MR. HANLON: Good morning, ladies and gentlemen. Welcome to the Annual Meetings, and thank you very much for joining us this morning. World Bank President Robert Zoellick will have some opening remarks, and then, of course, we will be pleased to take your questions.
We'll turn it over to President Zoellick.
MR. ZOELLICK: Thank you, Carl.
I'd like to open by expressing our sympathies to the people of Indonesia, the Philippines, Samoa and Tonga, and others in the region. Fortunately, we have a Facility for Disaster Reduction and Recovery, so we have been able to put that into operation quickly to start to do an assessment of the disaster and recovery plans, and we have been working with the governments involved to try to raise some funds quickly for what is a huge human tragedy, and we will try to keep a watch on events over the course of the next coming days to see how we can be of assistance.
I want to thank our Turkish hosts and the people of Istanbul in particular for all the preparations. The Conference Center that you are in was just recently completed; it looks like a fantastic facility, and I really appreciate all the effort that the Government and the City of Istanbul have put into these preparations.
This Annual Meeting in Istanbul comes at a very important time for the work of the World Bank Group and the 186 countries that are its members. The G20 Summit last week provided clear markers for the work of the World Bank, but more than 160 countries were not at that G20 table. So these meetings can ensure that voices of the poorest are heard and recognized--so this is the "G186."
We have broken the fall of the financial crisis, but it is certainly too early to declare success. 2009 will continue to be a difficult year, and 2010, when much of the stimulus action will run out, remains a highly uncertain economic year.
Countries around the world, particularly low-income countries, are still suffering as the global economic crisis undermines exports, cuts remittances, curbs tourism, and lowers their investment. It is therefore important that the G20 agreed to scale up support for developing countries.
At these meetings, I hope we can follow up with the proposal for a crisis facility for low-income countries as part of the International Development Association, or IDA, which is the World Bank's fund for the poorest countries. This will put into practice a lesson from this crisis which is the need to make protection for the most vulnerable a permanent part of the world's financial architecture. We hope this facility will protect core spending on health, education, social safety nets, infrastructure and agriculture.
The World Bank will also follow up quickly with the UN Agencies and other partners on the G20 request to put into operation the food security initiative launched at the G8 meetings in L'Aquila. IFC has been very innovative in developing new facilities to match client needs with investor interests in the areas of microfinance, infrastructure, trade finance, bank capital, and most recently, debt restructuring for private companies in the developing world.
So these meetings will also enable us to work with the private and public partners to make use of our new Asset Management Corporation.
One of the legacies of this crisis may be a recognition of changed economic power relations. The latest economic forecasts show how China and India are helping to pull the global economy out of recession, but we should also remember that countries in Southeast Asia, Latin America, and the wider Middle East and Africa as well can also serve as engines of growth. A multi-polar economy, less reliant on the U.S. consumer, will be a more stable world economy.
In this new multi-polar economy, the Bretton Woods arrangements forged after World War II and patched up in the decades since look increasingly outdated, so policymakers need to catch up and move ahead.
Catching up means voting reform at the World Bank and IMF. I have called for increasing the developing countries' share in the World Bank over time to 50 percent. Last weekend, the G20 took an important step in this direction by proposing the increase in share of developing countries by at least three percentage points by early next year. This would create a share of 47 percent for the developing and transition countries, and this will be another item that I hope we will discuss with the Development Committee.
Of course, these are difficult times for governments as their budgets are stretched. Yet I am pleased that the G20 pledged to ensure that the multilateral development banks have enough resources and asked us to review capital needs by the first half of next year.
In the case of the World Bank Group, our discussions with our shareholder governments on a possible capital increase for both IBRD and IFC will continue at these meetings and afterward. Talks are already well-advanced. Last spring, our shareholders had asked the Bank to scale up to provide $100 billion in support over the next three years, and as I have reported to our Governors, demand is already moving beyond this, and by the middle of next year, we will start to face serious constraints.
We have been earning added support. Developing countries are pressing us every day for more investment. So these meetings will provide a very useful opportunity for the developing countries to speak directly to their other shareholders about their needs.
