TRANSCRIPT OF AN ONLINE PRESS BRIEFING WITH THE IMF MANAGING DIRECTOR
Washington, D.C. July 29, 2015
SPEAKERS:
Christine Lagarde Managing Director, IMF
Gerry Rice Director, Communications Department, IMF
MR. RICE: Good morning, everyone. And welcome to this Press Briefing here, at the International Monetary Fund. Delighted to welcome you this morning, and we looked at this as an opportunity to give you the chance to ask some questions to the Managing Director of the IMF, Madam Christine Lagarde. Good morning, Madam Lagarde.
MS. LAGARDE: Good morning, Gerry.
MR. RICE: Who with us this morning. And also it's an opportunity for us to use the Online Media Briefing Center to reach out to our contacts and colleagues in the press all over the world.
So, again, welcome. We are on the record this morning, we are going to turn to your questions online very shortly. But just before doing that, I would like to ask Madam Lagarde, perhaps, to make a few opening remarks and then we'll turn straight to your questions. Thank you. Madam Lagarde?
~~~
Washington, D.C. July 29, 2015
SPEAKERS:
Christine Lagarde Managing Director, IMF
Gerry Rice Director, Communications Department, IMF
MR. RICE: Good morning, everyone. And welcome to this Press Briefing here, at the International Monetary Fund. Delighted to welcome you this morning, and we looked at this as an opportunity to give you the chance to ask some questions to the Managing Director of the IMF, Madam Christine Lagarde. Good morning, Madam Lagarde.
MS. LAGARDE: Good morning, Gerry.
MR. RICE: Who with us this morning. And also it's an opportunity for us to use the Online Media Briefing Center to reach out to our contacts and colleagues in the press all over the world.
So, again, welcome. We are on the record this morning, we are going to turn to your questions online very shortly. But just before doing that, I would like to ask Madam Lagarde, perhaps, to make a few opening remarks and then we'll turn straight to your questions. Thank you. Madam Lagarde?
~~~
MS. LAGARDE: Well, thank you very much, Gerry; and good morning to all of you. This is my first virtual press conference, which is quite unusual and I'm trying to imagine all of you behind this little screen that is facing me, but I'm going to look at Gerry and imagine that you are all like Gerry.
If I look at the global economy as it stands at the moment, and based on the real latest, at the World Economic Outlook, we have a situation where growth is a little bit tepid,
I would say, the 3.3 percent in 2015, hopefully 3.8 percent in 2016, which is clearly better, so we have recovery, as we have said, but it's fragile, it's unbalanced, and there are some downside risks on the horizon.
But being a positive person, and trying to look at the bright side of things, I would like for once to just, you know, sort of start with the low-income countries, because that’s where we are seeing the highest growth numbers in the fifth, aiming toward six, depending on the countries, with some outperformers.
And clearly countries that are heading towards better development, and that was certainly clear at the time of the Addis Ababa Conference that took place about a week ago, where major financing were considered, and where low-income countries really gathered to see how they can, together, move forward.
So, that’s a promising area, and one where, I think the IMF is going to continue being a partner, where the IMF will not make undue promises, but where we will be very keen to deliver what will actually help the low-income countries. And, you know, I'll be happy to go back to that.
Then moving East towards Asia, we also have, particularly in the developing countries of Asia, some very remarkable performers, and we have, you know, a slowdown in growth.
We are still focusing China at 6.8 percent which is certainly a bit lower than what it has delivered lately, but it's a measured slowdown, I think very much under control.
It has had its little ups and downs lately, and I'm happy to come back to that later.
Japan is a very interesting country, we just concluded the Article IV a couple of days ago, and it's clearly a country where a very determined and decisive team has focused on monetary, and that monetary policy is much more active and vibrant and it has been for a long time, and it targets, clearly, an increase in inflation, an increase in the monetary mass as well.
And a set of fiscal and -- fiscal policies and structural reforms that have to accompany the process.
Now, we believe that Abenomics, as it's called, is turning out to be positive, is beginning to deliver, and we see underlying inflation in particular, inflation expectations on the upside.
But it has to be continued, and they both, in terms of fiscal commitment with the consumption tax, in terms of structural reforms will focus on women. Those reforms have to be continued.
