Greece and the IMF

Transcript of press Briefing by Caroline Atkinson, Director, External relations Department

Washington, D.C.

May 6, 2010

MS. ATKINSON: Good morning everybody. Welcome to the regular EXR briefing from the International Monetary Fund. I’m Caroline Atkinson, the Director of External Relations at the IMF. As usual, this briefing is embargoed until 10:30 a.m. Washington time, 1430 GMT.

I would just like to start by reminding you of some upcoming events. You probably don’t need too much reminding, but we will be having an IMF Board meeting on Greece this coming Sunday, May 9th. We expect that there will be press availability from the Managing Director. After that we will also have a press release.

After that, the Managing Director will be traveling to Zurich to participate in a high level seminar on the international monetary system, and at the end of that there will be a press release and a press conference with the Swiss National Bank Governor Philipp Hildebrand and the Managing Director. The Managing Director is then going to be traveling to India on May 13th-14th. Beyond that he will be traveling to Brazil and Peru in May 25th-28th. We will be issuing press releases giving the details of those two trips later today.

Beyond the management travel, I just wanted to let you know that next week Marek Belka, the Director of the European Department will be in Europe for the launch of the Regional Economic Outlook, which will be presented both in Moscow and Brussels. On May 11th he will be in Moscow and on May 12th he will be in Brussels.

And on May 12th, here at Fund Headquarters, Nicholas Stern, Lord Stern will deliver a speech and participate in a panel discussion on the topic of Climate Change from Copenhagen to Cancun: Prospects for Reaching a Global Agreement. This event, which is sponsored jointly by the World Bank and the IMF will be open to the press between, and it takes place between 5:00 p.m. and 7:00 p.m. You can contact Media Relations at the IMF for details on all of these events.

So, maybe I can turn to your questions. I have one online straight away which maybe I’ll take although that’s a bit unusual. But I suspect that it deals with some of the questions that you all are going to ask. “How to assess the strong opposition by the Greek public to the EU/IMF program and are you concerned that extremists are trying to direct the peaceful legitimate protests towards violence?”

First of all I do want to emphasize that the program is the Greek authorities’ program. It’s not surprising that the Greek people are concerned and worried and upset. The program will involve sacrifices, but I think it is important to understand two things. First of all, the financial support from the EU and the IMF is aimed to help the Greek economy—to support it with this difficult adjustment and to focus on addressing the two problems that the Greek economy has been suffering from—on debt and competitiveness-- and put the economy back onto a path of strong, sustainable growth with jobs and employment down the road. The other thing is that we are impressed by the determination of the Greek authorities, themselves, to carry through this difficult plan. Obviously, this is a very challenging situation, but we have seen a lot of determination from the authorities behind this plan.

On the second issue, of course legitimate protests are exactly that, legitimate, but violence is deplorable. And again, I think that Prime Minister Papandreou put it well yesterday when he said, “Protests and demonstrations are one thing and violence is quite another.”

QUESTIONER: I have heard from many economists today that the bailout package cannot prevent Greece from defaulting on their debts. What is your comment?

MS. ATKINSON: Our view is that, that is quite wrong. We have deliberately designed a package of financial support that gives Greece the ability to stay out of the markets for more than 18 months until 2012. If implemented, the package of the adjustments will address and it addresses both the fiscal issue and the competitiveness issue with structural reforms, and will put Greece, we believe, in a position to fully pay its debts as well as partly by allowing down the road growth, renewed growth in the Greek economy.

QUESTIONER: I have two questions. How worried are you by the contagion, because the plan is designed against the contagion, but still the markets are going the other way? There’s a lot of interest out there to know what the U.S. share of the package is. I know it’s not a simple question to answer, but can you give us some guidance?