IFC also faces a capital constraint that could curb its support to the private sector in developing countries. This is a particular problem because one of the issues of this recovery is a hand-off from government stimulus programs to the private sector development.
So the danger today is no longer, fortunately, one of a collapsing world economy. The danger today is one of complacency. If the crisis wanes, there will be a natural tendency to return to business as usual. And it will become harder to convince countries to cooperate in order to address many of the problems that led to this crisis, that put millions of livelihoods of people at risk, and the problems that we will face coming out of the crisis. Therefore, we have to seize this moment to press reform.
MR. HANLON: Thank you very much, sir. Now, we'll turn it open to questions. I would ask you to kindly state your name and the name of your organization, and if you could limit it to one question at a time, that would be much appreciated. Let's take the question from the gentleman here in the second row, and the microphones will come to you. QUESTION: Hello. Steve Schifferes from BBC News. I just wondered if you could develop more the negotiations--your having to get more money from the rich countries into the World Bank, particularly with the proposed capital increase, because my understanding is there are some difficulties, particularly with the U.S. Congress in getting anything through, given that they've just dumped quite a bit of money for your sister organization, the IMF. If you're not able to get this through or find other ways of raising money, how difficult will that make the situation for the World Bank and what will the effect be on poor people who as you say are looking forward when your current funds are going to run out? MR. ZOELLICK: We have different funding arrangements, and the one that you're referring to really deals most with low- and middle-income countries, and the middle-income countries through our IBRD borrowing and lending, as well as for IFC, our private sector side. We also have a fund for the poorest, IDA, which I could come back to if you want. On the IBRD, fortunately, we came into this crisis very well capitalized. So, it was our view that we needed to lean forward, use that capital quite fully, and be in a position that if we needed additional resources that we could do so from the basis of having earned it. And so far, that's what we've been able to do. Our IBRD lending for the fiscal year that ended June 30 was about $33 billion. That was about three times the prior year's sum. And our projection for this coming fiscal year--so, from July 1 of 2009 to June 30 of next year--is going to be even higher. It is $40 billion or above. And so, given that the Development Committee last meeting in spring asked us to try to stretch with $100 billion of lending, we are seeing, as we look into 2011, that we'll go through that $100 billion and probably beyond. Now, what we've already started to do, and there's a lengthy paper on our website that outlines this is that, since that Spring Meetings, we've been working with our Board to see how we can put together a package of financial resources. We put in place a pricing increase to try to make sure we were covering all costs earlier this summer. We are working with some of the countries whose capital is put in in the form of their local currency to make sure we have full access to that capital We, as part of the voice reform, the shares issues, this will likely involve a special capital increase, that's another possibility. We've tried to keep a flat, real budget even though we've tripled our lending operations and are getting a lot of requests for analytical support, and we're looking as well at the possibility of additional price changes for particularly long maturity loans; we do loans out to 40 years. That leaves the question of a potential general capital increase, and one of the topics that we'll be discussing at this meeting is what the assessment is for forecast demand and what actions may be taken to move towards additional capital increase, and in the paper you'll see we outline various scenarios and talked about what these contributions would involve. We recognize that all countries are under budget strain, and so this is not an easy time to be asking for these things. You have probably seen that a number of the other regional development banks are in a similar process. And so, what I think we'll do at this meeting and beyond is to talk about how we would expect to use the resources we built and a possible general capital increase to not only help get through this crisis but go beyond. And just to connect it to the general agenda, this is not a question of charity, it's a question of self-interest, in that everybody is wondering where the demand will come from to make a stronger recovery. You have a lot of developing countries that now have the fiscal space to expand demand, to pick up for, perhaps, less demand from the U.S. consumer but they need the lending. And while international markets have opened up somewhat, they are having a hard time getting the volumes they need at reasonable prices without squeezing out their private sector. So, we will also talk about how capital could be used to help support the public goods agenda, for example, climate change since that will be part of the discussions going on in the Copenhagen Agenda. So, you link