The Euro Area? I would say that despite trepidations that everybody is familiar with, particularly in Greece, the Euro Area is beginning to turn the corner, and we have more upbeat forecasts than we had in a long time, and certainly there are countries that have graduated from their programs; whether it's Ireland, whether it's Portugal, Spain only with respect to the banking sector that are beginning to deliver much better results.
Greece, I'm sure, you'll want to ask me a couple of questions on Greece. But it's looking more promising and I'm sure that there will be changes in the Euro Area, which will be probably triggered by the current questions that one has about the cohesion of the monetary currency, the monetary union.
Moving West this time, we clearly have a strong performer with the United States of America, which is, you know, certainly well into its recovery process.
Where we should expect probably a variation of monetary policy in the not too distant future, we are very pleased to see that it is data-dependent, and that the Chairman of the Fed is actually very, very determined to stay data-dependent, and to give very clear signals and indications as to when changes will occur.
We have a close, as you know, connection to the U.S. authorities, particularly to the Fed, and we are in great discussion. We are not always exactly on the same page, and we made our recommendations, but that’s probably to be expected.
Now looking South, in that hemisphere, the Latin America countries from the Caribbean all the way down to the South Cone, are taking a hit as a result of the commodity prices decline.
And I think it's a region that has enjoyed a very longstanding, positive ride as a result of high commodity prices, as a result of growth being driven by some large economy, such as China.
And where, clearly, there is a dampening effect as a result of the decline of prices.
And probably some expectations that the change in U.S. monetary policy will also induce an element of volatility in those markets, so we are seeing in 2015, certainly, a much lower growth rate overall, with completely different performers, and hopefully a little pickup in 2016. I think I've tried to give you a sort of global approach to where we are at the moment.
MR. RICE: Thank you very much for that overview. I'm sure that was great interest to the global audience. Let me turn to the questions, or some of the questions we've received online.
I'm going to begin with some questions on China, and in particular from Xinhua, from Yujuan Jiang, we have a couple of questions, let me just read these questions: some are questioning China's efforts to stabilize the stock market movements, and how might this affect China's determination to further its reforms? How does the IMF evaluate China's financial market reforms?
And will this stock market event of recent times, earlier this month, will it affect the IMF's review of the renminbi's inclusion in the Special Drawing Right currency, the SDR?
MS. LAGARDE: Hello, Yujuan Jiang. That’s quite a question I have to say. Okay, let me backtrack a little bit. First of all I think there had been a lot of noise and a lot of coverage of significant market variations, but I think we need to keep in mind a bit of a medium-term approach.
And if we look at the Chinese market, particularly the Shanghai market, we are still up -- they are still up more than 80 percent relative to a year ago.
So it's a market that has gone up extraordinary, and which is through a down mechanism at the moment, which is also very rapid, but we are still more than 80 percent from last year. That's point number one.
Point number two, we have concluded our China Article IV, and that was actually reviewed a couple of days ago and we believe that the Chinese economy is resilient and, you know, strong enough to withstand that kind of significant variation in the markets.
I think the third point is that it's not a very, sort of, well established longstanding markets that has been around for decades and decades, as has been the case in either the United States or some of the European Union countries.
It's a relatively young market and there is an element of a learning curve, both by the market players, by those who invest, by those who raise capital and of course by the authorities as well.
And no one should be surprised by the fact that they want to maintain an orderly movement, and try to avoid disorderly functioning of those markets. That's after all, the duties of such authorities.
And the fact that they want to maintain a level of liquidity as well, that is commensurate with an orderly process, is also quite good.
Now, is that going to impact significantly? I think on the economy as a whole, I've mentioned the point that we believe that the Chinese economy is resilient. Is that going to impact our assessment of the Special Drawing Right basket? I don’t think so.
We have to be mindful, we have to be vigilant, and we always are, but equally we cognizant of the very significant reforms that the Chinese authorities are implementing.
I mean, a few days ago implementing, I mean a few days ago and it went quite unnoticed. In mid-July the Chinese authorities moved forward with significant reforms of their financial markets.
And we are very confident by their determination to deliver on the reforms, which will be conducive one day when the time comes once all the signals are checked positively to the renminbi included in the Special Drawing Right basket. So we are doing the work. We will continue to do the work.
