Robert B. Zoellick
Thursday, April 10, 2008
Thursday, October 9, 2008
P R O C E E D I N G S
MR. HANLON: Good morning, ladies and gentlemen. Welcome and thank you very much for joining us today for this morning's news briefing.
We'll begin with opening remarks from Mr. Zoellick, and then, of course, he'll be pleased to take your questions. I'd ask you to kindly identify yourselves and your affiliation, if you could, and we'll get started in a minute here, as soon as our stills camera people have a chance to finish off their shots.
Over to you, sir.
MR. ZOELLICK: Well, I thank all of you for coming today. We're meeting at a momentous time. In July, at the G8 summit, I said that developing countries were facing a double jeopardy from the impact of high food and fuel prices. But what was then a double jeopardy is now a triple hit--food, fuel, and finance--threatening not just to knock the poorest people down, but to hold them down.
The events of September could be a tipping point for many developing countries. A drop in exports will trigger a fall-off in investments. Deteriorating financial conditions combined with monetary tightening will trigger business failures and possibly banking emergencies. Some countries will slip toward balance-of-payments crises.
The World Bank economic staff is tentatively forecasting that the growth rate of developing countries could decline from 6.6 percent next year, our April forecast, to closer to 4 percent. Now, this is still a respectable rate of growth, but the deceleration would be so sharp as to feel like a recession. And many countries would do much worse than this broad average suggests. It would be a significant hit.
Over recent weeks, attention has focused on the size of financial packages and on the impact on Main Street. There are Main Streets all over the world. We must look beyond the financial rescue to the human rescue.
Some 28 countries are already fiscally highly vulnerable from the twin shocks of food and fuel. Currently these countries, on average, are set to receive no increase in project and program aid. G-7 countries as a group are still far behind their Gleneagles commitments.
The poorest cannot be asked to pay the biggest price. For the poor, the cost of crisis can be lifelong. Children suffer the long-term consequences from short-term economic shocks. Many never fully recover. We estimate that 44 million additional people will suffer from malnutrition this year as a result of high food prices. And for the children among them, that means lost potential that will never be regained. We cannot let a financial crisis become a human crisis.
In May, the World Bank Group set up a special Financing Facility of $1.2 billion for rapid support for the most vulnerable, hit hardest by the food crisis. We've now programmed $850 million of this, so I am very pleased that Australia has announced a commitment of 50 million Australian dollars for the Fund, but we are going to need more. I also urge European donors to support the proposal by European Commission President Barroso for 1 billion euros to support the poor in need and the small farmers in countries under severe stress due to global food crisis.
We also need to work to protect valuable development gains, especially for those blown off track, and to that end, the World Bank will be providing an additional $25 million in emergency grants for Haiti, hit by the devastating impacts of Hurricanes Fay, Gustav, Hanna, and Ike.
On Monday, I emphasized at the Peterson Institute that we need to modernize multilateralism and markets to deal with these crises. There is obviously no silver bullet to solve this crisis. It was first fueled by bad assets and a lack of information about how and when banks could write down these loans so that markets would begin working again. And now it is fed by a lack of confidence.
Looking ahead to tomorrow, I hope the G-7 meeting will point toward coordinated actions to show that authorities are getting ahead of the curve. Countries will take different actions, customized to their circumstances, yet the actions need to target the same basic problems. The actions need to be coherent and reinforcing, like the cut in interest rates that central bankers around the world put in place this week. And all these actions will still take time to work.
With the rising economic powers, the G-7 countries can work through this crisis by dealing with bad assets, recapitalizing banks, and providing much needed liquidity. They need to work together to fix the financial, regulatory, and supervisory system that failed.
We also need the G-7 and the rising economic stakeholders to help those that are most vulnerable, weaker developing countries slipping toward the edge, and the poorest people with no cushion to sustain in times of trial.
The changing conditions that trigger failure will increasingly be dependent on shifts in the world economy. And just as the crisis has been international because of this interconnectedness, the actions and reforms will need to be multilateral.
