World Bank President Robert B. Zoellick at the APEC Finance Ministers Meeting

Robert B Zoellick, World Bank President
speaking to reporters on the sidelines of the APEC Finance Ministers meeting

Coolum, Australia, August 2, 2007

Zoellick: Sorry to keep you waiting. I will just say a few words to start and then we can just go to your questions. I’ve attended a lot of APEC meetings over the years, starting with the first one in Canberra in 1989 and have attended the summits in a number of Trade Ministers’ sessions. So, I was pleased when Treasurer Costello gave me the opportunity to come to this session because in the nomination period, I traveled a few stops in Africa, and five in Europe, and two in Latin America, but this really gives me an opportunity to meet a number of the Asia Pacific Finance Ministers - all in one location. So, what Peter also was kind enough to do was that in one of the informal sessions, he set aside some time for me to talk about some of the issues and challenges for the Bank going forward and get a little bit of an initial reaction from some of the participants. And then I was able to also listen and learn to some of their perspectives on the financial market’s issues and investment climate, and we just ended an interesting discussion about energy and climate change.

I had also had some time to have some bilaterals with a number of colleagues, where I was trying to get a sense of their current relationship with the World Bank and some ideas that we might be able to develop for the future, whether it was just with Malaysia where we were talking about some of ideas we might be able to bring on sort of energy efficiency and how to work it into fiscal policy; to Singapore, which I’ve worked with before on a whole host of issues and we talked about some ways I would like to get them a little bit more active with the Bank and some possibilities with some urban planning projects that they’ve had and some things in the area of education; to the Australians, who I met with yesterday at length. I met a group from the Treasurer’s office, the Foreign Ministry and also AusAID, where we were really focusing on the overall Bank agenda, but particularly on some of the challenges of fragile states and the Pacific Islands, where the World Bank staff has been upgrading our efforts in the region. I had no idea that I would also have to say that Australia is a very stylish country since I really enjoyed this nice new coat and shirt that I have been wearing, but I also appreciated that as well. That is a lot more comfortable than I otherwise would wear. So, over to you.

Journalist: : Could I just ask that there’s been some discussion of the sub-prime, and how that might affect stock markets this year. What are your comments there on your situation?

Zoellick: Well, fortunately in this position, as compared to the one that I had in Goldman Sachs, I am able to look a little bit more at the underlying fundamentals. And I think the underlying fundamentals for growth and development remain quite strong. Most of the forecasts for growth continue to suggest that global growth would be about 5%. You obviously have had very strong growth in this region. But what I am interested in with the Bank, and which we touched on in some of the discussions here, is not taking that for granted and recognizing what are the steps one has to take to continue that strong growth path, recognizing that you’ve got great diversity in the countries in this region. And it was interesting when I laid out some of my ideas for the Bank going forward, one could see that all of them apply here, not surprisingly, since you got about 50% of the world’s GDP, but nevertheless it is an interesting commentary. On the particular aspect of the markets, just sharing with you my own sort of experience- I think what you have seen happen is, the market was very awash with liquidity and I think over the course of the past months and even years, that liquidity, as will often happen with markets, got channeled in the market sentiment and the market sentiment outran some of the credit analysis. And I think you are seeing a kind of re-evaluation and repositioning, and it’s worked its way through different markets, whether it be the mortgage market or the credit market for corporates and others. I think that’s a natural process in markets. And so while an adjustment is taking place as these things go, I think Paulson made a comment that it’s a relatively orderly one and it’s how I perceive it as well. But I think what it does raise is one another aspect that is significant for the Bank, and that is -- you know at times, people have said: well given the access that a number of the developing countries have to private capital, what’s the ongoing role of the Bank? I try to keep my eye on things like spreads and you are starting to see the spreads for developing country debt sort of expand quite quickly. And so it just again reinforces the fact that the Bank can play a stabilizing influence because a number of these countries still have very significant financing needs for their social development as well as the physical infrastructure development.

