Transcript of October 2019 Asia and Pacific Department Press Briefing

Via IMF (Den Internationale Valutafond)

Transcript of October 2019 Asia and Pacific Department Press Briefing

October 18, 2019



CHANGYONG RHEE, Director, Asia and Pacific Department, IMF

ODD PER BREKK, Director, Asia and Pacific Department, IMF

ANNE-MARIE GULDE-WOLF, Deputy Director, Asia and Pacific Department, IMF

KENNETH KANG, Deputy Director, Asia and Pacific Department, IMF

JONATHAN OSTRY, Deputy Director, Asia and Pacific Department, IMF

KEIKO UTSUNOMIYA, Senior Communications Officer, Communications Department, IMF


MS. USTSUNOMIYA: Good morning, everyone. Welcome to the press conference
for the Asia Pacific Department. I am Keiko Ustsunomiya from the
Communications Department.

Here with me are Mr. Changyong Rhee, Director of the Asia Pacific
Department and his deputies, Mr. Ken Kang, Mr. Jonathan Ostry, Mr. Odd Per
Brekk, and Ms. Anna-Maria Gulde-Wolf.

Changyong will give you short opening remarks and then we will take
questions from the floor and online. Thank you.

MR. RHEE: Thank you, Keiko. Good morning in D.C. and good evening in Asia.
I am pleased to share our assessment of our economic outlook for the Asia
Pacific region. Let me start with key summaries first.

In line with the slowdown of global growth, the growth in the Asia Pacific
region is expected to be the slowest since the global financial crisis in
our context of prolonged global uncertainty. But despite this slowdown of
growth, Asia still remains the most dynamic region in the world accounting
for more than 70 percent of the global growth in 2019.

A main policy priority is to address the cause of policy uncertainty and
restore the lines on the multilateral trade system. Meanwhile, near term
policies should support growth where necessary but also safeguard financial
and fiscal stability.

Let me elaborate on this starting with the economic outlook. As Managing
Director Kristalina Georgieva stated yesterday, the world economy is
experiencing a synchronized slow down in a context of trade and
geopolitical tensions. Asia is no exception to the trend and actually Asia
was hardly hit by this trend. Growth softened in the first half of 2019
driven by a large decline in fixed investment and export.

Looking ahead, Asia is expected to grow at 5.0 percent in 2019 and 5.1
percent in 2020 which is the slowest growth pace after the global financial

Meanwhile, inflation across Asia is projected to remain subdued reflecting
softening demand. In China, growth is expected to decline moderately to 6.1
percent in 2019 and 5.8 percent in 2020. This will reflect China’s ongoing
transition to a more sustainable growth model and the negative impact on
ongoing trade tensions.

In Japan, the economy is projected to grow at 0.9 percent in 2019 and to
moderate to 0.5 percent in 2020. Temporary fiscal support can cushion the
expected decline in private consumption after the October consumption tax
hike, consumption tax hike.

In India, following a marked slowdown in the last two quarters, the economy
is expected to grow at 6.1 percent in this fiscal year, 2019 picking up to
7.0 percent in 2020. The monetary policy stimulus and the announced
corporate income tax cut are expected to help revive investment.

In Korea, growth has been revised down to 2.0 percent in 2019 and 2.2
percent in 2020. Exports have been falling but fiscal possibly report and
low interest rate are cushioning the slowdown.

Hong Kong SAR. The declining growth is expected to continue in the near
term as the U.S. China trade tensions and the domestic socio-political
situating effect on exports.

Turning to ASEAN, the economic growth has softened a bit in the first half
of 2019 given weak export but growth is projected to be resilient at around
4.6 percent in 2019 and 4.8 percent in 2020.

For the Pacific Island countries, growth has been generally firm and that
is the region where we revised upward unlike others, mostly thanks to the
gross rebound in PNG after last year’s earthquake.

The risks to our recent projection are still skewed downward. First, the
announcement of trade related understanding between the U.S. and China last
week in D.C. is a real — is good news and beneficial for growth but still
there is a lot of uncertainties and the possibility of further
intensification in trade tensions which I hope not happening, is definitely
a significant downside risk.

