Lagarde says she’s hopeful IMF board will approve USD 12 bn extended fund facility “in the next few weeks.” Bloomberg’s Yousef Gamal El-Din scored a sit-down with International Monetary Fund chief Christine Lagarde in Riyadh. She made it clear that approval “within a few weeks” is possible, while her spokesman gave away hours later that we can expect a stepwise devaluation and not a full float. Given the widespread feeling in Cairo last week that there’s been a sudden loss of momentum on this front, we thought it worthwhile transcribing Lagarde’s remarks in full so folks could judge for themselves. Alternatively: watch, run time: 2:30.

Gamal El-Din: You’ve said that Egypt needs to move on certain policy options. Doesn’t Egypt need to have enough foreign reserves to meet the expected demand from a devaluation?

Lagarde: Well, first of all, we really strongly welcome the fact that the Egyptian authorities are deciding to address those issues. And it’s the Egyptian authorities, for the Egyptian people, for the Egyptian economy. We welcome that, and if they decide to move forward, we will certainly support that move. We will accompany it, we will put money on the table to help them along the way. But it is their call and it is their decision.

In terms of the exchange rate, there is currently a crisis, because if you look at the official price, if you look at the grey market price, there is a 100% difference. So that needs to be addressed, and we believe the authorities are right to prepare for that.

Gamal El-Din: How do policymakers address this most effectively? Do you believe in shock therapy in the way of a free float, or would it be a devaluation?

Lagarde: The right methodology and the right speed and the right timetable is going to be dictated entirely by the circumstances. When you have very low reserves, when the difference between the official and unofficial rate is very wide, historically, we have seen rapid transitions being most efficient. But it is really a matter of circumstances. In other cases, it has been gradual. It’s really going to be dictated by the local circumstances.

Gamal El-Din: [inaudible] so how to address disparity between the spot [inaudible]

Lagarde: If it had, nobody would be talking about it. Those decisions are made rapidly. And one of the issues is to keep confidentiality and then to move on.

Gamal El-Din: The other part of the puzzle has been the USD 5-6 bn in bilateral financing Egypt needs to secure. How much progress have they made and is Egypt close to wrapping that up?

Lagarde: I think they’re very close, and clearly the financing is one of the aspects that they need to lock in and to align. I think they’re very close to that and hopefully we’ll be able to secure the IMF board approval in the next few weeks.

Two related notes: First, the IMF clearly thinks we’re going to have a stepwise devaluation, not a free float. IMF Communications Director Gerry Rice, speaking at a press conference shortly after Lagarde’s interview: “On the reforms and what needs to be done before the program comes to the Board is really a question of just continuing with what has been agreed and the government’s reform plan. So as I mentioned, the parliament has already passed the budget; they recently approved the VAT; the government has a plan on energy subsidies; the central bank is committed to move gradually to a more flexible exchange rate. … And as I mentioned, we expect the Board to discuss this in the next few weeks.”

Second, who wants to volunteer to tell the Washington press corps that there haven’t been demonstrations against the IMF bailout package (yet)? From the same press conference, at which a journalist asks Rice: “There’s been a lot of protest against some of the measures that were advocated for by the IMF. So I was wondering, are you worried about those demonstrations, and do you think it jeopardizes the upcoming Loan Agreement that you expect to finalize with Egypt?” Read the full transcript here. (The bit on Egypt starts about a quarter or a third of the way down. Easiest way to find it: Ctrl / Command-F and type in “Egypt” on your laptop, or hit the “share” icon in your mobile browser and look for “Find on Page,” then search for Egypt.)