MR. RICE: Good afternoon everyone and welcome to the briefing on behalf of the
International Monetary Fund. We're delighted to be able to interact today with
journalists all around the world particularly on the topic of emerging markets
and I'm especially pleased that we have joining us today Madame Christine
Lagarde, Managing Director of the IMF.
MS. LAGARDE: Good morning.
MR. RICE: Madame Lagarde just gave a speech here in the Washington area-the
University of Maryland actually-on the role of emerging markets in the global
economy. Very topical. So we're going to focus on that issue today and take your
questions and cover as much as we can. I'm very pleased to say that this is a
fairly innovative way that we've been doing these press briefings here at the
IMF. I'm very pleased to say that we've had lots and lots of questions asked
online already. And so we're going to get to those. I'm going to group a number
of them because as you will understand many of them are around the same issue,
but we'll try and get through as many as we can. With that I'm going to go to
the first question and indeed it's a broad set of questions around the emerging
markets. 'Do you feel that emerging markets were over promoted by Wall Street
investment banks and others in recent years without due regard for the fact that
we're still developing countries?' Is one question. 'Many emerging markets
appear to be exposed to both demand softening from China and the broad-based
commodity priced route. Do those nations have sufficient buffer, adequate
reserve levels and exchange rate flexibility or does the IMF expect stronger
demand for its financing services?' Finally, one other question: 'Can you Madame
Lagarde provide more details about this reference to the expansion strengthening
of precautionary financing, the global safety net and what would that look like?
Would this be a credit line with more or less conditionality?' An interesting
group of questions.
MADAME LAGARDE: That's a whole range of questions, Gerry. First of all, I'm a
little cautious with putting all developing and emerging countries into the same
group because each and every one of them has its own specificities. Clearly
Brazil and Russia are in a particular condition, recession, both of them, while
at the same time Mexico is doing fairly well because it adopted quite a few
reforms and India is also progressing quite well from that group of emerging
countries; then you have all the developing countries which are in a different
position as well. So that's my first point. Each and every one of them is going
to be a different case and I think I feel particularly strongly about Africa
because a lot of people think Africa at large. Well Africa is more than 50
countries and each and every one of them has its own particularities and its
particular economic situation. That's number one. Number two I think that some
of those countries have actually adopted a policy mix which has helped them
cushion the various shocks that we are facing in this new economic reality.
If I look at a country like Colombia , for instance: it has taken the right
fiscal approach, the right monetary approach, letting the exchange rate float
and using it effectively as a buffer. If you look at other countries they have
not yet adjusted to the oil shock and they have seen their revenues really
dwindle and be reduced significantly. Third, if countries take the right policy
decisions and if they have the right mix of more efficient spending-adjusting
the sort of business model to that new reality from a revenue point of view, if
they have an exchange rate policy that is sensible and that they can use as a
buffer, without pegging unnecessarily and losing a lot of reserve or resorting
to some funny, protective rules that are not adequate-they can actually weather
the shock and adjust their models, so that, instead of relying heavily on some
revenues from export of oil for instance, they can diversify the economy. Now,
having said that, some of them are facing a really difficult set of
circumstances and my hunch is that there will be more demand addressed to
international and multilateral institutions such as the IMF in order to help
both in terms of public finances and in terms of overall balance of payment
situation, and we are ready to do that without any stigma associated to the
relationship that we have with those members.
Now in terms of financial safety net, we at the IMF have taken the view that the
financial safety net is part and parcel of a good international monetary system
and needs to be strong and needs to be readily available to face any
circumstances either at source, when a country is facing a massive shock which
is endogenous, but also at what I would call 'the receiving end.' When it's an
exogenous shock and the country is,in a way, the collateral victim of what is
happening elsewhere, for instance, on the markets. So we will be working on
financial instruments whether they are the existing ones like, the Flexible
Credit Line or the Precautionary Liquidity Line, or other types of instruments
that will really address the situation of those countries with a degree of
conditionality that will depend on their respective situation. But where we can
be available to actually give a hand during the shock period.
MR. RICE: Thank you very much. Another related question but broad issue and I'm
taking the specific question here, many have asked I'm taking this question.
'Madame Lagarde you said recently troubled oil countries keep me up at night. Is
there any change or any news that would make you sleep a little bit better?'
