Transcript

Transcript of a Press Briefing by International Monetary Fund First Deputy Managing Director John Lipsky on Steps to Reform IMF Financing Facilities with Reza Moghadam, Director of the Strategy Policy and Review Department, Caroline Atkinson, Director of the External Relations Department, and Lorenzo Giorgianni of the Strategy, Policy and Review Department

March 24, 2009

MS.ATKINSON: Good afternoon and welcome. This is a live broadcast, a life press conference. We've also got some other materials that I'll refer to in a moment. We will also be putting the video on imf.org.

We've called you here and called you online because less than two hours ago I think our Executive Board chaired by John Lipsky, the First Deputy Managing Director, agreed on what we consider to be quite a far-reaching and exciting package of reforms related to IMF lending and the conditions on that lending and the way in which we lend. We thought it was important to let you know immediately about the scope of those reforms, and that's what our panel here will be able to do. Before I introduce them, just a couple of points. We have a package of materials that you can find on imf.org. We also have copies in the room. There's a press release which was embargoed until 2:00, so that's already live. There is a backgrounder which describes in nontechnical language some of the changes that we think you will find helpful. We're putting that out now because our Board documents will not be online yet as the Board meeting has only just finished. They will also be available on imf.org with the normal delay, probably about a week or so.

We also have on imf.org, you can find a list of Q and A's, obvious questions and some answers that we help you will find helpful in understanding the package and an IMF survey piece as well. The press release is available in multiple languages right now on imf.org.

To my right is John Lipsky, the IMF's First Deputy Managing Director; then Reza Moghadam who is the Director of our Strategy, Policy and Review Department, which is the one that has been mainly involved in pushing these reforms for the staff; and then Lorenzo Giorgianni, who is the Division Chief in that department who babies these reforms are. Thank you. Over to you, John.

MR. LIPSKY: Thanks, Caroline. First of all, thank you all for coming and attending this briefing, those who are here in person, or attending electronically. Secondly, let me assure you this is not my normal speaking voice, not especially for the occasion, but I'll do the best I can.

Today the Executive Board approved a very comprehensive set of reforms of our lending framework and we think it marks an important turning point in the way the Fund can help its member countries. In broad terms, it represents a very decisive response not just to the latest developments, but for the evolution of the global economy and the increasing role of global capital markets to ensure that the Fund's techniques of supporting member countries in crisis prevention and crisis resolution are adequate to the realities of the current world.

Today's measures represent a very significant evolution in the Fund's approach to assisting members and we arrived at these reforms by listening to our members, by consulting with a variety of stakeholders and by reviewing past experience. They will certainly in our view pave the way for countries to much better work with the Fund on crisis prevention and crisis resolution and is of a piece if you will with our efforts to increase our lending resources. We've created some new facilities, and against those new facilities we are looking for adequate resourcing.

Overall, the reforms introduce a great degree of flexibility to our lending and conditionality frameworks. It's going to make it easier for countries, especially emerging market and developing countries, to seek the very specific and tailored support from the Fund that they are going to need to weather this global crisis and to return to sustainable growth. Let me in very brief terms explain the changes that were adopted today.

First, we are modernizing IMF conditionality for all our borrowers, and very importantly, introducing a flexible credit line that builds on and replaces our Short- Term Liquidity Facility and creates a unique and we think very useful new facility for the Fund. Also the Board has taken a set of actions that will enhance the flexibility of the Fund's traditional standby arrangements, and we've also doubled the access limits to nonconessional resources.

At the same time, we've simplified the cost and maturity structures of Fund arrangements, and in order to better clearly focus the facilities we have eliminated some facilities that have been seldom used. At the same time, we've initiated complementary reforms of our concessional lending instruments to meet the needs of our low-income countries, but the peculiarities of the way the Fund works, we'll have to deal with those in a separate set of discussions and decisions that we anticipate in the coming months.

Emerging market and developing countries as we all know are facing increasing difficulties around the world as a result of this spreading global crisis. In particular, we've seen external financing drying up for emerging market and developing countries, their exports dropping sharply, commodity prices falling. As this crisis becomes more prolonged, a growing number of countries are going to find their room for policy maneuver limited and we think that appropriately scaled and timely financing from the IMF can cushion the economic and social costs of these external shocks, and even if used appropriately help in some cases avert crises. Thus, all countries stand to benefit from the Fund's revamped lending instruments which include as you will see from your study of the packet the creation of large new precautionary facilities that will serve as a crisis-prevention tool.

