MR. STRAUSS-KAHN: This is the first G-20 of the France Presidency. And we spent a lot of time yesterday at dinner — and also this morning – discussing the recovery, which is strengthening, and that’s the good news.
And it’s strengthening thanks to the measures which have been put in place for three years now by the different countries. Really, I think, at this point in time, we can say that the coordination of economic policy that has taken place during the last three years is really the reason why we avoided a crisis which could have been as big as the Great Depression.
Remember, three years ago, just after Lehman collapsed, many — probably many of you — were speculating about the possible crash as big as the Great Depression. It didn’t happen. I’m not saying that there is no crisis. Of course not. But it didn’t happen.
Having said that, we are not out of the woods. And the main point I would like to make at the beginning of these remarks is that we have a recovery, but it’s not the recovery we want. It’s not the recovery we want because it’s an uneven recovery. And it’s uneven in two ways.
It’s uneven among countries, when you see Asia doing well, Latin America doing well, too, even African countries — of course, at a low level of output, but recovering faster than they used to do in the past. Because in the past, when you had a crisis, the African countries were lagging behind for one year or so. Here it’s not the case. They’re recovering fast, and we forecast 4.5 growth in Sub-Saharan Africa this year, same thing next year. So that’s not bad.
The U.S. — uncertain. It depends a lot over the next quarters. But still, not that bad. And, of course, a lot of problems in Europe, and especially in the Euro Zone, where the growth rate is much lower than what we would like.
That’s the first reason why it’s uneven, and why it is not the recovery we want.
But there is another reason which is, for me, at least as important as the first one, which is that the recovery is uneven within countries. And we clearly see that unemployment is still very high, especially in advanced economies, that inequalities are increasing. And so this kind of recovery is probably not the kind of recovery that can deliver a stable and sustainable growth.
So that’s really the concern today. And I’m not with those saying that the crisis is behind us. Certainly, the financial crisis is behind us — hopefully. You never know, but hopefully.
A part of the economic crisis is behind us, as I said, in most parts of the world. The economies are really recovering. But the social crisis is still there, and very strong. And for the people, the man in the street, that’s what is important.
Because what is growth without jobs? If you have growth but it doesn’t transform into jobs, what does that mean for the man in the street?
So we’re far from having done our job. And the problem we’re facing now — I won’t say “as serious” as the problem we had two years ago at the London G-20, for instance, where we were at the apex of the crisis, but there’s still really serious — unemployment in the advanced economies, overheating is beginning, or signs of overheating in emerging economies. And, on top of that, something which becomes more and more on the top of the agenda, which is the hike in food and fuel prices. As we contemplated in 2008, we’re almost at the same level, with the same threat, of course, on the must vulnerable and on low-income countries.
And this hike — just because the recovery is so fast in some parts of the world, commodity prices are going up, creating, for low-income countries and vulnerable people even in emerging countries or in rich countries, but those who are the most concerned by commodity prices — food and fuel — creating a lot of problems.
So we need to go on with a really strong action — on the national level and on the international level.
What does that mean? It means in advanced economies that they have to go on, governments have to go on with the reform of the financial sector and the repair of the financial sector. Remember, two years ago, a lot has been said about repairing the financial sector — it will be repaired very rapidly, we will never see this again, bonuses will disappear, all this kind of thing.
When you look outside today, bonuses are still there. Financial systems back to business as usual. And sowing the seeds of a possible next crisis.
So, going on, it would be unfair to say that nothing has been done. A lot has been done — but not enough. Not enough. And to be a little technical just for a minute — I’m not sure you’re all interested in this, but still — what has been done is mostly regulation, new rules for the banks. Higher level of capital. Fine. That was needed.
But very little has been done on the two other pillars which, for me, are even more important. The first one is supervision. Because you may have the best rule you want. If nobody is there to supervise, it’s as if you had no rule at all. And the crisis — the sub-prime crisis — was even more a crisis of bad supervision than a crisis of bad regulation.
