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April 14, 2016
Christine Lagarde – Managing Director, IMF
David Lipton – First Deputy Managing Director, IMF
Gerry Rice – Director, Communications Department, IMF
Mr. Rice – Okay.
Good morning, everyone, and welcome to this Press Conference on behalf of the International Monetary Fund. I am Gerry Rice of the International Monetary Fund.
I am very pleased this morning to introduce the Managing Director of the IMF, Madame Christine Lagarde. Of course, to Madame Lagarde’s right is our First Deputy Managing Director, David Lipton.
I think you have all received this morning the Managing Director’s Global Policy Agenda.
I would ask that when we get to the questions, which will be shortly after Madame Lagarde’s remarks, that you would keep the questions short. We will try and take as many as we can. Please identify yourselves.
Ms. Lagarde – Thank you very much, Gerry, and thank you to all of you, photographs included.
I would like to start this Press Conference by recognizing and thanking First Deputy Managing Director David Lipton for having accepted to serve another term. I am delighted that will you have to face the two of us for a little longer.
I do not know how many of you have walked this morning, but we are blessed by good weather. I would like to quote on this occasion Robert Frost and play the weather analogy when we comment on the global economy: “The sun was warm but the wind was chill.”
Yes, there is some sunshine in the global economy. We have global growth and we are not in crisis. There are some signs that sentiment is improving and a number of countries are growing at reasonably robust rates, but there are quite a few corners of the world which are downright chilly, in part because the recovery remains too slow and too fragile.
We expect global growth this year to be at 3.2 percent and 3.5 percent next year. This makes it harder to spread economic warmth to the citizens of the globe. It is not enough to lift living standards, reduce debt, and create sufficient opportunities for the nearly 200 million people around the world who are officially unemployed and looking for a job. There is a risk that middle-class families and the poor actually remain behind, which would embolden the voices of protectionism and fragmentation.
Many of you have received and some of you may have read our three flagship reports. They have sent a clear and unmistakable message: Downside risks are increasing.
There are crisis legacies and weak balance sheets in many advanced countries. Emerging and developing countries need to watch declining commodity prices, high corporate debt, and volatile capital flows. Increasingly, our concern is also about the risk of spillovers which has become a truly global phenomenon from advanced economies to the rest of the world, from emerging market economies to the rest of the world as well. The GFSR, the Global Financial Stability Report, that you received yesterday, clearly demonstrates that.
So, there is plenty to worry about, but as I have said and has been repeated several times, we are on alert, not alarm, because we believe that the global economy can actually repair legacies, can regain its vigor and become more inclusive, but the current policy responses that we are seeing need to be faster and need to go deeper. What do we mean by that? As you have heard, we are confident that the three-pronged approach can actually work and can be mutually-reinforcing.
I hope you all have received this document, the Global Policy Agenda,that will be discussed with members of the International Monetary and Financial Committee (IMFC) on Saturday morning. It focuses on this three-pronged approach which consists of, first, structural reforms.
All right; we have been there; you have said that before. Yes, but those structural reforms on which we are going to spend a bit more time and be more detailed depend on smart designs, good timing and support from other policies, which is why we talk about this three-pronged approach. They come together and they need to be tailored. We have seen reform commitment by the G20. Remember this additional 2.1 percent by 2018? Well, we recommend very strongly that this commitment be accelerated and be actually delivered upon in 2016.
Second prong. We recommend more growth-friendly fiscal policies for all countries, including increased infrastructure investment. Of course, there are some countries with high and increasing debt that need to pursue further fiscal consolidation, but others have fiscal space and most of them can recalibrate in order to make their fiscal policies more growth-friendly.
Third prong. Monetary policy still needs to support demand. Accommodative monetary policies have played a crucial role in the recovery, and negative interest rates—much commented upon—do play, on balance, a positive role and they help. But monetary policy can no longer do the heavy lifting alone. Structural and fiscal policies need to play a greater role.