this back to the U.S. Congress. I have actually frequent ties with legislators around the world, and I haven't run into particular opposition on any of this. They are all strained in terms of, they have a budget deficit of about 12 or 13 percent of GDP, but I think if we can show that we've made a good case, that we've earned it, that we're making other reforms about accountability, transparency, other aspects – and particularly if what we've tried to do is combine this so all the countries are contributing, the developing countries are contributing as well – I think we've got a good case to make. But I will give you another idea which we put on the table: People may want to do this in a contingent fashion. In other words, say, if our equity-to-loan ratio, like a bank's leverage ratio, gets to a certain level, then you put in more capital, and if it got higher at a given point, maybe you would return some of the capital. So, it fits the general point, which is these institutions have to change. And we feel that, over the past year, we've really stepped up to the plate. We've got the ability to have another strong year. But our shareholders, both developed and developing countries, are going to have to calculate how close they want to run us to the edge in terms of being able to support developing countries given an uncertain year in 2010. So, that's exactly the types of discussions I suspect that we'll be having in the Development Committee. And the other point that, frankly, is very useful for these meetings is it allows the developing countries to make the case directly. So, we talk to obviously potential donors and shareholders, but on the week of the G20 we did about $4 billion of lending for India. It is important for India to be able to explain the benefits of that. Mexico--you've got a natural disaster in Indonesia; Indonesia has benefited. Colombia, South Africa--and I think, in some ways, the most powerful case for how these resources can be used effectively is for the people involved. MR. HANLON: Thank you very much. Let's go to the front row if we could, please, sir. QUESTION: My name is Horatio Williams from Liberia. You've been talking about the global financial crisis. In Africa, especially, most of the countries have seen a significant drop in their import earnings--in our export earnings, rather--because of the crisis the prices of major exports have dropped. Like, the U.S. is a case in point. Our leading export, rubber, has dropped significantly, the price. How can the World Bank help to assist Liberia, particularly through direct budgetary support, when there is a huge fall in revenue generation? MR. ZOELLICK: A number of ways. First off, when the financial crisis, as you know well, actually followed a food and fuel price crisis, and one of the things I am very pleased we were able to do quickly – and in part this is because we had the resources to do so at the start of the food crisis – was to put together an emergency food crisis response program, which also got some additional contributions from Australia, Canada, Russia, European community and others. And so, the first thing we were able to do in the case of Liberia was to try to work with the World Food Programme and others to do some school feeding programs, safety net programs, that additional support. Second, the IDA fund that I alluded to in the answer to the BBC's question is about $42 billion over three years. That's the envelope, but we can try to frontload that. So, we did $14 billion worth of IDA support in the fiscal year ending June 30. That's about a 25 percent increase from the prior year, and we're trying to use that in ways that particularly match crisis gaps. Third, one of the points I alluded to in my remarks and that came out of the G20 meeting is that, for countries like Liberia, we think there's another problem, which is that sometimes the IDA system is not flexible enough to help deal with particular crisis shocks. And so, we had recommended, the G20 endorsed, I hope this group will endorse as well, that at our midterm review next month in November that we look for ways that we might be able to reallocate some of the IDA funds. It is not just a question of money, it is also a question of speed and flexibility in their allocation. We believe we can do so without taking away from any national envelope because the IDA funds have been put in different categories and we think we could get some additional support of that nature. Fourth, coming out of the G20 meeting and before that, the L'Aquila Summit, countries pledged $20 billion for additional food security support. As I have been emphasizing in past weeks, that's a generous commitment. We have to move beyond words on paper to seeds in the ground and fertilizers in farmers' hands, and that's what the G20 Summit asked us to try to do with some of the other partners, and we actually got a follow-up meeting during the course of these Annual Meetings to help try to operationalize it. Fifth, IFC and the private sector. IFC did about 50 percent of its projects and about 44 percent of its investments in the IDA countries, the 79 poorest countries. So, they have been trying to increase their activities there. And as you would know in a country like Liberia, when I visited there, I saw that part of our IFC program was a technical assistance for businesses, whether it helped them with the trade finance, with their exports. So, there is a series of