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MR. RICE: Good morning, everyone, and welcome to this regular press briefing by the IMF. I’m Gerry Rice, Director of the External Relations Department. I want to welcome colleagues in the room, as well as online. This is our first of these press briefings this year, though we’ve seen many of you recently during the Managing Director’s press conference a couple of weeks ago, and the press conference on the WEO last week.
Let me begin with a couple of announcements and then I’ll come to your questions. And let me just remind you that, as usual, this is embargoed until 10:30 a.m.Washington time.
So, first, just a word on management travel. Our Managing Director, Christine Lagarde will be in Brussels on February the 11th to attend the meeting of the Eurogroup, and the farewell event in honor of outgoing Eurogroup President Jean-Claude Juncker. The Managing Director will then travel to Moscow, where she and David Lipton, our First Deputy Managing Director, will attend the G-20 finance ministers and central bank governors meeting. That’s on February 15 and 16 in Moscow.
Just a word on David Lipton, our First Deputy Managing Director. He will be in Tokyo next week, as of Monday, February 4, and Tuesday, February the 5th, for the Bellagio Group meeting, hosted by the Bank of Japan, and for meetings with the Japanese authorities. The following week, on February 11 and 12, David Lipton will be in Berlin for meetings with the German authorities and representatives of civil society.
Let me just say one other thing in opening up: Last night we issued a press release and accompanying report on the quota formula review. First of all, I want to apologize to you for sending that out so late last night, but the board meeting went late, and we wanted to get that out to you as soon as possible. Let me just make a couple of points on that report. The IMF Executive Board completed the review of the quota formula, and has submitted its report to the Board of Governors. This review is an important part of the Fund’s overall quota and governance reform, and the goal of strengthening the IMF’s legitimacy and effectiveness. The review provides building-blocks for a revised quota formula that better reflects members’ relative positions in the global economy. The review also forms a good basis for the membership to agree on a new quota formula as part of the work on the 15th General Review of Quotas to be completed by January 2014.
We issued this last night. The report is online. It’s a short report, four pages. I encourage you to take a look at it.
For those who don’t follow this too closely and in too much detail, let me just say that each IMF member country is assigned a quota, based broadly on its relative position in the global economy. We have a quota-based system. Quotas determine a country’s maximum financial commitment to the IMF. They play a role in decisions on members’ access to IMF resources, determine members’ shares in general allocations of special drawing rights, and are linked to voting power. So that’s what the quota is. And, of course, the quota formula plays a part in quota adjustment. So I hope that’s helpful, in terms of just a little bit of further explanation. I know some of you are already experts in this, but others may not be.
Now let me turn to your questions.
QUESTIONER: For a change, I will start with Cyprus today. Because, according to the finance minister of Cyprus, money is going to run out in a few weeks. There are reports that the IMF is not going to participate in the program for Cyprus and, instead, Russia is going to offer assistance. What is your comment?
MR. RICE: A couple of things. Perhaps, I’ll step back and give you a little update on status. IMF staff are working with the Cypriot authorities, as well as with our partners, the European Commission and the European Central Bank, to develop a durable solution to Cyprus’ banking sector problems at low cost to the taxpayer, and consistent with debt sustainability. I would add that preserving financial stability in Cyprus and the euro zone is also an essential goal of this work. Discussions are expected to continue from our respective headquarters during the coming weeks.
On the basis of recently received preliminary results of the bank due-diligence exercise, which we talked about here before, official lenders will be analyzing and working toward, again, finding that durable solution for Cyprus, consistent with debt sustainability.
You asked about Russia, and I think what I would say there is that a rescheduling of the loan maturities would be very helpful to ensure a smoother repayment profile for Cyprus.
You also asked about the possibility of resources and money running out. On that regard, I’d say the authorities have been able to meet their financing needs through the domestic market in recent months, and are expected to be able to continue meeting their obligations in this manner.
QUESTIONER: To clarify, you don’t have the final results of the PIMCO report?
MR. RICE: We expect the PIMCO study to be finalized very soon. The timing of its publication would be at the discretion of the Cypriot authorities.
QUESTIONER: They have elections next month in Cyprus, on February 17th. Do you think that the elections are going to impact the discussions?
MR. RICE: What I would say on that is that engagement with the new administration, post elections, is expected to advance discussions on the potential program.
