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Development Committee Press Briefing

Washington, D.C., October 2, 2004


MR. GOLDIN: Good evening and welcome to the closing press conference of the Development Committee. I would like to introduce, on my right, Minister Trevor Manuel, the Chairman of the Development Committee. On his right, the President of the World Bank, Jim Wolfensohn; Rodrigo de Rato, Managing Director, IMF; and Tom Bernes, the Executive Secretary of Development Committee.

Minister Manuel will start with a brief opening statement, and we will then open for questions. Please identify yourselves. I would like to request that you reduce the flashes in a couple of minutes, as they do irritate the people on the panel. Over to you, Minister Manuel.

MR. MANUEL: Thank you very much, Ian. Good afternoon to all of you. We had what was clearly another good meeting. The issues we dealt with were, firstly, aid effectiveness and financing modalities. On aid effectiveness, we spent some time examining the issues at hand. Very importantly, we are duty-bound to work to ensure that the Millennium Development Goals are delivered on. We are concerned that, on present performance, the financial resources are inadequate to meet the targets.

Our heads of state took decisions in the Millennium Summit to deliver on this. Our responsibility now is to ensure that we can deal with this reality in a number of different ways. Firstly, we must ensure that in the poorest of countries we can improve on the rate of absorption. Secondly, we need to focus also on the way in which those economies grow. And thirdly, we have to examine the size of the ODA basket available.

We are aware of the fact, and we spent a bit of time talking about the fact, that there are a number of different options on the table to boost ODA. Amongst these is the International Finance Facility, which has been on the table from the U.K. Secondly, arising from a conference held at the U.N. on the 20th of September, led by Presidents Chirac and Lula, President Lagos and Prime Minister Zapatero, the idea of taxation of international transactions.

There are also some proposals on the table about enlarging the grants out of the World Bank and issues relating to further and deeper debt relief. But in looking at all of those, the key issue that the Development Committee agreed to today again is the need for additional resources. It is not just about reapplication of what's available. I think we start from the premise that there's too little available. We need to boost our number of proposals; we have to go back and work and be able to answer way ahead of the U.N. next year, when they will look at the MDG five years on. We must be able to answer the resource availability issues.

Also, we've made a commitment here today that the Global Monitoring Report, which was decided on by the Development Committee at its meeting this spring, would report on the progress made towards the Millennium Development Goals on a regular basis.

The second issue we spoke about this afternoon is economic growth, commitment to infrastructure, and also the obstacles to growth. I think that the work done by the Bank in preparing the book Doing Business in 2004 was universally acclaimed. And Ministers have now set themselves a target to reach the Australian dream of opening a business within two days. That's a target we have set for ourselves. It involves government, capabilities within government, the regulatory environment, our interactions with the private sector.

And I think a very warm round of applause for the World Bank's renewed commitment to investment in infrastructure, and I think that we recognize that in that discussion the value of infrastructure, certainly social infrastructure but also economic infrastructure and the extent to which the absence of good economic infrastructure prevents economic growth in the poorest of countries.

We spent a bit of time also talking about the issue of voice and participation. We recognize that this matter has still not been resolved. And we are mindful of the fact that it's a political decision. You can look at the numbers from any angle, and you come back to the fact that what we have isn't equitable. You need a new set of decisions. That requires political decisionmaking, and that's what we need to apply our minds to going forward.

Later this evening, the Committee will reconvene, and we'll talk about the issues of debt sustainability. So the work continues. But I think that there's a strong body of support for the direction that the Development Committee is taking to resource allocations going forward.

Thank you.

MR. GOLDIN: Thank you very much, Minister. Anyone else like to add anything?

The floor is open. Please identify yourselves and your affiliation. In the front row.

QUESTION: My name is Andre Sitov. I'm with the Russian news agency ITAR/TASS. It is certainly a pleasure to see the heads of both organizations at the same table. I'd like to take this opportunity to address myself to both of you.

I guess to the Managing Director, I would like to ask with the oil prices at these extraordinary levels, do you see any signs, any evidence of Dutch disease developing in Russia?

