Transcript

Transcript of Press Conference by IMF Managing Director Rodrigo de Rato

September 15, 2006

Participants:
Rodrigo de Rato
IMF Managing Director
John Lipsky
IMF First Deputy Managing Director
Masood Ahmed
IMF External Relations Department Director

MR. AHMED: Good morning. Welcome. I am Mr. Masood Ahmed, Director of External Relations for the IMF. This is our opening press conference. To my right, Managing Director of the IMF, Rodrigo de Rato, and to his right, Mr. Lipsky, the First Deputy Managing Director.

Mr. de Rato will have some opening comments. We will make hard copies of these comments available at the end of the press conference for those of you who would like to have them and once he has delivered his opening comments, we will then open up the floor to questions. Mr. de Rato.

MR. DE RATO: Good morning and welcome to this press conference. Thank you very much for being here. Before I begin I would like to express how saddened I am and in the name also of the Fund to learn of the death of Andrei Kozlov. He was a man of courage in pursuing the betterment of his country's banking system, and that has a lot of influences for the future of Russia. We extend our deepest condolences to his family.

I am delighted to be in Singapore, back in Singapore-I was here a few months ago in May-and to be back in Asia. This Annual Meetings are the first to take place in this part of the world since the Hong Kong meetings nearly a decade ago. And they are returning to Asia which today is the most dynamic and rapidly growing region in the world. So, I am very glad that our meetings are held here, and I look forward to some equally dynamic and productive discussions.

Let me now go over the agenda with you. There are a number of important issues on the agenda of our ministerial committee, the IMFC. Among them, the outlook for the world economy, the IMF's Medium-Term Strategy, in particular our proposals for reform of the Fund's governance structure and the changes we are making in the way we conduct surveillance. As starting by the first item, the outlook of the world economy, just yesterday Mr. Rajan made a very comprehensive and clear presentation. But let me very briefly reiterate some of the key points Mr. Rajan made yesterday.

The global economy has been resilient and growth prospects remain strong, in large part due to good past policies as well as in improving productivity growth. There are also risks to the generally good outlook. Inflation risks are a concern as output gaps narrow, high oil prices could adversely affect both inflation and growth, and there has been a major setback in the Doha Round of trade talks. And, of course, the risk of disorderly adjustment of global economic imbalances has not gone away, and could well be exacerbated by the previous risks I just mentioned. So policy makers-many of them here this weekend-need to be ready to adapt to a more, maybe challenging, environment.

Regarding the second issue, we are now six months into implementing a Medium-Term Strategy for the institution that was approved in the last spring meetings and discussed in the previous Annual Meetings in Washington. And we will be seeking guidance from ministers on some of the important issues regarding our Medium-Term Strategy. We all know that the world is changing rapidly, and for the IMF to remain effective and credible, we must change to serve our member countries. That is certainly the central motivation that underpins the changes proposed in this strategy, and that is why these meetings are particularly important in some of these questions.

One of the elements of the Medium-Term Strategy that would be discussed here in Singapore is the proposed changes in the way we conduct surveillance of the global economy. By surveillance, I mean both monitoring of the global economy, and also our discussions-consultations-with individual members on their economies. One change we have made is the introduction of a new tool, Multilateral Consultations, in which particular issues of global original significance will be taken up comprehensively and collectively with some members and, where relevant, with entities formed by groups of members. As many of you know, our first Multilateral Consultation is focusing on global payment imbalances, and how to address them while maintaining robust global growth. The staff of the Fund has already held bilateral discussions with the participants in the consultation, let me remind you who they are: China, the euro area, Japan, Saudi Arabia, and the United States. And over the coming months, we will hold roundtable meetings with all of the participants together.

I would like to emphasize one important point: global imbalances are certainly a very complex problem that took many years to build up, and it would be unrealistic to expect the problem to be resolved through a magic bullet-a quick fix. Our targets for this consultation process, let me just summarize them in three areas: To arrive at a shared analysis of the nature and consequences of the imbalances; after that, arrive at a common understanding on policies designed to make things happen in several countries together; and also arrive at a common understanding of the role of the international community in resolving global imbalances that is the International Monetary Fund. We look forward to a deep and important discussion on these issues during this weekend with the rest of the international community, with the whole of the international community.