And the second point on which things are going very slowly is what I call “cross-border resolution.” What’s cross-border resolution? It’s what we have to face in the IMF during a crisis, which is that you may have an English bank in another country, it’s having a problem. Who is in charge? Is it the authorities and the supervisory authorities in the host countries, or the home country? All these kind of problems are not really solved. And that’s the real problem you face when you try to address a crisis.
So regulation — fine. It has a lot to do about Basel III. And everything is not perfect. But — fine, a lot has been done.
But on the rest — supervision and crisis resolution — there are a lot of things on the to-do list in front of us.
On top of that, in some countries you begin to have a real problem of fiscal consolidation. And the deficits are still very important.
Everybody knows here the problem faced by Greece and Ireland, even there’s different problems. We try to help, along with the European Union. But for these countries, they were really at the edge of the cliff, so it made headlines in Union newspapers.
Other countries are not at the head of the cliff, but still have to consolidate their fiscal in the medium term. And until it will be done, we will not be back to normal in the credit flows and the funding of the economy, especially the SMEs.
So financial sector — not enough. On top — I forgot — maybe you remember that last June at the G-20 in Toronto, the IMF proposed what we called “FAT,” Financial Activity Tax, which is our version of the Tobin Tax. In our view, most effective than on transactions, on all activities. I’m not going to elaborate on details. But we proposed — in fact, we proposed two taxes because, for technical reasons, we wanted to address two problems.
I’m sorry to say that I don’t see those taxes implemented, and I’m very unhappy. Many have been surprised to see the IMF proposing to tax the financial sector, but it was just fair — not only to get money to repair the sector, or to do other things, but also because we want to curb the behavior.
We cannot have a financial sector where people take risks, took big risks, that when they succeed, the money is for them, but when they fail, the losses have to be paid by everybody.
So if you have a tax which will be an incentive to take less risk was exactly the purpose of what we proposed. Again, I don’t see this implemented.
And to finish with the European side, we are pressing, and having many communiqués by myself, by John Lipsky, my First Deputy here, others, asking the Europeans to prepare kind of a comprehensive plan. Because it’s not good at all to deal with Greece when you have a Greek problem — at the last minute — saying “We don’t want the IMF,” and then at the last minute saying, “Okay, we can’t live without you.” And then going to another one — Ireland. And then maybe you have not — going to another one.
And, really, the need of a comprehensive approach from the Europeans, to fix the European problem, is something which I see very, not only useful, but necessary.
It’s always the same thing. When you talk with the European leaders, they are clever people, they do understand things. So they say, “Yes, we need this.” And then nothing.
So I hope that at the European Council that’s going to take place at the end of March — 25th or something like this — really, this comprehensive plan will be proposed, which will be the only way, really, to address the global problem.
Now, when you turn to emerging countries, as I said before, the risk is overheating. And you see many countries being really, really at the edge, beginning to have rise in inflation, bubbles, real estate or other kind. And they need to cool down. Because it’s nice to say we have a 6 percent, 7 percent growth this year. That’s fine. It has a lot of very interesting and useful consequences, in terms of purchasing power of the people, and employment fighting unemployment and so on.
But some economies are just now over their potential. And if they don’t slow down then, really, problems are ahead.
So we are trying to monitor the two. And that’s what I had in mind saying that it’s uneven. Because the policy advice we have to give to different parts of the world are the same — some are going too fast, some are going too slow, it’s an uneven recovery. And therefore, it’s a fragile recovery.
Now, when you look within the countries, it’s just fair enough to say that even in countries having rather good performance in macro terms — current accounts, which are not too much in deficit, fiscal budgetary questions, which are not too much in deficit growth, which is not that bad, recovery after the crisis which goes rather fast — even this kind of countries, you may have very difficult situations within the country. It’s not exactly the IMF’s job to deal with this but, of course, we have to contemplate it.
And what has happened recently in North Africa is, in my view, very closely linked to this — the fact that both Tunisia and Egypt had rather good global indicators — growth, inflation. But inequalities within the countries were such that, added to a demand for more liberty, which is more on the political side, it ends up as we know.
So it means that we need to work more on this question of distribution of income, poverty lines. We do it, but probably not enough. And that’s the lesson we have to draw for the future.
