Meeting date: 10 April 2012, 14:30 BST
Meeting venue: HM Treasury, 1 Horseguards Road, London SW1A 2HQ
Attendees:
Officials: Alex Gibbs (UK IMF Executive Director, by video), Rob Ward (UK Delegation to the IMF, by video), David Kinder (HM Treasury), Azin Pourghazi (HM Treasury), Evangelia Bachtsetzi (DFID)
Civil society: Peter Chowla (Bretton Woods Project), Tim Jones (Jubilee Debt Campaign) Joseph Stead (Christian Aid), Juan O’Farrell (Bretton Woods Project)
Discussion:
Debt Sustainability Framework (DSF)
NGO concerns: the DSF was discussed by the board last month, what are the main issues coming out of this discussion? Particularly:
- (a) 12% of cases have had larger shocks than the ‘most extreme’ modelled by the Bank and Fund: in face of large economic shocks beyond predictions, what mechanisms should be in place to deal with that?
- (b) External private debt: the proposals on this issue are unclear, how is the IMF proposing to measure private external debts, and what metric will it use to indicate when it is too large?
- (c) Private-private external debt: What policies/measures should be brought in cases where external private debt has become high risk? There is nothing in the paper of how you advise an authority on this issue.
Alex Gibbs:
- Our approach to the DSF: it is important to have a rules based framework, transparent and with linkages to unsustainable levels of debt. And there is a balance to be struck. A sense with the review is that the framework is working well, and radical moves are unnecessary. A key issue is getting buy-in from new lenders and borrowers.
- Large shocks: did not personally recall any discussion at the board, we had discussions of what shocks should we look at. It is always an issue, always a judgement of how extreme the shock should be, but didn’t recall a discussion on this specific issue at the board.
- An external debt metric would be very difficult to do, the Fund staff do not have a position on this yet, so I’m not in a position to address it now.
UK Delegation:
- External private debt: wasn’t really covered in the meeting. There is a lot of sensitivity in LICs about covering private-private debt, staff will do more work on it.
NGO concerns: it is mentioned that there are only 7 extreme cases out of 60 cases, but this is actually a 12% of cases, which is quite high. It is necessary to have the mechanisms in place to deal with shocks. HIPC is coming to an end so there will be no mechanisms to deal with a country in debt distress situation. If you look to historical figures it is quite clear it will happen that countries will enter in this situation again, no need to look beyond Europe to find that.
UK Delegation: DSF help guide countries in the future years, that’s how people see DSF. Important to encourage both borrowers and lenders to adhere to the DSF as much as possible. We shouldn’t be putting a mechanism now to deal with future crisis, because it could become a self fulfilling prophecy for debt problems.
Capital account regulations (CARs)
NGO concerns: New paper coming to the board and a summary paper, what is the UK position on this? The Fund’s code of conduct for capital account regulations faced opposition from emerging countries, that also implemented new measures showing they reject the code of conduct. This code of conduct pushes countries to use CARs only as a last resort strategy, so they end paying the costs of quantitative easing in the US. Regulations need to be countercyclical, NGOs would like to hear where the board is going to go with the new code of conduct? What is the IMF view in participating in enforcement?
Response Alex Gibbs: We should not call it a code of conduct, it is not a framework either, we have to be careful with the language we use. The Fund is trying to work towards an ‘institutional view’ on CARs, heading in a direction that would try to bring a broad consensus between countries.
There are differences on the underlying philosophy on CARs. The UK sees monetary, fiscal and macroprudential policies as the main response to flows, and sees capital controls as part of the toolkit. But we do not support permanent controls, due to concerns that they would create distortions and diversion of flows to other countries. It is not different from the Fund’s staff view from last year. You see controls as permanent and first resort: one clarification on last resort issue: sometimes the last resort language implies trying first fiscal and monetary policy and then controls, but the Fund points to CARs as not last in sequence, but in the policy space you have and used depending on the risks you face.
We are open towards a Fund with an institutional view, so you should expect the Fund to give advice and have discussions, after the institutional view it would be clear what the role is, it is quite a long away.
NGO concerns: is very problematic to determine economic policy issues in a philosophical basis. Also distortions are already there, for example you have the effects of quantitative easing in advanced economies. You are already in a world of second, third best options. We need pragmatic solutions for development reasons. Finally, there are opportunity costs for countries when using CARs as last resort.
Response Alex Gibbs: We have been extremely pragmatic in supporting the IMF in developing an institutional view that includes the introduction of capital controls, nevertheless, we have concerns on the evidence on their effectiveness, which diminishes over time, and also on the diversion of flows to other countries.
Tax policy
NGO concerns: 2011 IMF paper on tax policy and consultation in managing natural resources. Recommendation on what countries should do on tax exemptions?
Response Alex Gibbs: Conference in DRC to strengthen management of natural resource revenue : incentives to bring the private sector into the country, building capacity to negotiate fair terms with companies, help establish better PFM, strengthen administration, governance and transparency, know that there is work coming on, and would be happy to follow up.
On costing of tax exemptions I haven’t seen that discussed at the board, Fiscal Affairs Department (FAD) in IMF will develop a position, and then implement this through article IV.
UK delegation: FAD also doing work on subsidy reform in Arab spring countries.
Conditionality in Europe
NGO concerns: Ireland colleagues calling to drop debt to Anglo Irish Bank. The situation now is that the Irish government owes to the Irish central bank. The ECB is against debt reduction: what is the Fund’s position, or the UK government position? To bailout banks was crazy.
Response Alex Gibbs: No discussion of debt reduction in Ireland, of course the eurozone programmes are troika programmes, so the ECB’s position is very relevant.
NGO concerns: concerns that the debt targets for Greece will be hard to achieve even in the most optimistic scenarios. Is there in place a contingency plan?
Response Alex Gibbs: The Greece programme is a risky one, and calls for contingency planning, but I wouldn’t expect the IMF to share the contingency plan publicly, because it could undermine the program.
NGO concerns: The situation in Europe is unsustainable, it should be discussed to write down public debt before its too late, it is clear now that it was a mistake not doing PSI from the start. Also new sovereign debt-arbitration mechanisms should be in place to deal with contingencies of all kinds, would not undermine any specific plan because it would be global.
UK Treasury: there have been conversations at the G20 on global safety nets. In terms of public sector participation, you should be very careful what you do, because one of the reasons why countries lend to the IMF is because it lends on in a no risk basis, have to be very careful in changing this.