Journalist: You’re still getting your feet wet, obviously, in this new job, but thus far what would you say your priorities in Asia are?; and what do you see as the biggest needs in Asia with regards to what the World Bank does?

Zoellick: I’ll outline the points that I mentioned to the ministers and that I’ve been trying to kind of develop with my colleagues at the Bank. The first is the challenge of the impoverished. While people often associate that with Africa, you’ve got some very striking examples in this region as well. And here there is a need to address some of the fundamentals on social development, for example, the millennium development goals that Gordon Brown has just highlighted again in the UN. But it also needs to be combined with the foundation for a sustainable growth -so, energy, physical infrastructure and developing the market capacity.

And part of that for the poorest countries is this support that’s been provided by IDA, the International Development Association, which are grants and very concessional loans, because the international community has gone through a number of phases of debt forgiveness, and particularly for the poorest countries, there is a concern for debt sustainability. Well, that means if you are going to give them financial resources to grow, the best source is a source like IDA where its grant and low concessional loans. So, that’s one category and to put sort of some names to this- I mean, I’ll be heading off tomorrow to Cambodia, and then on to Vietnam. Cambodia is a country that has used some of the support of the international community to start to get going, but it’s going to have to broaden its base for growth. Vietnam is one of the biggest users, if not the biggest user of IDA resources, and it’s used it very successfully and is trying to move up to sort of the middle income level.

The second category is fragile states in post-conflict environments. You have those in Timor-Leste. We have those with Burundi. Frankly Cambodia is an example of this as well. So, again while people often focus on, I think we’ve identified some 32 or 35 around the world, there’s eight in this region. And those present challenges that frankly none of us have been able to come up yet with very successful sort of models. The World Bank did a good job in the Balkans, in Bosnia, but otherwise, these are issues that involve a combination of security, political frameworks, justice, as well as some economic and development.

Third are the middle income countries. And I’ll just mention; I think there is some real interest around the table because I was trying to lean far forward to suggest that I thought the Bank had a very important role to play with the middle income countries. Some of it could be financing packages, as I’ve alluded. But the bigger issue is trying to use the expertise and experience we have as they try to develop broader market solutions, risk management solutions. These deal with everything from deepening their financial markets to kind of, applying the expertise to energy efficiency; to a product that we have developed first for the Caribbean, and now we are looking to expand, about trying to deal with the risk management of natural calamities, whether it be earthquakes or hurricanes or a set of others. But I was outlining some of the ideas that we had about the way that I think the Bank could be of help to these countries as a sort of a development solutions package- seeing them as clients that we can service.

A fourth area is the question of global public goods- climate change being the most prominent one. But it wasn’t too long ago that this region was also quite concerned about avian influenza and SARS, and sort of, how do you deal with those health issues as well as environmental issues that cross borders. I would put the global trading system as part of that. It’s a public good, and so, ways the Bank can be of help in that.

A fifth one that I mentioned is the broader challenge of development and opportunity in the Muslim World. And this is often associated with the challenges of the Middle East, but as all of you know, you have got at least a couple of the biggest examples of developing Islamic countries here with Indonesia and Malaysia. We have an interest in helping them succeed, but also seeing what lessons can be drawn from them that can apply to others.

And then what wraps the entire together the sixth one is, how do you take the Bank’s unique sort of role in developing learning and knowledge and apply it to these challenges? And just as I was walking out for example, there were a couple of ministers that were raising various topical areas and saying, "Does the Bank have some expertise in this? How could you connect this with others, whether it be innovation, whether it be how to use fiscal systems to try to deal with some of these problems?" And so this is a challenge overall for the Bank is that we need to keep on the cutting edge in these fields, but then we also need to in a sense figure out how to become an applied knowledge purveyor of this. It’s not a university. We need to be constantly challenged ourselves to see how we can do it better. So all of those areas really apply to this region - and it is not a surprise, because this is a region that encompasses 50% to 60% of the world’s GDP and population. You have got countries like China, that on the one hand are discussed as sort of middle income countries because they have access to global capital markets, and yet the so called middle income countries represent 70% of the world’s impoverished - people living under $2.00 a day, as opposed to the extremely impoverished at $1.00 a day.