A second risk is a faster than expected growth slowdown in China. If it
happens, this could have a significant spillovers in the region given close
trade links between China and Asian countries and the close integration of
Asian economies in global value chains through china. In addition, there
could be a considerable financial spillovers for the China slowdown.

Third, even though the benign global conditions currently is helping to
mitigate capital outflow pressure from the region, but if trade tension
escalate or market sentiment change or tightening of global financial
conditions will make Asian policy makers to face difficult choices.

In this context, policies need to be supported but mitigate our long term
vulnerabilities. Near term policies should support growth where warranted.
Fiscal policies should support domestic demand where there is a need and
also there is fiscal space.

Monetary policy should be gradually — should be generally accommodative
depending on local circumstances where there could be a rising financial
stability risk due to low interest environment, financial sector policies
should be strengthened.

Finally, Asia needs to push ahead with the structure reform to forge their
resilience and lay out the foundation for sustainable and inclusive
economic growth. With this I will be happy to answer your questions.

QUESTIONER: Two questions if I could. Changyong, you mentioned fiscal
policy. Do governments in Asia have a role to play in rolling out fiscal
stimulus to support world growth?

And the question then for Odd Per on Japan. How much fiscal space does
Japan have? Thank you so much.

MR. RHEE: Let me answer first. My answer should depend on country specific,
then I will ask Odd Per to answer Japan cases.

The — whether the country has a fiscal space or not is controversial, and
then also is not

one size fits all. For example, we believe India still has limited fiscal
space so they have to be careful. We support their corporate income tax cut
because it has a positive impact on investment. But on the other hand,
India has to address continued fiscal consolidation and secure their
long-term stability of the fiscal conditions.

On the other hand, countries such as Korea and Thailand we believe there is
room. Yet in the long term they have to also focus on the fiscal
sustainability considering the aging and all other issues but temporarily,
they can wisely use their fiscal space to, you know, offset some of the
downward trends.

So which country has to use how much their fiscal space really depends on
individual country specific [circumstances]. I will ask Odd Per to answer
Japan case.

MR. BREKK: Since this is the first mention of Japan, let me extend our
condolences to the Japanese people for the tragic loss of life and the
damage in the wake of the typhoon last week. We are of course encouraged to
see that the government is as always addressing this and we are always
impressed by the resilience of Japan and the people.

Now, on the fiscal space, so we have in the past and we still recommend
that in the case of a downturn, fiscal policy could be the first line of
defense in Japan. But maybe I should elaborate a little bit because we also
had the consumption tax increase.

The first one since 2014 took effect from October 1 and that is in
recognition of the need for taxes to go up in Japan over time in order to
create fiscal space, further fiscal space to finance the growing social
security and the healthcare cost associated with aging and demographics.

So in that sense, the October 1 tax increase was a step in the right
direction and we maintain our recommendation that Japan should follow these
for further gradual increase in consumption taxes over time and to deal
with the underlying structural issues relating primarily to demographics
and that way create more fiscal space over the medium and long term. Thank

QUESTIONER: My question is, Dr. Rhee, you and the IMF team last week met
with Chinese Vice Premiere Liu He and his team. How was the meeting and
also how do you evaluate the current status between U.S. and China trade,
thank you.

MR. RHEE: I may ask Ken who was in the meeting to answer this question.

MR. KANG: I can’t comment specifically on the meeting itself but on your
question about the status of U.S. trade tensions here, as you know as the
Managing Director has said many times, there are no winners in a trade war.

Trade conflict is bad for growth, investment and jobs and for this reason,
we encourage both sides to work to a durable and constructive solution that
strengthens the multi-lateral trade system.

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QUESTIONER: Bangladesh has been enjoying more than 7.0 percent GDP growth
for the last fiscal years and the IMF also projected the country will enjoy
the 7.8 percent GDP growth this year. But there are many challenges
remaining in my country actually.

The countries banking sector has been facing severe liquidity crisis and
they are unable to flash loan, disburse flash loan to private sector and
private sector are also declining and export and import.

