Oct. 12, 2008 MR. HANLON: Thanks very much, ladies and gentlemen. Good afternoon and welcome. Thanks very much for joining us for this press briefing following today's Development Committee. We will begin with opening remarks from Chairman Carstens, followed by remarks by President Zoellick and Managing Director Dominique Strauss‑Kahn. I'll turn it over to you, sir. MR. CARSTENS: Thank you so much. Well, as it has been said, we had today the Development Committee meeting. There was a unanimous point of view about the fact that the World Bank had to protect the poor and vulnerable countries in the context of this financial turmoil, characterized also by higher food and fuel prices. It was made clear that it was of the essence a close cooperation and coordination between the IMF and the World Bank; and it was also made clear that even though there was unanimous ratification that the six‑point strategic view that President Zoellick had put forward just a year ago was still valid‑‑and that is being implemented in an excellent way‑‑it was very important for the World Bank to be flexible, especially at this time of turbulence. In the context of our discussion of the current state of the financial markets and the challenge forward, there was also a unanimous endorsement by the Members of the Committee of the commitments made at the IMFC. Particular importance was given to the fact that the volume need to be consistent with commitments, and members called on the Bank and the Fund to draw on the full range of their resources, finance, analysis, and advice. I also would like to draw attention on the significant progress made for the issue of Voice and Representation. The first stage in this matter was completed. The package includes both concrete immediate steps and commitments to further work. An additional Board seat for Sub‑Saharan Africa on the Bank's Board will be created. Developing and transition countries' voting shares in IBRD and IDA will increase, giving special emphasis to smaller members. Further realignment of Bank shareholding will be taken up by the Bank's Board in an important‑‑in an important shareholding review that will develop principles, criteria, and proposals for Bank shareholding. The Members of the Committee asked the Board of the World Bank Group and management to take prompt action to implement this agreed first step. We look forward to the periodic reports on progress and future proposals for subsequent realignment of Bank shareholding as part of comprehensive reform. So, I would say that this was the essential part of our discussion today, and there is a very detailed Communiqué which is available for you. So, I think with this I stop here. MR. HANLON: Thanks very much. We'll have the Communiqué for you right after the news conference. We'll turn it over to President Zoellick. PRESIDENT ZOELLICK: Well, thank you, Carl, and let me first thank Minister Carstens for his strong service as the Chair. There is a lot of work that goes into this before and after these meetings, and he's been a fantastic partner, a very good friend, and wise counsel. Our meeting took place at a critical time for the global economy, with financial markets experiencing unprecedented turmoil. Developing countries‑‑many of them already hit hard with high prices for energy and essential foodstuffs‑‑risk very serious setbacks to their efforts to improve the lives of their populations from any prolonged tightening, credit, or a sustained global slowdown. The poorest and most vulnerable groups risk the most serious and, in some cases, permanent damage. 100 million people have already been driven into poverty this year, and that number will grow. The World Bank will join with the IMF and others to draw on the full range of our resources, finance, analysis, and advice, to help developing countries strengthen their economies, bolster their financial systems, maintain growth, and protect the most vulnerable groups against the impact of the current crises. This has been a manmade catastrophe. The actions and responses to overcome it lie in all our hands. We must also ensure that as governments and publics turn their attention close to home, they do not step back from their commitments to boost overseas assistance to meet the Millennium Development Goals. Aid flows must be maintained. Today's meeting of Ministers was unanimous in that regard. The World Bank Group stands ready to help our partner countries. The Bank's recently announced $1.2 billion Rapid Financing Facility is providing immediate help for countries coping with the impact of high food prices on the poor and already has $850 million approved or in the pipeline. We urge countries to consider making contributions to this Fund. Just this week, Australia contributed 50 million Australian dollars, but we need more. We will move forward with a planned new program‑‑Energy for the Poor‑‑that would provide rapid support for countries' efforts to strengthen social safety nets to protect the poor against the impact of high fuel bills. The IBRD has the financial capacity to very comfortably double its annual lending to developing countries to meet additional demands from clients, and we can go further. During the Asian financial crisis 10 years ago, we created a special lending instrument to support countries with additional funds to meet urgent and extraordinary needs. We can scale up this support beyond our regular lending, and the IFC is exploring the possibility of a Fund to help recapitalize banks in developing countries after already expanding its credit and trade finance to customers. We will also support longer‑term efforts beyond the immediate crisis, including expanding help for energy‑deficit countries to improve energy efficiency and improve domestic production to reduce their vulnerability to future price shocks, and playing a stronger role in helping countries deal with the causes and effects of climate change. The recent launch of new climate investment funds to which 10 countries recently contributed raised over $6 