QUESTIONER: Given the violence in Egypt, already there are some discussions about delaying the expected talks. The IMF said that it would go there or could be there shortly, within two weeks. Given the crisis now, I was wondering whether that could be delayed, or whether you could have those discussions even here? I mean, the big thing with Egypt is whether they can implement the program, you know, given the political situation. So what are the chances of that happening, and, therefore, moving forward with the program?
MR. RICE: We’re following developments closely. And, of course, we regret the violence and loss of life.
The IMF continues to stand ready to help Egypt. We understand that the Egyptian authorities are still working on revising their economic program. And, to answer your question, once we receive the authorities’ updated economic program, we’ll discuss with them the timing of possible mission to Cairo.
QUESTIONER: So, given the violence, could Egypt actually implement this program? I mean, you’ve known from previous countries where there has been this kind of political uncertainty that they can’t implement those programs. Politically, it’s difficult. How does the IMF move forward in a program like this, where a country needs the money and assistance, but you’re not sure whether the country can actually implement it?
MR. RICE: Well, again, we’re monitoring developments closely. We stand ready to help. Our understanding is that the Egyptian authorities are working to revise their program, and we would have discussions on that basis. I don’t really have much more than that.
Let me just mention to my team that my screen is not showing any questions. So if there’s a technical problem, it would be good to fix it so we can interact with colleagues online.
QUESTIONER: On the quota review, when do you expect some key members, including the United States, to approve the last round of quota and governance reforms? Are you confident the IMF can multitask by doing last round and the current round of a quota review and reform together?
MR. RICE: I think that we’ve made very good progress on the 2010 quota and governance reform. We are very close to the finishing line, and we are urging all our members to complete the necessary approvals as quickly as possible. And, yes, we’re confident that it will be achieved. I don’t have a date for you on that, but we believe that we will meet the goal.
QUESTIONER: On currency wars, I know the IMF is not against the use of quantitative easing by some developed countries to boost economic growth. How can countries use monetary easing to support growth, and avoid negative external effects on other countries?
MR. RICE: Just to show how technically proficient I am, I now have two laptops here. But, actually, this second one is good, because it’s got the online questions.
This whole issue, as you know, was discussed in some detail last week, including in the course of Olivier Blanchard’s press conference a week ago. And, you know, I would defer to what our chief economist, Olivier, said at that time. And let me just remind you that he said, again, just a week ago, talk of currency wars is very much overblown. Countries have to take the right measures to get their own economies back to health. This implies a combination of fiscal policy, monetary policy, and other measures. And this has implications for the exchange rate.
So, to the extent that we think the policies are appropriate, then the implications, in terms of exchange rates, are also appropriate. That’s what Olivier Blanchard said last week.
I would add that, at the same time, and consistent with the philosophy embedded in our Integrated Surveillance Decision, policy-makers will wish to take account of what we call “spillovers,” or external effects of their policies, and choose policies that, while in the domestic interest, have smaller adverse outward spillovers on the rest of the system. And that kind of cooperation is particularly important in periods of uncertain global recovery.
QUESTIONER: I would like to ask you about the meeting tomorrow. What should we expect? Are you going to release something? At more or less what time after the meeting? And, you know, several times the IMF considered the situation of the statistics in Argentina. It has been going on for the last year and a half. I would like to know what makes this meeting different from others, or if it is just one more?
MR. RICE: As you say, the Executive Board is scheduled to meet tomorrow to discuss the report sent by IMF Management on Argentina’s response to the Fund’s concerns regarding its official data. And you will understand, I’m sure, that I don’t want to preempt what the Board might discuss at the meeting scheduled for tomorrow.
What I can tell you, though, is that there will be communication, there will be a press release announcing the decision at the time the Board discusses it. And I don’t have further details on that at the moment.
QUESTIONER: The IMF said that this is the first time that it’s confronting the possibility of a motion of censure in a country because of the Article VIII. I would like to ask you if this is a hard step for the IMF to take, considering the possibility, as Mrs. Lagarde said, to apply a red card to a country. And, in that eventuality, are you considering any reaction from Argentina? I mean, maybe if there is a red card, the country could become angry, I don’t know. So, the first is: Is this a hard step to take? Is this uncomfortable, is this uneasy? And are you considering any reaction from Argentina?
MR. RICE: This is a matter for the Board to discuss. I cannot, I will not, try to preempt what their discussion might be. You are right, this is the first time that the Board has reached this point under the present legal framework. But I think we should wait for the Board discussion.
QUESTIONER: Just to understand this, consider the hypothesis of a country that has a motion of censure. Technically, is there any change in the status of the membership of this country? Could the country go freely to the assemblies?
