|OPERATOR: Welcome and thank you for standing by. At this time all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. After the presentation, we will conduct a question-and-answer session. To ask a question, please press Star 1.
Now I will turn the meeting over to Carl Hanlon.
MR. HANLON: Good morning, ladies and gentlemen. Thanks very much for joining us.
World Bank Group President Zoellick will brief you on the upcoming Spring Meetings this morning. After his statement, Mr. Zoellick will take a few questions. This, as you know, is a moderated call, and your questions will be answered in turn. Kindly identify yourself and your organization before asking your question. Mr. Zoellick's remarks will be on the record.
Mr. Zoellick, please go ahead, sir.
MR. ZOELLICK: Thank you, Carl.
Well, thanks to all of you for joining this call. I'd like to brief you today on two issues. First is how we see the challenges for developing countries, and second, the issues we face at our Spring Meetings this coming weekend in Washington.
We're encouraged about the global recovery, but the pace is modest. Job loss has been high. People are still hurting. And the world faces ongoing questions about the strength of the recovery, where the demand will come from in 2010 and 2011, the multispeed nature of the recovery which poses different risks by country and the region, and the need to manage it globally.
In the United States, still it's recovering but faces a longer period of higher unemployment. This will have a knock-on effect on consumer demand and the banking system through losses in consumer loans, credit card loans, mortgages, commercial real estate, and there's the important issue of the handoff from government stimulus to private sector demand.
Europe and Japan, while recovering, do not look like they will become significant sources of new demand in the near future. And there are still significant risks. As I said some months ago, there will be a persistent problem this year with the re-pricing of sovereign credit. The other key question will be where will the demand come from to sustain the recovery. Developing countries can be engines of growth in this multi-polar world. They are where the demand can come from to provide growth and jobs in developed and developing economies and contribute to sustained global recovery.
While China and India are contributing powerfully to global demand, there's still much underused capacity in other developing countries. The developing world is where we need the stimulus today, as it can grow if it gets the capital through investments in infrastructure to remove bottlenecks, small- and medium-size enterprises to provide jobs, and a set of safety nets to prevent the loss of a generation.
Prospects in the developing world look reasonably good. Our staff projects growth to reach 6 percent in 2010 for developing countries and about 5.9 percent in 2011, versus 2.2 and 2.4 percent for the higher-income countries.
Added stimulus in developed countries, in contrast, could lead to more expectations of higher debt levels, expectations of taxes that could impede the recovery, and rising interest rates that could crowd out productive investments in developing countries. Some of the quicker- recovering developing economies in turn could face asset price bubbles that could pose costs and risks for their financial systems.
Now let me turn to the Spring Meetings.
To start, the Bank and IMF staff have been working hard on making them happen despite the disruptions to air travel caused by the Icelandic volcano. We have important decisions to be made however we assemble the shareholder representatives. We're also monitoring the effects on countries in Africa, especially food exporters which are suffering declines in exports.
These meetings this weekend can represent a landmark in the Bank's history. We've now made $105 billion of commitments since the full force of the crisis hit in the summer of 2008. That's broken all our records.
There are now four major issues for this meeting. First, our 186 shareholders will decide on whether to give developing countries a bigger say in the institution.
Second, they'll review our efforts to raise capital for the first time in over 20 years.
Third, they'll discuss the Bank's post-crisis strategy.
And fourth, they'll assess our very extensive reform program to position the Bank Group as a modernized, multilateral institution.
So these are ambitious steps. It's obviously very challenging to make a change in shareholdings while asking for more resources. This is a first for the Bank. This is both possible and necessary. Our balance sheet is fully deployed and absent an increase in capital, we will soon no longer be able to play the role demanded of us. At the same time, we need to recognize the rise of emerging economies in the global system.
Our shareholders committed at the Pittsburg G-20 Summit and the Istanbul Development Committee to agree to a 3 percentage point shift to give developing countries at least 47 percent voting shares in the World Bank. They need to keep their promise. The World Bank shareholders are in the driving seat. For some, it's hard to give up even small amounts. Shareholders need to bridge their differences and take this historic step. So developing countries deserve a bigger say. I suspect these negotiations will continue all week.