MS. ATKINSON: On the first question, of course it’s a serious situation. I believe that we know that markets can be impacted by developments and we do not want to comment too much on immediate market reactions. I think what’s important is to see the measures that are being taken, that are planned and we expect to be taken in Greece backed up by the financial support. And also, that a number of other countries, which need to have some fiscal adjustment, are indeed considering or in some cases implementing already fiscal adjustment measures. I think that these fundamental steps are what is most important to fight contagion. And the markets, I think, are looking for --in a way we may be able to provide some assurance that there is unprecedented effort in the Greek program to address Greece’s problems and also unprecedented support from European countries and the IMF.

On your second question, we don’t know exactly yet which currencies will be used for the initial disbursements. We may have some more details on that next week. But I think the main point to stress is that when the IMF makes a loan, we’re a cooperative like a credit union. So every country’s contribution to that in some broad sense reflects their contribution to the IMF or their quota in the IMF. And that’s really the fundamental point rather than how we manage it financially.

QUESTIONER: Just to follow up. But some countries because of their currency they send it in dollars or euros. That’s why, and you know, people have been saying all sorts of numbers from the U.S. contribution. So if you can give us some guidance.

MS. ATKINSON: Yes. Just to clarify that we make—there are two points. One, we supply resources from a combination of our quota resources and drawing on bilateral contributions, which have already been made available to us. And we expect, normally we do it are doing that on a one-to-one basis so expect that to be one-to-one. We don’t yet have all of the bilateral arrangements that have been promised fully in place. But that gets adjusted over time.

But I want to go back to the other point, which is that regardless of which account is used to arrange the financing of each disbursement, the exposure, if you like, of any country is wrapped up in their – should be seen as their exposure in the IMF, their contribution to the IMF. So supposing that dollars are taken from one account from the U.S. account and moved to the Greek account, that doesn’t mean that the U.S. is more liable or more exposed than any other country that is part of 186 member IMF. So the 186 members of the IMF, all stand behind and make the loan, make the contribution to any program and their exposure to the extent that it’s there is represented by their quota contribution to the IMF.

QUESTIONER: You mentioned 18 months—Greece would be able to pay off its debt until then. Is there some kind of consideration of a new IMF or a second phase of an IMF, a boosted IMF program funding at that point? And secondly, there has been some talk about whether taxpayers are adequately protected in terms of seniority of debt and junior debt. I clearly assume that IMF debt is senior. Is the European funding also senior?

MS. ATKINSON: On your first question, we have announced the second largest in terms of dollars, the second largest program ever, for Greece. We fully expect that to be sufficient. It’s a three-year program and the adjustment is front-loaded and most of the measures are to be taken up front. The financing assumptions in the program are that Greece would have no need to go to the markets for the first more than 18 months of the program and the program assumes that as the adjustment has taken place, market access will return. It’s possible that it would return sooner than that. But it takes off the table the question of Greece’s market access for more than 18 months. I think that’s the key point. So we are certainly not thinking now of how we might boost a program. We already have a very substantial and we think appropriately sized program in place. I shouldn’t say we have it in place. It’s to be discussed on Sunday. We have an agreed ad referendum.

On the issue of riskiness of taxpayers, I would make two points. First of all, traditionally, as you know, IMF debt has been treated as preferred. Secondly, in the history of the Fund, there has been no experience of members having losses on their contributions to the IMF.

QUESTIONER: In terms of the European debt, is that also senior?

MS. ATKINSON: I think that that’s a question that you should put to the Europeans. Traditionally, the IMF debt has been senior partly because it goes in at a time of crisis when other creditors are unwilling to make loans. It’s a little bit different if other creditors are making loans.

QUESTIONER: I’m taking you back a moment to the previous question about the risk of contagion, if it’s possible. If you could articulate a bit more because that’s what we’re seeing in Europe. A lot of trepidation about this risk and you were mentioning some fiscal measures can be taken. So if you could elaborate a bit more?

MS. ATKINSON: On the spillover impact in the rest of Greece. Yes, well, I also have a question online actually. “As you know, Spanish bonds have increased due to the crisis in Greece and in light of that, do we think that the plan put forward by the Spanish government to tackle to the deficit is appropriate or do we believe that more measures should be taken to prevent contagion from Greece?”

