October 6, 2016
Managing Director, IMF;
First Deputy Managing Director, IMF;
Director, Communications Department, IMF
MR. RICE: Thank you very much. Good morning, everyone. Welcome to the 2016 Annual Meetings of the IMF and the World Bank. We are delighted to see you all this morning. We are on the record, as usual. I will ask you to be as short as possible with your questions. We will try and get as many as we can.
We have with us today the Managing Director of the IMF, Madame Christine Lagarde. We also have with us the First Deputy Managing Director of the IMF, David Lipton. We will begin in the usual way. I think you have the Managing Director’s Global Policy Agenda already. We will begin in the usual way with opening remarks from the Managing Director.
MS. LAGARDE: Good morning to all of you.
Before I go into the current economic situation, what our recommendations are and what it means for the IMF, I would like to, first of all, express our deep concern for the countries that are currently affected by Hurricane Matthew. We are very saddened by the reports of lost lives, uprooted houses, damage done, and, in particular, for Haiti, which we have been trying to serve and help recently. We stand ready. We have rapid facility lines that can be in place very promptly, and we shall certainly do whatever we can to help.
Now, not only have you had my Global Policy Agenda but you have also received the WEO, the Fiscal Monitor, and the Global Financial Sector Report. You know that we are forecasting growth in 2016 at 3.1 percent and 2017 at 3.4 percent.
The outlook for advanced economies remain subdued and the outlook for emerging and developing economies calls for some guarded optimism with great diversity between the various economies. Prospects for low‑income countries are becoming even more challenging, particularly as far as sub‑Saharan Africa is concerned.
Overall, and this is a point I made in my speech in Chicago a few days ago, we see growth as too low for too long and benefiting too few.
In and of itself, it is not good news, but it is also fertile ground for political dynamics that can depress global growth even more. We believe that countries can actually move from the current new mediocre, move from that current new mediocre to a new pact.
Last April, I called for the three‑pronged approach, which includes monetary policy, fiscal policy and structural demands, and that mix remains essential. What is key is now action. So, my message to the members of the IMF tomorrow will be action, please.
We believe that there is more policy than meets the eye. By exploiting synergies between these three policies, we can generate more space in order to help the economies and resist those political dynamics that I have referred to.
We also believe that each country has something to offer. It is not going to be the same, but each country can do something. My hope at the end of the Annual Meetings is that each Finance Minister, each Governor of the Central Bank, will go back home thinking what can I do in order to propel that growth, which is currently too low for too long, benefiting too few.
For example, when demand is lacking and monetary policy is overstretched, fiscal policy can step up. This will also help put in place the structural reforms that are much‑needed, which have been started in some places but which are seriously lacking as bold policies.
We believe that some countries have fiscal space. Well, if so, they should use it. We certainly include in that category countries like Canada, like Germany, like Korea. If there is no fiscal space, Finance Ministers can decide to reallocate spending within the same budget envelope toward productivity‑enhancing areas; for instance, supporting research and development, financing infrastructure at a time when financing costs are so low. So, that is the first point. They have to come together. A three‑pronged approach means comprehensive policies, not one or the other but the three coming together.
Second, we also believe that consistent policies matter. In other words, stay the course, and anchor your policies in credible, medium‑term frameworks. This is seriously lacking. We have been calling for these medium‑term frameworks for quite awhile, whether it is in the U.S, .or in Japan, or in other places. We be believe that that can help create space to support growth in the short term while keeping inflation expectations anchored and debt sustainable. So, comprehensive, consistent.
We also believe that now is the time for international cooperation. Those of you who follow the G20 remember the Brisbane Agenda, the Antalya Agenda, the Hengzhou Agenda in order to propel growth a little bit higher with an additional 2 percent.
Well, we are short of that, clearly. We believe that there has to be more international cooperation, because it will benefit all countries. If they pull together in the same direction and in a more coordinated way, positive spillovers will reinforce each other.
If there is one thing that we are learning from both the Fiscal Monitor and the GFSR, it is the very strong interconnection between all these areas: financial, trade, growth, debt direction.
We believe that cooperation and globalization work for all. You will have seen my Global Policy Agenda. That is what we call for.
We believe that more can be done to raise growth now and to make it more inclusive. Again, having a determination to include all in the social contract is great, but there has to be growth in order to allocate among everybody.
We know that globalization has worked over the years, that it has delivered great benefits to many people. We do not think that it is time to push against it, and we believe that it is time to actually push forward with what we know has worked.
But it needs to be slightly different. It cannot be that push for trade as we have seen it historically. The inclusiveness, the determination to make it work for all, and to pay attention to those that are at risk of being left out, whether it is as a result of technology, digital economy, or international trade by modification of supply chains, that factor has to be taken into account.