We'll also review efforts on capital. This is a once-in-a-generation request to deal with the impact of a once-in-a-generation crisis. Our proposed package foresees a an increase in paid-in capital of $3.5 billion as a general capital increase and over $1 billion as a selective capital increase linked to the change in shareholdings. This would make a total of some $4.5 billion. In Istanbul, we gave a range of $3- to $5 billion, so this is well on track.
As an example of multilateralism and burden-sharing at work, the package has more than half of resources coming from developing countries including through price increases and complete use of their investments in World Bank shares.
Shareholders will also discuss the Bank's post-crisis strategy. We had proposed that this emphasize five themes:
First, targeting the poor and vulnerable, especially in Sub-Saharan Africa;
Second, creating opportunities for growth;
Third, promoting common global action on threats such as climate change;
Fourth, strengthening governance and anticorruption;
And fifth, preparing for future crises.
Lastly, our shareholders will review the most comprehensive reform program in the Bank's history. It's designed for a purpose: To make the World Bank Group faster, flexible, more open, focused on managing risks and results to better serve our clients and all our shareholders.
We now live in an emerging multi-polar economy. We need to modernize multilateralism to match it. And so by way of example, we will be making reforms in our investment lending to the most advanced freedom of information policy of any international financial institution, and to tomorrow's announcement on opening our economic databases. Any dynamic business must anticipate and change. Public institutions need to do the same. Reforms are not a one-time effort. It needs to be a continued process of adaptation, so we're seeking to build that into a modernized World Bank Group.
I'd be pleased to take your questions.
MR. HANLON: Okay, if you could kindly state your name, the name of your organization and one question each, please.
Go ahead. Thank you.
OPERATOR: If you would like to ask a question, please press Star, then 1.
MR. HANLON: Please go ahead if you have a question.
OPERATOR: One moment for the first question.
The first question comes from Sandrine Rastello. Please state your outlet.
QUESTION: Okay, thank you.
I had two questions, actually. I wanted to ask, you mentioned 3.5 billion and your--all for the capital increase. I wanted to see if the IFC was going to get any or if it was out of the picture. And my second question is how does the IDA replenishment effort go into this if it's--or is it making good progress, is there any link between this and the capital increase, what feedback do you get from shareholders?
MR. ZOELLICK: Well, as for the first, we're discussing the possibility of voice changes for IFC as well, and those would be executed through a special capital increase. So, if there's agreement on that, there'll be additional capital provided.
Second, we've been discussing with shareholders the issuance of a type of hybrid long-term bond to shareholders, which if structured appropriately we believe could get significant percentage recognized as capital by the rating agencies. And we're looking to see if the Governors will accept that notion so we can further craft it with shareholders and then bring it back to the Board for decisions on terms and conditions. That depends somewhat on market conditions, obviously, as things go on.
And then third, we will look to continue to rely on retained earnings as a way of boosting growth. So we have a recognition that IFC will continue to need to grow, and the question depends partly on the pace of the ability to move along these three elements. But we are not asking for a general capital increase for IFC because we think we can meet the capital needs through these other three methods.
As for your question about IDA, since we have a number of people on the phone, this is the fund that we have to raise every three years for the 79 poorest countries and these provide either grants or long-term loans without interest. That process is supposed to be completed by the end of this year, so calendar year 2010, to go into effect starting on July of 2011.
We've started to have meetings with some of the IDA contributors. While it's a separate process, one of the things we've done in the shareholding process is try to create incentives for IDA contributions, including from some of the emerging countries, and we're already getting a positive response to that, where countries are starting to signal that they will significantly boost their IDA contributions as developing countries by 50 percent or more in some cases. So, in that way it's connected.