The reforms also complement our ongoing effort to increase significantly the Fund's overall lending resources. The idea is to give confidence to our members and to markets, financial markets and others, that the Fund will have sufficient resources available to meet any eventuality. As you know, the Japanese authorities have already provided a $100 billion loan arrangement that's been formally concluded. My guess is that you will have noted that last week the European Union countries have committed to providing an additional 75 billion euros to the Fund, and efforts are underway to further increase IMF resources in the run-up to the April 2 London Summit of the Group of 20 Countries. And as we've announced previously, at the same time we are seeking to double the resources available for concessionary arrangements with low-income countries.

With that brief introduction, I'll stop and turn it over to you for questions that my colleagues and I will be pleased to answer.

MS. ATKINSON: Thank you. We've got a bunch of questions coming online, but I'll take some from the room. First, if you could identify yourselves and then ask your questions.

QUESTION: Part of the reason the last credit line didn't seem to take off some people said was that there's still a degree of stigma attached to IMF loans even when they're offered to strong high-performing countries. How do you think this facility will be received? Have you spoken to member countries in advance and got the impression that they would not be concerned by this stigma?

MR. LIPSKY: Let me address first how we feel the Flexible Credit Line, or FCL, which is replacing the previous SLF for Short-Term Liquidity Facility that you mentioned, how the FCL supplants and improves on what we knew at the time were potential shortcomings of the usefulness of the SLF. At the time, the SLF represented a breakthrough in that it was a relatively high-access, front-loaded, prequalified facility that was available to members with strong performance. Right away it was clear there were two areas for improvement that could make the facility much more useful. One was the SLF was a purchase and therefore a country wishing to make use of the SLF had to immediately purchase the amount of the facility. In contrast, the new Flexible Credit Line could be used for a purchase but has the flexibility to be used in precautionary way like a line of credit or an insurance policy. In other words, it becomes much more flexible in terms of the timing that a potential user could available themselves of the funds.

Second, the SLF had a limited cap of 500 percent of quota. The Flexible Credit Line as the name implies has no fixed access limit and can be tailored to the needs of individual countries.

The third aspect of the limitation of the Short-Term Liquidity Facility was that it required a payback in three, six, or nine months at the longest, and the new Flexible Credit Line is repayable on the same terms as other Fund facilities in what we call the general resources account, in other words, the same as other standby arrangements. So it's from the point of view of the potential users a much more attractive facility. So we're very hopeful that these improvements will make it attractive to our members in cases where it's appropriate, and as you'll see in the press release, our Managing Director, Dominique Strauss-Kahn, has as it says invited, and we join him in inviting, strong performing countries that may be hit by the global crisis to use the new Flexible Credit Line in ways that we think will be very useful in strengthening their economic position. Let me see if my colleagues have anything they'd like to add.

MR. MOGHADAM: One other aspect of it which is novel is that this is renewable. The member has the choice to take it for either six months, or for a year, with a midterm review, but it is renewable indefinitely, if you wish, and some of the positive aspects of the SLF are also incorporated here. It is based on qualification criteria. If you qualified, you can have the upfront access the way Mr. Lipsky explained, and there are no ex post conditionalities attached to it.

MS. ATKINSON: Thanks very much. Perhaps then I can take a question that's relevant online. He asks what specific qualification criteria will we use to grant access to the Flexible Credit Line? Will we publish this criteria and the methodology to access countries' policies? Just to say again that some of the answers to those questions are in fact in our Q's and A's and backgrounder, but anyway I'll turn it over to John and to Reza.

MR. MOGHADAM: I might say a few words and then Lorenzo can tell you a bit more. The Q and A answers this question precisely. The papers that will be published will contain the qualification criteria. They are not that different from what you have seen in the SLF. Let me ask Lorenzo to say a few words about what they cover.

MR. GIORGIANNI: The qualification criteria really are at the core of this new facility. They aim to ascertain that the member has very strong economic fundamentals, it has implemented very strong economy policies and is committed to continuing to implement very strong economic policies in the future. To operationalized these general principles, we in the decision that goes with the new instrument and in the paper supporting that decision have laid down a number of specific criteria including economic indicators that will be used to validate observance of these criteria. To give you a sense, there will be some that will have to do with the strength of the external position of the member, for example, not having a too large current account deficit would certainly be an indicator that the member would be able to qualify for this instrument. There will be other criteria that have to do with the strength and soundness of the public finances and the sustainability of public debt. And likewise, on monetary policy we would use an approach that basically infers the quality of monetary policy by establishing whether inflation has been low and stable over time. So there are a number of criteria there. There is something also in the banking system and supervision, and the whole logic of being very specific about this criteria is to give predictability to the framework and make sure that countries can self-select themselves and their uncertainties if any of the members look at this criteria in recognizing whether they would eventually qualify of not, so eliminate uncertainties on the qualification process.

