MR. RICE: Let me turn to a more topical issue, and I want to take a question on this topic. I think there are several, but I’m going to take this question from Barry Wood of RTHK, in Hong Kong.
And Barry’s asking about the IMF quota reform and he says, “Since there’s no early prospect of U.S. approval of the 2010 quota reforms, are the IMF’s hands essentially tied in terms of boosting the voting shares of China and other major emerging market economies?”
MS. LAGARDE: First of all I don’t think we should give up on the 2010 reform. We take every day as it comes. We take every contact with Congress representatives as they come.
But I very much hope that we can continue to hope for a positive resolution of this 2010 reform, which is completely in the hands of the U.S. authorities. We have nearly 80 percent support in the membership, but we need the key member.
Now, the IMFC, which is one of the key governing institutions of the IMF, has decided that if by the 15th of September this matter is not resolved satisfactorily, then we have to select the interim step that we will take forward in order to make sure that there is an element of down payment on the quota increase.
So I’m not suggesting that the quota increase that was decided under the 14th review, which is often referred to as the 2010 reform will be completely delivered upon.
That would be wishful thinking on my part. But I know that an interim step is very much in the cards and that it will be considered as a down payment compared with what we should achieve under the 2010 reform.
But apart from that I just would like to say that whether it’s in terms of policies, in terms of respect of the rules, in terms of composition of our team and diversity of recruiting, we are very mindful that we are a diverse institution.
And when you walk the corridors of the IMF and when you see diverse the views can be, it is not a U.S. or Europe dominated institution. I certainly don’t feel it that way.
MR. RICE: Turning to another part of the world, if I may, I’m going to take a question on Ghana from George Wiafe and George is with Joy FM, which is a station that is known to us. He is asking, “What do you make of arguments that the real test of the IMF-supported program in Ghana is going to be the election year, which is next year, 2016?”
MS. LAGARDE: Well, whether it’s Ghana or any other country in the world, election years are always difficult for countries under program because they’re targets, because there are sometimes hard decisions to be made.
Election years are not very conducive to those decisions, which is why for the Ghana situation a lot of the fiscal adjustment was frontloaded in 2015.
So many of the hard decisions have already been taken, which should hopefully make 2016 not a neutral year, but a year when the hard decisions are at a lower level.
So I’m very hopeful that Ghana continues to deliver and continues to restore the economic stability that it had and is sensible about its borrowing capacity.
MR. RICE: Thank you for that. I want to turn to Latin America. I know you touched upon that in your opening remarks. There are several questions. Let me just summarize them by asking, “Latin American commodity prices and China, the main drivers of growth in the region, continue to slow down and the forecasts are now dimmer than some months ago.
Does the IMF see the region falling into a recession in 2015, especially as the fed is expected to hike the interest rates later this year?”
MS. LAGARDE: In Latin America as in other parts of the world, we are extremely vigilant and we check signals and we really try to go under the skin of each and every economy.
And I think each and every economy in Latin America has its own specificities and characteristics, and they are different.
Whether you look at Chile or at Jamaica, Brazil or Peru, Guatemala or Mexico, they’re all different.
One thing they have in common for most of them is that they are commodity suppliers, they are raw material suppliers, and clearly they have stopped reaping the benefits of a decade of high prices, which has been fueling Latin America growth for many years.
The decline of commodity prices, probably lower demand addressed to them by countries like China and a few others, the volatility of currencies that we are seeing a little bit of at the moment and that we might see a bit more of if and when the Fed changes monetary policy and begins lifting interest rates, all of that is affecting the Latin American countries.
Do we see it in recession? No. The forecast we have for 2015 is 0.5, so it’s not high growth as we had it for many, many years, it’s much lower.
We see a little uptake in 2016 -- end of 2016 -- and clearly the policies that are being implemented, whether you look at Brazil, at Peru, Colombia, to name a few, and starting from different bases, are really aiming at improving the situation, restoring confidence, having a solid fiscal base from which to work, reconstituting buffers in some cases.
But I would say it’s a large continent and with Central America and the Caribbean as well, but each and every country has a history, has a particular situation, and we need to be mindful, vigilant, and prepared to help for each and every situation.
MR. RICE: Thank you. I should have said that that particular question came from Alfonso Fernandez of EFE. And I think he captured the gist of what many were asking. I’m turning to another issue that you mentioned at the beginning, Madame Lagarde, which was the whole issue of the low-income countries and, in particular, this year 2015 and the financing for development.
This question is from the East African in Kigali, Rwanda, from Berna Namata who is asking: In relation to the financing for development agenda, the low-income countries in Africa are increasingly citing the IMF’s stringent rules on borrowing as an impediment to growth and to their potential.
Specifically, the countries would like to see the IMF giving them more room to borrow and also removing restrictions on how much they can access on concessional and non-concessional terms. What is your view on this?
MS. LAGARDE: Well, I would like to challenge Berna on that. First of all, it’s a key year for low-income countries. We have 74 low-income countries in our membership, so it’s a big constituency as an economic group.
And it’s a big year because we just had Addis Ababa for the financing of development, September we’ll see the Sustainable Goal Development Meeting under the leadership of the secretary-general, and then December will be the climate change COP21 in Paris.