There have been plans put forward by a number of governments. The Spanish government is one, and Ireland and Portugal. And our belief is that what’s important is that there should be swift implementation—some implementation is already underway—swift implementation of planned fiscal adjustment by countries, and that those fundamental steps are the ones that are more likely to be important for markets. But beyond that and what we perhaps know about a bit better, they are the steps that are needed to put these country’s public finances back on a stable path.

QUESTIONER: Just to follow up on that, the plans that are being proposed by countries like Spain, Portugal. You had noted that the importance of implementing them quickly. Are they in themselves, if they were to be implemented quickly, sufficient or do you encourage more stringent proposals to be put on the table?

MS. ATKINSON: Well, every country is a little different, and I think, given the situation, countries are looking and considering what they can best do. We had already talked about the need for some countries to look at, to make sure that they had sufficient measures in place and under consideration. Others are Ireland and Spain. I believe Ireland’s already implementing. Spain has put quite a large package on the table. Portugal put a package which the European Union suggested might need some additional measures. Those are all under consideration.

So we’re calling for countries, especially the ones that have had difficult public finances, to consider and then implement swiftly the necessary measures to reach what are typically their own targets for deficit reduction. Most of them, as you know, have rather different starting conditions from Greece. With lower debts and better public finances and in many cases, in most cases, a better track record, not the problems of data that had been experienced in Greece. So their stating positions are also rather different.

I’ve got a question [online], “Sorry to ask but can you please repeat the logistics for Sunday? Both local and travel as well as press availability?”

I’m not sure about the local and travel, but we here in Headquarters will be having a Board meeting. After that Board meeting, there will be press availability from the Managing Director. We also expect there will be a press release which we will get out as soon as possible. We expect that the supporting Staff Report and the Board documents will be published quickly after the Board date. So there will be a lot of information immediately available as well as the press availability that will be here at Headquarters.

QUESTIONER: When are you going to give the money to Greece? How much money are you going to give them in the first phase, and who is going to give the money first? You or the Europeans?

MS. ATKINSON: Those are all good questions. The phasing which tells us how much goes in which part will be something that will be announced on Sunday. What were your other questions? Yes, who goes first? We will tell you on Sunday how quickly. We normally move very quickly with disbursements. I expect that there will be pretty much simultaneous or joint disbursements from the European Union and the IMF. This is a joint program and joint financial support. Quite how the mechanics are done, we’ll probably know more about on Sunday. But we usually move pretty quickly.

I have another question online. “Why does the IMF still recommend to Greece recessive measures such as lowering wages and increasing taxes? Measures partly were the explosive ones for the crisis in Argentina?”

And again, as you know there are two main problems facing Greece now. One of them is the state of the public finances and the other is competitiveness. The Greek authorities’ program has two parts aimed at those two problems. Their public finances, just like if anybody gets in over their heads—their public finances needed consolidation. It was not possible to go on borrowing and financing at the rate that had been the case.

So that’s why we needed to have spending cut measures, which as you know amount to, over the program, about five percent of GDP, and also revenue raising measures. I should add that the revenue raising measures include a number of measures in the tax administration and tax broadening category. These are aimed at spreading the tax burden more fairly and more evenly. And the fiscal measures also are aimed at protecting the most vulnerable in Greece’s society.

And the second part of the program, which is extremely important but of course takes some time to yield results, is on the structural side where reforms aimed at opening up the economy, opening up opportunities in the Greek economy, allowing more flourishing of investment and growth are included. And that part of the program is aimed also at competitiveness and growth.

There’s a question [online], “When is the IMF mission--” I’m sorry this is a non-Greece question. “When is the IMF mission expected to visit Sri Lanka next and has the government at any stage expressed any willingness to stay committed to the program?”

MS. ATKINSON: We expect a mission shortly to Sri Lanka, and it will be to discuss the program that is in place now. There has been some progress in the discussions, but of course as usual, I won’t be commenting on those until the mission is there.