QUESTION: I'm sorry for my voice, sir, too. I also apologize for veering off the subject a little bit, but it's the run-up to the G-20 and it's a subject that is relevant to the IMF and important to a number of countries. The chairman of the National Bank of China this morning came out for using the SDRs as the world reserve currency. The idea had been broached before by some other countries including Russia which said in its proposals for the G-20 that the IMF should be requested to do a study of this scenario of using the SDR or another supernational currency as a world reserve currency by the IFIs rather than by a particular nation. What would be your comment on that, sir?

MR. LIPSKY: Again it is off the topic of the conversation, so let me be extremely brief. These kinds of discussion represent concerns about strengthening the international economy and financial system, improving its stability characteristics and this idea, an idea of a global currency determined by a multilateral organization, et cetera, as you've stated is not new but it's a serious proposal. I don't think even the proponents think of it as a short-term issue but, rather, a longer-term issue that merits serious study and consideration.

QUESTION: I'm sorry, but the Treasury Secretary today was asked about that and he flat out ruled out any move away by the U.S. from the current policy. Would that preclude a discussion do you think?

MR. LIPSKY: I think the issue, as you put it, if the question is whether it's a near-term policy choice or an issue for long-term consideration, I think marks the difference there. But I'm sure that discussions will continue on this and other approaches to improving the working of the international system. It's only natural.

QUESTION: My question is China's willingness to participate in the new agreement to borrow expansion is not clear until this morning when your People's Bank of China, the vice president gave a speech. So I wonder how much this reform relates or reflects to the demand from China to reform the IMF. And also with the reform do you expect China to be willing to putting money into the -- borrow facilities? Thank you.

MR. LIPSKY: Let's separate the issues here for a second. The Chinese authorities I believe were supportive of these reforms as was the membership as a whole, so today's reforms reflected a broad consensus support of the membership and as such I think are going to be welcomed as a positive contribution to the usefulness of the Fund's ability to act in support of its members and in support of international financial and economic stability. As I said earlier in my remarks, it wasn't implicit but let me make explicit, for example, the new FCL, the new Flexible Credit Line, creates the flexibility of new precautionary arrangements for member countries that create a contingent liability on Fund resources or contingent claim on Fund resources and in order to bolster confidence that the Fund will have the resources necessary to confront any eventuality, we are seeking to increase the contingent or contingent resources available to the Fund perhaps through a mechanism such as the agreement to borrow or similar arrangements or, for example, as is the case with the Japanese authorities already on the basis of a bilateral agreement. So I would assume that the support of our member countries for the creation of today's reforms only naturally will be matched by a willingness of those who are in a position to do so to help supply the resources that will bolster the credibility of those actions. It could be in various formats, potentially again through the NAB, or other ways. So we're quite optimistic that we will receive the resource backing just as we've received the backing today for these reforms.

QUESTION: When it comes to the SLF, some countries like Korea or Singapore was never able to use it because of some international -- by the fact that they are borrowing from IMF. When it comes to the FCL, you have set a new model of it, do you have any consideration on this fact and what is your target country in your mind when you programmed this new program?

MR. LIPSKY: First of all, I'll take the last first. We don't have a target country in mind, but perhaps my colleagues will want to reiterate the characteristics that we see as appropriate for those that would make use of the FCL. As I described in my earlier answer, we see the important difference of the FCL as representing in very specific characteristics of strengthening and improvement from the point of view of the users over the SLF. So essentially in virtually every dimension the FCL represents a more powerful and useful tool for our member countries.

There were those who said as you have suggested that the issue was one of stigma. Let me just say the following, that we will see because we think we have created a facility that responds to the needs and requests of our membership. Stigma to me is a form of reputation. Reputation can be a boost if it's good or hindrance if it's bad, but inevitably is a lagging indicator. The stigma that you referred to I think refers to alleged episodes in the past. We are looking forward to the problems facing our members in the current environment and we think we have developed a set of new instruments and new policies that respond effectively to these circumstances, and to use that's what's determinant and that's what's going to make our reputation in the future.

QUESTION: Just from the experts in the market, they are saying that to contribute into this FCL is more like an equity injection instead of debt borrowing from the contributors. So there is some saying that China is more willing to lend to the IMF instead of saying getting some equity from this facility. So what do you think of the different advantages of these two kinds of mechanisms? Also -- mentioned that you're studying some SDR denominated securities, you are studying some of that. What's the development on this issue? Thank you.

MR. LIPSKY: Do you want to take the first and I'll take the second?

