Nov.11, 2008 MODERATOR: Today's conference is being recorded. If you have any objections, you may disconnect at this time. I now would like to turn the meeting over to Mr. Carl Hanlon. You may begin, sir. MR. HANLON: Good morning and thank you very much, everyone, for joining. I greatly appreciate it. World Bank President Robert Zoellick will make brief remarks about World Bank support for developing countries hit by the financial crisis, and he will also discuss new growth numbers. After Mr. Zoellick's statement, he will be pleased to take your questions. As you know, of course, this is a moderated call, and your questions will be answered in turn. I would kindly ask you to identify yourself and your organization before asking your question. And once again, Mr. Zoellick's remarks will be on the record unless otherwise specified. We'll turn it over to Mr. Zoellick, now. MR. ZOELLICK: Thank you, Carl, and thanks to all of you for taking time to join us on the call. I'll start by saying a few words on the upcoming Summit, and then I want to update you on our economic forecasts and brief you on some of The World Bank Group initiatives that we're taking in the face of this spreading crisis. Obviously, the Summit on Saturday won't come up with all the answers, but I hope it will put some good ideas on the table. It will then be very important to have tangible follow-up actions reporting back. It will be important to have a continuing stream of national and group actions, with liquidity in monetary policies, fiscal policies, regulatory fixes, and, importantly, ongoing aid and development support. We're going to see some significant changes over the next two years as we modernize multilateralism in markets. The new multilateral system should be a network of diverse actors that is more attuned to the economic realities of the 21st century. If we're going to build a more inclusive and sustainable and global system, then developing countries must have a say in that process. So, we must all work together in laying the foundations for a better future. It would, therefore, be an error of historic proportions if developed countries put in place policies, structures, and norms that undermined or excluded the interests of developing countries. Many governments in developing countries have taken courageous steps over the last years to put their own houses in order, and this crisis is not of their making. The most important thing on Saturday is that leaders do not lose sight of the need for a "human" rescue. Developed countries must honor their Gleneagles commitments to significantly increase their aid and double aid to Africa. We are some $39 billion a year short of the 2010 Gleneagles targets. The financial crisis comes on the heels of the food and fuel crisis of the recent years. Virtually no country has escaped. All countries, even those with sound policies, are now in a new danger zone. There are growing risks to exports and investment in those industries, credit, banking systems, budgets, and balance of payments. We may have the first decline in trade since 1982 next year, and in many parts of the world, remittances are also drying up. The most vulnerable in society, as always, are the ones most at risk. Our updated economic forecasts reflect this bleak picture; whereas, in June, we were forecasting developing country growth at 6.4 percent for next year, we now see growth at 4.5 percent due to a combination of financial turmoil, slower exports, and weaker commodity prices. We forecast that high-income countries will shrink, that's negative growth, 0.1 percent, and total world GDP growth would be only 1.0 percent. So, in the face of these conditions, we need a global, coordinated, flexible, and fast response to this crisis. While the challenges need to be addressed at the country level, it's more critical than ever that the international community acts in a coordinated and supportive way to make each country's task easier. For its part, the World Bank Group can help with financing, sharing global experience, and problem solving, along with helping mobilizing assistance from others. The World Bank Group will substantially increase its support for developing countries in the following ways: IBRD, which makes our basic loans to developing countries, could make new commitments of up to $100 billion over the next three years. This year, lending could almost triple to more than $35 billion, and that's in comparison with $13.5 billion last year. We'll also be looking for ways to speed up grants and the long-term interest-free loans that come from the $42 billion that was pledged last year to the International Development Association, which is our fund for the 78 poorest countries. And IFC, our private sector arm, is launching or expanding four facilities to help the private sector, and with the contributions of others that we're seeking to mobilize, these could total around $30 billion. And these are designed to help address priority problems that we've identified in the recent weeks. One in particular is trade finance; the second is recapitalizing the banks in poorer countries, since they don’t have the access to funds that developed countries do; and third, trying to help viable infrastructure projects that are now facing liquidity crises. These three facilities, plus our advisory work, are noted in the press release, and it gives you some additional details about the amounts and what we're trying to target. In addition, I believe we've circulated to all of you a paper which is on the global financial crisis, Responding Today and Securing Tomorrow. If I can say so, I think it's a pretty good piece of work. We are circulating it to the G-20 countries for the meeting. It's got some good analytic work in there, and it also gives some further description of some of our--these particular initiatives. So, I'm happy to take your questions. MODERATOR: Thank you. We'll begin the question and answer session. Again, if you'd like to ask a question, please press "star one." Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To withdraw your request, press "star two." One moment please while we wait for the first question. QUESTION: The Globe and Mail in Canada. Mr. Zoellick, you talked about the G-20 Summit, saying that some good ideas would be put on the table, but, you know, sort of long-term fixes aren't likely. If you were to sort of "pie in the sky," what are the sort of three top fixes that you would like to see so that we don't get in this kind of mess again? What are the most important things that we should be dealing with? MR. ZOELLICK: Well, given my role with the World Bank, the top point of emphasis is to keep our eye on the most vulnerable and the poorest. You know, I've emphasized that this is not only a financial crisis; it's a human crisis. And if you look at the composition of the G-20, while it does include a number of developing countries, you really don't have the poorest there. So, in that first category, we need to make sure that countries not only keep up their aid flows, but add to them. The average ODA, the overseas development assistance, is about $100 billion a year, and if you compare that with the other numbers you're reading in the paper, that's a drop in the bucket. And some of the other things that we've talked about, that I've talked about in this call, like trade finance and the viable infrastructure projects, there's ways they can join with us. So, it's the first--would be the most vulnerable along the way. I guess the second would be that it will be important to have the cooperation, coordination, flexible and fast responses, across a host of these activities. A month ago, you saw, at the time of the G-7 meetings and the Bank and Fund meetings, a lot of focus on the monetary side. I think you're now seeing a focus move to the fiscal sector. You have China's big announcement at the G-20 meeting in Brazil. There were discussions of others moving on the fiscal side. The U.S. is talking about this further. And so, I think that shows the proper expansion of tools, but at the same time, from the developing country perspective, I'm concerned about having some of the support provide liquidity and financing for developing countries. There's a--one of the dangers of the developed countries guarantees, which are understandable for their financial system, but it's putting stress on emerging market countries, and companies, I might add, an ability to finance. So, one of the other topics that came out of that G-20 meeting was countries that have run sound fiscal policies, good monetary policies, but they're having a hard time being able to do their financing. And then, the third is that I was mentioning months ago the need to have a new multilateralism, and I've tried to suggest that you can't do all this in one group. You have intersection of energy and food issues with inflation, and macroeconomic issues--that connects to climate change--it connects to trade. The fragile and post-conflict states are the ones that get hammered worst in the whole process. So, what I hope will come out of it is a logic that, with whatever steering group, whether it's G-20 or something else--that they focus on trying to tap the capabilities and functions of a complex interdependence. How do you manage that more effectively? I think one of the first areas will be financial supervision and regulation, and I think in that area you're already seeing this idea develop with the possibility of a Memorandum of Understanding with the IMF and the Financial Stability Forum. They'll probably need to connect that also with the Basel Group, which are the central bankers that settle a lot of the capital standards. So, the third point is a logic and method to be able to connect these pieces together. QUESTION: Thank you. MR. HANLON: Okay. We'll take our next question, please. QUESTION: Bloomberg News. I had two questions. One is, when you're mentioning $100 billion, my guess is this is the demand you're expecting to come from middle-income countries. Have you had many indications of interest yet in loans? And secondly, you mentioned that global trade was shrinking for the first time, do you have any idea--the first time since when? Since records began, or... MR. ZOELLICK: Since 1982. QUESTION: 1982. MR. ZOELLICK: And again, that's an estimate for the future, but that's our forecast. Second, on your first question, the baseline is the $13.5 billion that we had of IBRD lending in the most recent year. And yes, we are getting requests, even over this weekend there were some I was getting on my Blackberry when I was in Brazil from our teams--that is what leads us to make the estimate that for this coming year we could be in the $35 billion range, and that reflects the requests that we've started to take on board so far. The $100 billion is a recognition of, given our capital, what we could move up to provide additional loans over the course of the next three years. And then, don't forget, since, as you properly said--that that's focused on the developing countries that borrow out of IBRD. For the poorest countries, the 78 poorest countries, many of them can't be IBRD borrowers. So, their prime source of funding is the approximately $42 billion of IDA, and our effort would be to try to load as much of that as we could. QUESTION: Thank you. MR. HANLON: Next question, please. QUESTION: EFE. Mr. Zoellick, good morning. I would like to know--I would like to see if you could tell us where is most of the $35 billion you're planning for new lending--where is it going to go, which countries, and if you're planning to provide some assistance to any particular Latin American country. Thank you. MR. ZOELLICK: It's really global. We have Asian countries, Southeast Asian, South Asian countries. We have, yes, requests from Latin American countries. And one of the things we've been able to do over the past year is develop greater flexibility in some of our financial instruments. So, we have not only direct loans, but we have something called "Deferred Drawdown Option," and that's the idea that really fits back into this point I made. Some otherwise very healthy developing countries are having a hard time going to market at any reasonable price. You've seen what are called their spreads, the interest rate they have to pay over a baseline, go up 700-800 basis points, 7-8 percent. And so, for some of these countries, they want to maintain a fiscal program, a budget, that will allow social development and will allow infrastructure. And one of the points I was emphasizing to the G-20 meeting is this is a way to learn from