And to the President, the Communique, the Development Committee Communique, mentions that the Bank is considering regional subsovereign lending for infrastructure. My understanding is that some Russian regions are interested in this instrument. So my question to you, sir, is whether the Bank is willing to develop such an instrument for Russia.

Thank you.

MR. DE RATO: I would like--yes, I would like to say that we certainly see that the Russian authorities have to pursue their policy of tightening--the reduction of public deficit and increasing the use of fiscal policy not only as a means of reducing vulnerabilities but also as an anti-inflationary policy. So in that respect, we are talking with the Russian authorities in that respect.

But I have to say that, for what is our conversation with the Russian authorities, they agree with our analysis.

MR. WOLFENSOHN: And on the subsovereign lending, it's an issue not just for Russia but for many other countries. Our problem is that we are not authorized in the Bank, in the IBRD, to lend other than to sovereigns. And what we are looking at is whether there may be ways on the side of the Bank that we can give assistance.

But I would remind you that we already do such lending through IFC. So IFC is really the place that can be in the front line of subsovereign work, but we are exploring to see whether there is some mechanism that could allow us to deal with the subsovereign issue. It's particularly important in the case of Russia. It's particularly important in the areas such as water and sanitation, which tend to be local activities and need local finance.

MR. GOLDIN: Thank you. The gentleman on the right, in the front.

QUESTION: Taimur Ahmad, Emerging Markets newspaper. This is a question for Minister Manuel.

Of the various proposals reviewed to complement increased aid flows, was there any consensus on any of the proposed mechanisms? Is the Committee backing the IFF proposal and, if not, what's the drawback?

MR. MANUEL: You know, it's pretty clear that of the proposals, the IFF has been around for the longest period of time. The modalities of the IFF have been worked out. It is hard for the Committee to take a decision on this matter because, at the end of the day, we are alive to the fact that sovereign governments have a variety of different impediments. Some of these are constitutional, some are statutory.

What we are, therefore, looking at it is, in recognizing the extent to which the IFF is developed. We are looking at a variable geometry. Is there a way that we could, in the context of the Global Monitoring Report, accept firstly that all countries must make a larger commitment to boosting their commitments toward 0.7 and hopefully beyond that, and is it possible that we can record this within national accounts in a way where the Global Monitoring Report can actually be the place where, on an annual basis, we would report on this?

You would be aware that the Article IV reports of the IMF do indicate the extent to which especially OECD countries are committing to the 0.7 percent. So there is some basis, but I think we need to do the numbers and ensure that we can report on them within national accounts, and the variable geometry might be the way that allows for the variations in the statutory requirements of different countries.

MR. GOLDIN: Thank you.

The gentleman over here.

QUESTION: Christopher Story, International Currency Review.

I have seen no mention, so far, of money laundering in the off-shore centers. It strikes me that this is a huge omission from the work that you are doing, and I wonder whether one of the reasons for this is that there is such a huge amount of intelligence funds based in these off-shore centers, particularly in the case of the United States--and I cannot be in breach of the National Security Act of 1947--in the case of the United States, there are enormous sums of money stashed away in Title 1866 corporations.

MR. GOLDIN: Sir, would you pose a question?

QUESTION: So do you give consideration to this? I mean, it seems a little unreal to talk about a lack of resources when I and others know perfectly well that there are vast resources which are not being tapped.

MR. DE RATO: Well, as you know very well, the Fund is advising governments in the fight against financing not only of terrorism, but also the transparency in the financial centers. While you talk very clearly that there are immense amounts of money, all I can tell you is that, in the advice we give to governments, we see a clearer strengthening of financial regulations. So, in that respect, more and more governments are able to comply with the FSAT regulations that we are putting forward.

MR. GOLDIN: The gentleman just in front of the cameras there.

QUESTION: Thank you. My name is Kenneth Hermele, from the Swedish NGO, Forum Syd. This is a question for Trevor Manuel.

I wonder if you have been discussing the election process for the next--

MR. GOLDIN: We are not taking questions from NGOs. This is a press conference.

The gentleman in the front here.

MR. WOLFENSOHN: You should have said you were a Swedish newspaper.


MR. WOLFENSOHN: Take it, of course.

MR. GOLDIN: We'll take it. But as a general principle, we would request that we do restrict these to the press.

