Transcript

Transcript of a Press Briefing by Masood Ahmed, Director, External Relations Department, IMF

April 24, 2008

MR. AHMED: Good morning to you. I'd like to welcome you all to our regular press briefing which as usual will be embargoed until 10:30, Washington time, which is 1430 GMT. I want to start off by giving you some information and then we'll move on to your questions.

First let me just mention to you that today and tomorrow we are having a conference here at the Fund on international macro finance. The final panel discussion of this conference which is entitled The Financial Turmoil and Global Imbalances will be held tomorrow at 3:15 and this will be open to the public and the press. So if you're interested, please get in touch with my colleagues in Media Relations.

On April 30 and May 1, we will hold the launch meeting of the International Working Group on Sovereign Wealth Funds. As you know, this group is being created to foster discussion on sovereign wealth fund issues and to draft and agree to a set of best practices for sovereign wealth funds. The first meeting of the group will determine the scope of work and what steps are needed to meeting this goal, which in the IMFC we have been asked to do by the time of the next meeting. All the major sovereign wealth funds will be represented and it will be co-chaired by a representative of a sovereign wealth fund and by Jaime Caruana who is the Director of our Monetary and Capital Markets Department. John Lipsky, our First Deputy Managing Director will make some remarks at the first meeting and we will give you more details on the inaugural meeting when it wraps up on May 1.

Let me also mention to you a couple of bits of management travel. On April 29 John Lipsky will be giving opening remarks again at the Tenth Annual OECD-World Bank-IMF Global Bond Markets Forum which is actually here in Washington, and on April 28 and 29, Murilo Portugal, the Deputy Managing Director, will participate in the U.N.'s Chief Executive Board Meeting in Bern, Switzerland.

So with that information out of the way, let me now turn to your questions. And as usual, I'd encourage you to please identify yourself and your affiliation. Let me also encourage those of you who are logged in through the Media Briefing Center to send your questions in early so we can get to them during the course of the briefing.

QUESTIONER: Now that Turkey has passed the Social Security reform in parliament, do you have a broad date for the review of Turkey's program or are you waiting for something else?

MR. AHMED: The staff are working with the authorities now to finalize the letter of intent that could allow the completion of the final review of this particular arrangement by the Executive Board in May, but I don't have a precise date in May to give you.

QUESTIONER: Masood, this is also regarding Turkey. Has the government already informed the Fund yet of the possibility of a new program or anything to do with that?

MR. AHMED: As I've said before, our focus right now is on completing the seventh and final review of the existing program, and beyond that as I've said also before, there are different ways in which the Fund can support the membership, but we don't yet have a final discussion or determination on what would be the nature of the support the Fund would provide Turkey after the expiration of this program.

QUESTIONER: This is regarding food prices. As you know there have been a lot of discussion on that at the moment. Is the Fund planning any sort of assessment, has it done any assessment of how severe this problem is and if countries have in fact asked the Fund for some sort of assistance...I guess it's through the Exogenous Shock Facility?

MR. AHMED: On food prices, the first thing I should say is that we are monitoring developments both at the aggregate international level in terms of how food prices are changing in different commodities, but we're also working with the member countries that are likely to be affected to assess the impact of the higher food prices and of higher commodity prices more generally on their balance of payments and fiscal situation.

This is then leading to two kinds of follow-up actions. First, for a number of these countries, and it's about 10 at the moment mostly in Africa, they have raised with us the possibility of augmenting their existing arrangements under the PRGF to provide for additional financing to cover the costs associated with higher food prices. We are now discussing those in a priority basis with each of the countries and our objective is that where it makes sense to indeed augment the PRGF that we should proceed to bring that to conclusion.

More generally we are working with that set and with other countries on the appropriate policy response that they can take to address these higher food prices. Our view on this is that of course this needs to be determined country by country, but as a general rule we believe that targeted social assistance is the first best policy but that other temporary measures may be needed and indeed could be used such as taxes cuts in food.

We've also encouraged our members who are food exporters to avoid disruptions to global markets such as through export restrictions on food and to preserve domestic production incentives.

Finally, just recognize that the IMF has a role to play in this area, but of course this is one as you've said where many agencies are involved and so we are coordinating closely with the World Bank, with the U.N. system and with other international agencies and with donors on all the issues that require regional and international action including trade policies and the need for additional financing resources from donors.

QUESTIONER: Can you name any of those countries? Is Haiti one of them?

MR. AHMED: The countries that I certainly can name today Mali, Madagascar, Cameroon, but as I said, there's about 10 of them that are in the process of discussing the options with us and as we move forward, we'll certainly provide more information on the set of countries and how we are going to respond specifically in each case.