some of the lessons of the '97-'98 financial crisis. We don't want to cut out the funding for those valuable purposes, particularly the social development, the safety net. At the same time, if you have the right fiscal spending, you can lay a good foundation for future growth. And this is, frankly, what the Chinese did in the slowdown after '98-'99. They had a vast infrastructure program. But for a well-run economy, they will have to shrink their budgets if they can't get some assurance of financing. So, what some of them are doing is coming to us and saying, "Look, can we use your deferred draw-down option so that we can demonstrate to our parliaments, our legislatures, we can fill the gap? And we may or may not need that financing from you." So, this is a good example of trying to use the multiplicity of our tools. There are also countries that you read about in the paper in Central and Eastern Europe, and others, that we've tried to be supportive. So, it's really all regions where you see our IBRD borrowers. MR. HANLON: Okay, thanks. Our next question, please. QUESTION: Financial Times. President Zoellick, thank you very much, indeed. I just wanted to be a little bit clearer about some of the aid. You're talking about the $42 billion already authorized for the poorest countries and the ability to upload that. Given the drastic and very worrying figures that you're talking about, do you see any need to seek further funds, or do you think that the $42 billion that was already authorized is enough? And if I could ask you also about the $35 billion and the $100 billion from the IBRD. You're comparing to previous years and the tripling from 2007. What were you projected to spend previously in terms of IBRD funds for the next three years? Can we compare that with previous projections? MR. ZOELLICK: Okay. On your first question, the good news on IDA was, this morning, I just received a report at my morning staff meeting, that, to activate the IDA15, which is for the next three years, we have to have an affirmation of the pledges by 60 percent of the contributors, and that came through the door. So, the first step is to make sure that all the IDA countries that have pledged the $42 billion actually complete the legal steps they need to take to present the funds. Second, will we and others need more money? Yes. And last year, I was trying to help the World Food Programme increase its support. They, some of the regional development banks, are looking to have additional capital increases, so they'll need support. We're in the good position of being very well capitalized and being able to expand. And to give you a point of comparison, we have about $100 billion of assets now. So, to go to another $100 would basically be doubling the assets on our balance sheet. But one of the reasons that we have designed some of these new initiatives, such as the ones I mentioned with IFC, is that they're a fit of what we see as critical needs in the marketplace, but also some of the donors are interested in supporting particular categories. So, we've had some countries talk to us about why they think infrastructure is vitally important. And so, our idea--and we've had some conversations--is to draw them into these funds. In the case of the Bank recapitalization, again, we've had some governments talk with us about that, but then, in addition, we've talked to some private sector players. And so, they may not come in the first round, but given our investment record, we think that we may be able to draw some of them in. Another area, initiative, that I have launched this year is something called Energy for the Poor. This is something that came out of a meeting that the Saudis hosted, that some Europeans have supported, and it's basically two types of support: One is for the most vulnerable, and in that sense it parallels the $1.2 billion rapid financing facility we put in for food, but some is also to help build the future energy access. So, whether it's us or whether it's others, there will definitely be a need for new resources. The IMF is obviously, in its meetings, discussing the ability to expand its ability for the overall liquidity. Now, your second question was what we expected. I think, prior to a couple months ago, we were expecting, from the $13.5 billion, maybe a couple billion dollars increase. In other words, there were some increases we were seeing because of the flexibility of the financing products we had and some of the things we've had in maturity extensions and adjusting the rates and the foreign currency, but nothing remotely like the order we're getting now. So, really, about the time of our Annual Meetings, when I was first trying to identify for countries that this was moving from food and fuel to a tipping point and danger zone for other developing countries, we've started to get a rapid increase. And as I said, even over the weekend, we were getting more. QUESTION: Thanks very much. MR. HANLON: Okay. We have time for a couple more questions. Thank you. QUESTION: USA Today. Mr. Zoellick, I wonder if you could give us an example or two of the countries that you think will be most affected by the financial crisis and that perhaps best illustrate the fact that this is, as you suggested, not a crisis of their making. And then, second, are there places where you worry that the consequences of the crisis could go well beyond the purely economic and actually threaten social stability? MR. ZOELLICK: As for the first one, in this paper I mentioned--I want to make sure we get it to you, because there's a list of some of the poor countries that, for example, with the high food prices and others--on page six, there's a reference that Burundi, Madagascar, Niger, Timor-Leste, and Yemen--and these countries are particularly affected in the malnutrition area. And what you'll see in there are others that are affected in different categories, and that really fits into your second question, which is that, yes, I've been concerned since I identified this almost a year ago that, first, with the food and fuel issue, we pointed out that you were seeing riots and social upheavals in some 20 or 30 countries. There were some governments that were, you know, toppled. I was just recently in Haiti, and Haiti was suffering from the food and fuel issue, and then