MR. HANLON: Okay. Thanks very much.
We'll open it up for questions, and, once again, if you could please state your name and your affiliation, that would be most helpful. And wait for the microphone to come to you so everyone can hear what it is you're asking.
We'll go to the gentleman in the front row here, please.
QUESTION: I'm from China Central Television. My question is: You have mentioned the G-7 is not broad enough to deal with the financial crisis. Is there any possibility of the regrouping of the financial group or system?
MR. ZOELLICK: Well, that, of course, is up to the countries in the G-7, and on Monday, what I stressed was that I think that going forward to deal most effectively with the range of global issues, not only financial but development, energy and the environment, and trade, that it would be better to have a steering group that would include--and I mentioned at that point some seven rising economic powers with the core G-7. But I also emphasized that the nature of the group has to evolve in how it does business. It needs to be recognizing that it has to be a flexible, networked operation. The numbers can change as other countries assume responsibilities as stakeholders. There is also the need for the group to interact with other bodies. I mentioned the role that the IMF and the World Bank can play to help support such a process.
So the point was not just to identify certain countries. The point was how the steering group could be a capstone of a larger network that would deal with the issues that we're debating today, but also we'll be looking at tomorrow, such as climate change and energy.
MR. HANLON: Okay. Mr. Sitov from Tass.
QUESTION: Thanks. I have a somewhat parochial question. What are the most needy and vulnerable countries in my part of the world, which is the former Soviet Union, that the World Bank sees? How can the international community help them? What is the role of Russia there?
MR. ZOELLICK: Well, as I mentioned, as part of the preparation for the meetings of our Development Committee, we tried to look at countries' fiscal positions that were harmed by the high food and fuel prices, and we identified some 28 that are most vulnerable. We then looked at their debt positions to see how much room that they had. And then we looked at the aid prospects, and we'll be putting this up on the Web later today. They tend to be the poorest countries.
Now, in Central and Eastern Europe and in Central Asia, you've had some of the countries already suffering from the energy and fuel issue. We've tried to be of support to Tajikistan, Kyrgyzstan. I was in Kazakhstan, which has done a good job but faced a problem with its banking system. If you look in Central and Eastern Europe, you see countries that have been strengthened often by their entry into the European Union. But each country has particular challenges, whether it depends on their deficit, budget position or others. Ukraine is obviously dependent on global international issues, and, obviously, Russia has also been hit by these problems.
So I think each country's circumstances have to be seen in a unique way, and the message that I've been trying to convey this week is while much of the focus has been up to now on the developed world, I think it's critical that we expand our vision to developing countries and, in the process, as one thinks about coordinated actions, recognizing that they have to be customized for the circumstances. But at the same time, what I am encouraged by is that you are seeing in the core developed countries a general recognition that you have to get at some core problems--getting at the bad assets, recapitalizing the banks, providing liquidity, and fixing the supervisory system.
While I understand the people's impatience, I think these are the steps that one is going to need to take to clean up the problem; and at the same time, I'm just urging the biggest developed countries, but also the sort of rising developing countries or a country in transition like Russia, to also keep their eye on some of the poorest countries.
Russia has been helpful to us in the past about starting to engage in some multilateral support. I've worked with Minister Kudrin on issues like there were some--I believe it was a malaria question in Africa, and we've worked on financial literacy questions. When I was in Moscow early in the year, we talked about some support for this agriculture and food program. So that's an item that I hope we can continue to see if Russia can support.
Russia has got some significant capital that has been built up, and now the question is, you know, where will it invest and use that capital as part of this overall cooperative action.
MR. HANLON: Let's go to the far side, if we could. Mr. Elliott.
QUESTION: Larry Elliott of The Guardian.
I just wonder whether you think that some developing countries might be rather confused by what has been going on in the developed world over the last months or so, because the advice they've had for the last 20, 30 years from the Bretton Woods Institutions is that they should liberalize their economies, that they should privatize, and that they should eliminate subsidies. And yet we've found in the last month that countries in the developed West have been nationalizing their banks, that they've been subsidizing their banks, and that essentially they've been told to re-regulate their financial systems.