So, what does it mean for the IMF? It means that if we want to include, if we want to address the inequality issues, we need to have a strong international safety net so that countries that feel at risk, because of policies determined elsewhere, have the tools, have the financing instrument to actually respond.
In this context, I am pleased to note that our Board recently approved the extension of zero interest rates on all Fund concessional facilities until 2018, and thereafter, if interest rates remain low around the world. That is really important for low‑income countries to be able to actually absorb the shocks without necessarily going to the international markets or relying on bilateral lending that can be far more expensive.
I am also pleased to announce that the membership has responded very positively on my call to maintain the overall lending capacity of close to a trillion dollars by extending access to bilateral borrowing agreements. The new agreements that are being signed this week will run at least through the end of 2019, and will continue to serve as a third line of defense. As you know the first line of defense is quota, second line is New Arrangements to Borrow, and third line of defense will be those bilateral loans.
We have so far received pledges of US$ 344 billion from 26 members. We look forward to others joining this effort. We will provide more detail shortly, and there will be some signing sessions organized in the course of the next two days.
So, we believe that with strong, comprehensive, consistent and coordinated action, countries can actually lift that growth which needs to be more inclusive in order to resist those political dynamics that are not helpful.
With that, I will be happy to take questions.
MR. RICE: I am going to ask you again to keep your questions fairly brief.
QUESTION: You mentioned the debate on globalization. Do you think that the IMF has paid too little attention about the losers of globalization?
Since we are one month away from the U.S. election, do you think that the anti‑trade policies promoted by the Republican candidate could cause big damage to the U.S. economy and the world economy?
MS. LAGARDE: Well, we certainly believe that international trade—that is what I will call it, because globalization is sort of a much broader topic that includes integration, that includes innovation as a result, and so on and so forth—has been helpful over the course of the last few decades. If you look at the level of [audio cut off] growth that has helped China, that has helped countries like India, and [audio cut off] countries to pull themselves [audio cut off], it has been [audio cut off] on an aggregate global basis.
Now, have policymakers paid enough attention to those pockets, those regional areas where there were more losses than gains? Probably not, , and that is why we are calling today for inclusive globalization, one that actually benefits all players, not one that reduces inequality between countries but one that also allocates fairly within countries and pays attention to those that are at risk of losing out.
I think, by the way, that this does not only apply to trade, but this more urgently applies to the impact that the digital economy will have on our societies, the ways in which not only manufacturing but also services are going to be impacted by automation, by 3D printing, by new ways of earning and learning around the world, which will require that people be equipped, which is why we recommend in many instances investment in infrastructure, investment in education, in order to bring people up to a level where they can actually participate and benefit from these new societies.
I do not comment on US elections. I simply note that trade has been in the main a great engine for growth. If we want better growth in order to address all the issues that I have mentioned today, we need that engine in order to support and accelerate growth.
QUESTION: So, my question is about Chinese financial reform. Regarding the Chinese currency’s inclusion into the SDR[basket] last week, to what extent in your mind may it affect domestic financial reform?
Next, what is the domain in which you are most willing to see improvement among all the economic reforms in China?
MS. LAGARDE: Well, we did celebrate around the world the inclusion of the renminbi in the Special Drawing Rights basket. It means two things. One is we can now use the renminbi as one of the currencies in which we at the IMF and all the membership conduct financial transactions among ourselves. Central banks can use it. The BIS certainly is operational in renminbi. That is one thing.
Second, it certainly anchors the Chinese economy in the group of large, international, open economies in the world. This is a process. We regard it as a major step. There will be probably more steps to come in order to really consolidate that position. We regard it as a really positive statement on the part of the Chinese economy and their authorities to actually move in that direction in a decisive manner.
As you know, we have worked hand in hand with the Chinese authorities in order to help them throughout the process of reforming their financial market, improving their supervision, making sure that openness is not just a word on the shelf. There will be more reforms coming along. Hopefully, the anchoring of China through the renminbi in the SDR basket amongst the five currencies is a first and very valuable step.
QUESTION: Madame Lagarde, the IMF has warned of political risks to world growth, but the same can be said for Greece, where debt relief is stumbling on, among others, on political considerations in the Eurozone, the forthcoming elections. Is this not worrisome for Greece, given that you are only projecting some growth in the next few years if the primary surplus is lower?
Are lower primary surpluses necessary conditionality for the IMF to participate in the ESM program?
How do you respond to European officials who are publicly asking the IMF to soften its debt easing requirements?
MS. LAGARDE: We have just concluded an Article IV, which is a bilateral surveillance effort between Greece, our member, and the IMF Greek team. The results are very accessible and indicate that some reforms have been conducted. A lot more work needs to be done going forward, as we all know. We will be actually sending a team in a couple of weeks’ time in order to help with the assessment of the various commitments that had been made under the ESM program, because, as you know, the IMF is not participating at this point in any Greek program.