MR. RICE: The regulars here will tell you that we don’t get into hypotheticals at this press conference.
QUESTIONER: I know that. So, erase “hypothetical.”
MR. RICE: I’m not going to really get into it in this case, either. So, let’s wait and see.
Let me, then, turn to some of the online questions. There’s a question on Argentina. I just want to recognize it, but say that I’ve responded it already, so I’m not going to get into it further. It’s the same question, really.
There’s a question on Hungary: “Please comment on Hungarian Prime Minister Viktor Orbán’s comment that Hungary keeps up its request for a Flexible Credit Line as long as the IMF and the EU officially deny Hungary access to any package.” She’s asking for a comment on that.
During the first part of 2012 we discussed with the authorities policies that could be supported by a Stand-by Arrangement, which the authorities had expressed the intention to treat as precautionary. Now, as we have stated in recent weeks, these discussions have been put on hold. So that’s what I would say in response.
There’s a question also on Ukraine: “The IMF mission has come to Kiev. What does the Executive Board expect to see in the mission’s report?”
That’s right, the IMF mission is currently in Kiev to discuss broad economic policies on which a new program can be based. We will update the media on the outcome of that mission, which is expected to conclude the week of February 11. Let me come back inside the room.
QUESTIONER: I’m a little perplexed by the Hungary issue because the prime minister said yesterday that the IMF had turned down a credit line. Was he lying? The quote’s here, he was in Brussels. He said: “I’d asked for a Flexible Credit Line, and the IMF said no.” Is he lying?
MR. RICE: You heard what I said…
QUESTIONER: You are saying that what was being discussed was a Stand-By Arrangement, which is completely different to the effect of a credit line.
MR. RICE: Yes. As I noted, we have discussed a program that can be supported by a Stand-By Arrangement, which is the facility tailored for countries with needs similar to Hungary’s.
QUESTIONER: On Greece, the first question is about Mr. Thomsen. Is he going to Athens soon? And can you tell us when the next review is going to be?
MR. RICE: Yes. A staff team will start discussions in Athens with the authorities, the European Commission, and the European Central Bank in late February. The purpose of the mission is to assess progress on the implementation of measures in the program. The visit is expected to conclude around mid-March.
QUESTIONER: How are things going in Greece? What information do you have, if you could tell us?
MR. RICE: We just had the Board meeting two weeks ago, the approval of the next tranche of the loan to Greece, and the commitment by the Greek authorities and the partners to Greece, including the IMF, to move forward with that program. So that was just two weeks ago. I think we should give some time now for implementation to take place. Going back to what you asked earlier, the next mission will be assessing where we are. So I think at that time we’ll be able to go into a bit more detail with you.
QUESTIONER: I want to ask about this report by Mr. Blanchard on January 3rd, if you remember. According to many media around the world, what he wrote — and I quote — “it’s an amazing mea culpa.” The Washington Post even went further — and I quote again — The Washington Post said that, “the IMF’s top economist acknowledged that the Fund blew its forecast for Greece and other European economies because it did not fully understand how government austerity efforts would undermine economic growth.” I know that Mrs. Lagarde spoke about it. But, can you tell us what is the IMF position on this report? Because Mr. Blanchard is the leading economist in this building.
MR. RICE: Thank you for the question. And you’re right that both Olivier Blanchard and Christine Lagarde have talked about this issue at length. Let me set it in a bit of context for you: going way back to 2010, if we can cast our minds back, I think it’s fair to say everyone was a bit too optimistic on forecasting Greece’s recovery. Why? I think, as was explained — including in last week’s interviews — there were a number of reasons. These included, the depth and the protracted nature of the European crisis itself, and the political crisis in Greece, which severely affected economic confidence, and delayed the implementation of reforms. So that was very important context for the way that people were thinking about the Greek program back in 2010. And this was the context that was emerging.
When it became apparent that the underlying conditions were different to what had been assumed, we certainly moved as fast as we could to update our multiplier assumption. I think Olivier Blanchard has explained this far better than I just have. It’s all on the record.
But maybe just one other point: there’s been a lot of discussion of this fiscal multiplier, which is probably something very few people had heard of until some months ago. And that’s because the fiscal multiplier is only one dimension, one component of how a determination is made on a country’s fiscal policy stance. There are a lot of other factors that go into that. It’s not just some mathematical regression that then, in some mechanistic way, determines the fiscal adjustment that needs to be made in every country. And every country is very different.