In the first two months of this fiscal year, declining also as you know. So
how will Bangladesh enjoy the big GDP growth projected by the IMF and what
are the main challenges now facing the country?

MR. RHEE: Thank you. Anne-Marie.

MS. GULDE-WOLF: Yes. Thank you very much for that question. As to outline
Bangladesh has a very strong growth record in the range of 8 percent. It’s
one of the strongest growth not only in the region but worldwide. The
economy has been outward oriented, has been based mainly on exports,
exports of ready-made garments.

As you pointed out, there are problems and weaknesses especially in the
financial sector. We have had serious and intense discussion with the
authorities on this. We had — we have recently concluded what is called a
financial sector stability review with a focus on what needs to be done
going forward on enhancing financial stability.

Financial stability is endangered by the high rate of non-performing loans
in the economy. While there is no immediate crisis risk addressing this is
particularly important to create room for better lending by the financial
sector. This better lending will allow private sector investments,
investments that are also needed to diversify the economy away from the
dominant sector, and to create room for investment that is needed to
benefit from the demographic dividend that Bangladesh could have.

So at this stage, again, as our previous managing director used to say is
in good times you need to fix the roof, so Bangladesh is in a very good
situation macro economically at this stage. And this is the time to address
the structural weaknesses, especially around the financial sector.

QUESTIONER: I want to ask two questions about Korean economy to Director
Changyong Rhee. Even though you’ve given an answer about the specific
country, previously IMF had projected that Korean economy would grow 2.6
percent this year, backed by the supplementary budget, but recently cut its
outlet to 2 percent. How much do you think the supplementary budget pushed
up the growth?

And, secondly, the IMF recently cut Korea’s growth outlook to 2 percent,
but said it will grow 2.2 percent in 2020 and 2.9 percent in 2024. The
outlook seems to have reflected the possibility of orderly resolution of
the U.S. China trade conflict. If the trade disputes continue how do you
see the growth of Korean economy?

MR. RHEE: Because of a conflict of interest I would rather first Ken to
answer, and then if it’s necessary to intervene later.

MR. KANG: Okay. On your question about Korea, yes, in this years’ World
Economic Outlook, we have downgraded growth in Korea to 2 percent this year
and 2 percent next year. This reflects the following exports in response to
the global trade tensions, but also sluggish investment and consumption. We
also have inflation projected remaining 1 percent which is below the 2
percent target range.

On the question on fiscal policy I think we very much support the
supplementary budget, as well as the expansionary budget proposal for 2020.
In our view, an expansionary policy mix that includes both increased fiscal
spending, but also further monetary easing is needed to address the
weakness in domestic demand, as well as to bring inflation back to its
target range.

In particular, on the fiscal side I think it’s welcome that Korea has
embarked on a fiscal expansion. By estimates, about 1.2 percent of GDP for
next year if the budget is approved. Again, focused on spending to help
with the vulnerable households, small and medium sized enterprises, and to
adjust in job training. So I think an expansionary policy mix is very much

MR. RHEE: If I just add one thing, and clearly, there are lots of
discussions why the IMF is asking for more fiscal stimulus. I think we have
to really differentiate the short term and the medium term. We believe that
in the short term at this moment partly due to the trade tension, partly
due to the global slow down, private investment in Korea and private
consumption in Korea are relatively low.

So if there’s no other source for growth, you know, the economy can
actually — there can be a vicious cycle, so that is why we’re emphasizing
the broader fiscal policy to boost the economy in the short term. But in
the longer term, I think Korea is facing aging [population] and other
things so we are also saying two other things about fiscal policy.

The use of fiscal policy should be very efficient. You have to invest, use
your resources to increase consumption and investment. And where the fiscal
policy should be targeted is also very important. Second, over the
medium-term Korea needs definitely more government expenditure for the
social safety net to protect the poor people and do more infrastructure and
other things. But at the same time they need more revenue because of aging
[population] or other issues.