Our conditions have not changed. We believe that there have to be very significant structural reforms in place and delivered. We also believe that there has to be debt that is sustainable going forward. We have demonstrated flexibility in the past in order to assess debt sustainability. We clearly believe that, as is, the debt is not sustainable.
QUESTION: Madame Lagarde, at the time of the UK Referendum on EU membership, you warned that a Brexit vote would have consequences that would range from pretty bad to very, very bad. Having seen some of the numbers now coming in, do you stand by that assessment?
MS. LAGARDE: We have done a lot of scenario planning work in the weeks that preceded the referendum. That was clearly our job. We had various scenarios. One was our baseline. One was as a result of the Referendum and a determination to exit the European Union. One was a mild scenario and one was a very adverse scenario.
We are very encouraged that, because of good policies in the main and good international cooperation between central bankers of the world, it is currently the mild scenario and not the adverse scenario. That was my comment when I reported on our Article IV in the UK in the weeks prior to the Referendum.
QUESTION: My first question is on the population of Africa. We are looking at close to 200 million Africans below 30 by 2020. With structural reforms as one of the pillars of the IMF, what structural reforms would you be looking at for the continent, especially since in the 1980s the IMF and the World Bank did push for the Washington consensus and we hardly saw any yield so many years after? The second has to be China. The IMF did draw a very interesting statistic that showed a 1 percentage drop in exports from Africa to China did have a 0.6 drop, inverse drop when it came to GDP growth for the African continent, at least for sub‑Saharan Africa. Are we about to see any spillovers when it comes to the rebalancing of China?
MS. LAGARDE: On your first questions about the reforms in Africa, there are certainly two areas where we would be pushing strongly. The first one is infrastructure, and I am not necessarily talking about roads, bridges, and railroads exclusively, but I am also thinking about soft infrastructure in order to improve access, in order to accelerate the process through which countries will move from agriculture to some industry and services. We are seeing good examples at the micro level and we believe that it should really be expanded at a much more macro level. So, that is one.
The second one is education. You rightly point your finger on the proportion of young people who will be joining the workforce, who will want to access the job market, who will want to make a living. There has to be a strong push in the area of education so that these young people are equipped to the societies of tomorrow.
I am actually concerned about sub‑Saharan African countries. It is bad to say, to consider them as a bloc, because some countries are doing reasonably well. Others have natural resources and are not in that category. Others that do not have natural resources tend to do a bit better. You have the three large countries that are South Africa and Nigeria that are clearly not doing well at the moment.
So, with 1.4 [correct] percent overall growth for sub‑Saharan Africa, we really are going to develop our technical assistance, our training, our help in building capacity, so that in addition to financing infrastructure, there is also the capacity to actually develop and deliver on the ground.
In relation to China, we have done quite a bit of work on the spillovers from China to the rest of the world, particularly in the vicinity of China, but also elsewhere, given the strong interlinkages between that large country which has grown at a very high rate over the last few years, and those countries from which it actually purchased massive natural resources, in particular. There are clearly spillovers between the two, which is why we were strongly advocating diversification of those economies that have based their development on the extraction of natural resources in Africa.
QUESTION: You mentioned Germany among the countries that need to use the fiscal space that they have. The government is preparing to announce tax cuts of 6 billion this year and next. Do you think that satisfies your call?
My other question is about Deutsche Bank. Will you be talking to the German authorities about the situation there, considering that, of course, you are not a supervisor, but the Fund itself defines Deutsche Bank as an institution with very large systemic repercussions or potential risks?
MS. LAGARDE: Well, first of all, on the to‑be‑announced tax cut, this is clearly part of, we hope, a larger package that will exploit the fiscal space that Germany has available. We believe that in the area of infrastructure, maintenance of it, there is also investment to be had.
As I said, given the very, very low financing costs, in particular, for a country like Germany, it is certainly the right time to develop that infrastructure further and to contribute to that collective effort that I have referred to. But it is not just about Germany. Let us face it. Every country can do something.
Now, on the banks. I would observe, first of all, that we do not mention for a micro second Deutsche Bank in the GFSR. We also say that many banks around the world have to look at their business models and have to undertake the right efforts and the right re‑architecture in order to respond to the existing financing conditions.
So, that is what we perceive at the moment. We are also saying in our report that we believe that there is, No. 1, the determination to do so, and, No. 2, the means available to proceed with those changes.
QUESTION: I wonder if you could talk a little bit about monetary policy. The Bank of Japan did a deep rethink of the tools at its disposal recently and came up with what a lot of people interpreted as more of a tweaking than pulling another bazooka out of their arsenal. We are also seeing speculation that the ECB might start to taper its quantitative easing program. We have heard for so long that monetary policy is reaching the limits of its efficacy. Are we reaching that point?