And I don’t think that we will be derailed by some market variations that we’ve seen recently.
MR. RICE: I should have mentioned several questions on China. Andrew Mayeda from Bloomberg had a similar set of questions
. I’m going to move on to Greece where we have a large number of questions, most of them around the same sort of nexus of issues. I’m going to take the question from Jeremy Tordjman of AFP, but I should mention that there are questions also from the Washington Post, Kathimerini, Reuters, from Dagens Nyheter in Norway, Asahi Shimbun,.
Let me capture the main issues via Jeremy Tordjman and actually a question from Heather Scott of Market News and The Guardian in London. So the questions on Greece, if I may, are:
The IMF has repeatedly stressed the importance for build-out countries to have ownership of the programs.
How do you expect, how does the IMF expect, this ownership to materialize in Greece given that the authorities have indicated little faith in the program and have publically stated in the past that they did not want to have the IMF onboard?”
So that was Jeremy Tordjman’s question. And there’s a question from Asahi Shimbun that says, “Regarding Greece’s debt; there were agreements the creditors should have restructured Greece’s debt earlier, which turned out to be true. Does the IMF stance this time reflect that lesson?
And then finally, what actions or policies would be necessary to convince the IMF to participate in a future program in Greece?”
MS. LAGARDE: Good morning, Jeremy. First of all, I have received a letter from the Greek authorities and from the Finance Minister to invite the IMF to come and work with the Greek authorities on a proposed program. So that’s number one, we are being invited.
Number two, I have been in politics myself, a little bit, and there are lots of things that you say and what matters at the end of the day is what you do -- so deeds, no creeds.
And what will be critical in my view is what the Greek authorities actually are prepared to do, not the words around it, not the political noise that is often a necessity.
But to demonstrate ownership and to demonstrate determination you propose pieces of legislation, you debate them, and then you vote, the parliament votes them or not. That’s stage one.
Stage two, you implement the decisions that have been made. And I think that’s what will really indicate the ownership of the authorities to make sure that the Greek economy turns around, that it starts creating jobs, and that it restores the complete financial sovereignty of the Greek economy so that at some stage it can go back to market, finance itself without any support. So that’s the nature of ownership.
On the issue of debt, first of all there was a debt restructuring in 2012. It was essentially a public sector debt owed to the private sector, and there was a massive restructuring at the time.
We are currently looking at a situation where we have analyzed the debt as unsustainable. I think I have repeatedly said that for Greece to succeed and for any program to fly, a significant debt restructuring should take place. So I don’t think that we have varied.
And we will stick to that position because that’s really becoming a commonly accepted view that with a debt that climbs from 170-ish and might peak at 200 percent with the track record of the country, it’s inevitable that there is an element of debt restructuring, which takes me to the latter part of your questions.
I think for a program to succeed and for Greece to be able to turn around its economic and social situation and to reach the stability that is hoped for, it will take four key components.
I think it will take sensible fiscal targets that are delivered upon with clear measures that will be identified early on. It will require structural measures to unleash the potential of the Greek economy, which is far too constrained by lots and lots of barriers, turfs, protections.
And on the other side, it will require sufficient financing so that the program is actually credible; and the element of debt restructuring, which will allow the Greek economy to walk on not necessarily two legs as I have said, but four legs. It takes fiscal, structural reforms, financing, and debt restructuring.
MR. RICE: I think that covered a lot of ground for Greece. I’m going to turn to Ukraine, another country in the news, and this question is from Moritz Koch of Handelsblatt. And he is asking, “A deal with the private bondholders is still not reached. A default seems more and more likely.
The IMF has indicated that it is prepared to continue disbursing money to Ukraine even in that case.
So my question is this, how would a failure of the debt negotiations impact the timeline for Ukraine’s return to the markets, and would a further extension of the program and even more public aid be necessary in that event?”
If I look at the global economy as it stands at the moment, and based on the real latest, at the World Economic Outlook, we have a situation where growth is a little bit tepid,
I would say, the 3.3 percent in 2015, hopefully 3.8 percent in 2016, which is clearly better, so we have recovery, as we have said, but it's fragile, it's unbalanced, and there are some downside risks on the horizon.