Isn't this something of a mixed message that has been going out to poor countries?
MR. ZOELLICK: Well, your first question was whether people have been confused, and I think people have been confused not only in developing countries but in developed countries, because these are very shocking and difficult events. And one of the things we're trying to do at the Bank is to work with our developing country clients to go through the same emotional stages that you see happen in the debate in U.S. politics, which is an original shock, then some frustration and anger, then fear.
Having said that, we have to work people back toward solutions. And in that context, I'd say that just sticking with Sub-Saharan Africa, there has been some very good growth in Sub-Saharan Africa that I've pointed out on other occasions. And starting with my work in the economic area there earlier in this decade, but particularly last June before I assumed this post, I was just struck that every country I went to, the message was the same. They wanted basically what Europeans would have wanted 40 or 50 years ago. They wanted infrastructure. They wanted energy. They wanted regional integration, connected to global markets. They wanted a private sector, and I guess maybe 40 or 50 years ago, Europe might have been a little slower on that one, but it has come around. So, in some ways, there's a real similarity.
Now, in any market system, I think it is certainly the case that one has to be pragmatic and practical about how to approach these. We had a Growth Commission, people from the developed and developing world, chaired by Michael Spence, one of the winners of the Nobel Prize in Economics, that made this point about you have to be linked to international markets, and you have to take advantage of market principles; but at the same time, you have to be pragmatic and practical. And, of course, there's a role for the public sector in this process, you know, whether it be in terms of the foundations of growth in education and health, but also the successful countries have used markets effectively.
So I think those basic tenets will remain the case, but I think the real challenge for us is that over the past year I've been trying to draw attention to the burden of food and fuel prices on the poorest countries. And I think now we're at a substantial risk, as our forecasters suggest, that we're moving into a different phase for developing countries. And so we have to work our clients through with that, and there's just a variety of tools that we have, not just traditional lending, to do that.
MR. HANLON: Okay. Thank you.
TV Global in the front row, if we could, please.
QUESTION: I'm from TV Global. I assume that your coming to the World Bank changed a lot of your views and experiences that you had before. From that perspective, globalization could learn what? Because apparently the market economy per se has proven to be pretty fragile in a globalized environment. So from somebody who kind of had to learn a lot coming to--or going to the World Bank, what does the global economy need to learn or to change in order not to have these kind of shocks we're seeing?
MR. ZOELLICK: Well, last year at these meetings, I highlighted something that wasn't a new observation from me--although, of course, you always learn and add to your knowledge as you go on--and that was the need for an inclusive and sustainable globalization. So I've felt in the past and continue to feel that globalization offers tremendous benefits. If you look at countries that have been able to move people out of poverty, grow, offer new opportunities, the benefits are enormous. And I've visited, you know, those countries from China to Africa, from Brazil to India, and talked to younger people who feel that this offers tremendous opening of doors for them.
But I've always stressed--and this is true for developed and developing countries--that you have to make sure that you broaden the benefits of that as much as possible, so in making it inclusive that you try to reach out to poor people to have opportunity, inclusive sort of communities, indigenous peoples.
Often those people are left out because they don't have access to markets. Part of the problem has been in poorer communities, if they don't have property rights--you know, you see this discussion going on in China right now in terms of land tenure--then they're often shut out of the market economy. Women, if they're not allowed to inherit property or own property, are shut out. If you don't have micro credit, you can't get basic financing to go forward.
So I believe the question is how do you extend the benefits of markets and opportunities to people.
Now, it also has to be sustainable, and that, of course, has the environmental dimension of sustainability. But it also has a systemic dimension, and this is also not a new perspective of mine, but in this position I have an opportunity to work with it in a different way. And one aspect of this was the speech I gave on Monday about how you have to integrate the rising economic powers in the system, how they as stakeholders have opportunities but also responsibilities; and also, to be sustainable, you have to deal with the types of questions that people are struggling with financial markets today--what is the right form of regulation and supervision.