The three-pronged approach means going beyond the status quo, moving faster. It might also mean crossing some political red lines for some. Is it worth doing it? Well, we contend that with the right policy mix and that three-pronged approach, it can add a powerful global package that would help generate faster and more sustainable growth.
Final point. We also contend that cooperation is absolutely key. We have advocated cooperation. There is a certain degree of cooperation, but I would like to mention three examples where we believe that cooperation should be stronger.
First example. The action to help refugees. Every second, nearly 30 people are displaced somewhere in the world. That requires a bigger, broader and bolder approach, and one that is certainly based on cooperation among the nations. It cannot be the affair of one country.
Second example. We need a strong international safety net, one that is, in terms of size, in terms of access, in terms of responsiveness, is going to be efficient, particularly in relation to the emerging countries and the developing countries.
The final example, which is familiar to many of you, is we need much stronger international tax cooperation. A lot of things have gone global and it is unlikely to recede, but there is one thing which has not gone very global and that is taxation, which is still very much a local affair associated with national sovereignty. We contend that there has to be a lot more work and a lot more cooperation on a much broader basis in international taxation.
So, we do not have much power to change the weather—I am delighted that we are all meeting together in Washington with this pretty nice weather—and we cannot change anything about it, but there is certainly something that collectively policymakers, their advisors, and international institutions can do about changing the economic weather, and we hope that this will not only be discussed this week but also implemented later on.
Mr. Rice – Okay. Let us turn to your questions. Again, I would ask that you identify yourselves by name and keep the questions short.
Question – I have two short questions.
Managing Director Lagarde, in your opening remarks you mentioned the emboldened voices of protectionism, and in the recent WEO you all mentioned Brexit as one of the chief risks to your global output. Broadly speaking, I am interested in how worried you might be that public and political support for free trade and open borders not just in Europe but also here in the US and across the world is beginning to wane and what that might mean for the global economy ten years from now.
I am also interested, domestically speaking, about the Federal Reserve. The IMF had last year urged the Fed not to start its process of normalization until 2016. The Fed went anyway. I am wondering if you think the Fed made a mistake in December and if you think it should continue rate hikes.
Ms. Lagarde – You are really asking three questions in one, right?
So, on Brexit, we have clearly elevated Brexit as one of the serious downside risks on the horizon of global growth. We believe that the risk of exit of the United Kingdom is a serious concern that, if anything, is causing uncertainty, as is indicated actually in the growth forecast for the UK. If that were to happen, the uncertainty would not disappear, because clearly the continued relationship with other countries in the European Union would be at risk and certainly debated for a period of time.
It has been a long marriage between members of the European Union, and it is really my personal hope that it does not break. Like all marriages, good talks can actually help and I hope that the dialogue can continue.
As far as we are concerned, we are, as you know, doing an Article IV review of the United Kingdom, which should be completed in the course of May. We will certainly include in that Article IV a special chapter associated with the quantification of the risk of Brexit, because it is clearly on the minds of many.
In terms of trade, we in the IMF believe that trade has played an essential role for development, to lift people out of poverty in many corners of the world. It has improved the supply chains in many regions and has contributed to development in significant ways. We are concerned that the numbers we see now indicate slower international trade than we have global growth, which itself is not as solid as we would like it.
So, development of trade, support for trade, eradication of non-tariff barriers remain key priorities. We certainly hope that the international community and the policymakers around the world will take that to heart and will continue to support trade on an ongoing basis.
Your third point about the Fed. We were at the IMF very pleased to see that, No. 1, the sort of three-pronged approach of the Fed—data dependent, gradual, and well-communicated—is very high on the agenda of the Fed. We were also quite pleased to see that the impact of the international status of the economy and the downside risks on the horizon are actually taken into consideration when the Fed looks at its domestic economy and determines when and by how much to deal with interest rates.
Question – My question is about China. What do you hope to achieve in your next term starting this year? How do you foresee China to fit in that Five-Year Plan? Early this year, at Davos, you said you were concerned about the communication with China’s financial management team. How are things now in that regard?