But being a positive person, and trying to look at the bright side of things, I would like for once to just, you know, sort of start with the low-income countries, because that’s where we are seeing the highest growth numbers in the fifth, aiming toward six, depending on the countries, with some outperformers.
And clearly countries that are heading towards better development, and that was certainly clear at the time of the Addis Ababa Conference that took place about a week ago, where major financing were considered, and where low-income countries really gathered to see how they can, together, move forward.
So, that’s a promising area, and one where, I think the IMF is going to continue being a partner, where the IMF will not make undue promises, but where we will be very keen to deliver what will actually help the low-income countries. And, you know, I'll be happy to go back to that.
Then moving East towards Asia, we also have, particularly in the developing countries of Asia, some very remarkable performers, and we have, you know, a slowdown in growth.
We are still focusing China at 6.8 percent which is certainly a bit lower than what it has delivered lately, but it's a measured slowdown, I think very much under control.
It has had its little ups and downs lately, and I'm happy to come back to that later.
Japan is a very interesting country, we just concluded the Article IV a couple of days ago, and it's clearly a country where a very determined and decisive team has focused on monetary, and that monetary policy is much more active and vibrant and it has been for a long time, and it targets, clearly, an increase in inflation, an increase in the monetary mass as well.
And a set of fiscal and -- fiscal policies and structural reforms that have to accompany the process.
Now, we believe that Abenomics, as it's called, is turning out to be positive, is beginning to deliver, and we see underlying inflation in particular, inflation expectations on the upside.
But it has to be continued, and they both, in terms of fiscal commitment with the consumption tax, in terms of structural reforms will focus on women. Those reforms have to be continued.
The Euro Area? I would say that despite trepidations that everybody is familiar with, particularly in Greece, the Euro Area is beginning to turn the corner, and we have more upbeat forecasts than we had in a long time, and certainly there are countries that have graduated from their programs; whether it's Ireland, whether it's Portugal, Spain only with respect to the banking sector that are beginning to deliver much better results.
Greece, I'm sure, you'll want to ask me a couple of questions on Greece. But it's looking more promising and I'm sure that there will be changes in the Euro Area, which will be probably triggered by the current questions that one has about the cohesion of the monetary currency, the monetary union.
Moving West this time, we clearly have a strong performer with the United States of America, which is, you know, certainly well into its recovery process.
Where we should expect probably a variation of monetary policy in the not too distant future, we are very pleased to see that it is data-dependent, and that the Chairman of the Fed is actually very, very determined to stay data-dependent, and to give very clear signals and indications as to when changes will occur.
We have a close, as you know, connection to the U.S. authorities, particularly to the Fed, and we are in great discussion. We are not always exactly on the same page, and we made our recommendations, but that’s probably to be expected.
Now looking South, in that hemisphere, the Latin America countries from the Caribbean all the way down to the South Cone, are taking a hit as a result of the commodity prices decline.
And I think it's a region that has enjoyed a very longstanding, positive ride as a result of high commodity prices, as a result of growth being driven by some large economy, such as China.
And where, clearly, there is a dampening effect as a result of the decline of prices.
And probably some expectations that the change in U.S. monetary policy will also induce an element of volatility in those markets, so we are seeing in 2015, certainly, a much lower growth rate overall, with completely different performers, and hopefully a little pickup in 2016. I think I've tried to give you a sort of global approach to where we are at the moment.
MR. RICE: Thank you very much for that overview. I'm sure that was great interest to the global audience. Let me turn to the questions, or some of the questions we've received online.
I'm going to begin with some questions on China, and in particular from Xinhua, from Yujuan Jiang, we have a couple of questions, let me just read these questions: some are questioning China's efforts to stabilize the stock market movements, and how might this affect China's determination to further its reforms? How does the IMF evaluate China's financial market reforms?
And will this stock market event of recent times, earlier this month, will it affect the IMF's review of the renminbi's inclusion in the Special Drawing Right currency, the SDR?
MS. LAGARDE: Hello, Yujuan Jiang. That’s quite a question I have to say. Okay, let me backtrack a little bit. First of all I think there had been a lot of noise and a lot of coverage of significant market variations, but I think we need to keep in mind a bit of a medium-term approach.