You know, some of these issues, as people probe through the questions over the coming months, the answers are not always as obvious as people might think on a first look. Many of the institutions that got into serious troubles were very well-regulated and supervised institutions. And so the question then is, well, what went wrong.
And so I'll just give you a couple thoughts. One point is people are recognizing the need to have better clearing systems, because part of the problem is if an institution failed, would it start to bring down others because you couldn't have clearing and statement systems? And I think you're still going to run into issues like this dealing with things like the credit default swaps out there.
A second issue is liquidity. People have long focused on managing capital levels and the relation of leverage with your assets. But what you saw with some of these financial institutions, even if they had a good capital base, they did not have the liquidity to be able to respond promptly to people trying to take money out of the system. So you'll probably have additional requirements for liquidity.
The Financial Stability Forum, chaired by Mario Draghi of the Bank of Italy, has started to look at these questions and, I think, come up with some very good suggestions. But, again, going to the point about inclusive and sustainability, one of the things I recommended on Monday was you have to broaden this to more players. And I was actually suggesting that this could be a connection with the IMF, perhaps helping with the monitoring and oversight of these types of ideas so that you have a broader group of countries looking at the question, trying to come up with recommendations, and then following through.
MR. HANLON: Okay. The gentleman in the second row, if we could, please.
QUESTION: I'm from Feature Story News.
Could you explain, there has been a lot of discussion about sovereign wealth funds and what role they might have in the current crisis? What conclusions have you reached over the last few days?
MR. ZOELLICK: Well, again, one of the points that I've been making over the past months and made in the speech is that if you look at financial and economic history, anytime you have a shift of capital those players have to be recognized as sources of investment. And I pointed out there were two primary reasons that fed these new sources of capital. One was the gains that they had from high commodity prices; and the other was, in effect, a derivative of what happened in the '97 financial crisis, where some countries said they wanted to manage their exchange rates to be able to avoid the problems, as they perceived them in the '90s, and they built very large reserves.
So, at the World Bank, one of our conclusions--a point I mentioned in the spring and that we're working on is--how can we as a financial intermediary help connect those institutions with growth opportunities, particularly in Sub-Saharan Africa. And this led to the suggestion I made for the 1-percent solution, which was a way of just highlighting that if we could take 1 percent of the $3 trillion in sovereign wealth funds and channel it into African equity, you'd have $30 billion.
So we've been talking with all the sovereign wealth funds, and we're now at the point where we're trying to come up with some anchor investors, which I hope we can try to do by the end of the year, to move this forward. But that's part of a bigger issue and in a sense goes to these other questions. How can we channel opportunity and investment into Sub-Saharan Africa so that 15 years from now they're a pole of growth just as China and India are a pole of growth?
Now, that's our position, but you will also see the sovereign wealth funds--and they've already been doing this--playing a role in recapitalizing financial institutions. You've already seen some of those investments, and I undoubtedly believe that you'll see more. So it's part of the change in the international financial and economic system.
Now, a third point--and this is something that the IMF has been working on with the G-7--so many times you have new sources of capital and funds, you know, whether it was the U.S. 70 years ago or sovereign wealth funds, it creates anxiety. Remember “The American Challenge” and Servan-Schreiber and investing the direct investment in Europe. And so this has led to, I think, some good steps to try to have greater transparency in the investments, try to have clarity about their investment strategies. But this is an inevitable direction.
MR. HANLON: Okay. In the front row, please.
QUESTION: I'm a reporter with China Business Network.
Since the Doha Round hasn't made any--I would say much--progress so far this year--
MR. ZOELLICK: That's very charitable.
QUESTION: Maybe I'm too pessimistic. What's your outlook on this talk? And what are the impacts if the talk lasts much longer than expected? Thanks.
MR. ZOELLICK: Well, as I said on Monday, I think the Doha discussions are on life support, and that was a way of saying they're in very difficult and bad straits. And because of that, I think people need to recognize dangers of protectionism which could exacerbate some of the breakdown in markets.