QUESTION: Yes, but as Mr. Wolfensohn said, there are also NGO press.

Anyway, Mr. Manuel, my question is if you are considering for the election procedure for the next incoming President of the World Bank to have an open and fair procedure so that the different countries can propose candidates, so that different candidates can be heard, so that it's not necessarily that the next President will be an American citizen? Have you been discussing this at all?

MR. MANUEL: We haven't discussed it. I mean, I have stated publicly my preference before for an open and transparent process. I raised this at the time that Mr. Kohler was appointed as MD of the Fund. I think I have been quite consistent on it. It is a set of principles that we must strive for, beyond the individuals. I think we may actually be surprised at the quality of support and the quality of leadership that would be recognized through an open and transparent process.

So I would remain committed to that. I wouldn't be true to myself if I accepted this arrangement of the past.


MR. GOLDIN: Thank you.

The gentleman in the front row there.

QUESTION: Parasuram with the Press Trust of India. There is a proposal in paragraph 3 that you can mobilize remittances for development. I was wondering how you can do that, because remittances are usually sent to relatives for living, meeting their expenditures. How will you mobilize them for development purposes?

Secondly, can you give some idea about the global taxes? What are the items that you would tax to raise money for development?

MR. DE RATO: Well, first of all, on the remittance issue, we certainly can work with the financial community to compare the cost of remittance with the normal cost of transactions and then identify what would be the differences and then the spreads in that respect and try to address that issue with financial regulators and financial authorities. We believe that there is an important room for improvement in that respect.

I cannot give you specific details because we are looking into it, but certainly it is an issue that can affect many citizens living in developed countries that are sending money to developing countries, and any improvement in the terms of the financial costs of those remittances can be extremely important.

The second question, excuse me, was the taxation. We are not the ones who are going to tax. It will have to be the government who decides that those taxations would be put into place. Of course, we are very willing, as I have said in New York 10 days ago, to look at the technical aspects of that proposition, as we are willing to look at the technical aspects of other propositions like the International Finance Facility.

But what is very important is to recognize that the question here is not going to be the technical aspects, although there are some quite complicated like taxes that will not distort the markets and also that have a clear and transparent way of being collected.

The question is going to be a political decision. Without the political decision, the technical aspects are useless. And in that respect, I want to take the opportunity to emphasize one more--the need for an increase in aid; that is, an increase in funds either through, like, grants or concessional lending could be used to fulfill the needs of low-income countries. In that respect, I think that governments have to be very aware of the need to increase direct aid.

MR. WOLFENSOHN: Perhaps I could just add one thing on the use of remittances for development. We and the Fund are working with countries like Mexico to support them as they organize investment vehicles into which officially-sent funds can be invested, so that the person sending the funds can send it either to a family to spend or to a savings account or to a development account.

And already, the Mexican Government has set up a development fund for remittances which is being used for development. It's not so large, but I was amazed that it's in the seven figures already. And it's that sort of thing that I think we're looking at. As you know, remittances are now officially close to over $100 billion a year, with development assistance being something over $50 billion.

So it's clearly something that is a resource that, with the will of the sender, could be used for development purposes, and the Mexican Government is on the cutting edge of that.

MR. GOLDIN: Thank you. The lady in the middle.

QUESTION: Leslie Wroughton from Reuters.

Mr. Manuel, a question for you. Do you have any kind of reading or sense of how African economies are dealing with the rise in oil price?

MR. MANUEL: With a lot of difficulty on both sides. I think oil producing countries are facing a lot of difficulty, partly because the windfalls are unplanned for. In most instances, the models haven't actually thrown up these numbers.

There's also a lot of uncertainty. I think all oil producing countries would say that at these levels, the prices are not sustainable, and it increases political insecurity. You know that many of the oil producing countries on the African continent have, in fact, been centers of civil strife. So there's a lot of concern there.

In respect to the oil importing countries, clearly there's a lot more difficulty. If we look at some of the smaller countries, the impact is actually so great. And the concern is that countries are going to be faced with macroeconomic instability arising from oil imports. The inflationary pressures are going to be huge. But also, where fuel taxes are at issue, I think governments are going to face all kinds of fiscal insecurities. They're either going to maintain those taxes, or they have to reduce those taxes in order to just, in some way, soften the impact of the change. And that could mean lower revenues and larger deficits would have to be borrowed for.