So — what does all this mean for the G-20?
As I told you, it’s a good meeting. Oh, I didn’t tell you already. Okay. I just forgot.
So, it’s a good meeting, but I’m a bit worried. Maybe some of you were in Seoul, in Korea, in November, during the last G-20. And the press conference I had at that time, I said this Seoul meeting is the first meeting of the second phase. The first phase were G-20 meetings during the crisis, at the climax of the crisis. Now, we’re not out of the crisis — as I said before — but we’re entering something different. And in the aftermath of the crisis, we begin to have a new kind of G-20 meeting, and Seoul was the first of this. This one is the second one. It’s not the head-of-state meeting, it will take place later on. But it’s the first ministerial meeting after Seoul, and one I was worried about, I’m sorry to say, materialized, which is that it’s more difficult than it was before to have people agreeing, you know, when they were really scared. They were happy to find a consensus. And our task in the IMF to promote this consensus was not that difficult. In London and Pittsburgh, the heads of state and government were really concerned and scared about what could happen, and so nobody wanted to be the only one to sit on the side.
Now that many believe wrongly — but believe that the crisis is behind us while they have domestic concerns — and they are less concerned by multilateral coordination. And that is what we are living these days. And that’s why it has been rather difficult, even if it’s a success, at the end to go on with the set of indicators we need for the G-20 Mutual Assessment Program, the MAP, that the IMF is doing technical support on to the G-20.
So, now we have that. Still some small technical points to be solved, and then we will be able to do the exercise, which is the most useful for the international community, which is to see how it goes naturally with the policy in place, and what better can be done. And we know from previous exercises of this kind that we can improve. It’s a win-win exercise. We can improve by 2.5 percentage of growth in five years. More than 30 million jobs. More than 40 million people left out poverty. If the right policies are implemented in the right places.
So the exercise is the following: We take the policies as they are now in different countries. We see how consistent they are. And we try to fight, namely, the global imbalances, but not only this, to try to have a better outcome for everybody.
So that’s why this meeting was so important, because the countries needed to agree on the set of indicators they are going to use, or that they are going to ask us to study in our simulation.
Now the second point, which has been addressed, is the reform of the IMS, the international monetary system. It’s a French tradition since the ‘50s to be at the forefront of the reform of the international monetary system. And from Pierre Mendès France to de Gaulle to others, many French statesmen had their will to try to push to have an international monetary system, which will not be so imbalanced, which means it will be more fair the set of countries dealing with international questions, meaning multi-country reserves, role of the dollar — which is still going to be very strong, but maybe a bit challenged by others and so on. That’s a very old story.
So no surprise that it comes back in the agenda this year. And of course, I don’t know, at the end of the year what will be the result. That’s a difficult work to do. But all this has to do with the role of the IMF, because if there is one institution which is at the center of this reform, after the international monetary system, of course, is the IMF. On exchange rates, on reserve accumulation, on capital in-flows — all these kinds of things. So I’m happy that this is the agenda. We’ll see if something comes out.
Let me end and tell you something. The role we’ve played in this crisis — at the beginning of the crisis in pushing countries as soon as January 2008 — to put in place a stimulus. Then the role we’ve played in coordinating these different stimuli with the monetary policy. Then the role we play now in helping countries, providing resources and trying to avoid that they collapse. Then the role we play in providing the G-20 with this global analysis, which may allow them to know where they should go, having all their homework to do. And last but not least, the role we may play in helping to reorganize — even if it’s a long-term process — the international monetary system for a more effective system, which will provide and deliver more stable and sustainable growth. Really create a new International Monetary Fund. We are far, far from the view that many may have from the Fund years ago: We are the center of all the questions — monetary, economic, financial questions.
I used to say two years ago that my goal was to go from IMF 1.0 to IMF 2.0, and I think that’s done. Now the problem ahead — the problem looking forward — is IMF 3.0, which is to provide the world — in globalization we need this — with an organization which will not be only focused, or mostly focused, on monetary questions, but on all financial questions. Probably it may involve in the long term some changes in the treaty, which is the foundation of the IMF. Some say it will require a new name for the institution. I don’t know. If branding is so important, then what is sure that the more you have a globalized world — you may like it or not — but the more you have a globalized world, the more you need multilateral institutions to try to organize the way the world is working.