As many are aware, our Medium-Term Strategy contains other steps to strengthen or sharpen our surveillance toolkit, and to be able to respond to global realities. And these changes include deeper analysis and monitoring of exchange rates, and much deeper work in the financial sector and cross country spillover issues. The IMF also aims to focus surveillance more sharply across both countries and topics and to seek richer engagement with members.

I think we are also taking important steps-and that will be a very important part of discussions in Singapore-regarding our own governance. Less than two weeks ago we took a significant step forward when the Executive Board of the institution reached a very important agreement on a package of reforms, which will bring about the most significant change in our governance in the last 15-20 years. In essence we are asking our members to approve an increase in the quotas for very underrepresented countries in regard to their weight in the global economy, those countries being China, Korea, Mexico, and Turkey. At the same time we are also asking our members to commit to work on a broader reform of the quota distribution process during next two years. This will involve a new formula designed to capture member countries' weight in the global economy in a simpler and more transparent manner than the actual formula we have. After arriving at that new formula, it will also involve a further quota increase for a broader range of members based on the new formula. And as many of you are aware, I'm asking the most industrialized countries in the world to restrain their rights in this second ad hoc increase. Certainly, as a very important part of the end-agenda, we will ask our members to support proposals to enhance the voice of low income countries through an increase in basic votes that are allocated to all members regardless of their size. Also, by providing additional resources, human and also political, to the chairs with the largest constituencies which very clearly are African areas.

Let me now briefly mention another element of our Medium-Term Strategy, the discussion of which I look forward to this weekend--which is crisis prevention. I think that we are all aware that we live in a moment of extremely benign financial conditions in the world, that is giving new very important opportunities to countries, but also to businesses and to families. Nevertheless, experience shows us that international financial conditions can change, and we got some taste of how that change can happen only a few months ago.

This is a very important time to build on the good conditions to prevent crises, and certainly the best prevention is domestic policies. In that respect, I urge all countries to maintain and increase their macroeconomic and financial stability. But certainly the international community has to be ready to respond to crises, and I think the Fund has to ask itself some questions regarding to what extent our actual instruments can respond quickly enough and are predictable enough to help countries that have strong macroeconomic conditions, but still remain vulnerable to shocks. That work has already started. We had a very, I think, productive Board meeting about this issue a few weeks ago, and after listening to the ministers on Sunday in the IMFC and on the bilateral meetings we are going to be holding all these days, we will move forward in the next few months. The aim of this will be to provide assurances that substantial financing will be available in a time of need, a framework of policy commitment and monitoring, and a signal to markets.

Another important topic for Sunday's discussion will be our policies regarding low-income countries. Starting in January of this year, the Fund was the first international organization that moved to implement the multilateral debt relief initiative that was agreed last September in Washington. That wiped out the debt owed to us by some of the world's poorest countries. It is part of our Medium-Term Strategy to improve our effectiveness after this movement of debt relief, to respond to the challenges of low-income countries in arriving at the MDGs. By focusing on what we do best and what is our mandate, which is of course macroeconomic and financial stability. These areas include helping countries to reap the benefits of higher aid and debt relief, increasing their absorption capacity, and certainly work hard to avoid new buildup of unsustainable debt, which has been so costly not only in economic, but also in human and social terms, for many low-income countries. A key role the Fund plays is promoting macroeconomic stability, and I think we all agree on this, this is clearly a prerequisite for sustainable growth; and sustainable growth is a very clear path for the reduction of poverty.

At the same time, the Fund can provide support in other policy areas, where it has expertise and that we have learned are critical for growth. That is, for instance, trade policy and financial sector issues. In all of these areas, we also need to work closely with other partners, certainly the World Bank, but also the donor community, and most importantly low-income countries, governments, and civil societies.

Ownership of macroeconomic policies is key in any country and especially important and challenging in low-income countries trying to reduce high levels of poverty.