So I think that on the African continent, on both sides, we're facing some difficulty. There is a need to be in discussion about it. The problem is that nobody has the answers relating to how long the prices would be at these levels. So even in these countries, there is the risk of the Dutch disease. What do you do with the windfall?

And in the environment where you cannot actually plan for it, how would you apply that resource? Thanks.

MR. GOLDIN: We have plenty of hands and only as many minutes, so we'll have to be extremely brief. The gentleman on the far right, in the front row.

QUESTION: Anthony Rowley, Emerging Markets. A question chiefly for Mr. Wolfensohn.

The restored emphasis on infrastructure lending, what implications does this have for the overall levels of lending by the Bank, and also for the funding needs, both of the IBRD and IDA?

And a clarification: the Communique talks about the efforts to increase fiscal space for public infrastructure investments. Can you clarify what that means, please?

MR. WOLFENSOHN: On the first issue, we did last year $9 billion worth of lending in IDA, and the limitations on the amount that we can put into infrastructure will be the limitations that come from the IDA14 replenishment. We have to deal with many subjects in the IDA countries. And so, there is an in-built limit on the amount that one can put into infrastructure, depending on the needs of the countries, although there was a very strong request today that there be more funds used for infrastructure by the countries themselves. So I suppose the outside limit is $9 billion. This year we did something over $6 billion in total between the Bank and IDA.

And on the Bank side, there is only the limitation in countries that relates to the Country Assistance Strategy or the credit limit that they have. So there's no shortage of funds in the Bank, it's just a shortage or a limitation within the countries as to the extent of the lending.

And the second issue, on fiscal space, is the issue that if a country is close to its debt limits in terms of either the Bank or the Fund, then it cannot borrow. The challenge that has been put to my colleague, Mr. de Rato, to solve is whether infrastructure projects that are important income producers and which are needed in developing countries could somehow be treated in a different way than less productive debt, and Mr. de Rato is giving that matter consideration at the moment.

MR. GOLDIN: Thank you very much.

The gentleman over there, then the lady, and then these two gentlemen, and we have to wind up.

QUESTION: Mr. Wolfensohn, Harry Dunphy, from AP. You just mentioned IDA replenishment. Will the Bank be in financial difficulty if there is debt relief and then the United States and other countries don't provide the additional resources that the Bank will need to keep lending?

MR. WOLFENSOHN: Well, the Bank won't be, but the Bank, as the administrator for IDA, will be. In that sense, it is clear that IDA is a revolving fund. It is financed in two ways: by contributions and by repayments. If repayments are not made and not made up by somebody, the amount of money loaned by IDA will be diminished. But you won't feel it quickly, because new lending by IDA, in any event, if you're talking about grants, are the same impact as loans, because nothing is repaid for 10 years anyway.

But if you forgive loans that would have otherwise been repaid during this 10-year period, then the amount of funding that IDA can provide is diminished. And it is to that issue that Gordon Brown has made the recommendation that countries should come together and make up in repayments to IDA, and in particular to the African Development Bank, the sums that would otherwise have been repaid but which are to be forgiven.

MR. GOLDIN: Thank you very much.

The lady with the white jersey?

QUESTION: Thank you. Mr. Wolfensohn, if--

MR. WOLFENSOHN: Mr. de Rato's here, too, you know.

QUESTION: This is very much for you, sir. If you decide in December to follow your family's advice and not go for a new period as the head of the World Bank, how do you think your successor should be elected? And do you think, would you hope for an American citizen to be the next one? Or would you like it to come from a Third World country?

MR. GOLDIN: Sorry, could you just identify yourself, please?

QUESTION: Sorry, Marietta Paredo with the German Press Agency.

MR. WOLFENSOHN: Well, I'm happy to say that I don't answer theoretical questions. I haven't yet decided--first of all, I haven't been asked to leave. I haven't been asked to stay. And I haven't made a decision. So when all that happens, I'll be glad to give you my advice. If I tell you now, it might cause one of those things to happen.