Ms. Lagarde – Well, first of all, on the communication side, we have been delighted to see the communication efforts undertaken by policymakers, particularly Governor Zhou. As you know, the PBOC is our normal contact point and Governor Zhou is a Governor the IMF.
Clearly, his major interview back in the fall—it was not with your channel but it was with another Chinese media—has been extremely helpful, and subsequent communication has helped as well. I think when it comes, in particular, to the exchange rate regime, it does clarify the situation for the better, because nobody likes uncertainties, markets in particular.
In the next five years, I would hope that all currently underrepresented economies whose share in the IMF does not mirror their contribution and their participation in the global economy as we measure it by IMF criteria, that all these countries will be better represented and that we will be a better mirror of the global economy with their respective contributions.
So, that does not apply exclusively to China. There are other countries as well. I think the legitimacy of the institution and its capacity to commit and its credibility with members is in part, not exclusively but is in part, dependent on it actually mirroring the global economy. I was very pleased to see the 14th Quota Review finally completed. I think it is a good step, but it is not the last step. There will have to be more work.
There is the 15th Quota Review that needs to be discussed, for which we have a deadline in December 2017. This will be an ongoing process, because it is the strength of this institution not to be riveted to a situation which is static but which has to constantly review its resources, make sure that it is quota-based so that they are strong and sustainable, and, again, that it mirrors the state of the economy.
But I am convinced that, in that context, China will play an important role, because it wants to be a player in the institution and it wants to cooperate in the international domain, playing by the rules, belonging to the club.
Question – You just talked about the marriage between Britain and the EU, and you hoped it would not break. If we do have a break, you might well be the marriage counselor. What advice would you give to your Continental European governments who might come to you for advice on how they should negotiate with a Britain that wants to keep all the good things badly but not have free movement and not pay into it?
Ms. Lagarde – Whatever happens, and you know this is no mystery and I have seen it repeated in the British press, I lean toward “Let us stay together, work it out,” because it is better than to sort of walk away from obligations and from the necessity to have a dialogue and to consider the issues collectively.
But whatever happens, I think that all parties should rise above the domestic circle and should have a broader view of what lies ahead in terms of a collective endeavor, because after what it has gone through over the last century and what the risks are on the horizon, keeping Europe together is actually a huge asset, which is vastly underrated, in my view.
Question – I have a question on the Panama Papers. The international community has many times pledged to take action against financial secrecy, but every time a new scandal breaks out we find that there are new loopholes that have emerged. Are you concerned that this could fuel popular anger and reinforce the perception that the Elite can always find a way to avoid paying their fair share?
Ms. Lagarde – I think it is obviously a risk when the rules appear to be skewed toward some and do not apply to all. Now, I am not necessarily passing judgment on the legality or illegality of one scheme or another, but clearly what has resulted from the review of these Panama Papers indicates that, however important BEPS is, the Base Erosion and Profit Shifting commitment, and the automatic exchange of information, it is unfinished business. Everybody has to move beyond BEPS to see that there is actual implementation and that the net is inclusive and does not have little loopholes here and there.
As I said earlier, taxation is regarded as a local matter, associated with sovereignty, but international cooperation has to really be significantly improved. We will be happy to play our part. We have a membership of 189 countries now and all countries have to be included in that effort.
As you know, a lot of our technical assistance is dedicated to helping countries put in place anti-money laundering and counterterrorism financing. Well, more needs to be done on that front. When we issue a report, which is flabbergasting, indicating that work needs to be done by the country, well, there has to be follow-up. That is what I think policymakers need to focus on: implementation.
Question – My question is in French. [THROUGH INTERPRETER] Madame Lagarde, you said yesterday that Tunisia is a success story compared to other Arab Spring countries. What do you propose to help this country deal with its geopolitical issues and social issues and also to promote growth? The government is counting quite a lot on the new agreement with the IMF. So, what can you say about negotiations with Tunisia?
Ms. Lagarde – I am going to respond in French to your question. [THROUGH INTERPRETER] We will stand with Tunisia to help Tunisia deal with its difficulties, difficulties related to its security, the development of growth, and the increased unemployment. We had a program with Tunisia that was quite effective, and the program that is being negotiated is very close to being finalized. I hope that by the end of the week the program will have been finalized at the staff level. Of course, the draft has to be submitted to the Board to become final.
