and policy decision-makers have to focus on the real economy, and what do I mean by that?
Clearly, a focus on growth and not any growth, but a growth that can actually deliver jobs.
The crisis has been in the making for many years now, and what we are seeing is improvements on certain fronts, but deterioration and certainly no improvement on the employment front, which we recognize as critical, both from an economic point of view, but also from a social point of view. There are more than 200 million people out of a job, and 2 in 5 of those unemployed people are around 24, with clear concentration in certain areas and certain countries, including in the advanced economies.
So, we need growth for jobs, and jobs for growth. It is a virtuous circle in which we encourage policy makers to try to engage. We need inclusive growth, and one that shares appropriately the benefit amongst all layers of the population. That applies across the world, both in advanced economies, as well as in emerging-market and low-income countries.
What do we mean by that, for instance? I’ve been traveling to quite a few low-income countries lately, including countries where we have partnership by way of technical assistance or by way of programs. Well, it means for instance transforming the energy subsidies programs into cash transfers, into social safety nets that are properly targeted to the people that actually need the support, and that are not across the board and generally benefiting anybody including those that don’t need it at all.
Finally, we need balanced growth. We need to see continued shift in demand from the advanced economies to the new growth-engines in the emerging market economies. That is one aspect of the balancing that is needed, a rebalancing. We also mean by more balanced growth a growth that is actually compatible with the sustainability of our environment, and the fight against climate change.
Now, what does that mean for us?
I remind you that in 2013 the IMF is certainly stronger, better equipped financially, has certainly refined some of its analytical tools. We will continue to strengthen our surveillance, especially on spillover effects, and on the financial sector. We will continue to strengthen our support for the entire spectrum of members through lending, capacity building, training, technical assistance. In other words, we are not only serving the needs of a selected group of countries, but we serve the entire membership. And when you look at the map of the world and see where our teams are, whether in capacity building, in technical assistance, in programs associated or not with financing, we are all over the map.
We will continue to push ahead with the important and yet not completed reform of quota and governance, which as you know includes three stages, two of which are completed, the third one not yet. And certainly short of a few members, one of which is obviously a key member.
That is really what I wanted to open our conference with, and I would now welcome your questions and address each and every one of them to the extent that I have the answer, and if I don’t, I’m sure I will find in this extraordinary institution the right talent that will have the right answer for you. I will not pretend I know it all. I try to learn a lot in the process.
QUESTIONER: Thank you, Madam Managing Director for the press conference and speaking with us. You will be meeting the Russian Prime Minister in a few days in Davos, and I wonder how you view the Russian agenda for the G-20 in the context of your aims that you have just described for us. If you could maybe change anything in that agenda, what would that be?
MS. LAGARDE: Well, I would not change the venue, because I’m very much looking forward to going to both Moscow and St. Petersburg later on in the year. I’m pleased about the timing there, because St. Petersburg will be a little bit warmer, I hope.
The focus of the Russian agenda for the G-20 is right, because it is focused. To have as priorities the ways and means to restore and maintain growth and create jobs, number 1.
Number 2, the continuation and completion of the financial sector reform. And number 3, using the Mutual Assessment Process to actually guide countries and economies to cooperate. I think those are three very important agenda items.
There might be more, but those three are the ones that we are really concerned about, and where the IMF can actually help and provide advice and support. And we will be very happy to support the Russian presidency on these three agenda items.
QUESTIONER: I wonder, Madame Lagarde, your assessment on the development of the Brazilian economy. We saw very frustrating growth last year and there is no great expectation that Brazil will have a better result this year. We have also inflation rising and a very concerning situation on our fiscal sector. Despite this, Brazil is actually one country where we don’t have very good economic growth. But, we still have job creation. So, it is one of the very unusual situations. I would like your assessment on that, please.
MS. LAGARDE: In a way I share your concern about the Brazilian economy. It has grown, and certainly less than was initially expected. But, having said that, the real question is to really understand whether it is growing at capacity or whether there is an output gap that could be filled in by appropriate macroeconomic policy measures.
QUESTIONER: Just elaborating on the financial reform a little bit, I was wondering, you seem to be attributing some of the recent events to a pushback from industry, and I wonder whether or not you feel it is also possible that the process has just reached the limits of what it can do at this point, and whether necessarily we are going to be left with a somewhat incomplete response because of the concerns about growth and credit provision.
MS. LAGARDE: Two points on that. Yes, I’m always concerned about the pushback of the banking industry, because I think it is the nature of the game and it is the constant approach by the industry to push back because it is nice to operate without regulation rather than with regulation, with less supervision, rather than with too much supervision. I might be a little bit blunt on that, but that is my experience as former minister of finance, and having observed the profession closely.