Journalist: …Philippines, Malaysia, when you say middle-income in Asia…?

Zoellick: Well, it covers a range and it’s -- people use different categories for this, but they are basically a set of $1000.00 per capita income and up. And then, some that you mentioned are further up in that scale.

Journalist: India?

Zoellick: But well India is not an APEC member I know, but yes, it’s covered in that category in part, and this is where another definition comes in. These are countries that have increasingly have their own access to capital markets unlike some in Africa. But your very question highlights the point is that you are covering a great range of development, and some of those countries that are loosely put in the middle income category, as I mentioned, still include 70% of the world’s poor. So if you look at the statistics about the reduction of poverty globally, a large amount of the success has come from China and India. That is where the big numbers come from. And so China and India understandably want -- even though they have access to capital markets- and in China’s case, plenty of the capital they are generating themselves- the expertise and experience from the Bank that they would like to tap. And this ranges from increasing energy efficiency to building a securities market to the healthcare system in China, (which) has pretty much collapsed because it was based on a state enterprise system and they’ve got to rebuild that system. So, there are no shortages of opportunities here, and part of it is helping make the Bank sort of more nimble and effective in terms of serving clients. Some of them are of a financial nature, some of a sort of a development solutions nature.

Journalist: Treasurer Costello mentioned that some of the global institutions, financial institutions need overhauling. He was thinking I think particularly of the IMF there I suspect. Do you think the World Bank also needs some aspects of reformation as you (Voice Overlap).

Zoellick: Yeah, well I think -- well, let me answer that in two ways. One is I have had a fair amount of experience with the world economy over the past twenty years, and so when I look at the situation that the Bank is in, I think the need is as great, or greater than ever, but the context is fast changing. I mean, the world of today is very different if we just think about China twenty years ago. And it is certainly vastly different from the origins of the Bank and its creation. So, like any effective institution, it has to evolve and change with the times. And some of the things that I set out here today are good examples. So, for example -- and this links to one of your other questions - I think some of the middle income countries are saying, " look we may not need sort of the direct project lending of the Bank and so we certainly don’t need one size fits all solutions, but we would like to be in dialogue with you about how we could, you know, what we see the challenges are, and how to look for ways that the Bank could be of help."

There is another connecting point that I think reflects the changes over the past few years. You are increasingly having issues that are related to South-South development, so obviously one big topic is China’s role in Africa, or India’s role in Africa. And I think one of the opportunities for the Bank is to help that connection move more smoothly and work with both parties to try to support sort of a balanced development path. So yes, I think the institution has to keep changing and evolving. But, at least some ministers have talked about this in the past, that maybe in the case the IMF, is also a category called voice and representation, which means the voting shares and the participation, and I do think that’s another aspect to the agenda. So there is a lot to do.

Journalist: One of the things that the Chinese Treasurer has said at the World Bank is he’d like to see the position of president appointed -- be able to be appointed from anywhere - - any of the countries. What is your own view on whether your successor should be able to be from other countries that...

Zoellick: You know I get asked that lot, and I am not trying to duck it but I honestly feel those decisions are made by the shareholders, okay, by governments. I have had that job. I know what that’s about and I have got this job now. And so, my view is, my job, once nominated, I try to do the best I can in leading the institution. And in some ways it would be gratuitous for me to sort of say, well, it should be from this country or that country. I will say from the slightly narrow perspective of Australia, you didn’t do so bad since you had an Australian serve as an American for ten years.

Journalist: About climate change, which is one of things you raised in Washington last week when you were on your way here. There’s is two schools of thought it seems on whether we are going get an international need to strive for… to strive for an international agreement Kyoto-style or whether that is just going to be too hard and countries should just aim at loosely coordinated action. What’s your end view of that? How important is it to have an international agreement like Kyoto?