Let me just finish by telling you that we believe that this is an important time for this institution, and a time to make very far-reaching changes. The current position of the global economy is certainly strong, but the risks are also important, and nobody wants to go backwards. And certainly we are going to work with countries to move forward. With robust international cooperation, we can contain these risks, keep the global economy strong, and broaden the reach of prosperity and progress. The reforms of the Fund that we are working on will play an important part in achieving this progress, and certainly these meetings in Singapore will be another significant step in implementing some of these reforms that I just mentioned to you.

These meetings can also play an important role in strengthening political support for making globalization work in favor of people, and removing the threat of trade protectionism. In that context, I would mention that we hope for the IMFC ministers and central bank governors to meet on Sunday morning with some leaders of the business community and be able to discuss together with them some issues on the support of trade liberalization and enhancing the positive aspects of globalization.

This is going to be, as you see, a very demanding agenda. We have a lot of important work to be done during these days. This press conference is part of it, and I want to thank you for being here and invite your questions. Thank you very much.

MR. AHMED: I will take questions now, and please identify yourself and your affiliation.

QUESTIONER: Mr. de Rato, the increase of the ad hoc quota for China, India, Mexico, and Turkey, is just an ad hoc, but does that mean that in the next year there could be another increase related to the revision of the new formula? And the second one is about the new facility, the financial facility. Which countries are the most probable included in this liquidity facility, looking through the year for the IMF?

MR. DE RATO: Regarding your first question, it is clearly that what we have discussed at the Board, what the Board has approved is a two-year program that will focus itself on some important aspects of governance, not all of the aspects of governance, of course, but is a very detailed agenda regarding quotas and voice, both for most dynamic economies, mostly emerging economies, and also for low-income countries. The movement will start with a first correction of a third of their actual misrepresentation and misalignment for the most clearly underrepresented economies, all of them recognized by all members of the Board, but the most important part of the agenda is certainly to be able to move more forcefully with not only these four countries, but others. To do that, there is a consensus that we need a new formula, there is a new yardstick to measure to what extent countries are rightly represented or not at the Board. And, that is a challenging issue, but I'm encouraged to see that there is a growing consensus that we need to achieve that result.

Once we will have a yardstick that will be more backed by the group of countries that are represented at the Fund by 184 countries, we will move into a second ad hoc increase and that, of course, will be in relation to which countries are more underrepresented by the new formula, probably these four countries will still be, but others, also.

At the same time, and at the same level of importance, but also tightly tied in terms of calendar, basic votes will be also reviewed-in a way that will make low-income countries participate in an increase of their voice in the institution. I think this is a very important and new avenue that the institution is moving in governance. The institution has always recognized that the economic weight was crucial in terms of legitimacy of voice in the institution, but it was not as clear that the institution was responsive to the needs of low-income countries in that respect. The fact that there is a very, almost universal consensus that low-income countries' voice, independent of their economic weight, has to be preserved is a very important step in making the institution more responsive to what today the world society requires in the governance of the public institutions. As for the second issue, the question is not to make a list right now of countries, but to ask ourselves some questions regarding crisis prevention.

Crisis prevention is a very important element of our work. Sometimes we will never know exactly how successful we have been, because if we are successful, we won't have crises, so in that respect, it was that type of work that is not always so obvious. But it is very important. The best crisis prevention mechanism, as I said before, is certainly domestic policies, if you have a good macroeconomic framework, you have flexible and credible regulators and infrastructure-financial infrastructure-and if you have an integrated economy in the world economy, you may suffer shocks, but you won't get into financial crises. Nevertheless, there are some emerging economies that clearly have increased their resilience in recent years, and I think that is one of the best news in the world economy, which is to what extent we live in a world in which emerging economies are not only playing a role, but are also on a much stronger footing than before. The markets are recognizing that every day. And you know that. Nevertheless, vulnerabilities exist and the vulnerabilities can be more dangerous in a more tight financial scenario if the world economy evolves in that direction. I think the international community has to be ready to respond to that type of crisis. It is probably shrewd to think that the type of crisis we knew 10 years ago, 20 years are not going to be thematically the same, in terms of size, in terms of the need of quick response, in terms of signaling markets, and that is the issue we have to respond to ourselves. And we are working on responding to those questions. Once we arrive at a conclusion, we will ask whether we need new instruments and if we need them, we will have them so that countries can use them when it is necessary.