The WTO continues to function as an institution. It is led by a very effective individual, another one of my French Socialist friends, and the WTO has a dispute resolution system to deal with disputes. But I've always been concerned that if you have the dispute resolution system where one party wins and one party loses, it can undermine public support in the countries that are members. Absent a negotiation, it shows how you can make progress in a win-win fashion.
So in the speech on Monday, I emphasized work we've been doing at the World Bank, in concert with the WTO and in concert with other players, to try to support the trade facilitation agenda. China is a member of APEC. APEC has done a lot of leading work in this. And what we've been able to see is that you can cut costs tremendously of the doing business of trade, in some ways removing costs more than by cutting tariffs, and that this can become part of a development strategy. So we have diagnostic tools. We have ways of looking at logistics systems. It's how to try to support supply chains.
And so we're trying to offer capacity to keep the gears of trade liberalization and trade expansion greased to move forward. But there will have to be other steps, too. So I think this is--it's an item of great concern.
MR. HANLON: Okay. In the third row, if we could, please, Phil Thornton, the second one.
QUESTION: Thank you, Carl. Phil Thornton from Emerging Markets newspaper.
I was wondering if I could ask you about financial resources. We've heard a number of figures. There's your $1.2 billion, there's the 1 billion euros from the EU, and some figure from the sovereign wealth funds. But I think these are still drops in the ocean compared with the amounts of money we've heard from developed countries to sort out their own problems.
Do you have a feeling as to what sort of figure, how much money is needed and where on Earth would it come from, both to deal with the poorest in the world and also to help meet the Millennium Development Goals, which seem to be fading as each day goes by? Thank you.
MR. ZOELLICK: Well, on your last point, I was pleased to be at the UN a week or two ago where, in part with our efforts through our IDA contributions, there were some commitments of $16 billion to try to support the Millennium Development Goals. And we took steps against malaria, in education, health care systems.
I don't think there's one number because you have so many different problems. And going back to some of the questions, including Larry's, you're going to need private capital to make this work. And that's one of the points that the developing countries recognize. It's in part creating the climate for them to use their own savings and investment. In part it's foreign capital, whether it be direct investment or portfolio investment.
So part of our role as the Bank Group is to--we can supply some of our own resources, but how can we build those markets and institutions in support of people? So we talked about the connection with sovereign wealth funds, but, you know, we're also trying to support the sound development of local currency bond markets. So, if you go back to the past financial crises, part of the problems that some developing countries had is they had to raise money in foreign currency. So they had the foreign exchange risk. If you can deepen the bond markets and local currency, you not only create a vehicle for foreign investors, but you create sort of local models. And, you know, similarly, as I mentioned to another question, for the poorest you need to expand the micro credit and finance markets.
We'll be talking also at these meetings about the climate change issue. Let's not lose sight of that going forward. And we'll be focusing on the carbon markets and their use and how they can be used as a development tool.
So I think the challenge is, you know, the World Bank last year had about $38.2 billion worth of business, from IFC; from IBRD, which is sort of our general borrowing; IDA for the poorest; and MIGA. What was striking is that IFC, if you take its own investments, as well as the syndications that it did, was larger than either IBRD or IDA, and this shows the role one can play in terms of driving private capital into this.
But while $38.2 billion is a sizable sum, it's obviously quite modest compared to the other numbers you are talking about. We believe--and this is the good news--we're very well-capitalized. We're very liquid. I was very pleased that about a week ago, in part to demonstrate the strength of our position, we went out and raised five-year money and about $1.5 billion of it. And if you think about what you're discussing, you know, some banks are having a hard time getting money overnight. We went out five years, and there wasn't much in the five-year market, and we did it at an interest rate of 3.5955, and we were oversubscribed. That's a very good sign. It shows that we're actually a flight to quality, and so I suspect we'll be expanding our lending this year to try to help countries.
But I don't only want to emphasize the money because we need to leverage that money in ways to try to help these countries with reforms, whether it be social development or infrastructure or markets.
MR. HANLON: Okay. I think we have time for one final question if we could.