Zoellick: Well, let me go back a step on this, and this is one of the topics that I added an intervention in on the session we just had. The first point is, I think, it’s fundamental that the approach the international community takes on climate change recognizes the need to be grounded in understanding and appreciation of development. And the reason I draw your attention to that is that I was in Africa and then Latin America, just at the time of the G-8 Summit where there was, as you know, a big focus on climate change. The Africans with whom I spoke were very anxious about their fear that the focus of the developed countries on climate change would divert their attention from their resources, from the traditional challenge of development. So when I was in Germany shortly after the summit and I spoke to the people on the Chancellery and the other ministries, they underscored that wasn’t their belief. They wanted to continue to give strong support to Africa and development more generally. But I have highlighted that having dealt with a range of international issues, if this doesn’t get positioned right, you have a hard time ever getting it back on track.

Now there are - what was interesting today, in response to some of my comments, was some of the developing countries were very pleased that the agenda that I discussed for the World Bank on this tries to find win-win solutions that were based on needs of energy efficiency, developing alternative energy sources, trying to see what we can do to spur the development of technology and then transmission of it, just things like carbon sequestration, with coal technology. They recognized the developmental aspects. Further, there are things you can do in the areas like forestation. So the G8 asked the World Bank to develop a sort of carbon forest initiative which Australia has already agreed to contribute some $10 million dollars to. We haven’t presented this yet to the Board, but we have an outline of something about 250 million dollars that would help try to deal with the forest area more generally to stop what would be some of the emissions coming from burning forests, instead keep the forest to be the lungs of the international climate.

What these and other ideas all relate to is that, my experience with the developing countries on this, which actually dates back to my work at the Rio Summit in 1992, is that it is vital to draw them in, but to draw them in, you have to use incentives as opposed to sort of command systems. And there was a lot discussion around the table today about things like carbon intensity of energy production, and some of the efficiency solutions and other ideas.

So I think the Bank can help with the financing of those, with the knowledge development of those, and also the market development. So I also talked a little bit about our experience with some of the carbon trading schemes, which have just been in initial stages and there are going to be hiccups in these as they go forward. People need to recognize that. But at the same time we need to make it work because I think any global system is going to really depend on having some trading mechanism. So I am using this to back into the regime development because I think regime in a political science sense regime - is that for that to work, you got to have developing countries, you got to have incentives, you got to build it into a development strategy.

My own view is that if the sovereign countries would also like some of our ideas about how to develop the regimes, at least I am personally pleased to brainstorm with people. Before I was asked to assume this position, it was co-incidental but because of my work in this area, some of the environmental groups had approached me on the same task in trying to think how it works. And one last thought on this. If you go back to the ‘92 Rio system one of the things they did is they had goals, but it also had action plans and it was my suggestion to everybody was that you can set nice goals or caps and we have seen a number of countries not meet those goals or caps. I think it is good to try to pin people down with action plans, because in this system, you want to build in a lot of feedback loops and see whether people are able to execute the strategies that they have set out to do. But equally important, it is my belief that you will get more support from developing countries with action plans than you will with firm caps. And so that isn’t to denigrate the approach of caps and cap-and-trade and other systems, but I just think if you are going to bring in the developing countries. An incentive action plan model is likely to get you further in the process.

I will say again - to they emphasize that climate change can have some tremendously dangerous effects for developing countries too - so I do not believe that development and climate change are at odds with one another in terms of making them priorities. I believe they need to be integrated together, but the other, and one of the points that I raised that relates to this region, is that I think there still needs to be better work done about some of the implications with adaptation strategies in addition to litigation, because if you look at a lot of East Asian cities, a lot of them are on the coast; they are very subject to the risks of changes of sea levels and a lot of the poorest areas of the cities might be the most vulnerable.