QUESTIONER: Thank you. I have two questions related to Brazil. I would like to have your assessments on the fact that Brazil and other countries are complaining the way the IMF intends to conduct their quota reform, and also about Paris Club spending in Brazil that the IMF says is growing rapidly and not necessarily targeting infrastructure or social spending. Thank you.

MR. DE RATO: The views of the countries, of course, are up to the countries to express, not up to me. So, whatever Brazil, and any other country, thinks should be expressed by their representatives, not by me. What I have to say is that I believe, not only in the specific interest of Brazil, but in the interest of all of Latin America, to have a change in the Fund and we make the Fund more responsive to emerging economies and low-income countries. I don't have any doubt about that.

And my very frequent interchanges of views with Latin American representatives and members of governments, and Brazilian ones in particular, make me believe that is a shared view. I think that we are moving and that is the best thing the institution can do. We are moving in making more dynamic economies have a more important role to play in the institution, and many of those, more dynamic economies are emerging economies. And we are also moving into a very important, new dimension of recognizing low-income countries' voices. I don't have any doubt that view is shared by the Brazilian authorities and of course then we will have to discuss issues very concretely. I understand that is not easy for countries to agree to, for instance, a new formula, but certainly as the agreement of the Board recognizes, GDP should play a significant important role in that new formula, together with other components besides GDP. And that, of course, I think that is also a very important question that should be reflected by governments like Brazil when they make their decisions.

On Brazil's economic policies, certainly first of all, social spending, I would say, independently of the actual figures, Brazil has made very important steps in making social spending more effective, and poverty reduction in Brazil in the recent years has been moving forward.

It is a good example in Latin America, not the only one, but a good example of changes in the way of targeting social spending for the better. So, in that respect, I want to say that I am encouraged by what has been learned.

At the same time, I think that the effort that Brazil has made in reducing public debt is increasingly important, and there are challenges there, of course, there are challenges of keeping a high level of primary surplus and at the same time addressing social needs and infrastructural needs. As I have said on occasion that in Brazil, I want to repeat it now, one of the big challenges of Brazil's budgetary policy is rigidity. We believe Brazil needs a more flexible budgetary framework in which less expenditures are preconceived in terms of assigning already the revenue. That is a key element in the modernization of the budgetary framework in Brazil.

I also want to thank the Brazilian authorities by the work we have done together in exploring the role of private capital in contributing to infrastructure, and I think that some of the experiences in Brazil, but also in Chile and in South Africa can be very useful for many emerging economies.

MR. LIPSKY: I want to add one point. Our basic outlook for the Brazilian economy is a positive one. We're looking for somewhat faster growth next year, about 4 percent growth in Brazil; so the context for these policy opportunities is going to be a positive and benign one, and our hope is that in this relatively benign environment that the authorities will be able to continue the progress in regard to spending that the Managing Director just discussed. Thank you.

QUESTIONER: Two questions, please. First, in relation to quota reform, how confident are you that the voting which is currently taking place will give you the necessary support to go ahead with the reforms? Secondly, yesterday your chief economist spoke of a rising tide of economic nationalism in the world and also referenced the danger-the possibility of a global slowdown linked to a slowdown in the United States, not only through trade, but also he suggested that the private investment taking place in various parts of the world, in Japan, etcetera, is aimed at exports, and therefore there will be a kind of leveraged slowdown in the world. I wonder if you would like to express your own views on some of those concerns, please.

MR. DE RATO: On the quota issue, of course, we are in the middle of the countries expressing their votes. We have to wait and respect that period.

What is clear is that there was a very clear majority in the Board to endorse the resolution, if not, it would not have been brought here. But I cannot say anything until the countries have expressed their votes. I have to keep some respect, if you want-silence-in that respect, for the time being.