billion. As the current crisis has unfolded, people in the United States and Europe have reacted first with confusion, then frustration, then anger, and then fear. Those natural reactions will spread around the world as the impact spreads. We need to take them seriously. The events of September and October have underscored that we need to modernize multilateralism and markets for a New Global Economy. Our publics expect no less. Some may say that today's crisis should take all our energy and focus. The architects of Bretton Woods in 1944 laid the foundations for the future, even as they still fought the armies of the past. We need concerted global action now, not just to deal with this crisis, but to put in place new architecture, new norms, and new oversight to ensure that this crisis never happens again. We must build a better system for the future. Thank you. MR. HANLON: Thank you very much. And now we'll turn it over to Managing Director Strauss‑Kahn, please. MANAGING DIRECTOR STRAUSS-Kahn: Thank you. I will just say a few words because even if the Development Committee is a joint committee between the Bank and the Fund, in fact it's more Bob's committee, so I just have a little to add. I was very much impressed in the meeting this morning by the fact that everybody was aware that besides the traditional question that the Bank has to face, there was the question of the global crisis and that, as Bob just said, we are having this meeting in the midst of one of the biggest financial crises we ever had. So, I'm not going to comment now, but if you have a question on that, and especially on the just released European plan, I would be happy to answer after. Now on the committee itself, the question is that the financial crisis adds a crisis to a crisis, adds a financial crisis to the fuel and food price crisis, for some countries. Haiti, and others in the Caribbean, for instance, have been affected by hurricanes, a huge increase in the oil bill and food bill, and now are hit by the financial crisis. So, this message that I delivered yesterday strongly with the help of Bob and some others at the IMFC, mainly that we shouldn't forget the other crisis, even if we spend 90 percent of our time now due to the financial crisis, is a very strong message. I hope that in a few weeks the peak at least of the financial crisis will be behind us, but the other crisis, the crisis faced by poor countries, low income countries, even emerging countries, will still be here, and that's the reason why we shouldn't forget it. Now, what the Fund is doing: The Fund is providing policy advice. The Fund is providing technical assistance, and the Fund is providing financing when needed. And I must say that the number of countries just asking the Fund for some support during the last two weeks is increasing incredibly. Not to say that those countries were not hit by the crisis before. You know there is a theory of decoupling that has been opposed by the Fund. We have been saying for one year or more that there was no decoupling, that no part of the world was immune from the crisis, and so that even in emerging countries or low income countries, the slowdown in growth that we forecasted for advanced economies will have consequences. But to the traditional channel of transmission of a crisis, namely trade, for instance, and the decrease in trade which follows the decrease in growth in advanced economy, we have now to add something different, and the different thing is the cut in credit lines or, even worse, the repatriation of capital that traditionally came to support the balance of payments of an emerging country. This situation creates a lot of imbalances in many emerging countries, and the main point I want to underline this afternoon is that, of course, the Fund is ready to help. The Fund has the resources to do that, up to $200 billion. The Fund has an instrument to do that that we just reshaped or revamped. Our Exogenous Shock Facility. We are in the process of building a new liqudity facility to be able to fit more precisely and more rapidly to the need of our membership. And the last point is that I'm really happy to underline the way that the Bank and the Fund are working together. I know that a very old tradition is that between these two institutions there must be some competition; if not, the world is upside down. But maybe the world is upside down, but we don't have competition. I think that there may be some overlaps that's normal because in some cases we are doing almost the same thing, but we are doing it in a very cooperative way, and I really think that both institutions across 19th Street are working to provide to our membership the way for better world. Thank you. MR. HANLON: Thanks very much, and we'll now open it up for questions. I'd kindly ask you to identify yourself and the name of your organization. There will be a microphone coming around to you, and if you want to ask the question to a specific member or our distinguished panel, please also indicate that. Let's open it up with the gentleman in the second row here, please. QUESTION: Question for Mr. Strauss‑Kahn. About this new E.U. plan that has just been announced, alternative energy for‑‑energy markets, sorry, but this E.U. plan, how confident are you that it's going to help guarantee interbank lending, and should the U.S. follow the E.U. example to guarantee this interbank lending? And finally, how confident are you that it will work? MANAGING DIRECTOR STRAUSS-KAHN: Well, first, let me say that I welcome this meeting by the Heads of State of the Euro Zone and the result of the meeting. Obviously, the coordinating action is now taking place. At the G 7, where Bob and myself did attend on Friday, the beginning of this kind of coordination took place. Then, yesterday morning at the IMFC, when the IMFC endorsed the plan or the principle set out by the G 7, a second step of coordination was done. At the end of the day yesterday, in the G 20, the same thing, and what has been done a few hours ago at the level of the Euro Zone