So we project that without increasing revenue in the long term, ten years
later Korea’s debt to GDP ratio can increase further. So, eventually, in
the longer-term Korea need first to increase their government expenditure
to protect the poor and build a social safety net, health and other things.
But at the same time, Korea needs to increase its revenue in order to
avoid, you know, a rapid increase of debt. So what we are advocating at
this moment is a more short term stimulus, and then also to secure the long
term sustainability of the fiscal positions.

QUESTIONER: World Bank President did say that the world has exhausted the
two options of (inaudible) for monetary policy and fiscal policy
adjustments or support which were two among the five priorities of the IMF
Managing Director. So you mentioned about structural adjustments which is
politically very difficult in developing countries. What would be the best
course in that scenario for, particularly, emerging economies?

MR. RHEE: Let me answer to your question about this limit of the monetary
policy and fiscal space, and then I’ll ask my colleague Jonathan to answer
about the difficulty of structural reform because he just did a really
excellent report about the political cost of the structural reform.

In terms of monetary policy, as you heard this week we also believe that
the monetary policy should not be overburden, given, especially in advanced
economies given the fact that the interest rate is too low too long. There
is a certain limitation that world can rely on the further monetary policy
to stimulate the economy. But at this moment we also believe that it’s not
a time to tighten the monetary policy given the low growth evidence.

So what we are discussing is what kind of other policies to supplement
monetary policy, and then also to minimize negative side effect of too low
too long policies. So we are thinking about what kind of macro prudential
policies can supplement monetary policies, and what should be the role of
the, you know, fiscal policy if they have fiscal spaces to help these

At the same time, what kind of micro regulation can be used to mitigate,
you know, this situation. So in terms of short term macro policies we have
to find in a certain good policy mix to address this issue, and that is, I
think, what our Managing Director’s mentioned. As for the structural
reform, let me ask Jonathan to add.

MR. OSTRY: Thank you, Changyong. So thank you for that question on
structural reform. Indeed, the difficulty that you mentioned for developing
countries to pursue structural reform is apparent in the data because what
we have seen in recent years is a leveling off in the extent to which
developing countries are pursuing liberalization policies to actually boost
the supply side of the economy and allow market forces to bring about more
sustained increases in productivity which are the key to longer term
growth. So this is an issue.

What we have tried to understand is whether there are political impediments
to pursuing structural reform. There is a famous often quote by Jean-Claude
Juncker that goes something like ”We all know what to do. We just don’t
know how to get reelected once we’ve done it.” And this speaks to the
perception that structural reforms entail a political cost in the short
term. What we tried to ascertain was whether there are strategies for
pursing structural reform that could minimize those costs, whether real or

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Now, as Anne-Marie mentioned earlier one of the lessons from this empirical
study is that countries really should take advantage of good times to do
the hard work of structural reform. That’s because there are winners and
losers in any reform effort, and the losers are going to lose actually more
if you’re in tough economic conditions then if you’re in a sort of good
economic time. So that’s lesson one.

The other is that governments should pursue — should reinvigorate their
structural reform efforts early in the electoral cycle because the benefits
of reform tend to accrue over time, but the costs for losers might be
concentrated in the short term, and if those costs are sizable those losers
can be vocal and can undercut the reform process.

QUESTIONER: From Thailand. Projected growth of IMF report on the economy of
Thailand is 2.9 percent this year which is quite low when compared with
other countries of ASEAN. Why is that and what’s the policy you like to
recommend to Thailand to have stronger growth? And the slower growth then
expected of China how does it effect ASEAN, as the whole region?

MR. RHEE: You know, if you look at the (inaudible) what kind of Asian
countries are suffering more at this moment, I can easily say that if
country depends heavily on export, investment, especially manufacturing,
then those countries are suffering more at this moment because of trade
tension and growing uncertainty in the global economy.

So Thailand is not exception. Thailand’s import and export count close to
70 percent. Thailand’s tie with China and trade’s very strong, so Thailand,
like Singapore, Hong Kong, Korea, those countries with manufacturing-based,
export-based, and, you know, those countries are now more hardly hit. So
how to revamp your growth, I would ask Ken to answer those questions.