But it is clear that Tunisia is dealing very courageously with a situation that is very difficult, from a security point of view. We remember the attack on the Museum. Also, Tunisia is dealing with refugee flows from Libya, which requires support from the international community. So, I am very hopeful that we will be able to finalize a program by the end of this week.
Question – Africa today, as we know, faces tough challenges, especially with the decline in commodity prices. I just want to know how huge is this problem in terms of growth, financial positions of government, especially for Nigeria, which now faces huge challenges of a weak local currency, low government incomes, and, of course, higher inflation numbers seen recently. What are your policy recommendations for our authorities?
Ms. Lagarde – Well, of course, the low price of commodities in general, but of oil in particular, as far as Nigeria is concerned, is a critical issue. If I recall, I think it is 80 percent of your exports and 60 percent of your revenue, is actually oil-dependent. So, when there is a massive decline in the price of oil, those two also take a similar hit. So, it has a major impact on the country.
Our recommendation is that Nigeria seeks help from the international institutions that can best help, first. Second is that Nigeria is open-minded about using flexibility of the exchange rate in order to absorb some of the shock. We believe that is more efficient than to have a list of the products that are barred from being imported in the country. Third, we believe that it is really important that the budget be completed, decided, and approved. We stand ready to help Nigeria if it wants to seek our help. Having visited Nigeria in January, I believe that it is also really important that the country looks at diversifying its economy, because it cannot rely exclusively on commodity prices only, particularly oil, because it might very well stay low for longer.
Nigeria is full of energy, smart people, and can really transform some of its activities, including in the agricultural sector, where there is just too much by way of imports when there could be a lot of transformation in Nigeria and local consumption.
Question – You said recently, referring to Greece, that you view it as your duty not to be complacent and to assess the reality of numbers, but Madame Lagarde, some of those numbers are supported by the European creditors. So, are the Europeans complacent when they try to avoid or to delay debt relief?
Ms. Lagarde – I think the last thing that Greece needs at this point in time is delay, and there is one point on which I completely agree with the Greek authorities, which is that we need and they need to move fast.
Equally, I think we have always been very consistent in saying that the objectives are stability, sustainability, sovereignty of Greece ultimately. To reach those objectives, there has to be real and realistic numbers and sustainable measures. That applies to the hypothesis; it applies to the nature of the measures; and it applies to the maturity and the cost of debt for the country.
So, I have been saying off and on that the program of Greece has to walk on two legs. That position remains true. I would add that all of that has to be realistic and sustainable, and we are certainly doing the best we can under sometimes laborious circumstances.
Question – Madame Lagarde, congratulations on another session; congratulations on your recent reelection; and congratulations to Mr. Lipton for staying on.
My question is the same as last year’s. You are speaking in parallel with President Putin. He had a major news event today and he claims that the Russian economy is still not corrected fully, but the trend is good, positive, he says. Do you agree?
Ms. Lagarde – Well, as far as Russia is concerned, you can look very carefully at the World Economic Outlook and the forecast we have for Russia. While clearly the trend is directionally up, it does mean to say that the results are outstanding. But there is improvement, it is true.
For a country that is vastly dependent on natural resources, extraction of those resources, it means that there has been a lot of burden shouldered by the Russian population in order for those results to be directionally correct.
Question – In Brazil we have a deep recession, high inflation, high debt and high deficit, and a political crisis. How do you view its economic and political situation? What should Brazil do to return to more normal rates of growth?
Ms. Lagarde – It is true that despite its legendary reputation of being generally sunny, warm, and I am sure will be hospitable for the Olympic Games later on this year, there are very, very chilly winds blowing on the country. With a negative 3.8 percent forecast, the economic situation is very concerning in terms of unemployment, in terms of inflation, and clearly in terms of output and potential output.