I have a question that has just come in from the Media Briefing Center and it's a question on Pakistan. It says, Please let me know what Pakistan's latest economic position as recently discussed in Washington, and it's from Mohammed Mustar Kumin of the "Business Recorder." Let me see if I have a response for you. On Pakistan let me first of all say that the indicators that we now have point to a gradual slowing down in the economy from 7 percent last year in terms of last fiscal year on GDP to about 6 percent so it's a small slowing down. But perhaps more importantly there is an expectation that inflation will increase significantly from 7 percent last year to 14 in the current year ending March. This of course is driven partly by the high international commodity prices that I was just talking about in relation to food, but it affects other commodities as well. And at the same time, the external current account and fiscal deficits have widened significantly partly again because of these higher import costs but also because of strong aggregate demand growth. And I should also say that subsidies on food, fuel, and electricity have now reached 2 ½ percent of GDP.

The priorities going forward in the view of the Fund are that there's a need for significant tightening of both monetary and fiscal policies geared at bringing down this widening external current account deficit and thus keeping external vulnerabilities in check. To this end we think that fiscal consolidation including through a reduction of energy subsidies would contribute to reducing the external current account deficit and lessening pressure also on real interest rates. And we also believe that it would be useful to reduce and stop central bank financing of the government which has reemerged since October 2007. So that's our current assessment on Pakistan.

QUESTIONER: Masood, good morning. We have a new government in Italy and I'm not going to ask you what you think of the new government, but what does the IMF think is going to be the first step to increase our productivity, the state of the economy which your last forecasts see very slow growth for Italy. Thanks.

MR. AHMED: On Italy, first of all, I should say to you that since the new government is not yet in office we have not yet a mission to follow-up on the one that was there in January which couldn't complete the Article IV at the time. But the staff advice or assessment of issues in the Italian economy are set out in our previous analysis which I think is still very much valid today, that we do think that the most pressing need is to safeguard process on fiscal consolidation. After the good progress that was made in 2007 even if it was heavily based on revenues, the deficit is already likened to weaken substantially in 2008 and debt is rising again, and we think that rapid action to prevent further slippage would be a priority. And on the supply side of the economy, we think a raft of liberalizing structural reforms reaching a critical mass would make a big contribution to jumpstarting the supply side of the economy.

QUESTIONER: Masood, what is the update on the IMF voting power? I know that April 28 is the deadline, but has it been completed yet? Is there something to say on it yet?

MR. AHMED: As you've said, the next step in the quota and voice reforms is to get the approval by the Board of Governors of the amendment that was proposed and April 28 was the deadline that was set. That's next Monday. We're working toward that and the Board will assess where we are in that process of getting everybody a chance to contribute to make their position known through their votes and we'll be able to update you on that on Monday.

QUESTIONER: Yesterday was the deadline for voluntary separations. Have you covered most of the people? Have 400 people decided we're going to take that and leave, or what's the update?

MR. AHMED: The deadline for voluntary separations which was the part of the process of refocusing and downsizing the Fund was the 21st, Monday evening, at midnight on Monday. A number of staff have now put in their interest as part of this process. Our human resources department is now consolidating this material with the view to both looking at the aggregate numbers, but more importantly at the composition to make sure that the business needs of the Fund are met through this process, and once they've done that we'll be informing staff and as soon as we inform staff then we'll be able to inform you. But I'm not today in a position to give you a sense of what is the outcome of that process because it's still being consolidated.

QUESTIONER: Does the Board not meet tomorrow on the income model? I thought I saw that on the diary.

MR. AHMED: I don't believe that the Board is meeting tomorrow on this issue, no. I think they're meeting on income, but I don't believe they're meeting specifically on this particular issue of where we are on the voluntary phase.

QUESTIONER: The income issue, will there be a final decision? What is the meeting going to be about?

MR. AHMED: My understanding of the Board meeting is that they're reviewing the income situation for this next year.

QUESTIONER: About airlines, air transportation, and without naming, there are many airlines in crisis including the Italian one, but my question is more general. Does the IMF believe that when this is the case that specific airlines of a country are in such a crisis, government should fund them with subsidies or they should let go to bankruptcy and leave it to the market basically?

MR. AHMED: I wouldn't comment on a particular company and certainly I wouldn't comment on a particular company in the middle of negotiations, but what I can say about the general principles that we have that and which are well-known positions are that we think that the resolution of these matters should be market based, and in the case of the E.U., of course consistent with advancing the E.U.'s internal market in goods and services and this is something that applies to all sectors. As I said, this is not a particular comment on either the sector or certainly on a particular airline.

If there are no further questions, thank you very much. Let me just say to that our next press briefing then will be the same time on Thursday, May 8. Thank you.