MR. KANG: So I hear a question about Thailand. You’re right, growth has
slowed. It was around 2.6 percent in the first half of this year, and as
Changyong mentioned, the slowdown is very much related to the contraction
in exports and the spillovers to weaker consumption from the global trade
tensions which have rippled through the global supply chain to which
Thailand is very much attached.

In terms of the policy mix, again, we recommend an expansionary policy mix
to address the weakness in domestic demand for Thailand. Fiscal policy you
want more frontloading of the public investment program that’s been
announced by the authorities would be helpful. In addition, given the
weakness in inflation accommodative monetary policy is also needed, but
also combined with macro prudential policies to address potential financial
stability risks.

In addition, there is a need to push ahead with structural reforms to deal
with the aging population in Thailand, and this includes policies such as
pension reforms, further investment in human capital, and further
investment in the regional economies.

QUESTIONER: Thank you. I’m from Bhutan. My question is with regard to the
growth projection of Bhutan which is 5.5 percent in 2019 and 2020. It’s
projected to be one of the fastest growing, 7.2 percent. But, also, this is
an increase from the initial outlook of April by almost 1 percent. So back
at home there has been a slowdown in the construction of the hydropower
sector which is the main driver of growth in Bhutan. So I was wondering why
such a projection, despite the slowdown in hydropower construction?

And, also, Bhutan has been more focused on a balanced approach. We have
been following a path of gross national happiness which is kind of
maintaining a balance between growth and environmental conservation. So
what do you think of this concept? Do you think it’s kind of restricting
the potential of the full economic growth? Thank you.

MS. GULDE-WOLFE: Thank you very much for that question. As you know, growth
in Bhutan is very much dependent on exports, exports of hydroelectricity,
and the hydroelectricity is going to India and the construction activity is
related to investments by the Government of India. So the growth activities
depend very much on implementation of these projects.

So my colleagues who were looking at the implementation and the impact on
growth felt that the growth activity was stronger, somewhat stronger than
at the time of the last forecast. Sometimes this is not necessarily
immediately visible on the ground, but from the data we have seen that
there was a pickup of that growth. So to come back to your question of how
should you measure economic output in Bhutan, clearly in an economy that is
export-oriented this really gives only one aspect of how the economy is
doing and how it translates to the population at large.

Bhutan is the only country so far that is following the growth national
happiness indicator, but we think that this is a good approach to look at
inclusive and broad-based aspects of how the economy is doing. It is
somewhat difficult to compare internationally, as you say, I mean, there is
only — the one country that is following this indicator, but we are
looking at this with very great interest and other countries are trying to
emulate or to use elements of this concept. So I think it’s worthwhile
indicator to look at.

More generally, looking at Bhutan and the economic outlook, we feel that,
you know, some of the numbers that may look somewhat difficult in
particular, the very high level of debt, you know, need to be seen in the
context of the specific economic structure and that growth link to India.
So the debt stands at 100 percent of GDP, but we still have estimated it in
the last Article IV to be moderate. Simply because these investments in
hydropower are contractual and will yield their own export revenues in the
foreseeable future. We will have a team visiting Bhutan in December and we
will update our numbers then.

QUESTIONER: I have two questions. One is about the just released weaker
than expected China’s GDP growth. Just if you can give us a general
assessment of what it’s suggesting about the world’s second largest economy
and the possible implication fallout for Asia. My second question is about
climate change which has been a very prominent topic at this year’s IMF

Asia has a mix of countries that are very vulnerable to the impact of
climate change and big emissioners of carbon. So I’m just wondering if
there is anything Asian region collectively can do to address climate
change and the potential risks it could pose on the economy? And,
particularly, if you can elaborate on Japan because, as you know, it’s
prone to a lot of disaster. It’s known to be resilient, but it probably has
a lot of lessons to provide in terms of how to cope with climate change and
the destructions it causes. So, yeah, thank you.

MR. KANG: So I will address a question on China’s GDP and the outlook.
You’re right the Q3 GDP numbers for China came out and they showed that
growth had slowed to 6.0 percent in the third quarter, down from 6.2
percent in the second quarter which is broadly in line with our WEO
baseline forecast.