things we could do, but frankly, coming back also to the question on capital, the countries that I am most worried about are the fragile and post-conflict states. If we had some more resources, I would like to try to do some other innovative things. Just, since you're from Liberia, I was struck by the critical need to get an electricity generating plant up and running. I don't think the private sector will do that on its own, but maybe we could work with the private sector. And if we had some money to invest in some projects like that it could help us do more. So, that category of countries coming out of conflict and, in your case, with a very heroic leader trying to move forward is one that I think we need a particular eye on, not only in coming weeks but in months ahead to try to see how we can help make the transition from tragedy to opportunity. MR. HANLON: Okay. We have time for some more questions. Gentleman in the third row, please. QUESTION: My question is what do you think could be the biggest challenge for the global economy next year, and in regard to that, what could be the biggest challenge for the Turkish economy in 2010? Thank you. MR. ZOELLICK: Well, the first one is a particularly good one, and I have tried to suggest that at the most general level, the greatest challenge is slipping back into complacency. We have broken the fall in financial markets. You saw the IMF forecast. People see some prospects of recovery. But if you look closely at what Dr. Blanchard of the IMF said yesterday, you are still expecting a very slow recovery, large-scale unemployment, big output gaps. All of this again goes to the types of resources that we can either put in place or mobilize. And then there are some particular issues about the cycle of recovery. One, a lot of the stimulus spending in the U.S. and some other countries really comes in late 2009/early 2010, so the issue will be about whether there will be a hand-off from the government spending to the private sector side. Second, you are going to have issues of imbalances in the nature of the recovery. I expect that China, which has done extremely well and has played a very important role in the recovery, is going to face a challenge--which I discussed with them when I was there a few weeks ago--because their credit growth has been very large, and they are starting to bring that back, and that could mean some potential effect on their growth later in 2010. Similarly, if you look at the East Asian economies--and there were some reports in papers today--you are starting to get some early signs of faster recovery but also potential inflation. This raises the challenge in a global system of what their response will be. Traditionally, the central banks in East Asia have followed the Federal Reserve because they have been sensitive to having their exchange rates connected to the dollar, so they don't want to raise interest rates too quickly. If they take that approach this time, you could have some inflationary and bubble effects. On the other hand, if they raise interest rates earlier to try to counter some of the inflationary impulses, you could see a movement of capital, and again that will affect exchange rates. So, all of these are just examples of the fact that the nature of this recovery has a lot of sensitivities, a lot of uncertainties; people should not take things for granted. My own guess is that you will have a slow recovery, and that's one reason why I think developing countries can help pull the overall system out of the recovery if we give them appropriate financing. Then, you have other risks like trade and protectionism. On Turkey, I think the medium-term plan that the Turkish Government has developed looks sound to us. This is most likely to see growth respond in 2010 . As you know, there is a particular issue about jobs and employment because there are many young people in Turkey. That is a potential dynamic part of the economy, but we have got to help get them to work. So we have expanded our lending to Turkey and have tried to focus particularly on some of the small and medium-sized enterprises which can be good job creators and also on the entrepreneurial side. But Turkey, like the rest of the economy, faces the uncertainties of what happens globally. MR. HANLON: Okay. Let's see if we can get a question from the lady here in the second row, please. QUESTION: Alicia Delgado [ph.] from El Financiero Mexico. Just using your expertise on international trade, one of the main problems is that the United States is going to have weak demand or weak consumers, and even the more developed economies like Great Britain. So, what can be done from the World Bank point of view and even resources to guarantee the possibility for a push-up of the credit that is supporting international world trade, and how could it be restored if loss of world trade from emerging countries to developed countries, because for two decades, emerging countries, especially China or India or Mexico, all of these big economies, have been tied [ph.] to low--how can I say it--manufactures and services, goods of trade. It is more complex. And yesterday, the Economist of the IMF said that these countries must look more inside and not rely on exports. That is- MR. HANLON: Okay, thanks for the question. MR. ZOELLICK: Well, let me pick up on the last point that Dr. Blanchard probably made. This goes to the point that I was making at the start about domestic