Equally, I don’t think that the appetite for growth, the need for jobs, and the necessary level of investment is not consistent with having the financial regulations in place, with the right level of certainty, with the appropriate supervision. Because, essentially, what the financial regulation reform aims at is to make sure that there is security, that there is protection, that there is credit available for investors to actually develop the activity, invest in the economy, and as a result create jobs. So, I don’t see that as being mutually exclusive. Having the concern we all have about growth, jobs, and investment is supported by the need to have a financial sector that is vibrant, that is focused on the right priorities, that is appropriately supervised and that is certainly regulated. When I say certainly regulated, it is regulated with certainty.
QUESTIONER: I would like to know what you expect for Portugal this year, and also what do you suggest to the Portuguese authorities to do in the short term to go back to markets?
MS. LAGARDE: I would observe that Portugal has done an extremely good job at reducing the fiscal deficit. That is point number 1. I think two thirds of the way has already been completed and done.
We have just approved yesterday the review and disbursed close to a billion dollars, which was the next tranche of the Portuguese program. There is still work to do, so “we stopped the collapse, let’s avoid the relapse, and not relax”, applies to Portugal as well. We know that more fiscal contraction and consolidation is needed going forward. We have made a range of proposals, they are just proposals for the moment, clearly. The Portuguese authorities have to decide what is most appropriate in the context of Portugal and if they have other options that are best in order to both accomplish the fiscal consolidation and preserve the chemistry of Portuguese society, that is perfectly legitimate and fine.
But, there is a bit more time to go. A bit more work to do. But, they’re clearly seeing the end of the program, and certainly we hope growth and jobs at the end of the day, which is really what matters, because with a 16 percent unemployment rate and over 30 percent of young people, that is really the key priority.
QUESTIONER: According to the Chief Economist of the IMF himself, the impact of austerity on growth may have been underestimated in Europe. I want to know if you share that opinion.
MS. LAGARDE: I always share the opinion of my chief economist. I will challenge him eventually, but at the end of the day, when it is over and agreed, I do not challenge the views and findings, because they have been solidly worked out.
Clearly, research was done and research is constantly done. The IMF does not operate on the basis of principles that are set in stone, and forever. I think the pride of this institution is to constantly question, challenge, revisit, reexamine, test the findings and the assumptions in order to be as up-to-date as possible. The numbers that have been used some five, six years ago were numbers that had been examined, reviewed, explored and that were common to pretty much all the professionals in the field, and you are talking here about fiscal multipliers.
Clearly, the crisis we have gone through is unparalleled, has no historical precedent, and has reshuffled the assumptions and the cards on the map of fiscal multiplier assumptions, which was in all honesty a work that was put back under review, and for which the teams here have concluded that the fiscal multipliers were higher in the context of that unbelievable international crisis, with shortage of liquidity, with lower demand addressed to the economy, and what we have seen developing. So, that is the reason why the Research Department, and the entire institution, decided to come out, publish, explain what our new findings were that were clearly informed and transformed by the context of the international crisis that we’ve gone through.
QUESTIONER: The Fund has now gone into a new program with Greece that seems to have stretched the parameters of what the Fund had sought from Greece and from the European partners in terms of debt reduction. How long do you think this can go on without getting true debt reduction for a country like Greece? And, do you think there is some specific time period where you need to see that before people will lose faith in Greece yet again?
MS. LAGARDE: I’m pleased that you see that people have regained faith in Greece, and that confidence has been restored and that this time it’s different, if I may say so. We have yesterday approved two reviews, and a disbursement of two tranches under the existing program. So it is not really a new program. It is the EFF that had been approved in March, but clearly revisited in the sense that we had asked, and the troika partners have eventually agreed, that an additional two years were needed for Greece to accomplish the fiscal contraction that is still needed, because it is, we thought it would be, and we think it would be better for the country to actually have a bit more time.
Equally, the clear variation from the March set of principles applying to the programs, which has changed, is the renewed financing support and general support on the part of the European partners. And the commitment that they have made to not only extend the maturity of their loans, not only significantly reduce the interest rate, but also provide whatever is necessary going forward in particular in terms of additional support to alleviate the burden of the debt on Greece, provided that—and that is where your timing question comes into play—provided that the country delivers on its commitment. And you can’t judge a commitment and the delivery against the commitment in a matter of a couple of months. So, my sense is that it is probably a matter of years before commitment can be measured against delivery. That is very important, of course. And it changes the face of the Greek landscape, if you will.