MR. MOGHADAM: In terms of the new facility, let me just say a broader word. If you look at the reforms today, they are wide-ranging. They go across a number of issues. There's facilities conditionality, the charges. It is aimed ultimately at responding to the needs of the member countries across the range. Reforms for example on conditionality apply to the entire membership. In terms of the specific issue on the new Flexible Credit Line, I think the words in fact describe what it is aimed at very well. It's flexible in the sense that can be drawn at any point in time after qualification. It can be drawn in different amounts if need be up to the amount that the Board approves. It's a credit line in the sense that it is available for a duration which is determined and is renewable. And the qualification criteria are very clear. Any member of the Fund which meets those qualification criteria can have access to it, so one shouldn't say that it is aimed at a particular country or a particular group of countries. Now, of course our view is that in the current global situation, this is a useful tool to have for the membership and in particular for those who qualify.

MS. ATKINSON: You'd asked a second question that I think Mr. Lipsky is going to respond to. Then I have one from –

MR. LIPSKY: With regard to the question about bonds, let me make it clear. The Fund has a series of potential sources of increased resources. One would be, and the most basic would be, to increase the size of the Fund through its increase in quotas, and as you have noticed, for example, the recent G-20 ministerial meeting called for a bringing forward of the next review of quotas. Another method could be allocation of special drawing rights, and that has been spoken of as well as a possibility. Another potential way of raising funds is as we've just seen and has happened before, a bilateral loan arrangement such as the one we just concluded with Japan. And as you probably know, that's a limited timeframe, five years. The Articles of Agreement, the Fund's Constitution, contemplate the possibility also of the sale of securities either to official institutions or more broadly. And finally, there are some open-ended agreements to provide funding on a contingent basis such as the general agreement to borrow and the new agreement to borrow that are not time limited. In other words, those are of infinite duration until altered. So all of those possibilities exist, and as you can see, all are being discussed and all could be possible. What is clear it seems to me is the intent of our membership to be sure and provide the resources necessary and a flexible approach toward the method for supplying that.

MS. ATKINSON: Thank you. I have one more question online and then given the time maybe John will want to wrap up. Are you ongoing talks with countries such as Turkey also subject to these new facilities or these new reforms more generally?

MR. LIPSKY: Certainly all of our facilities are open to all our members. I don't know if there's anything more to add.

QUESTION: Actually I wanted to ask about the countries that already have a program like Ukraine, for instance. Ukraine has a program that has run into some difficulties, but it probably will be fulfilled. In case it needs additional resources, can it now reapply to have the new flexible approach applied to it?

MR. LIPSKY: That's a technical question.

MR. MOGHADAM: Usually in the Fund a member is allowed to have one type of arrangement. So if theoretically a member which has currently an arrangement in place of one for or the other wishes to have another form, it would have to cancel that arrangement and apply for another one. So it's one at a time. It's either standby or FCL.

MS. ATKINSON: But in terms of the other reforms on conditionality and so on, you may want to talk about how that will be phased in.

MR. MOGHADAM: Yes. The reforms which were approved today, the Flexible Credit Line will be available immediately so members can apply immediately. In terms of the conditionality reforms, even that some of the programs are in the pipeline, some are already with the Board, the new reforms on conditionality become applicable as of May 1. And in terms of the flexibility that we are providing in the high-access or normal Stand-By Arrangements, they apply immediately. The doubling of access limits apply immediately. On the charges, because of the complexity, precisely because of what you said, some of the members already have arrangements or they are in discussion with us, again we are going to have transitional arrangements. The new charging system will apply as of August 1. And the elimination of some of the facilities that we have had, the streamlining that we talked about, again they apply immediately.

MS. ATKINSON: Thank you. Mr. Lipsky, I don't know if you'd like to wrap up.

MR. LIPSKY: Let me add just one brief word on this. The decisions that we've reached today are in one sense technical in nature but in a broad sense represent a very important inflection change in the way the Fund is supporting its member countries. In a sense, this represents at least a major shift in response to the globalization of capital markets, the change toward securitized forms of capital flows between countries, and much greater interdependence of emerging, developing and advanced economies on effective functioning of the global system. As you know, the G-20 leader's summit in a few weeks will address the issues that were highlighted by the initial summit last November and the Action Plan that created in its wake four working groups to address the elemental problems facing the global economy. One of them was IMF reform. Today's actions are certainly not the final answer. There are other aspects of governance, et cetera, that will be addressed. And as we've said today, specific reforms to facilities for our low-income countries and the expansion of concessional resources for our low-income country members are still in train. But today's reforms represent a significant response to the need for a more effective system and we hope that they will be an important contribution or an important boost to the contribution the Fund can play in fulfilling its central role in the world economic and financial system. Thanks very much for coming.

MS. ATKINSON: Thank you all very much.
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