As for our view that was expressed yesterday by Mr. Rajan, I would like to say a few words. I would also say that, first of all, our figures that you know regarding the world economy are clearly of a sustained recovery in 2006 and 2007. And that is, I think, very important given that some of the issues that we saw as possible risks a year ago, that is the change to a tighter interest rate environment in the main economies and the danger of high oil prices, have materialized. Nevertheless, the world economy has been able to respond positively to those risks. Nevertheless, of course, those risks continue in some cases, and one important question, which I think was very clearly put yesterday by Mr. Rajan, was the fact that how the world will adapt to a less buoyant U.S. economy. Of course, that doesn't mean that the U.S. slowdown will be dramatic, but certainly we are in a less dynamic environment, although still a very positive one in terms of potential in the U.S.

Of what will happen a year from today depends on what we do from now until then. So, we will have things to do, domestic policies in the U.S. will play a very important role and we have seen a transition to a policy of monetary tightening; and fiscal policy will play a very important role, too. But other countries' rebalancing of demand is going to be crucial in this respect. Certainly, the credibility of monetary policy in regard to inflation is very important.

MR. LIPSKY: Just to add a brief point. For sure over the coming years-not just in the near term-in the coming years, there is going to be a rise in the national savings rate in the United States. Probably driven by a rise in the private savings rate. To maintain world growth, what we want to see is, as the Managing Director mentioned, the rebalancing of demand growth in the United States in the coming years which is going to depend less in relative terms on the growth of domestic consumption and more on investment and net exports. In the rest of the of the world, we expect to see especially in the near term in the more advanced countries, a strengthening of domestic demand in the form of stronger growth in investment, stronger growth in income consumption. That is the rebalancing the Managing Director spoke of. Therefore, somewhat slower growth in consumption spending in the U.S. is part of the inevitable and desirable adjustment process. What is important is that this is kept in balance and on track and doesn't involve a slowdown in global growth. It is not necessary, but it is a risk that policy makers need to be alert to.

QUESTIONER: What is your opinion of the evolution of the economic policy of Argentina nine months after the full payment of the debt with the IMF?

MR. DE RATO: Well, we express clearly the views of the Fund regarding Argentina in the last Article IV discussion which was, I think, a very thorough and thoughtful discussion. Current economic performance has been very strong and there is a very important achievement in poverty reduction and employment generation in Argentina. As I mentioned also in the case of Brazil.

However, in the case of Argentina, the macroeconomic policy stance is in our opinion too accommodative, and has given room for strong price pressures, and what we could describe as signs of overheating. So in that respect we see a tighter role for monetary policy and we see a tighter role for fiscal policy regarding Argentina, and certainly to let the currency be affected more by market pressures, and respond more to the actual situation of the economy.

We have seen administrative measures to bring down inflation, but we believe that those measures will introduce distortions and will not be very effective. So we have expressed publicly to the government also that we think that the government should move to more use of fiscal and monetary policy in this respect.

Nevertheless, we believe that there is a big opportunity for the Argentinean economy and the Argentinean society to overcome the very high cost of the last crises, and we look forward to work with the Argentinean government in that respect.

QUESTIONER: Good morning. As you said, the IMF will add the voting power for some developing countries, so can we perceive it as a measure to build developed countries' confidence in the IMF because we know several years ago the strong medicine the IMF gave to some developing countries when they experienced financial crises didn't turn out to be very effective or, shall we say, has had some negative effect, so what would you say about that?
The next question is about the Chinese renminbi exchange rate. As you know, the RMB exchange rate, the issue will be one of the focus for this meeting, so does the IMF think that the Chinese export enjoys unfair advantage as of the value of the RMB and does the IMF think the RMB exchange rate is undervalued?

MR. DE RATO: First of all, I would like to say that when you refer to a strong medicine, the question is not of a strong medicine. The question is the Asian crisis was a very strong crisis and that is what produced the cost. The cost in economic, financial, and social issues in Asia ten years ago was produced by the crisis. The role of the international community helped the Asian countries to come out of the crisis in a very short period of time, and without the international community, maybe we would not be seeing the result we have seen today.