In this year’s WEO we forecast China’s growth to slow modestly to 6.1
percent this year, 5.8 percent next year. This growth slowdown reflects
several factors, including the escalation of trade tensions, the global
slowdown in manufacturing and investment, but also the strengthening of
financial regulations in China which would help keep growth on a
sustainable path. The downward revision reflects mainly the escalation of
trade tensions offset by additional policy support.

Over the medium term we project China’s growth to slow gradually to about
5.5 percent, but nevertheless, China remains a very important driver of
global growth, accounting for nearly 40 percent of growth in 2019.

MR. RHEE: As for the environmental issue, let me mention a few general
things. You’re right. I think in terms of climate change, you know, Asia is
most vulnerable. Not only the Pacific Island countries. If you look at the
very populated area in Bangladesh, in many other, even you mentioned Japan.
Asia is definitely most vulnerable region for this climate change.

And then, also, this climate change issue is not just a global issue. In
many countries we are now facing the quality of life is really
deteriorating. China the air quality isn’t improved, and if you look at
many infrastructure, flood in Thailand, and whenever the rain comes all the
traffic congestions, and even advanced economies like in Japan, you know,
we are not very safe. So there is an immediate need for each country to
address this issue.

Third also, historically, it is not our fault, but at this moment it’s
true, we cannot deny that the largest emissions are coming from Asia too.
So we have to really, you know, address this issue. There are many things
that countries are doing, green financing and green infrastructure
investment and also carbon tax. There are several countries doing the
subsidy reforms. But at the same time, I think one thing which I think the
Asian policy maker has to think about, this is an opportunity to develop a
new technology to leap frog Asia’s growth model. And it’s also a mandate
because, you know, even if Asia does nothing, advanced economies tighten
regulation, you know, it follow to export. And as many Asian countries are
export oriented, without addressing this and introducing new technology,
our export will have a more limited room to go out. And so it’s both for
ourselves and then for the global good. I think this is a very important

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And for what each country is doing, as an example I will ask Odd Per to
address Japan’s case.

MR. BREKK: Okay, thank you, Changyong, and thank you (inaudible).

I think like in many other policy areas, in fact Japan has been leading the
charge here. And the importance of this was clearly underscored by the
typhoon Hagibis just very recently. So there are lessons from Japan for
other countries.

Japan, following the acceptance of the Paris Agreement in 2016, set a
mid-term goal of reducing greenhouse gas emissions by 26 percent by 2030
relative to the 2013 level, and a long-term goal of reducing them by 80
percent by 2050. So Japan is taking the charge on an ambitious agenda

In terms of policies, already in 2012 Japan introduced a carbon pricing
mechanism, the Tax for Climate Change Mitigation, TCCM, on fossil fuel in
addition to petroleum and coal tax. And this tax has been gradually
increased to as much as 289 yen per ton of CO2 emissions in 2016. The
revenues are spent to invest in measures to expand renewable energy and
enhance energy efficiency.

Japan has also put in place a range of other measures intended to mitigate
the climate change. This has included prefecture level, the cap and trade
mechanisms in the Tokyo metropolitan area, as well as in Saitama
prefecture, and a forest environment transfer tax was introduced in April
this year with the aim of improving forest management and thereby
contributing to CO2 reduction.

So, again, I think Japan is leading the charge. Other countries can learn
from Japan’s experience and follow its initiatives in this area.

Thank you.

MS. USTSUNOMIYA: Let me take a couple of online questions. One on
Australia. What do you think Australia should do to address weaker economic
growth and how much emphasis should fall on structure reforms, like tax
cuts, rather than more monetary stimulus? And what do you make of the
Federal Government’s argument that it needs to keep preserving and
restoring its fiscal buffers in case of a future downturn, or should they
use it now?

MR. OSTRY: Thank you for that online question.

So we have revised down our forecasts for Australia quite a bit to 1.7
percent growth this year and 2.3 percent growth next year. Macroeconomic
policies in Australia have reacted appropriately in our view. There have
been a series of policy rate cuts by the reserve bank, which are working
their way through the system and providing welcome monetary policy
stimulus, which under our baseline we believe will help get output back to
trend and close the output gap and get inflation back toward the midpoint
of the target.