So there is another agenda in that category. So what I however I am also emphasizing to developed countries is if they want the help of the developing world in this area, they are going to need to continue to support the traditional development agenda. In another words, the points that people were raising with me in Africa and Latin America about infrastructure, social development and others, because the developing countries will be very wary that otherwise the international resources of say the international financial institutions are being diverted from traditional development to this. I think we can do both but that’s ultimately up to the member states.

Journalist: Do you think they are being diverted now?

Zoellick: No I don’t. But I think this is one of the reasons that I am pressing so hard for the support for the IDA - the IDA 15. And for many developing countries that will be a big signal about whether they get support from Europeans, US, Japan and others. Now Japan will be hosting the G8 Summit next year. It’s also hosting a big summit on Africa. Well if Japan wants a big focus on climate change as it does, I hope Japan will also help in terms of the IDA 15 process, otherwise I am just alerting people the developing world will be saying you know "what about us?"[ I want to make sure I get it to people who didn’t have a chance yesterday.]

Journalist: What is the timing of the APEC conference, it’s now about 10 years since the financial crisis in the region? Do you still see are there any weaknesses in the system?

Zoellick: Well, I think the system has adapted. In one way its adapted is one of the reasons you see the large reserves that have been built up. I think the banking systems are stronger. My experience and this is as much from my prior job as this one, is that the securities markets are still have a lot of work to do. And it’s one of the topics that was touched on with some of the business leaders here. If you look at the depth and liquidity of bond markets here it’s pretty weak compared to what you had elsewhere in the world. And that leads to a national agenda. There needs to be things to do to get better information, with this there is corporate governance, its accounting information. There are things you could do to reduce the transactions cost. And some of this is including having a greater variety of sorts of financial instruments that in more developed markets you can use to manage risk and diversify your position.

And third is the investor base, so you really don’t -- you haven’t brought in the pension funds, the mutual funds, the insurance funds, and those actually create a cushion in securities markets. So, frankly that’s as much my experience from Goldman as it is from the World Bank. But coincidentally the World Bank and the IMF have offered as a service to countries to sort of the ability to asses their position and how we can strengthen it. Again, this is a good example of what I find the middle income countries have an appetite for. Again, in my past work and in my current work, I was working with China’s security regulatory commission, because as you know they’ve had a bond market that had kind of gone top, and now they’ve started to clean up the big banks. They’re moving to the second and third tier banks. But they’re also starting to recreate sort of a bond market and they’re facing exactly these questions. I think one of the reasons that Costello put it on the agenda was that he was also looking at kind of the interconnectivity of some of these financial markets. So, in that sense while the region is stronger, there is still work to do.

Another issue on this more generally is, particularly for the South East Asian members, is they are sensitive of the fact they’re in a very competitive environment for investment, and a lot of flows go to China and India so they -- what are they going to do to sort of stay in the game? Again, that’s where this meeting sort of puts some of those topics on the table and going forward I would like to see the World Bank help in terms of what you need to do to create a better investment climate. Did everybody get a chance to ask one? Did you have one, anybody else?

Journalist: I was just going to ask you, with your new job and your new position, how are you enjoying it ? And what do you say is your mandate? And what would you like to achieve?

Zoellick: Boy, that’s a lot. If I get to all the last ones, I want the first one. Look, let me just put it this way. In the early weeks I’ve been trying to do a couple of things. I’ve been trying to sort of calm the waters because the institution went through a [inaudible] period here. I’ve been pleased that my assumption I think is being borne out, which is that the best way to get an institution back on track is to get people focused on the mission. The people who have come to the World Bank are there because they are very committed to the challenges of development and opportunity for the most impoverished, but also those climbing up the ladder. And so what I described today is a good example of what comes out of sort of my preliminary thinking. And my thinking with the colleagues is to say okay, here is the agenda that we need to be focusing on. Now, in those six categories there is a lot, you could start to sort of disaggregate in lot of challenges to develop the services and the products going forward. So, what I hope to achieve is to help reposition the Bank. And going back to your question, to how it really fits into this changed economic environment and is seen as a critical player in development and growth and opportunity. And to be slightly more specific about that, as all of you write about, we’re in an age of globalization, but globalization is under a lot of stress, so I believe the Bank can play a role in creating a more inclusive and sustainable globalization.