That is not to say that you can argue about this or that measure regarding fiscal tightening, monetary tightening, in the set of the crisis. But it was clear that at that time, the international community represented by the Fund was here, and stayed here, and at some moment there that was the only presence. So, I was not at that time Managing Director. But I want to certainly remember that.

I want to say again that doesn't mean that specific measures cannot be argued. In fact, we have made very clear what our views of what was our role and our possible mistake in that respect, but overall the crisis was left behind quite quickly and, of course, financial crises are very, very difficult situations for countries, and are very costly. So, we should try to avoid them at all costs.

Regarding China, we have expressed our views on China on our recent Article IV that was published last Monday and I want to really commend the Chinese authorities for the transparency on this issue. Part of our view of China certainly is that the decision taken by China last year to change its exchange rate mechanism was the right one. But that decision has to be implemented. And we believe that it is in the interest of China not only on the exchange rate but in general, to let market forces determine the allocation of resources more effectively in the economy of China. In fact, we believe that is the big challenge for China in the next few years: how to let market forces influence credit, influence domestic demand, making people more confident in their safety nets, and other issues that we believe will be in the interest of China.

Given the importance of the Chinese economy, having a more stable medium-term prospect for Chinese growth is very important for the world economy, but you can be sure that our recommendation to the Chinese authorities are strictly based on what we believe is better for China at this juncture. QUESTIONER: Part of the IMF's image problem in Asia some time back has already been addressed by you, but as a follow-up, do you think the Asian countries now that they are in a phase of dynamic process of economic growth, do you think the Asian countries will revive the idea of an Asian regional monetary Fund and if so what would be the IMF's response?

MR. DE RATO: Well, I think you should ask the Asian countries. The international community in a globalized economy has a very important role to play, not only in crisis resolution, but also in crisis prevention and certainly in surveillance, and, for instance, in capacity building. I think the international community has to be very active in that respect-in our engagement with regions and countries. I would ask John who knows very well this region to come in on this issue, but let me tell you what I see as the clear success of Asia in last ten years shows us in my personal opinion that Asia will become more involved in international economy not less involved. In that respect, the role of international institutions like the IMF can be extremely helpful. I think we are. In fact, we have already helped in many ways, Asian countries regarding financial integration, which we believe is a very important instrument for Asia to become more integrated in the global economy and at the same time take advantage of its own important assets.

MR. LISPKY: I think the Managing Director has made a major point. Just to make sure it is clear, greater integration, both in real economic terms, in trade terms and investment terms, and in financial terms is both an inevitable and potentially very positive influence in the region, but at the same time is in no way counter to greater integration in the global economy. So how these steps will unfold, will be at least to an important part a choice of the Asian economies. We look forward to partnering with the countries in the region in this effort in many, many ways.

QUESTIONER: We have just read your outlook and the figures on Italy. As for just the figures, they are less optimistic than the ones of other institutions like the OECD or the European Union. Which are the reasons for you to say, for instance, Italy will grow at 1.5 percent? How do you explain this permanent weakness of the Italian economy in a sense, in a relative sense, in comparison to other European countries?

MR. DE RATO: As we have said, we see the cyclical recovery gathering strength in Italy. Our numbers are that the pace will be around 1.5 percent for the year, for this year, and a little slowdown to 1.3 percent next year, which is in reference to what will happen in the overall euro area, and we will see growth this year and a slowdown next year. In that respect, we don't see much difference.

We see a rebound in Italian investment, and continued moderate consumption growth, and we see it is important also that inflationary pressures should remain contained in Italy.

There is a potential risk, certainly, in the need for the actual coalition to establish very clear economic and budgetary guidelines and in that respect, the approval of the 2006 budget is an important question and we certainly encourage not only the government, but also the rest of the political parties to move ahead. The fiscal environment for Italy is very challenging, and is being a cause of a lot of work between the Fund and the previous government, and the actual government. There is certainly, because of this rebound in growth, a better prospect for revenues and the fiscal situation, but nevertheless, we see a very challenging fiscal situation. This is the analysis I can give you of the situation in Italy, and I want to stress that not only on the fiscal side, we need a firm fiscal policy in Italy, but certainly on the need to move more forcefully on structural reforms. That will make product and labor markets more efficient in Italy. Some of the reforms of previous years have paid back in terms of unemployment, some of the reforms we see in the financial sector go in the right direction. But this is a good opportunity to accelerate those reforms, given that the cyclical framework of Italy is better than it was only a few months ago.