MR. GOLDIN: And I'm sure that question isn't for Mr. de Rato.

The gentleman here in the front seat.

QUESTION: Paul Mellier, Africa Confidential. Minister Manuel made a reference to--

MR. GOLDIN: Sorry, please speak into the mike.

QUESTION: Minister Manuel made a reference to a discussion about whether you might agree about countries having some sort of obligation to move towards the 0.7 percent. I mean, we all know that progress so far has been very patchy in whatever the commitments made many years ago.

Are you actually getting anywhere in terms of reaching some sort of international understanding that countries should firmly commit in some sort of more binding way about progressing towards this?

MR. MANUEL: You know, the decision was taken not by the Development Committee, but the decision was taken by the Financing for Development Conference at Monterrey. It was reinforced at the Millennium Summit. So that decision is there. I think that what you're seeing now is that a number of countries are actually setting out the milestones for them to reach. There are a series of obstacles at present, but countries like the U.K. that have been at the low end have actually set out the milestones towards 0.7. Some countries are fiscally pretty stressed, like Germany. I think they're at 0.33, and they're pushing. But you know, the environment changes with time and circumstance.

What we need is for a transparent process and, you know, there is a sense that many countries are now--many more countries are now committing to try and meet that. The point I was raising earlier is that, in the context of OECD countries, the IMF, as part of its Article IV reports, has for the past few years included a few issues. One of those are trade distortion or the decisions that impact or have distortive effects on trade. And the other is the progress towards the 0.7 percent.

So it's out in the open. It's very important that it's there. We know how to deal with it. And I think it also allows for wider discussion.

You know, next year will be a big campaigning year on the struggle against poverty, and I think that this kind of information will be exceeding valuable in the open.

MR. GOLDIN: Thank you very much.

We only have time for one more question. The gentleman at the end here.

QUESTION: Thank you. Andrew Balz from the Financial Times.

I just wanted to ask about the reference in the Communique for the review, the Bank Review on Policy and Practice on Conditionality, and the report to come at next year's Annual Meeting. I just wanted to ask about the need for that review and what the subjects are going to be, for Mr. Manuel and maybe Mr. Wolfensohn.

MR. WOLFENSOHN: Well, we've been asked to take a look at the whole question of conditionality, and I think that the genesis of this was the fact that in the Poverty Reduction Strategies, we seek to put the client in the driver's seat and, I think, have substantially succeeded. But our investigative unit in the Bank has said there is a natural tension between having the client set up his programs and having the Bank establish some conditions on which they're prepared to lend money.

Now I think that in--and we have to study that issue. I think we'll find that in a significant number of cases, the policy which we have of making conditions far more flexible will be demonstrated. And in some cases, probably we were inflexible. But the purpose of the study is to find that out. And so that's what we're going to be looking at.

We're also going to be looking at, in some cases, the extent to which conditionality is, in fact, required and used by governments in order to allow them to do things that they would otherwise like to do and have someone to blame, which happens quite often. And it's convenient to say well, the World Bank insists on this when, in fact, the government is anxious to do it itself. So these are the sorts of things that I imagine we will take a look at, but we only asked recently and we don't yet have a program.

MR. MANUEL: If I may just add to that by way of amplification, you know, about a decade ago there was a very important study done called the Social Costs of Adjustment. It was undertaken within the family of the Bank and Fund. And arising from that study, a great deal of learning, which caused the establishment of the IEO in the Fund, for instance, so that you have a center that can evaluate, so that the pressures don't build up.

And I think a lending organization would want to take a look periodically at the impact of its decisions. The PRSPs and the tension between that and frequently the PRGF, Poverty Reduction Growth Facility, some would say it's a natural tension. Sometimes we don't get the sequencing quite right.

And so these are issues that would have to inform the manner in which we discuss this going forward. Thanks.

MR. GOLDIN: Thank you very much.

It's been a long day for these gentlemen. There will be another press conference closing the Annual Meetings tomorrow with the Managing Director of the IMF and the President of the World Bank at the end of those meetings, so you'll have another opportunity then.

Thank you very much and good evening.

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