In addition, fiscal policy has provided welcome support. We see that the
current year’s budget with the personal income tax cuts that it contains is
providing welcome fiscal support. It is a tougher call for what next fiscal
year’s budget should aim for. The authorities have taken the view that
there is a balance needed between longer-term debt goals for Australia and
the need to provide some support. We respect the way they have assessed
that tradeoff. We would underscore, however, that in the event that there
were further downward shocks to growth in the future, that fiscal policy
would need to be part of the answer and to provide additional support,
mainly on the spending side.

I would also very much in line with Governor Lowe mentioned yesterday in
his speech here at the Fund, that structural reforms are also an
appropriate part of the mix to stimulate the economy. And here one can
think of tax reforms, including leveling the playing field between real
estate and other sectors so as to stimulate business investment, one can
think of the very great potential for encouraging female labor force
participation and bringing about gender equity, and one can think of also
something that is entrained in Australia, the steady progress at closing
infrastructure gaps.

QUESTIONER: Hi. This is (inaudible) from India.

Just a question. The IMF has been quite consistently pointing out the
issues with the non banking sector within the country. What we are also
noticing however is a lack of coordination among various financial sector
entities, financial sector regulators because these non-banking companies
have access funding from different types of companies, not just banks. How
do you view this lack of coordination and the need for better coordination

And, second, if you allow me, there are certain concerns with respect to
state level debt in India. How does the IMF view that going forward?

MS. GULDE-WOLF: Thank you very much.

I mean, as you already mentioned, financial sector issues are important in
India and while there have been improvements that have been put in motion,
including efforts to recapitalize the state banks, the issue of non bank
financial institution remains partly unresolved and regulatory equity is
one of the issues that needs to be achieved.

The government is aware of that. We also had a FSAP. So there are issues
working at that and this is something that is why not yet fully achieved,
but is entrained. While there are problems at this stage, increased
attention to lending practices of non bank financial institutions continue
to be very important.

Your second question on state level fiscal health, again, it’s an issue
that is important, that we are worried at. I mean India overall has a
fairly high level of debt and fiscal consolidation needs to be a priority.
However, implementing fiscal consolidation in the context of a federal
system is much more complicated. The level of fiscal structural issues and
challenges are different in different states.

So one of the ways in which the IMF is engaged in this question is we have
a regional training institute that has started working with the individual
states on strengthening fiscal management at the state level. In the
context of our surveillance engagement with India, we are also increasingly
placing emphasis on the need to better coordinate the fiscal state level
activities and fiscal activities.

But it is a concern that the authorities are taking serious and are working

MS. USTSUNOMIYA: Sorry, we are running out of time. We have a couple of
questions online too. Okay. Sure, please.

QUESTIONER: Thank you. Thank you.

I have a question about North Korea. I know that North Korea is not a
member country and not a main subject of this week’s meeting, but Mr. Kang
said that North Korea — I’m sorry, the IMF has not received any
communications from North Korean authorities regarding possible engagement
and is also dependent on the shareholders.

But at the same time — first of all, I wonder if there is any updated news
regarding this. And, second, at the same time North Korea has shown a
sporadic interest in joining the IMF, but they always balked at the
transparency rules. They might think like if we reveal too much then we
will be weakened.

So I have a very fundamental question that what — in terms of North Korea,
what benefits can North Korea receive if they join the IMF? And is there
any similar or any country in Asia that can be a role model for North


MR. KANG: Okay. So on your question about North Korea, you know, as you
pointed out, North Korea is not a member of the IMF and any substantive
engagement with the IMF and DPRK would require a request from the
authorities, as well as broad support from our membership.

As an update, we have not received any such request.

While the form of engagement with North Korea would depend on the
circumstances, as with many of our members, we have assisted our membership
with a great deal of capacity building in several areas, including
macroeconomic institutions, public management, as well as on the data
issues that you mentioned.


We have run out of time. Again, thank you very much for your participation
and we will see you next time.

IMF Communications Department

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