QUESTIONER (interpreted): You said the role of the IMF was to promote macroeconomic stability. The question was asked yesterday about subsidies to certain developed countries. Subsidies for their exports, which affect competitiveness. We were not quite satisfied by the answer, so my question is, does the IMF have an answer to the problem of subsidies?
Secondly, could you be more explicit about the reform proposal regarding the Board's representation for Africa? Three countries are represented by two. In your two-year plan, what could this become? How could this be changed?

MR. DE RATO (interpreted): Protectionism by developing countries, I think, all of these countries agree that they should reduce their agricultural protectionism, and not only their agricultural protections. We also are of the opinion that the question on the table in the Doha Round needs to be dealt with by the developed countries, especially the United States and Europe.

The second question you asked on this reform agenda in the IMF, the question of the number of chairs is not on the table. This is not a question that we have a consensus to discuss. But I think there is a clear consensus to see to it that the vote of the low-income countries be expanded and protected better, and secondly, that the chairs representing a large number of countries as is the case of the Africa countries, that these chairs need to be strengthened, not just regarding their physical and technical means, but also politically, so that there will be better representation of Africa in the Board.

QUESTIONER: Mr. de Rato, probably you are aware that two days ago our country has witnessed the assassination of Mr. Kozlov. Do you think in this respect, this criminal risk that was eased for several years in Russia has persisted? And do you think that this event will hamper the investment climate in Russia? And the second question, what is the reforms that should be on the priority agenda for Russia to reform the economy and to boost the economic growth?

MR. DE RATO: First of all, I want to say again, I said it at the beginning of my initial statement, that we are really saddened by the assassination of Mr. Kozlov. He was a very important person in the Russian central bank, and we saw him as a man of courage in pursuing good policies for his country. This is a very tragic incident, and of course, it is up to the Russian authorities, especially the police and the judges, to deal with it.

At the same time, we have been working with the Russian authorities, Mr. Kozlov and others, in recent years in terms of making the financial system and the banking system of Russia more responsive and more transparent, and that is work that will continue, I'm sure, with the central bank.

Regarding the Russian economy, let me just remind you and remind all of us that growth has accelerated since mid-2005. We have seen a relaxing of fiscal policy that has become more and more procyclical. And in that respect, we have encouraged the authorities to be aware of this medium-term danger. Nevertheless, the cumulative increase in the non-oil deficit is already around 3.5 percent of GDP. We have seen, and I want to emphasize this, and I think this is a positive evolution, that monetary policy has become more focused on inflation control, and in that respect, we are encouraged by the fact that the Russian central bank is allowing greater exchange rate flexibility since mid-2005.

There are challenges regarding regulatory issues in the banking system, and we certainly encourage the Russian authorities to pursue in their work of modernization and making more transparent their own banking system.

If you want to, our opinion of what we see as the main medium-term challenge for Russia is certainly to use its very important energy resources to support higher potential output in the rest of the economy. We think, of course, there are many issues in Russia like in any country, but if you want our opinion on where should all the efforts be constrained, it would be on that. In that respect, higher government spending should be geared toward structural reforms and investment to increase potential GDP. We have seen an important reduction of vulnerabilities in terms of external debt, that is very welcome. And we also have seen clearly the economic authorities in Russia take important steps to contain the immediate use of oil excess prices, and also the need to maintain a tight fiscal policy. But, in that respect, as I said, those efforts have to be increased. Thank you.

MR. AHMED: I appreciate your questions, but we have to bring this to a close now. As I said at the beginning, we will have copies of the Managing Director's opening remarks available to you.

MR. DE RATO: Just before we end, I want to say publicly what I had the occasion to say yesterday to the Prime Minister of Singapore. I want to thank the authorities and the people of Singapore for their hospitality, and say once again we are very glad to be in Asia and be in Singapore at this time. Thank you very much.

[End of press conference.]