And if we look at the Chinese market, particularly the Shanghai market, we are still up -- they are still up more than 80 percent relative to a year ago.
So it's a market that has gone up extraordinary, and which is through a down mechanism at the moment, which is also very rapid, but we are still more than 80 percent from last year. That's point number one.
Point number two, we have concluded our China Article IV, and that was actually reviewed a couple of days ago and we believe that the Chinese economy is resilient and, you know, strong enough to withstand that kind of significant variation in the markets.
I think the third point is that it's not a very, sort of, well established longstanding markets that has been around for decades and decades, as has been the case in either the United States or some of the European Union countries.
It's a relatively young market and there is an element of a learning curve, both by the market players, by those who invest, by those who raise capital and of course by the authorities as well.
And no one should be surprised by the fact that they want to maintain an orderly movement, and try to avoid disorderly functioning of those markets. That's after all, the duties of such authorities.
And the fact that they want to maintain a level of liquidity as well, that is commensurate with an orderly process, is also quite good.
Now, is that going to impact significantly? I think on the economy as a whole, I've mentioned the point that we believe that the Chinese economy is resilient. Is that going to impact our assessment of the Special Drawing Right basket? I don’t think so.
We have to be mindful, we have to be vigilant, and we always are, but equally we cognizant of the very significant reforms that the Chinese authorities are implementing.
I mean, a few days ago implementing, I mean a few days ago and it went quite unnoticed. In mid-July the Chinese authorities moved forward with significant reforms of their financial markets.
And we are very confident by their determination to deliver on the reforms, which will be conducive one day when the time comes once all the signals are checked positively to the renminbi included in the Special Drawing Right basket. So we are doing the work. We will continue to do the work.
And I don’t think that we will be derailed by some market variations that we’ve seen recently.
MR. RICE: I should have mentioned several questions on China. Andrew Mayeda from Bloomberg had a similar set of questions
. I’m going to move on to Greece where we have a large number of questions, most of them around the same sort of nexus of issues. I’m going to take the question from Jeremy Tordjman of AFP, but I should mention that there are questions also from the Washington Post, Kathimerini, Reuters, from Dagens Nyheter in Norway, Asahi Shimbun,.
Let me capture the main issues via Jeremy Tordjman and actually a question from Heather Scott of Market News and The Guardian in London. So the questions on Greece, if I may, are:
The IMF has repeatedly stressed the importance for build-out countries to have ownership of the programs.
How do you expect, how does the IMF expect, this ownership to materialize in Greece given that the authorities have indicated little faith in the program and have publically stated in the past that they did not want to have the IMF onboard?”
So that was Jeremy Tordjman’s question. And there’s a question from Asahi Shimbun that says, “Regarding Greece’s debt; there were agreements the creditors should have restructured Greece’s debt earlier, which turned out to be true. Does the IMF stance this time reflect that lesson?
And then finally, what actions or policies would be necessary to convince the IMF to participate in a future program in Greece?”
MS. LAGARDE: Good morning, Jeremy. First of all, I have received a letter from the Greek authorities and from the Finance Minister to invite the IMF to come and work with the Greek authorities on a proposed program. So that’s number one, we are being invited.
Number two, I have been in politics myself, a little bit, and there are lots of things that you say and what matters at the end of the day is what you do -- so deeds, no creeds.
And what will be critical in my view is what the Greek authorities actually are prepared to do, not the words around it, not the political noise that is often a necessity.
But to demonstrate ownership and to demonstrate determination you propose pieces of legislation, you debate them, and then you vote, the parliament votes them or not. That’s stage one.
Stage two, you implement the decisions that have been made. And I think that’s what will really indicate the ownership of the authorities to make sure that the Greek economy turns around, that it starts creating jobs, and that it restores the complete financial sovereignty of the Greek economy so that at some stage it can go back to market, finance itself without any support. So that’s the nature of ownership.
On the issue of debt, first of all there was a debt restructuring in 2012. It was essentially a public sector debt owed to the private sector, and there was a massive restructuring at the time.
We are currently looking at a situation where we have analyzed the debt as unsustainable. I think I have repeatedly said that for Greece to succeed and for any program to fly, a significant debt restructuring should take place. So I don’t think that we have varied.