QUESTIONER: Russia’s central bank has said that the world’s leading economies are on the brink of a currency war to keep up with Japan and Japan’s use of the devaluation to boost their competitiveness. Germany’s finance minister has also said he is concerned about the impact on global liquidity of Japanese monetary policy. What are your thoughts on the possibilities of a currency war, and on Japan’s monetary policy that seem to be aimed at weakening the yen?
MS. LAGARDE: First of all, I don’t like any war, be it currency or otherwise. And, when Guido Mantega at the time used the expression, he was the first one, Minister of Finance of Brazil, I strongly objected to that idea and the time he was Minister of Finance—not Managing Director of the IMF. I think I’m even more determined to argue against currency wars, competitiveness devaluations, which are just against the principle of the IMF. And that actually caused the creation of the institution.
So we’re not supportive in any shape or form of any such attempt to create competitiveness devaluation and open currency wars. I think if only the risk of retaliation should actually prevent anybody to go into that sort of monetary policy. There are multiple ways to improve competitiveness, other than to use currencies as a tool. So, I think that really summarizes the position of the institution.
QUESTIONER: We heard you many times speaking about the responsibilities of the Greek government on the timely implementation of the Greek program. I want to ask if you can tell us if there are any mistakes that happened over the last two years on behalf of the IMF on the Greek program, that you wouldn’t like to be reiterated again in 2013 or in the future for Greece?
MS. LAGARDE: Given where we are, in partnership with the authorities of Greece, I’m not personally especially interested in trying to rewrite history or blame anybody or point the finger. My keen interest and my very strong hope is that we can continue to work together, and the Greek people will support their Greek authorities in order to deliver under the program, to make sure that the country can come back to growth, to make sure that the people who have sacrificed enormously in terms of salary, in terms of pension can actually reap the benefits of their sacrifices.
Because three things will happen:
Number 1, the structural reforms that will be conducted that are necessary to actually collect on the sacrifices that have been made.
Second, that the fiscal consolidation programs that have been decided continue at the right pace, with those additional two years that we have suggested and that have been accepted.
And, third, extremely important, that there is appropriate effort to overhaul the tax administration of Greece, to collect tax revenue, and to fight tax evasion. I forgot to mention the privatization program, which is also necessary, but which is also delivering now for Greece.
QUESTIONER: Madame Lagarde, what is your insight on the Chinese economy in terms of opportunities and challenges? And secondly, what goals are on top of your agenda which you want to achieve in the new year?
MS. LAGARDE: Global growth is not just on the top of my agenda. I think it is on the top of the agenda of anybody who cares about the economy and who cares about jobs, and who cares about rebalancing and consolidating. Growth is clearly a very conducive factor underlying element for all of what we want: Jobs, fiscal consolidation, rebalancing. It makes it a lot easier when you have growth.
Turning to China, I would certainly, number 1, observe that there is continued significant and substantial growth expected out of China. I would observe that there has been a rebalancing within the China economy, with a clearer focus on consumption rather than exports, which is reflected in the significant change in the current account of China. And I would finally observe that while moderately undervalued, the currency of China has adjusted significantly, and my hope is that these trends that we have observed will continue into 2013 and the new Chinese leadership.
QUESTIONER: Madame Lagarde, how do you see the impact of what is happening in the Arab countries, this Arab Spring, on the economies in the Arab world, and do you have any particular concerns about it?
MS. LAGARDE: As you know, I submitted an op-ed published this morning in a particular financial newspaper about that. The IMF is very strongly engaged to support and help the Arab countries that went through their significant change in the last couple of years now. We have programs in place with the authorities in Yemen, in Morocco, in Jordan. We are in advanced negotiations with Egypt and we will be starting negotiations with Tunisia. That gives you an idea of the scope of our involvement.
We believe that an economic set of reforms and focus on growth must be applied to those economies that have gone through political transformation, and that there has to be an economic response to the social and peoples restoration. That is what we’re trying to help. Those economies have gone through the stress of the months of transformation, and they now have to resettle and reproach their economic development in a more inclusive way, and with a view to creating jobs.
Now, we would have to take each and every country to go under the skin of its economy and the particularities of it, but as far as we’re concerned, we want to help, we want to partner, we want to also give the signal to other donors, to other contributors that the governments in place are serious about restoring the economic situation. And we very much hope that this will be the case.
QUESTIONER: I would like to ask you about Argentina. I would like to know when the Board will discuss Argentina, the meeting will take place, and whether recent high-level contacts with the Argentine government have provided any movement to a solution. And, of course, what was your main recommendation in your December report to the Board?