As you know, we do not opine on political situations and internal debates of that nature, but through whichever way uncertainty will be removed, Brazilian macroeconomic policy will be set on stable grounds, with the likelihood of no variation of the fiscal objectives, for instance, and with an economic environment that is business-friendly and conducive to the creation of growth in your beautiful country.
Question – Just a question. How is the [stance] of IMF reform in this moment, how it was implemented after they accepted the United States quota increase? Second, how can a country like Mexico, who has an open account and even floating rate, contend with all this kind of currency wars, especially when the peso was looked at as a hedge and it caused more or less a  present devaluation of the peso? Is it a good thing, even if they [devaluate] your economy?
Ms. Lagarde – First of all, on the reform, as I said, the 14th Quota Review has now been completed. The quota resources of the institution are stronger and more sustainable. We currently have a very strong capacity to commit in case countries come to ask for financial support, which is, incidentally, clearly happening at the moment.
We are walking into the 15th Review, as is called for under the Articles, and we will be holding discussions within the Board in the next few months. We have a completion date which is set at the end of 2017, and we hope to complete that review. It will indeed consist of assessing the right size of the Fund and looking at the quota formula as well as we should.
Mexico, we believe, has a fairly robust overall monetary as well as fiscal policy. If you look at the forecast, it has remained pretty stable compared with previous forecasts. It is one of those countries which is holding. In addition to the open account and floating exchange rate, which has been used as a shock absorber, do not forget that Mexico also has with the IMF a Flexible Credit Line, not an insignificant amount, which Mexico was smart enough to use as a sort of insurance in order to maintain macroeconomic policy that actually stands and passes the test of the Flexible Credit Line.
It is really one of the good examples of how to use a precautionary instrument in a smart domestic way in order to maintain the objectives of its macroeconomic policy, added to which it has undertaken, as you know, some significant structural reforms earlier.
Question – I have two questions, if possible. One is regarding how much room remains for monetary policies and, in particular, about the negative interest rates. You said that they are positive, because, in a way, even if there is a cost, they help the economies. But others, like Larry Fink of BlackRock, say that this mechanism does not help economies because it feeds consumer spending because people are forced to save more in order to get the same amount of money after retirement.
If I may ask about Europe and my country. How worried are you about the crisis of the nonperforming loans that is particularly relevant in Italy, and if you have an opinion regarding the Atlantis, fund that is organized by Italian government [to help Italian banks]?
Ms. Lagarde – Well, on the first point of the net positive of the negative interest rates, this is clearly an issue that we have looked at carefully, because it is a reasonably new device that is being used by the central bank. It is uncharted territory and we had to ask ourselves the question of its validity, efficiency, side effects. The conclusion is clearly that, on balance, it is a net positive.
We strongly support the decisions that have been made, notably by the ECB in relation to the Eurozone. Inflation is still very low. There is an output gap. So, we believe that this innovative monetary policy is legitimate.
But we are also looking at the side effects, one of which was identified by Larry Fink. Everybody stands where they sit. Clearly, the financial community, particularly the banks, looks at how it impacts their bottom line, how it impacts their margin, how they are going to transfer some of that negative interest impact to potentially the depositors and raising the concern for savers, participants of that particular questioning.
But people are not just savers. They are savers, consumers, employees. You really have to look at the counterfactual of not doing this monetary policy and the impact it would have on the economy. Would there not be less growth, less credit, less employment down the road?
If the answer to that is yes, then it is worth having that negative interest rate, certainly not forever, and that is the reason why we are calling for the three-pronged approach, because monetary alone cannot carry the burden by itself and it has to be supplemented by the other two, structural reforms and growth-friendly fiscal policy, and the use of fiscal space where there is fiscal space, and we believe that there are countries that have fiscal space.
Now, on the nonperforming loans, it is one of the crisis legacies that has not been sorted out, if you will, by certain countries, not only in the Eurozone and not in all Eurozone countries, by the way, but in Italy, I think the authorities recognize that it is an issue that needs to be addressed. The most recent scheme devised by the Italian authorities is an interesting approach, which we believe, for the moment, is limited in size and amount.