So if you combine all that, clearly it’s a big challenge for the low-income countries and they have a lot to gain from what will happen or what has happened.
Now, speaking of what has happened, and it went a bit unnoticed because Greece was on the front page during those days, but during the Financing for Development Summit I think the IMF really did not make undue promises, but I think we really delivered.
And I want to thank the Board of the IMF for having really focused on trying to deliver on time, so we did deliver on time.
And it was decided that concessional lending from the IMF, from what we call the PRGT, Poverty Reduction and Growth Trust Fund, that is established in our institution, would increase access by 50 percent; that we would better target on the poor countries; and that we would maintain the 0 percent interest rate for all concessional lending to the fragile states. So those three components are really a pluck in helping the Financing for Development.
Now, to Bernard’s point, why isn’t the IMF a bit more, you know, complacent and flexible and relaxed about non-concessional borrowing in particular?
I would say, Bernard, please look at our revised policy, which we have matured over a period of about a year and a half and which is now embedded in the rules of the institution, which allows us precisely not to categorize countries in buckets of, you know, the low-income countries, the over-indebted countries.
But we have a policy that is actually helping focus on the actual needs of the country, the projects for which special borrowing is expected, and it applies to those countries that are under program.
The other ones can, you know, do what they want within reason and with the public interest of their population in mind, but they do what they want.
Those countries under program with us, we actually authorize non-concessional borrowing if it is associated with a structural program and infrastructure financing, something that is going to be meaningful and will deliver expected growth for the country. So I think our policies have improved for the better.
And I was very pleased when I met with the African Union leaders or when I met with some of the finance ministers at the Spring Meetings to really explain in details what this new policy is.
I think there’s a lot of misunderstanding about it and I think we have gone towards being much more country-specific, much more project-specific to actually have rules that are not as rigid as they used to be.
MR. RICE: I’m going to make this the last question. We’re turning again to the emerging markets, something you touched on earlier, but two questions have just come in, one from Jiji Press, Edward Paglia Rulo, and one from CNBC.
And the question is: Are emerging markets and other countries more prepared now to handle potential spillovers and uncertainty that may result from the expected interest rate hike by the U.S. Fed?
MS. LAGARDE: I think the answer is yes. You remember the ‘Taper tantrum” that we had back in -- I think it was May and June 2013, when it was hinted and then everybody thought that the interest rate was imminent and there was volatility and there was instability on the markets.
I think everybody learned a lot from that. And I think the vigilance level has been raised. Many countries have actually taken measures in order to be able to resist a recurrence of the same volatility and the same instability, whether it was in the monetary policy area, whether it was in fiscal.
And we saw at the time that those countries that took the right set of measures bounced back from this volatility incident very promptly.
So I think, we at the IMF studied that. We communicated with the membership. We did a lot of work on the spillover effects and the spillback effects of spillovers to actually raise the level of awareness and vigilance of all monetary authorities.
And I was really pleased always to hear Chairman Yellen say that she would be mindful of potential spillover and spillbacks into the U.S. economy.
So I think the toolbox has been explored, has been made available in each and every country.
We remain vigilant. The monetary authorities that will make decisions in due course, whether it’s the Fed, whether it’s the Bank of England, whoever starts first, or whether it’s later on the ECB of the Bank of Japan, will be mindful of that.
And I think that tapering tantrum was painful, but it has been a good warning of how prepared we should be, and I think the level of preparedness has significantly improved.
Now, in the meantime, the downside risks and the headwind that the emerging markets are facing has increased. And the fact that commodity prices have gone down in particular is clearly going to increase the necessity to use the toolbox very appropriately when the interest rate movement comes.
MR. RICE: Thank you. I’m going to give Madame Lagarde the last word, but before I do, let me thank our colleagues for joining us online. We will make a transcript of this press conference available. And with that, Madame Lagarde, would you have a last word for colleagues online?
MS. LAGARDE: Well, first of all, it was very pleasant, but also very strange to communicate with the journalists who are listening, but I hope it’s comfortable for you and that you have your feet on the table, a cup of coffee, or that you are comfortable wherever you are.
I think it shows how the IMF is actually determined to take advantage of technology in order to embrace very broadly the membership, the needs of our members, and your expectations as well. I’ll give you an example.
In addition to this virtual press conference, which I hope we can renew, as you know the IMF is delivering a lot of technical assistance, a lot of capacity-building on the ground.
But we have now ventured into the MOOC space and I’m very, very pleased to see how we can actually use and leverage common technology with other major universities around the world to provide the knowledge, the know-how, the best practices that we have accumulated over time and that we are activating for the membership.
We have had many, many civil servants now graduating from those programs, whether it’s in public finance management, whether it’s in debt sustainability analysis.
We’re going to expand that base of courses available, and I think that’s a fantastic way to leverage on the knowledge available in our institution and make it available for free to those who want to learn, improve, and develop their skills. So I welcome those changes very much.
MR. RICE: Okay. Well, I want to thank you, Madame Lagarde, for giving us this time this morning and perhaps we can do this again at some future point.
MS. LAGARDE: Absolutely.