MS. LAGARDE: My December report was to the Board and not to you, so you will bear with me if I don’t disclose the content of the report. What I can share with you, though, is that the Board meeting is currently scheduled for February 1. I can also tell you that we have had a mission on the ground with a view to putting in place an FSAP, a Financial Sector Assessment Program. And, that was a scoping mission, the preliminary mission when we discuss with the authorities what aspect of the financial sector we will review. And, there should be a second visit in March. That is separate from the issue of accuracy of data.
QUESTIONER: My question is regarding the debt and spending issues of the United States. So, do you think how the United States can do the spending cuts properly, but minimize its effect on economic growth at the same time?
MS. LAGARDE: The obvious response to that is timing. Spending cuts are necessary, obviously. They should be anchored in the medium term. They should be sufficiently solid as to remove the uncertainty around them. And they should clearly touch on entitlement, among other things.
QUESTIONER: I don’t have a question on Greece. I have a question on Cyprus today.
MS. LAGARDE: We’re traveling fast.
QUESTIONER: We’re hearing from Nicosia and Brussels that the Europeans, they don’t want the IMF to participate in the program. Can you tell us why, two months after the statement that you issued in November, we have no deal yet between the troika and Cyprus?
MS. LAGARDE: The IMF has been engaged with troika partners in relation to Cyprus, and we have, indeed, sent a mission to the ground and we have had a dialogue with the Cyprus authorities. The building blocks of a program have been put together. It has not yet been concluded, because there are clearly financing issues that need to be resolved in order for a program to be acceptable, and for the debt to be sustainable.
QUESTIONER: If I can take you back to the Arab world for a moment and ask you about the Palestinian Authority. Do you have a plan to avoid the collapse of the Palestinian Authority? About Algeria, do you have a plan now in the wake of all the developments there?
MS. LAGARDE: As far as the West Bank and Gaza are concerned, as you know they’re not members. It is not a member of the IMF, and we do not do lending for nonmembers. Having said that, we do a lot of capacity building, we do a lot of technical assistance, and that is our other way of helping. As far as Algeria is concerned, we do not have any particular program planned, but technical assistance is in train at the moment with that country, which I am planning to visit in March.
QUESTIONER: I’m wondering if you have any concern that in Europe the political system has been pushed to an extent where more structural reforms that will bring about the jobs and growth necessary, won’t be able to come about.
MS. LAGARDE: Your question is that the structural reforms could not come about?
QUESTIONER: Because of the political tensions have been pushed too far, whether that is too much of a challenge for the structural reforms necessary. And, if I may, with your approval, Japan. Is their defense of the yen and the desire to continue to depreciate it supported by the IMF?
MS. LAGARDE: On the attempt to reinvigorate growth and create jobs, there are two sets of parameters in our view. Number 1, parameters that have to be satisfied at the national level and when you look at Italy, Spain, Germany, Netherlands, France, some of the Central and Eastern European countries, the requirements will be different. And what we see in many of these countries is a determination to actually implement reforms, decide reforms, own reforms.
Certainly, when you look at the recent agreement that was reached among social partners in France to reform the labor market, that is a good step in the right direction. For instance, when you look at the reform of the competition authorities in Italy, that is a step in the right direction. When you look at the labor reform of the Spanish market, it is a step in the right direction. So you have a whole layer of national steps that are taken and that are in the making to improve the situation, the flexibility, the responsiveness to economic factors.
Then you have another layer, which is the regional one, which is probably the one you are alluding to, where clearly there are reforms that have taken place already, that are significant in terms of fiscal discipline.
Notably, in terms of plans, as far as the banking union is concerned, you know, we never comment on leaks. Neither would I comment on leaks concerning other parties, and I would certainly be impatient to see what the banking union plan will be, and what the common supervision system will be, what it will deliver. But I observe a lot of progress on that front. There is more to be done. But, I don’t think that we can any longer accuse the Europeans of kicking the can down the road because they are producing results and exploring significant reforms which should help them recover. But, again, for them the same principle applies:
Let’s stop the collapse.
They should avoid the relapse.
And they should not relax, in general.
On Japan, well, clearly, that sort of recently announced fiscal and monetary package is intended to create growth in the short term. We don’t think that, pending a medium term, solid anchoring that would actually indicate the determination to change the debt trajectory, and reduce the deficit, it is particularly appropriate, because we see any such measure as being part of an overall package and there is clearly one part of the package that is missing. Monetary policy with a different inflation target is in and of itself certainly a good and interesting project, if associated with clear independence of the central bank.
MR. RICE: Thank you very much, Managing Director. Thank you to all for coming today. We look forward to working with you in the year ahead.
MS. LAGARDE: Happy New Year to you all.