MADAME LAGARDE: Well, I think you have to look at any circumstances, any
situation, from a threat and an opportunity point of view. I think the great
opportunity that the low oil prices have to offer is the fact that subsidies
that have historically been paid from state, government revenue to encourage the
consumption of oil, particularly in oil producing countries, these subsidies
could much more easily be removed and replaced by targeted safety nets that will
help the poor people, or will actually unleash fiscal revenue that can be used
to encourage education, support health. What would put me back to sleep is the
certainty that those countries that benefit in a way from the lower price of oil
can actually remove the subsidies that are totally counterproductive and replace
them with good and efficient spending of fiscal revenue for the poor, for those
that need education, for those that need health.
MR. RICE: Thank you very much. Of course many questions as you might anticipate
around China. So again a clutch of questions, let me just ask a few: 'What is
the IMF's best- and worst- case scenario for China in 2016?' 'How well has China
communicated its economic currency and monetary policy so far? And what should
they do to improve?' Finally, 'how serious is the capital outflow from China
right now and what are the main reasons behind it? What can China do to address
this issue?'
MADAME LAGARDE: China is going through a massive multi-faceted transition. We do
not expect a hard lending of China as has been talked about for many years
actually. We believe that if China has a sound macroeconomic framework, if it
faces and accepts the reality that it is itself calling for which is of quality
and sustainable growth, which will give a lower growth rate than what it has
known for a long time and that should be accepted. If it has a monetary policy
that is the one that they have recently changed-the currency variation that has
been adopted and it is well communicated and adhered to-no massive variations,
continuation of what has been announced - the qualitative growth on the one
hand, the more market-driven determination of exchange rate and more flexible
monetary policy and more importantly continuation of the reforms that have been
identified by the third Plenum... I'm thinking hear particularly of the state
owned enterprises that need to be reformed and some of them probably addressed
in their financial equilibrium. So if all of that is done - and, fourth point,
well communicated-because we all need certainly and markets probably more so
than anybody else. So if all of that works we don't see that transition to be a
negative overall and we think that China can transition through that period with
a degree of difficulties and obstacles and some volatility as well, but it can
do so without that hard lending that has been mentioned here and there.
MR. RICE: Thank you. I'm going to turn to India and a couple of questions from
that part of the world. Again many questions and I'm just picking a few which I
think are representative. 'India's exports have been falling in each of the last
13 months. Its industrial growth has remained tepid in the last few months. GDP
growth in the first half of 2015, 2016 has been around 7.2 percent, the IMF
however seems to be quite bullish on India, can you explain the IMFs optimism?'
And then 'with India's increased quota in the IMF is there any change in the
role of India in the IMF that you envisage in the coming months?'
MS. LAGARDE: The IMF is quite bullish about India, and our forecast for 2016,
2017 is 7.5 [percent growth.]So we see India as benefitting, actually it's one
of the major beneficiaries of the lower oil prices. When you look at the scale
of benefits for particularly the emerging countries, India comes out, you know,
way ahead.
We also believe that the monetary policy, the taming of inflation is also going
to benefit the very large domestic market of India, and we believe that
consumption is going to be one of the key drivers. All of that of course, with
the hope and the provision, if I may say, that the trend of reforms identified
by Prime Minister Modi, can actually proceed, whether it's in the fiscal area,
by way of implementing the goods and services tax, significant reform like the
land reform that is considered.
I think those reforms are actually going to be critically important for the
unleashing of growth potential that India has to offer. I would add one
additional component which we regard as important, and that would be the
investment in infrastructure that is so badly needed in many countries, but in
India in particular, where there are bottlenecks, both in terms of physical
infrastructure, as well as, I would say, administrative infrastructure, and
those are key policies to implement.
MR. RICE: Thank you. I'm turning to Latin America, and in particular to
Argentina, 'Madame Lagarde, what is your view of the ongoing negotiations
between the Argentine Government and the debt holders in New York City? Could we
see Argentina having access to financial markets shortly and also what are your
views on the New Government's economic measures thus far?'
MS. LAGARDE: Well, first on the negotiations, we are very encouraged to see that
Argentina, and its new leadership, has taken the initiative to enter into
negotiations with Argentina creditors. It's been weighing on the country, and if
it results in a fair and balanced outcome, that will be supportive of Argentina
returning to the financial markets, and restoring its financial position, it's a
real plus.
The macroeconomic policies that are currently identified by the new team and the
new authorities in Argentina are very encouraging. And we hope that it will
stabilize the Argentinean economy. We hope that, in particular, the
determination for transparent data - the state of statistic emergency that has
been declared by the Argentinean authorities - all of that is good. And we
really support it.