The gentleman in the third row.
QUESTION: Anthony Faiola with The Washington Post.
Just to follow up on that question, what is and will be, perhaps, the impact of the financial crisis on your budget? Is there a growing gap between commitments that have been made by the industrialized world and what is actually coming in, and do you expect that to happen?
MR. ZOELLICK: Okay. We really have three core areas that we operate in, so it works differently.
The first, for the poorest, is IDA, which is for the 78 poorest countries. That is done—we either do grants or very long-term credits with minimal or no interest rate. The source of that funding has to be rebuilt every three years through a combination of reflows from some of the prior long-term loans, and for the IDA that we are moving into now, the 15th IDA, we put up $3.5 billion of our own income. We were able to raise, fortunately, pledges for $41.7 billion for that fund over the next three years.
So the key is we need to have countries fulfill their pledges on that, and nobody has suggested that they won’t, but we have to keep pressing. And indeed, this is one of the challenges for the U.S. Congress to flow through on that obligation.
Secondly, you have the IBRD lending which gets the benefit of our AAA borrowing and, using the example that I mentioned, we can borrow at extremely good rates, and we can then help use things like foreign currency swaps and others to help a country manage risk.
So this is not available for the very poorest countries, but it is for some more in the middle-income category. And there, Anthony, we are not really limited other than by our capital and our ability to borrow, and we are in a very good position. The IBRD has over $40 billion of capital. Last year, we did, if I recall, about $11 or $12 billion of IBRD lending. I could imagine that will go up considerably this year.
Then, the third is IFC, our private sector side, which is not government-guaranteed, and here again—and that is a combination of loans but increasingly, equity, and some 40 percent of that money goes in the last year to the IDA countries, so it can go to the very poorest countries as well. And as I mentioned, we leverage that by not only making our investments but sometimes by syndicating them out. So that area was larger than the IBRD and IDA side, and those three together, combined with about $2.5 billion of the MIGA, which is our political risk insurance, totaled $38.2 billion.
Now, in this coming year, I expect that number will rise, principally because of the additional IBRD lending. So when you ask about the political side, well, we have to make sure people follow through on their IDA pledges. We always welcome more. But in addition, depending on the nature of the problem , we might create trust funds, or we might create special-purpose obligations, so the $1.2 billion Rapid Response Fund--just so you have a sense of how that works--that was created—we took $200 million out of income for pure grants, but in addition, I wanted to fast-track our actions so we could help more quickly, because sometimes our processes take longer. So that was using primarily IDA money and allocating it toward these special needs and circumstances. But we said if countries are willing to contribute to this trust fund, just like we took $200 million in, we can put it to use right away. And I am very proud of my colleagues at the Bank because sometimes the Bank has been slower than one would like. I said we started this in May, and it’s October, and we already have $850 million either done, committed, or in the pipeline. So I am very appreciative of the Australians, and one reason why I have been supporting President Barroso is that he recognized in July that because of high food prices, the Common Agricultural Program wasn’t going to spend all that it had allocated, so he said if he could have one billion euro, which is $1.4 or $1.5 billion, allocated toward these challenges for the poorest farmers or seeds or fertilizers, whether through the World Bank, whether through the World Food Programme, or whether through the FAO, that would be a very, very good use. And just this week, the Development Committee of the European Parliament, passed that. It has to go through the member states, and there is a big debate about whether they should use that or other forms, and I can’t get into their budget procedures, but my message today is let’s not let the financial rescues blind us to the need for the human rescues. So those would be other ways in which we could—we or others—could channel those resources critically where necessary.
Climate Investment Funds—we got a pledge of $6.1 billion about a week ago for funds that we are developing to try to help with low-carbon development . So in addition to the three and four items I mentioned, including MIGA, we are trying to be innovative and come up with additional mechanisms, and those are where we could use the extra funds to help.
MR. HANLON: Okay. Thank you very much.
That draws to a close our press briefing.
There will be copies of Mr. Zoellick’s opening statement available as you leave the room.
Once again, thank you for attending.