And we will stick to that position because that’s really becoming a commonly accepted view that with a debt that climbs from 170-ish and might peak at 200 percent with the track record of the country, it’s inevitable that there is an element of debt restructuring, which takes me to the latter part of your questions.
I think for a program to succeed and for Greece to be able to turn around its economic and social situation and to reach the stability that is hoped for, it will take four key components.
I think it will take sensible fiscal targets that are delivered upon with clear measures that will be identified early on. It will require structural measures to unleash the potential of the Greek economy, which is far too constrained by lots and lots of barriers, turfs, protections.
And on the other side, it will require sufficient financing so that the program is actually credible; and the element of debt restructuring, which will allow the Greek economy to walk on not necessarily two legs as I have said, but four legs. It takes fiscal, structural reforms, financing, and debt restructuring.
MR. RICE: I think that covered a lot of ground for Greece. I’m going to turn to Ukraine, another country in the news, and this question is from Moritz Koch of Handelsblatt. And he is asking, “A deal with the private bondholders is still not reached. A default seems more and more likely.
The IMF has indicated that it is prepared to continue disbursing money to Ukraine even in that case.
So my question is this, how would a failure of the debt negotiations impact the timeline for Ukraine’s return to the markets, and would a further extension of the program and even more public aid be necessary in that event?”
MS. LAGARDE: Well, let me step back for a second because I think Ukraine has been in an incredibly encouraging situation.
From a poor track record over the last 20 years or so where we had many aborted attempts to help the country, we have been now in partnership with Ukraine for more than a year and we have seen political determination to change the face of Ukraine notwithstanding the very difficult security and military situation on the eastern border of that country.
But clearly political players who understand that if they want to turn the economy around, if they want to restore stability, they have to attack on all fronts -- fiscal, structural reforms, corruption -- the whole equation. And what we have seen is actual delivery.
The Ukrainian authorities have actually delivered. Now is it to say that it’s fine and everything is okay? No. There are forces that are trying to destabilize, but I think that we are seeing a very strong political determination.
We are due to have the first review of the second program next Friday, this Friday, to approve the first review of that program, which I hope will be very conclusive and will be supportive of the efforts.
Now, clearly the private debt is under negotiations and the Ukrainian authorities are in a dialogue with the bondholders, a difficult dialogue.
We are encouraged that that negotiation is making progress, and we very much hope that it continues to make progress and that the bondholders are sensible as to what can be achieved rather than expected in the medium to long term.
Having said that, if it didn’t work despite the encouraging progress recently made, then there is a possibility to go into a legislative process that institutes a debt moratorium.
We hope that it’s not a required step in the process, but we have a policy at the Fund as you know that is about lending in countries and areas and we will apply that policy, which allows us to continue to support Ukraine despite that situation.
Comments may be made at the end of Part 2 Thank You
From a poor track record over the last 20 years or so where we had many aborted attempts to help the country, we have been now in partnership with Ukraine for more than a year and we have seen political determination to change the face of Ukraine notwithstanding the very difficult security and military situation on the eastern border of that country.
But clearly political players who understand that if they want to turn the economy around, if they want to restore stability, they have to attack on all fronts -- fiscal, structural reforms, corruption -- the whole equation. And what we have seen is actual delivery.
The Ukrainian authorities have actually delivered. Now is it to say that it’s fine and everything is okay? No. There are forces that are trying to destabilize, but I think that we are seeing a very strong political determination.
We are due to have the first review of the second program next Friday, this Friday, to approve the first review of that program, which I hope will be very conclusive and will be supportive of the efforts.
Now, clearly the private debt is under negotiations and the Ukrainian authorities are in a dialogue with the bondholders, a difficult dialogue.
We are encouraged that that negotiation is making progress, and we very much hope that it continues to make progress and that the bondholders are sensible as to what can be achieved rather than expected in the medium to long term.
Having said that, if it didn’t work despite the encouraging progress recently made, then there is a possibility to go into a legislative process that institutes a debt moratorium.
We hope that it’s not a required step in the process, but we have a policy at the Fund as you know that is about lending in countries and areas and we will apply that policy, which allows us to continue to support Ukraine despite that situation.
Comments may be made at the end of Part 2 Thank You
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