is the fourth step in the same direction. We at the IMF have been arguing for months asking for coordinated action, so really I agree more with the Heads of State and government in the approach they just have. Not only as this action is coordinated, but as also proposed in some details. We had already seen details in the United States with the so called "Paulson Plan." We had for a few days seen details of what's going to happen in the U.K., and obviously what's missing is the detail in what's going to happen in the Euro Zone. So, now we have it, and we may say that almost all advanced countries are now covered by the plan. It will be even more the case in a few days when the European Council will meet, and at this time what has been done at the Euro Zone will probably possibly be extended to the rest of the European Union. Not only is the plan coordinated, but it's also comprehensive, and that's also for us a very important point. The IMF has been arguing for months that a piecemeal approach is not what can work. We have the experience here in the IMF [with many] banking crises around the world some small, some big and always, always, even if there may be some differences between those crises, of course, because it's different period or different type of country, the fact remains that you need a comprehensive plan, and you cannot address a problem one after the other one, in a piecemeal approach. So, we are asking for a comprehensive plan, and the fact that the Euro Zone just produced this comprehensive plan is very helpful. So, all together, I think we go in a good direction. Now, you had question on the guarantee which is proposed on the interbank market. I have argued in the same sense, in the same direction, Friday morning in a speech at the Peterson Institute, although I won't say now contrary to what I said Friday, we need to meet to see the details, but I think that is a useful step forward. The last question you asked, what do I think that it will work? Yes, I do. Yes, I do. I think that we have now a comprehensive response to the crisis, and I think that the market will reflect it. MR. HANLON: Anyone else would like to comment on that? Okay. We will open it up. Gentleman from Voice of America. QUESTION: Thanks. Just a follow‑up. Barry Wood, Voice of America. Mr. Strauss‑Kahn, what you just said, does that follow that you think we pulled back from the threat of a financial meltdown with the announcement of this plan and, as Asian markets get ready to open, are you confident? MANAGING DIRECTOR STRAUSS-KAHN: Well, you know, this kind of question includes a lot of psychology, so you are never sure what may happen. Don't put words in my mouth that I'm sure that everything will work. But I'm confident. I'm confident because I think that what has been done during these last few days, starting with the G‑7, with the Annual Meeting of the Bank and the Fund, and ending a few minutes ago by the meeting of the Euro Zone, is exactly the type of action we would have to take. So, I'm confident. We'll see tomorrow morning and in the coming days how the markets react. MR. HANLON: We will go to the second row here. Bob Davis of the Wall Street Journal. QUESTION: Thank you. Bob Davis with the Wall Street Journal. Again another follow‑up. So, we've gone from the Euro Zone to a broader, one hopes, to a broader European reaction. What about the United States? What would you advise the U.S. to do following on the European action? Jump aboard? MANAGING DIRECTOR STRAUSS-KAHN: In all this crisis, since March, the role of the Fund has been to try to advise individual governments, but behind the scene. Public advice is only global advice, asking for coordinated action, comprehensive action. But detailed advice concerning this country owing to the specificity, the legal system, the history, the strictures of the banking industry, this we do behind the scenes. So I'm not going to answer your question, but I think that what has been already done in the United States is now going to work. It has to be implemented, the sooner the better, but the action plan which has been presented by the Secretary Paulson to the Congress, approved by the Congress, was the correct action to have in the coming weeks. I want just to add one point. A lot of experience of the Fund, through all the crises it has to deal with, was that it starts always with a liquidity question. But the liquidity problems when they begin to become too big, they become an insolvency problem. And to solve the insolvency problem, you need to act directly and to consider recapitalization. But what we see in U.K., in the Euro Zone, and also, in some respect in the plan in the U.S., is that this recapitalization is possible, and that's absolutely needed to fix the problem. MR. HANLON: Let's go to the lady, if we could, in the front row, please. QUESTION: Thanks. I'd like to turn to energy briefly to Minister Carstens and President Zoellick. I'm wondering what role specifically climate change played this morning in the Development Committee, if any. And, you know, I mean, was this a topic of concern at the meetings? Is it something that has fallen on the back burner, given the overriding financial concerns? And what does the economic turmoil mean for some of the financial commitments and pledges that countries have made for dealing with climate change? Thanks. MR. CARSTENS: Well, climate change certainly was an important section in our discussion today. The commitment of the World Bank to continue to support countries in specific ways through the fund, two funds that the Bank has put together in giving policy advice was broadly endorsed. And I think more, I would say, more tied to today's environment, it was made clear that the members‑‑the membership didn't want the Bank to deviate its attention from climate change. I think that the sense of urgency was underlined, and in that sense a special effort was requested from the Bank to continue to work in that area. And, of course, in undertaking also with more intensity jobs or activities