it had four hurricanes, and so, it's trying to dig out of natural disasters, but now also faces the question of how it can get an economic recovery. I was in Afghanistan not long ago, and Afghanistan is a good example of a mixture of security, governance, economic development issues. It is obviously going to be high on the new Administration's agenda. And so, how do these pieces fit together? And that's one reason, when I talk about these networks, you have to figure out how these pieces come together. But more generally, you're seeing countries that had very good, sound, macroeconomic programs--Mexico, Indonesia--that are in a position where, as I said, they're not at financial risk, but they are worried about the ability to get financing to maintain the sort of budgets to avoid the mistakes of the '97-'98 process. And so, these are the types of countries--Colombia, others--that we're offering, in a sense, as much support as we can. Then you have the countries you've read about that are putting together packages. We joined in the package for Hungary, even though it's primarily an IMF and European Union operation because it's a European Union country. There are other countries that are in Central and Eastern Europe that are under stress. Ukraine--we're working with the IMF on support for Ukraine. And again, the difference is the IMF will often put in what's called the balance of payments financing, sort of a shorter-term ability to make sure that they can pay the debts for their current account. But we are trying to make sure that our funds--and again, learning from some of the lessons of the '90s--are focused on social development and foundations for growth in the future, frequently financial institution restructuring issues. Obviously, there's ongoing discussions in Pakistan. So, just as I talk through this with you, I guess I'm saying that it's a global crisis, and all hands are going to have to be on deck to try to deal with this. And what I'm trying to put out today is our overall amounts in some specific areas where we can help so that can help focus the work of the G-20 Summit. MR. HANLON: Okay. And we'll take a final question now. Thanks for that one. QUESTION: Good morning. With Xinhua News Agency. I have two questions. As to the Summit meeting, you said that response to this crisis must be global and coordinated, but you also see that there are many disputes between Europe and the United States, and also disputes between the developed world and the emerging world. What kind of outcomes will you expect from the upcoming Summit? The second question: Could you elaborate a little bit more about China's recent fiscal policies. Thank you. MR. ZOELLICK: Well, on the first question, while there are differences, I see an increasing convergence on the big issues. The big issues are the recognition that the world faces a financial and economic crisis, and I'm trying to draw attention to the human development natures of that. And so, what I see at these meetings is a recognition that countries need to use national policies to try to address these core problems. Now, they may do so in different ways, but there's a recognition that they also face different circumstances. On issues like financial and banking supervision, which you read about, again, I think there's no doubt that, at the margin, there are going to be different approaches. But the fundamental aspects of transparency, improving the supervision, the types of accounting standards, avoiding incentives for risky operations, there's a pretty strong sense--and these will be reflected by, already, some of the policy recommendations that the Financial Stability Forum was coming up with. This is a good example: One thing that may come out of these meetings is an expansion of the membership of the Financial Stability Forum. The Chinese representatives were actually complimentary of the work of the Financial Stability Forum, even though they're not members, but it would be natural for them to join the membership if they choose. And then, have the IMF help play a role in the follow-up of the monitoring and supervision. But part of the larger point here is, as I survey the landscape, there are other issues that require coordination. So, when you look at what's happened with food and fuel prices, it clearly takes you to the area of energy policies, and that takes you to the area of climate change policies, and some of these are going to be handled in different forums. For example, the UN is the center for the activity of the climate change negotiation. But they all fit together, and so, part of what I'm suggesting is that when people talk about a new Bretton Woods, they shouldn't just replicate the models of the mid-20th century. They need to have a 21st century model of a network system that interconnects these different institutions and problem solving, but still has some group having the sense of being common stakeholders, as you will--you know in the Chinese context, I talked about this as responsible stakeholders--to try to see how they can cooperate together to solve the problems. And your second question was on the Chinese expansion. I've been saying that I thought China is extremely well positioned, given its current account surplus and budget position to have a fiscal expansion. I am delighted that the Chinese decided not only to undertake these steps but to announce it in advance of the G-20. It's an example of some of the things that I've been suggesting to various countries that, coming into the Summit, if they can sort of emphasize the common actions that are mutually supportive of both national and international systems--that that would be healthy. And I'm going to have a chance to meet with some of the Chinese authorities around the G-20 meetings, and I look forward to learning more about it, and I'll be in China myself in December because we tried to help with the earthquake reconstruction Sichuan, and I'll be seeing that, and then also visiting Beijing. MR. HANLON: Okay, excellent. Thank you very much, everyone, for joining us. I greatly appreciate it. MR. ZOELLICK: Thanks, all. MODERATOR: This completes today's conference. You may disconnect at this time. Thank you for your participation. [End recorded session.] |
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