Another connection is that with our work with IFC, over 50 percent of IFC projects now take place in IDA countries, so we're talking about how, as we strengthen IFC, it can support IDA countries' private sector. And then, there are things that we do through IBRD capital to be able to help some of these countries. Some of the IDA countries are blend countries, so they have a mixture of being able to get IBRD loans as well as IDA; and then, in addition, we're looking at different ways, for example, something called "enclave funding," where we can be able to use IBRD loans for IDA countries for particular projects that should be able to have a rate of return.
So, our Governors, I'm sure, will be interested in the follow-through on the crisis. The numbers that I've mentioned of $105 billion include the IDA commitments, and our IDA commitments are simply constrained by the overall envelope which we got in IDA15, which was about $42 billion.
MR. HANLON: Thank you very much, Sandrine.
Our next question, please.
OPERATOR: The next question comes from Alessandro Merli.
Please state your outlet.
QUESTION: Yes, I'm Alessandro Merli with Il Sole 24 Del Sol Ore from Italy.
Before the global financial crisis, the world and especially developing countries were faced with the food and the energy crisis. Now, there's a lot of talk from economists and analysts about the possibility that these will resurface once the recovery in the world economy becomes more established. I was wondering if this one is one of your worries for the future, that the food crisis and the energy crisis may come back to damage the prospect for developing countries.
MR. ZOELLICK: The big boost in food prices for developing countries never went away. So it came down, but it still is a stress point for a number of countries. So, one of the themes I've been emphasizing is that for the poorest countries, they faced a food and fuel crisis before a financial crisis, and many of them are still suffering with that, and I firstly think you're correct. I think one has to be careful about other potential for food price increases. This depends on weather. It depends on commodity stocks. It depends on the linkage with energy prices. And therefore at these meetings, we actually have a couple of events planned. One is the food security initiative that was launched at the L’Aquilla Summit in which President Obama also put forward a proposal to try to increase agricultural production. We are up to about $7 billion a year now of investments in agriculture, a substantial increase from the past.
And so one of the events that I'm scheduled to do with Tim Geithner is kind of some of the follow-through on those commitments. We also have one focusing on the nutrition issue because one of the lessons we learned in this crisis is that in addition to the macroeconomic stability, you needed to have effective safety nets. Nutrition is critical because if you don't get the children in the earliest period, negative 9 months to 24 months, you can have long-term effects. So we're having another session that is focused with Canada, USAID, World Food Programme, Japan, Britain to try to highlight the--some initiative on the nutrition agenda.
MR. HANLON: Okay, thanks.
And our next question, please.
OPERATOR: The next question comes from Liu Hong, Xinhua.
Please state your outlet.
QUESTION: This is Liu Hong, Xinhua News Agency.
Actually I have two questions. The first, in a recent speech, you predicted that the third world is ending. You also spoke highly of China's role inthe world economy and Africa development. How would you think of China's role in the future international order and how about the relations between the World Bank and China?
The second question, very short. As to the sovereign credit you have mentioned, many people in U.S. and China also worried about the huge budget deficits in the United States. What's your and the World Bank's take on this issue?
MR. ZOELLICK: Well, as for your first question, I think China has played a very important role in the global recovery. The economic growth has exceeded expectations. The forecast for next year remains very strong. I mentioned a multispeed recovery. China will now start to face different types of challenges because it looks like its stimulus was significantly driven by credit expansion. Also some investments in infrastructure. And so, as the leaders in China have pointed out, they need to take care of some of the risks for the banking sector going forward, and that's part of the challenges I think you'll hear this weekend, which is being able to manage a world economy coming out of crisis when countries are facing different problems at different stages of recovery, and how to make sure that's coordinated effectively.
More broadly, the Chinese recovery has been important for many other developing crises, for example, in the purchases of commodities. It's been very important with sustaining growth in Latin America.
The speech also talked about the possibilities of Chinese investment beyond natural resources and infrastructure and construction to the manufacturing sector, including in Sub-Saharan Africa. We're just at the very ground floor of this, but as I mentioned in the speech, I think this has a lot of potential if the African countries can make the right policy changes, because some of the Chinese firms have the know-how, the equipment, the marketing and distribution networks so you create win-win possibilities.