that are more directly related to the current state of affairs. Also today there was a Bali Breakfast. It's a meeting that was introduced by President Zoellick, and I think that their further work on climate change‑related issues were discussed, in particular the issue of the carbon markets, where I have to say that President Zoellick made a brilliant presentation about the market; and I thank God many Ministers of Finance, including myself, are enthusiastic about the idea, and I think that that was quite an achievement. So, I would say that the topic is very much in the minds of the membership, and I'm sure that the World Bank will continue to do an excellent job in this regard. And as part of our discussion, I have also to recognize that Dominique Strauss‑Kahn also made the point that the IMF in the realm of its responsibilities will continue supporting issues related to climate change. PRESIDENT ZOELLICK: Just very briefly, as Agustine said, the Bali Breakfast this time focused on the issue of carbon trading. We try to focus on one particular item. Last time we did adaptation. And the point of this was to try to bring people up to speed on how these markets work, how they can be improved, and the key decisions that have to be made. Second, we talked about the opening of the contributions for the 6 billion‑dollar climate investment funds focusing on technology, focusing on helping with reforestation and forestation, and helping with adaptation. I reported to the Board that in our most recent year we had increased our lending‑‑lending and investments, so both IBRD, IDA, IFC, some 80 percent for energy efficiency and alternative energy that reached $2.7 billion. In my opening remarks, I mentioned the Energy for the Poor Initiative, and this is something that came out of King Abdullah of Saudi Arabia 's conference, where we have been working with the Saudis, Gulf States, other potential contributors, and this is also important in energy access. I think a lot of people are unaware that there's some 1.5 billion people in the world that don't have access to electricity, three quarters of the people in Sub‑Saharan Africa don't have access to electricity, so we are trying to come up sometimes with off‑grid and other measures. You make a point that everybody is well aware, which is the risk of distraction on climate change. And I will just say the point that I made at the Bali Breakfast when we discussed this, which is I can easily imagine that a few years ago if somebody was talking about the inherent risks of chasing yield and credit market problems to come, that someone said, oh, well, that's tomorrow's problem. We have to work on today's issue, whatever it was. And I think one of the lessons of today's crisis is you have to get ahead of these things, and so there is no doubt that climate change is a problem today and will be a problem tomorrow. And so, what we are trying to do at the Bank is to try to support the UN process, to catch up and then get ahead of it, just as someone should have done in this area of financial assets earlier. MR. HANLON: We have time for one more question. QUESTION: Yes, Anthony Faiola with The Washington Post. I was wondering if we could get some more details on this exploration of a fund to recapitalize banks in the developing world. Could we‑‑what exactly is the problem that they're facing? Is it their Letters of Credit are not being accepted? And where are these problems sprouting up? PRESIDENT ZOELLICK: Well, the starting point, Anthony, would be the analogy to what you see in developed countries where, as countries' banks take losses‑‑right now one of the debates is how will they be recapitalized. In many developed countries, people have the resources, so they're debating, well, should governments buy stock and preferred stocks or various types of equity. We already started to see the stress with some developing country financial institutions, and IFC, our private sector arm, invests in many small emerging market financial institutions, and so it's a wonderful example of sort of the new Bank operations. We worked with some of these countries to give credit availability to some of the banks that we had invested in. We have been, second, expanding the trade finance. This will be expanded to well over a billion dollars. I think it may well be 1.5 billion. And this is critical because if you're worried about a global slowdown, developing countries have to have the access to export or import the short‑term trade credits, and so we're expanding this facility. This third one is really an effort to try to get ahead of the curve and not necessarily for big banks in developing countries, but for some of the small banks that could be under stress, could take losses, need recapitalization. Would we be in a position through our normal IFC investment to invest in those institutions, perhaps put together a fund? IFC has had some preliminary discussions with private commercial banks that could possibly join us in that effort. And then also maybe with some of the other international financial institutions to see how we could help that process of recapitalization. We could even look at it from our IBRD side since this is public capital going into governments to recapitalize institutions. That's another vehicle. So, what it really represents, Tony, is the effort that we have been trying to build into the Bank as we did in the food area and did in the fuel area, which is not catch these things on the tail end, but move ahead, and it's the analogy for the developing world which you see debated right now in the United States. People are deciding, well, how will you possibly use government capital in banks? Well, we are trying to get ahead of the curve for developing countries. MR. HANLON: Okay, thank you very much. And there will be copies of the Communiqué available as you depart, and copies of President Zoellick's opening remarks. Once again, thank you very much. (End of press conference at 4:16 p.m.) |
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