MS. LAGARDE: We certainly observed that monetary policy has been under a lot of pressure to act and to respond, and that it has been the first point of call to respond to the current situation. It has acted in many countries in isolation, which was not helpful.
So, if there is one message here, it is all policies—monetary, fiscal, structural reforms—have to come together. It cannot just be left to the central bankers, which have used many unconventional tools, which have explored uncharted territories, and so far for the better of benefit of the economies, fueling credit, helping put liquidity in the [circuits].
But it cannot just be about monetary policy. When we look at the business models of the banks, of the insurance companies, of the pension funds, to operate at zero lower bound interest rates or below zero occasionally is really complicating the picture. That is the reason we are advocating for the other tools to be made effective.
QUESTION: On this movement to contribute to international cooperation, Brazil either globally or regionally could help or the economic problems in the country are so serious that they prevent any outward look. One clarification. The WEO says that in 2017, Brazil will grow at 0.5 percent. The World Bank report on Latin America gives 1.1 percent for the same year. If you could help us understand the difference.
MS. LAGARDE: Okay. I will deal first with the difference because that is an easy one. We operate on different methodologies, using different references. That is why we consistently on pretty much all of our numbers have a slight variation which explains about the gap between our forecasts and their forecasts.
In terms of trend, what we are seeing this very, very large country in Latin America moving in positive territory as opposed to that contraction that we have observed in Brazil. We are also seeing currently discussed policies, including fiscal policies, including structural reforms, that will, in our view, take the country into much more stable and hopefully prosperous territories.
So, Brazil is such a large component of Latin America that can only help the whole of the continent. Latin America is in negative territory as a whole at the moment, minus 0.6 percent in our numbers, but it is largely because of some particular countries such as Brazil, such as Venezuela. If Brazil can fix its policy mix, show discipline in so doing and restore stability, that will help a great deal.
QUESTION: First, in your policy message at Northwestern University about a week ago, you mentioned that your policy message is “Do not harm.” What do you mean by that? Is it included in the recommendation that the IMF offered?
The second one is related to the 2018 Annual Meetings that will be held in Indonesia. What do you expect from that, and how can Indonesia contribute toward growth in the region?
MS. LAGARDE: At Northwestern University, the first policy message was, “Do no harm.” What I meant by that is when you have growth that has been too low for too long and benefiting too few, you cannot afford to put in jeopardy one of the engines of growth, which trade has been.
Now, we know that a lot of the trade free‑fall is largely attributable to lack of demand, but clearly what we are seeing in terms of political dynamics and rhetoric against trade would, in our view, do harm to the economy. I have called it “economic malpractice.” That is what I meant.
In 2018, we are very much looking forward to the Annual Meetings which Indonesia will host, and I hope you will all come. I think it will be really important for the region, which is one of the regions in the world where growth is still going quite strongly, where there is some regional cooperation through the ASEAN, ASEAN+3, and so on, , where the Chiang Mai arrangement is in place with which we are cooperating.
So, there are many great developments and demonstrations of cooperation in the region. To actually celebrate some of the reforms that are being conducted under the leadership of the Prime Minister of Indonesia will be great, and I will be looking forward to seeing my friend, [Finance Minister] Sri Mulyani, who has decided to move from across the street over to Jakarta.
QUESTION: Congratulations on the new Annual Meetings.
My question is about the system being rigged. Many people feel that the system is rigged and that is why we had the Brexit; that is why we have Donald Trump; that is why my Prime Minister, Mr. [Medvedev], in his recent economic survey complained the “politicization” of the economy, of the international economy.
Unfortunately, many people also believe that the IMF and the World Bank are part of that rigging. We had a rule against lending into arrears, sovereign arrears, for instance. It served the owners of the system well. Then when they needed to circumvent it, they just changed the rule. As you know, at the World Bank, no Russian projects can now be approved at this point.
So, my question is, what do you say to those people who feel that this system is rigged and that they are not getting a level playing field? Why do they still need to support the system?
MS. LAGARDE: One of our imperatives and certainly one that is high on my agenda is that level playing field. It is critically important that countries small or big, advanced or developing, receive the same degree of attention, everything being relative.
We also believe that rules are changed as a result of discussion, dialogue, consultations, and, at the end of the day, hopefully in most cases, consensus, but, if not so, majority of views according to the rules.
I would also note that in terms of participation, in terms of representation and voice, the IMF is making changes and will continue to make changes so that it reflects better the global economy.
I do not buy that comment that we are biased in the way in which we deal with countries. We try to apply the rules because we are an institution that is not only quota‑based but rules‑based, precisely in order to make sure that the level playing field principle is respected, and we will continue to operate in that fashion.
MR. RICE: Thank you, Madame Lagarde, and thank you, Mr. Lipton. You all have the GPA, just as a remainder. See you all during the meetings. Thanks again for coming.
IMF Communications Department