QUESTIONER: On Greece, on the structural measures, just to clarify --- given the new IMF rules, they are not mandatory to receive disbursements, are they? I mean, they are going to be criteria to be looked at, but if they are not achieved, you won’t stop disbursements? My second question is on Poland that is requesting an extension of its flexible credit line. Is it in good shape to get it and how long would that take to get an answer?

MS. ATKINSON: On the structural reforms, you are quite right that we no longer have performance criteria for structural reforms. That allows for more judgment because sometimes these reforms are not as easy to tie down as actual numbers like in the quantitative performance criteria for such things as deficit numbers. But they are then looked at in the judgment of a review. During our reviews we look at overall program implementation and obviously that would be a part of judging overall program implementation. And I should say also that these are focused measures. They are focused at providing, opening up the Greek economy and providing a better environment for investment and for growth.

On your second question on Poland, I know that there is a lot of debate within or there is some debate within Poland about asking for a new FCL. I don’t believe there has been a request, but you may be ahead of me there. And as you know, the Fund is able to operate very quickly, to move very quickly when we receive requests from members of any kind.

I have a question online about Pakistan. “Please give me an update on the standby arrangement with Pakistan.” And then another question, maybe this is also from him --“What assurance has Pakistan given to the IMF regarding VAT implementation and power tariffs increases to be retrospective effective April1? And when will Pakistan announce this?”

MS. ATKINSON: I can give an update, which is that we expect the next review of the standby to go to the Board in coming weeks. And then, the answers to all of the other questions will be made available at that time, when the Board decides on its support for the program. That’s the fourth review of the program that will be going in mid-May.

“Regarding Romania, it’s been reported that the IMF is prepared to life the country’s budget deficit cap. Is that true? And how is the IMF’s approach to Romania impacted by events in Greece?”

MS. ATKINSON: On Romania there is a mission there now, negotiating for the next review of their program. So as usual I’m not going to comment on the content of those negotiations while they continue. And of course, on the second part of the question, our programs and our discussions with countries are always affected by what is going on. So, they’re always focused on what is needed for each individual country to improve.

QUESTIONER: Back on Greece. I know you can’t comment on the market reaction, but clearly the market’s reaction shows a level of concern and fear. So not commenting on the market’s reaction, but rather on the fear that the Greek debt will need to be, or will default on their debt. I know that you’ve talked about the power of the program, the unprecedentness of it. But do you think that fear is an overreaction?

MS. ATKINSON: As we’ve said many times, default is not on the table, has not been on the table. I believe that the Greek authorities themselves have repeated that, and ECB President Trichet repeated that this morning. So we don’t think default is on the table. In that sense, you could say that maybe fears are an overreaction, but again, I don’t particularly want to comment on the market. I just want to reaffirm that we do not see that and it’s not on the table.

QUESTIONER: There was a question about disbursement and conditionality. So, is it my understanding that if in IMF’s judgment, not on specific criteria but on the overall situation, the conditions are not being met to satisfaction, there would be some curbing of the disbursement?

MS. ATKINSON: In every IMF program we disburse money generally quarterly, but we disburse money over a period of time. And sometimes the money may be evenly spaced, sometimes it’s front-loaded, but at every stage that’s why we’ve been discussing these other reviews of other countries. At every stage of disbursement there will be a decision to make that disbursement.

I have a question online. “Why was Moscow chosen for Mr. Belka’s presentation of the REO and how does the IMF view Russia’s recovery from the crisis?”

Moscow was chosen because it’s an important and interesting place. I think we probably move around a little bit with where we publish the REOs. For example, the recent one, the ones for Asia are taking place in China and in India. In Latin America, there have been different presentations around the continent. And obviously, Moscow and Brussels are two important centers, which is where this one, the European one will be released.

Apparently there is another [online] question that’s coming, to which I will have to refer the answer. The question is about Rwanda. It says, “What is the status of the IMF’s consideration of a policy support instrument?” I will have to get back to you on that.

So thank you all very much, and I will probably see some of you on Sunday and others on the next briefing. We will let you know for those watching online how we plan to make the arrangements on Sunday for the Online Media Briefing Center.

Thank you very much.

(International Monetary Fund)