The way it has to do that is number one - help the poorest not get left behind - because it’s not an inclusive and sustainable if you leave a billion people behind you in the system. Help the middle income people continue to move forward, but also in a sense become valuable stakeholders in the international system. And help the developed countries to recognize that this is not just a question of charity - it’s a question of self interest in the system. So, that’s what I would like to try to move towards. How do I feel about it? I feel tired [laughter] but that’s probably because I’m 14 hours jetlagged.

Journalist: Just one other question – private equity is a really big issue in Australia at the moment. Do you think private equity plays a role in helping developing nations at all? Do you think that it can?

Zoellick: Yeah, I think it can, and in fact it’s interesting one of the things that I’ve stressed at this meeting. The World Bank is actually a group of entities including one called the IFC, which does private sector lending but with a development focus. We’ve been trying to look at the role of the IFC might be able to play in terms of both equity, finance and infrastructure funds in say Africa or frontier markets. The team that we have here in Sydney, well not here in Sydney, but in Australia, the one I just met in Sydney, is a very well integrated team of the IBRD, the traditional World Bank and the IFC staff, trying to work including in some of these frontier markets. So, private equity is nothing more than a form of investment and most people don’t… I am sorry you got one more question.

Journalist: This is a question I guess going back to your predecessor, I guess his management style and some of the other issues I guess obviously caused turmoil in the Bank. I have been speaking to people that have worked for you, I have heard various comments including you have a very, sometimes very tough management style. I was wondering, considering what has happened at the Bank in the last year or so, is there any change you think in terms of how you manage people and how you manage the Bank?

Zoellick: I’ve managed institutions in lots of different environments. The State Department is about the same size as the World Bank, USTR is much smaller, and I have managed in the corporate environment. You have to adapt to circumstances and style. But well, in general I am and will be a demanding boss. But I have found in the places that I worked, and if you talk to the people at USTR or Goldman Sachs and others, that being demanding doesn’t mean that you’re not fair and that you’re not motivational. In general I have found that if you set a strategy, you work hard with your colleagues, you listen to them, but you also try to motivate and push and support, and if they have come to the institution to accomplish something, they respond pretty positively.

So, if you actually go through all these different interviews, and most of the people who have kind of worked for me have found it to be a good experience. But it’s true, you’re not just working a part-time day, that’s for sure. If you think about the challenges that we’ve just described internationally, yeah, I don’t want people working a part-time day, I want people to come to the World Bank because we have got some important challenges to get done. What I found so far is people that share the same sense of motivation.

Look, I think, just to give you this quick sense - people have been extremely gracious and supportive as I’ve come in. There have been some problems that had gotten piled up. I am trying to work through those. But I am trying at the same time to learn from people. What I am spending a reasonable amount of time doing also is just trying to reach out and talk to people; lunches in the cafeteria, meet the senior women’s management group, which I learned about, to learn about some of their issues; meet some of the younger professional staff. Dare I say it, while I was in the meeting I checked my Blackberry and I got a suggestion from one of the staff members about having kind of ad hoc lunch groups. So, they’re still working 14 hours difference, whatever the time it is there. So, that’s a part of the job, is to get people through this period. But frankly I think it’s, you have to ask others, but I think it’s moving pretty quickly. People are responding pretty well to the new sense of opportunity here.

What makes it work best is this is -- one of the reasons actually I like to come out is to travel is to see the people in the field. A lot of the heart of the organization is here in the field, and I had a video conference with our people in Timor Leste and Papua New Guinea. Those people are working under difficult circumstances and boy, they’re certainly committed. And so frankly it’s the job of us in Washington to help support them.