MR. RICE: Thank you. I'm swinging to other parts of the world, we are touching
on Central Asia, and Africa, but it's a joint question. That is, 'What is the
likelihood that Azerbaijan and Nigeria will need IMF loans? Madame Lagarde, you
have said that these countries worry you, given their heavy reliance on oil. So,
again, what is the prospect of IMF financing?'
MS. LAGARDE: The IMF remains available to all its members, so the moment we are
asked to help, we'll do the best we can to help. Both countries, Azerbaijan and
Nigeria, have been hard hit by the oil price decline shock, because their
economies depended heavily on oil exports, both in terms of trade, and in terms
also of revenue. When you lose a lot of that, because the price decline was
about 70 percent, then clearly it puts the economy under shock.
Policies adopted by the two are different. Azerbaijan has certainly taken a good
fiscal approach, is reassessing spending, is really trying to restore its
position, and it's also using the exchange rate as a buffer.
Nigeria is not there, and we certainly hope that in terms of identification of
fiscal resources, removal of oil subsidies, an exchange rate policy that is
sensible, in the sense that it is not going to waste reserves, we have in
particular indicated that a persistent pegging of the naira would not be such a
good idea. So, they have to adopt their policies, they have to adopt their
model, and if they need IMF's help, we'll be ready to help. No question about
that, and no stigma associated with it. They are clearly victim of an external
shock, and they have to face a response, which is a national response to that
situation.
MR. RICE: Thank you very much. I'm swinging to Europe, and in particular to
Ukraine,. The question is, 'In the context of recent events in the Ukrainian
Government, the Economy Minister quits, accusing some officials of political
pressure and corruption. How will the Minister's departure affect Ukraine
cooperation with the IMF? Could it be a reason to cancel or postpone the next
IMF loan tranches for Ukraine?'
MS. LAGARDE: Well, Minister Abromavicius, while in his position as Minister of
the Economy, had conducted some really good and solid reforms, to make sure that
direct investment would be welcome in Ukraine, to sanitize the environment to
the extent that he could, and I would like to pay tribute to his efforts.
His recently announced resignation is of concern. If the allegations that he
makes in his resignations are correct, then it is obviously an indication that
the anticorruption measures that were committed to by the Government are not yet
working. And there is more progress to be had in that area. We've known that all
along. Clearly, the first step was to stabilize the fiscal situation of the
country, to make sure that it was not losing its reserves as it did at the time,
to adjust the price of energy, and all those steps were taken.
But we have known all along that in relation to corruption a lot of work needs
to be done, and it has to be implemented and forced rigorously, because the
authorities are accountable, not only for the Ukrainian people, but also to the
international community.
MR. RICE: Thank you very much. I'm going to take one more question, and I'm
going to stay on Europe actually, it's not an emerging market question, and I'm
going to break our own rule, if that's okay with you. But there are many, many
questions on Greece, and I'm going to take on question as representative. Just
because of the volume.
'Madame Lagarde, it is reported that the IMF is blocking progress in the
discussions in Greece, and insisting on extremely harsh pension reforms. Is this
a fair description of what is going on? Also, Madam Lagarde, you met recently
with Prime Minister Tsipras in Davos. Can you tell us, is the IMF on the same
page about which reforms that Greece needs to do, when it needs to do it, and in
order to get the IMF aboard for the Greek Program?'
MS. LAGARDE: Okay. I might repeat a few things, but I will also try to drill
down a bit. First of all I have always said that the Greek Program has to walk
on two legs. I have always said that the Greek program has to walk on two legs:
one is significant reforms and one is debt relief. If the pension [system]
cannot be as significantly and substantially reformed as needed, we could need
more debt relief on the other side. Equally, no [amount of debt relief] will
make the pension system sustainable. For the financing of the pension system,
the budget has to pay 10 percent of GDP. This is not sustainable. The average in
Europe is 2.5 percent. It all needs to add up, but at the same time the pension
system needs to be sustainable in the medium and long term. This requires taking
short-term measures that will make it sustainable in the long term.
I really don't like it when we are portrayed as the 'draconian, rigorous
terrible IMF.' We do not want draconian fiscal measures to apply to Greece,
which have already made a lot of sacrifices. We have said that fiscal
consolidation should not be excessive, so that the economy could work and
eventually expand. But it needs to add up. And the pension system needs to be
reformed, the tax collection needs to be improved so that revenue comes in and
evasion is stopped. And the debt relief by the other Europeans must accompany
that process. We will be very attentive to the sustainability of the reforms, to
the fact that it needs to add up, and to walk on two legs. That will be our
compass for Greece. But we want that country to succeed at the end of the day,
but it has to succeed in real life, not on paper.
0 comments:
Post a Comment