So that’s the context. I think it’s a very healthy thing that the IMF and Olivier Blanchard have been completely transparent in how this was done, what the whole context was. I think that’s the basis we want to move forward on.
So the fiscal multiplier, of course, has been adjusted on an ongoing basis since 2010. That’s where we are.
QUESTIONER: Has Spain asked for any assistance? We see that the prime minister said that the economy had contracted more than expected in the fourth quarter, and he’s now thinking of some stimulus.
MR. RICE: On Spain, you mentioned the stimulus measures, and we’re waiting to see the details of the measures, which we expect to be announced in the coming weeks. So let’s wait for the details there.
QUESTIONER: So I gather that Spain has not asked for any IMF help.
MR. RICE: You are correct. Spain has not requested financial assistance from the IMF.
QUESTIONER: On governance, the IMF had set a goal to try to figure out a formula in January, this month. It has not done that. This is another part of IMF governance reform that has been delayed. The 2010 by the United States… and let’s not sugar-coat this, they haven’t passed that, probably in the next few months. Then you’ve got no agreement now on the formula. It’s going to be delayed for another year to go with the next quota review. So this is delays after delays after delays. We’ve seen emerging markets really pushing back overnight from Asia and Latin America, saying, you know, this is just another delay, and again questioning the credibility of the Fund, if it can’t fix these governance issues and give, you know, the countries their legitimate say. What is the MD, what is Madame Lagarde doing to push this forward? I know statements said they’ve moved closer, but there still isn’t a deal. And, as far I understand, they’re still pretty far apart on the main issues. How confident are you that this can actually be done in the year? And is it just that it’s going to be folded into the next quota review, or further delayed?
MR. RICE: You know, these are tough issues, obviously. I think actually tremendous progress has been made on the 2010 quota and governance reform, and we are very close to the finishing line.
On the quota formula review, I’d say a couple of things. One, if you read the report, which we’ve released, you see there significant common ground within the membership on where this is heading. I think it’s been a very good process, healthy process, that has established a lot of common ground. And if you read the report, you’ll see that there.
Now, at the same time, as you say, there are also different views on some issues, and they need to be resolved going forward. And they’re also, you know, mentioned in the report.
What the board was asked to do under the framework of this reform was to complete a comprehensive review of the quota formula. They have done that. As of last night, they have completed the comprehensive review. Now, they have not agreed as yet on a new quota formula, but what they have said is “…this is best done in the context of the 15th Review of Quotas, rather than on a stand-alone basis.” So what they’re saying is that, as a practical matter, it is best to have the final agreement on the quota formula review integrated with the next Review of Quotas. Because, obviously, the quota formula is applied to the size of the quota review. I’m just referencing the report here. But I think that’s the context of what was agreed last night, and the report that went forward.
MR. RICE: There’s a question online: “The EU is about to launch a financial transactions tax in 11 member countries. Does the IMF support that initiative? Do you think it should be extended to other regions in the world in order to reduce fiscal deficits?”
MR. RICE: We have said fairly consistently that the financial sector should pay a fair and substantial contribution to the public cost of repairing the banking system. And we have actually done a great deal of work on this at the request of the G-20. We’ve published a report, where we have expressed our support for a financial-sector tax.
I think there are a number of ways this can be achieved. A financial transactions tax is one way of doing it. We have also suggested that a financial activities tax could also be an effective way of doing it.
I think the bottom line is we agree that the financial sector is undertaxed, and should pay its fair share, in terms of mitigating the costs of this crisis, and helping to mitigate the future costs of any other possible crises.
I’ll take one more question online: “I’d like to know if the IMF is worried about the Monte Paschi di Siena case in Italy. Do you see risks for Italian banking sector stability? Do you think Banca d’Italia’s enforcement tools are enough?”
MR. RICE: The Monte Paschi di Siena case is being closely monitored by the Italian supervisors, and is implementing a restructuring plan under its new management. Obviously, looking ahead, it will be important for the bank to follow through on its restructuring plans in order to bolster its health and profitability, and to help ensure that the overall banking sector in Italy remains robust.
QUESTIONER: Mr. Lipton met last week with the opposition leader of Greece, Mr. Alexis Tsipras. As you know, he’s against the program. Can you tell us the impression that you got after hearing his views?
MR. RICE: You’re right, David Lipton met with Mr. Tsipras last Thursday, here at the Fund. They had a constructive, candid conversation about the economic challenges facing Greece.
With that, let me again say Happy New Year, belatedly, and we’ll see you in a couple of weeks’ time.
Thank you, everyone.