Fine, thank you very much. And I’m happy to answer your questions.
QUESTION: I’d like to pick up on a point you made towards the end.
MR. STRAUSS-KAHN: I can’t hear you.
QUESTION: Towards the end you said that the issue of the IMS on the agenda, we will see if something comes out. And you’ve participated in the discussions and negotiations. You must already have an idea if something can come out by the attitudes of the governments.
MR. STRAUSS-KAHN: No, I think a lot can come out. The question is the delay. All these questions take a lot of time to be discussed. So I’m sure that we will go forward in looking at what’s the optimum in terms of reserve accumulation, in defining what could be the attitude of countries facing capital in-flows, and we just released some papers about that. And to the surprise of many, the Fund was arguing that sometimes, after having used other tools, capital control can be the right thing, which is totally different from what the IMF could have said years ago.
Same things for the SDRs. I think there is a bigger role for the SDRs than the one we have so far. But the point is that those questions are really questions that are such a big interest, and such a big influence, that it will take time.
So I’m just not sure that the result can be expect quick, but the foundation of this has to be put down. So I think it’s very good that we started. If you never start, you never end.
QUESTION: Same question applies to your phrase “you don’t see a financial tax. I don’t see a financial tax being implemented.” Is this a present verb or a future verb?
MR. STRAUSS-KAHN: No, no. I don’t see it so far. Our report is still six months, more than six, eight months old.
QUESTION: Do you have any hope?
MR. STRAUSS-KAHN: No, I have hope.
QUESTION: The argument…
MR. STRAUSS-KAHN: I always have hope.
QUESTION: …that’s brought from countries is: if there is not an accord, even among tax havens, etcetera, that the tax won’t work. Do you have an answer to that?
MR. STRAUSS-KAHN: Yes. And that’s why the two taxes proposed by the IMF are much more effective in my view than the traditional financial transaction tax, which requires more or less that all the players will be on board. It’s not the case for our tax, and that’s one of the reasons, I think, it’s superior to the financial transaction tax.
QUESTION: The question is have you got any occasion to speak personally or publicly with the Minister or President of Central Bank of China about the SDR package? Do you think there is a possibility of renminbi entering into the package, relatively short term?
Could you explain to the Chinese what kind of influence or impact it could bring to the global trade if one day the renminbi became fully convertible? Thank you.
MR. STRAUSS-KAHN: First, I had many opportunities to talk with the ministers, the Vice Premier Wang Qishan, the Governor — Governor Zhou, about this question. And it’s really something that we are debating very openly.
What is the SDR? The SDR is a basket of currency, so far including the dollar, the euro, the yen, and the pound. The question is, shouldn’t this basket, which has a lot of advantages because being a basket it moves slowly — it’s an average of the different currencies, so it softens the volatility of the exchange rate. And it could be used to price commodities, for issuing bonds, or many things like this.
Shouldn’t this basket include now other currencies, because the world is not any more the Euro Zone, or the U.S., U.K., and Japan? And the answer is yes. Now the question is that what are the requirements? Well, there are some specific requirements, which are related to the size of the economy and the use of the money, of course. If it’s a very small currency used by nobody, it’s not worth putting it in it. It’s not the case after renminbi. And the renminbi clearly needs this kind of a criteria.
Now the problem is there is another one, which is the last one, which is that it has to be a currency which is freely valued by the market. And it’s not the case of the renminbi. So that’s the question. How can we have the renminbi in — and I will be myself personally very in favor of having the renminbi in the SDR as soon as possible. But in one way or another it means that the renminbi has to be even not totally freely convertible, at least partly convertible for the part which will be in the SDR.
So that comes into technical reasons. But I think that will be good for China and the Chinese people, because it will lead to a more open economy, and now clearly that’s what China needs to do. And it will be good for the world economy because it’s just fair and effective to have big currencies being represented in the SDRs.