demand, and Mexico has room to expand domestic demand if it gets the financing. So we provided some $5 billion of commitments and disbursements for Mexico this year; we'll hope to do the same next year, and that is exactly the question of why we feel that we may need additional resources, because this recovery is going to take a while. Secondly, there are increasing opportunities for South-South trade, so if China grows and India grows, as you have seen in some countries in Latin America, that provides opportunities for exports. A number of them are more commodity-based, but that can expand over time. Third, you touched on the trading system which is critical. This would be a disastrous time to slip into protectionism, so what we and the WTO and others are trying to do is urge that countries not raise barriers, that they complete the Doha Round of the WTO. And in particular one of the things that I have a couple of sessions related to is what we can do to try to help with some of the logistics systems, customs systems, overall trade facilitation that can also reduce barriers and expand trade. MR. HANLON: Okay. We have time for a couple more questions. The gentleman in the black suit there. Thank you. QUESTION: My question will be about unemployment. Unemployment is still growing, and it seems it is going to grow, too. What is the World Bank's point of view on this issue, and do you have any plans for helping people who have lost their jobs? MR. ZOELLICK: Well, first, I agree with you that even though you are starting to see signs of recovery, we and the IMF and others expect that unemployment will continue to go up, and it is going to be slow in coming down. Second, one good aspect of the response to this crisis is that we, working with the countries, have learned some of the lessons of the 1997 financial crisis in that it is important to have safety net support, because when you get large-scale unemployment or a big drop, you get problems of malnutrition, kids get taken out of the schools, those at the bottom are hurt the most and have the least cushion. So as part of the lending we did last year, about $4.5 billion was for safety net support. And we have worked with countries all around the world to try to customize programs for particular needs. So, in Mexico, they have a very good program called Oportunidades that is a conditional cash transfer program, and some of our loans went to expand that program. For some countries in Africa, they may not have the capacity for that program, so we do, as I mentioned, in Liberia the school feeding, nutrition, and food-for-work programs. So that is an important aspect that we are trying to work with all countries about to make sure they have the appropriate safety net. Third, it really goes back to what we are talking about on making sure there is demand, because the best thing one can try to do is keep demand overall, which will help pick up export investments. Fourth, the best safety net is a job, so this is one reason why I am very pleased with the creative work of IFC, whether it be trade finance or infrastructure, which create future productivity but also create jobs. You have seen that Financial Times did a piece yesterday about how we are now trying to develop some cooperation with others to help restructure debt in private sector companies so that, as opposed to them going bust, we can help them get back on their feet. Also in the case of Turkey, we are looking particularly in the small and medium-sized enterprise sector.
MR. HANLON: Okay, thanks much.
We'll take our final question from the gentleman here in the second row, if we could.
QUESTION: Yesterday it was said that the Asian Region is at the forefront of the global recovery. My question is could you indicate any future challenges faced by the South Asian countries, especially a small country like Sri Lanka.
MR. ZOELLICK: Well, Sri Lanka is a country that is coming out of conflict, so the particular challenge is to try to help some of the people in the camps get back on their feet, and we have been trying to work to do that and to create a successful integration for the Tamil community in particular.
A bigger issue for South Asia is that the degree of regional integration in South Asia is far below that of, for example, East Asia which you mentioned or, increasingly, Latin America. So, obviously, India is very important in this, and in discussing this with Indian officials, I think they have a forward-looking view at this. I talked about this recently with the Prime Minister of Bangladesh. So, if one can reduce barriers to trade and investment, and help the overall appeal of this as an integrated region with energy, resources and others, that can be beneficial. So we work, for example, with Pakistan, some of the Central Asian countries, and Afghanistan to try to help with some of the electricity interconnections as well as generation.
So South Asia will undoubtedly be very affected by the fortunes in India, and the good news is that India has been doing pretty well in this crisis, but again, as my comment to another reporter mentioned, they are going to need support, and we are doing some large-scale lending to India to try to help.
MR. HANLON: Okay, excellent.Thank you very much, ladies and gentlemen, for your time. We greatly appreciate it, and we'll look forward to seeing you again over the course of the weekend.
[Whereupon, at 10:09 a.m., the press briefing was concluded.]