If it has been, as I am sure it has been, negotiated with the competition authorities in Europe, then it is certainly an interesting proposal that might have a longer and maybe a bigger life than we think today. Having said that, it is so recent that I would like to just reserve a final judgment on the validity of the scheme, because we have not had time to look into it and under the skin of it.
Question – Madame Lagarde, we know that the IMF has concerns that some of China’s inefficient industries get support that is affecting the quality of economic growth in a long run. So, when China will host the G20 Summit this year, how can China use this opportunity to strengthen the quality of economic growth and which Chinese industries do you feel should be withdrawn from the market? I would like to know what is your major evidence to always hold a positive attitude to China’s economy.
Ms. Lagarde – It is not just in relation to China but in relation to any issues in life. I think one is better off having a positive rather than a systematically negative attitude. You actually feel better.
Chinese growth, as you know, we have reset it to 6.5 percent to take into account the measures that have been announced by the Chinese authorities under the latest Quinquennial Plan. Equally, in the medium term, we are also a little bit more cautious, and we are concerned about the medium-term implementation of what you alluded to, which is, in particular, the state-owned enterprise restructuring.
The Chinese authorities, when I was last in China, have actually indicated their determination to start now the restructuring of some of the state-owned enterprises in various sectors of activity, which I am sure you are familiar, whether it is in relation to coal, steel and various others, but predominantly, in the heavy industry sector. We hope that that is the case.
Equally, we hope that in order to stimulate the Chinese economy to accompany that process, the Chinese authorities will resort to ways to improve consumption, to move from heavy industry to lighter industry and services, and to free up certain sectors of the economy rather than to use the stimulus of additional credit, which needs to be reined adequately.
Question – This is actually following up on the previous question about Chinese reforms. Today the United States had announced that China is going to withdraw some export subsidy programs in order to settle a dispute that has been lingering at the WTO for about a year now. I am just wondering sort of what message that might send about the Chinese leaders’ policy commitments that they have made.
Ms. Lagarde – So, you are referring to the removal of those subsidies. If that is the case, it confirms the point that I made earlier, which is that based on our limited experience within the scope of what the IMF is supposed to do, we have with China a serious and solid partner, which has, as far as the IMF is concerned, always wanted to play by the rules and which seems to be determined to follow that course of action. If that happens, it is a clear indication that decisions made in relation to export subsidies are actually implemented. That is good.
Question – If you will forgive me, I have been worried more about diaper inflation than disinflation of recent, so these next two questions might be slightly confusing.
First, you talked about realism in regards to Greece. Is it disingenuous for Europe to require a 3.5 percent budget deficit and that Greece pay back its debts?
Secondly, central bank stimulus, is it not preparing the world for further asset inflation that we have seen? Arguably, you could say that all the extra debt that we seen around the world is evidence of that. If not, should perhaps Japan or others consider direct monetary financing?
Ms. Lagarde – On my point about realism and sustainability in relation to Greece, 3.5 percent in the short term might be achievable by some heroic—and I really mean heroic—efforts on the part of Greece and the Greek people. It might be. We are skeptical about it, but we are open to seeing what additional measures the authorities are proposing.
What we find highly unrealistic, on the other hand, is the assumption that this primary surplus of 3.5 percent can be maintained over decades. That just will not happen. So, that is where I draw the line between the short-term objectives and the medium- to long-term similar objectives.
On monetary stimulus, as I said, it does not apply across the board. If there is anything we learned from 2008 is to be aware of across-the-board recommendations. Clearly, there are instances where monetary support should be continued, No. 1, and should absolutely be accompanied by the other two prongs that have I mentioned, the structural reforms and the fiscal policy that we have described.
As far as Japan is concerned, we have fairly robust criteria under which intervention is legitimate and that clearly can happen in a case and only in a case where very disruptive volatility must be avoided. So, we are watching carefully what is happening in the Japanese markets, but that is the instance where intervention is, in our view, legitimate.
Mr. Rice – Thank you very much, Madame Lagarde, and thank you very much, everyone. We will see you at the next press conference. Thank you.