As for your question about the--I think the second was U.S. budget deficit, I think the U.S. authorities are dead-on to recognize that they need to deal with this budget deficit. Coming out of this crisis, it's not surprising that they would be running a deficit, but for the sake of balances in the world economy and their own economy, it's important to show a pathway towards reducing that deficit over time. That's a challenge for a lot of the developed countries now, and it goes to the larger question of trying to create greater balance in the international system. It links to the other points I made in my speech about recognizing we're moving towards a multipolar world economy, and the--some of the imbalances obviously also relate to the challenges in China to increase their consumption levels and lower their savings, where the U.S. has the reverse challenge.
MR. HANLON: Thank you, Liu, and we'll take our next question, please.
OPERATOR: The next question comes from Larry Elliott. Please state your outlet.
QUESTION: I'm Larry Elliott of the Guardian.
Mr. Zoellick, about 5 years ago, the Gleneagles Summit, the developed world made a lot of promises to the developing world on aid. The OECD last week said that those didn't look as though they were going to be met by 2010. Do you think that the financial crisis has made it less likely that the rich countries are going to meet those promises, both on the Gleneagles agenda and on refinancing the World Bank and IDA and so on? Do you think the financial crisis will make that more difficult for people like you to get the money the developing world needs?
MR. ZOELLICK: Well, there's no doubt that the financial crisis strains all governments' budgets, and so that's one reason why it's critical to use the money devoted to foreign assistance most effectively and efficiently. In our case, we try to draw attention to, number one, with our capital increase, any contribution that a country makes is leveraged many times by contributions that others make and then again by our borrowing.
So, take Germany, which is about--or Britain--which is about a 4 percent share, you multiply that at least 20 times because others have to contribute; so, 4 or 5 times 20 to get to the 100 percent of capital. And then, if we borrow about four- or five-to-one, you multiply by another four- or five-to-one. So, for every pound or euro that they put in, you get about 100 of benefits for the developing world; so, that's using the money smart.
The second, going back to the question on IDA is that we've seen that, if countries have bilateral programs that emphasize their own national flags and interests it tends to make it harder on countries, particularly the weakest with poor capacity. So, IDA is a way that, through a multilateral pool, whether it's to be done for Haiti or Liberia or Afghanistan, you get more effective use of the funds, recognizing developing countries need to be able to manage these in a way that connects with their own development plans.
MR. HANLON: Okay. Thanks very much, Larry, and we have time for two more questions.
OPERATOR: The next question comes from David Trads. Please state your outlet.
QUESTION: Yes, hi. David Trads, Berlingske Tidende in Copenhagen, Denmark.
I have a question regarding the discussion about the pace of rolling back stimulus in Europe and the U.S. How does the pace of that rollback of stimulus affect the global recovery, and I'd like you to put special emphasis to emerging countries?
MR. ZOELLICK: Well, you used the phrase "rollback." I think the real issue is a question of whether they add to stimulus. I think most countries are just sort of letting their stimulus programs run their course.
What I sought to emphasize in my opening remarks is that, for many developed countries, given their larger debt levels now, and given the challenges they face in terms of the--moving from the credit and monetary policy expansion, there may be limited global benefits to additional stimulus policies. That doesn't say you should withdraw the ones that you have, but there are some possibilities with underutilized capacity and additional borrowing for some of the developing countries.
I was just looking at the Indonesian data over the weekend. Their deficit as a percentage of GDP is about 1.5 percent of GDP.
So, this point that the developing countries can help the developed countries with their growth--so, a key message is that these meetings are no longer about charity or just solidarity with poor countries, it's a question of self-interest to be able to get money to productive investments in the developing world to help them grow and help buy goods from the developed world.
MR. HANLON: Okay. Thank you very much.
And we'll take our final question, please.
OPERATOR: This question is from Bob Davis. Please state your outlet.
QUESTION: Hi, it's Bob Davis for the Wall Street Journal.
Can you talk about the specific effort by the G20 to come up with policies that would rebalance the global economy? And what role do you think this weekend's meeting will play in that, and your view as to whether there's anything concrete here or whether it will devolve into just rhetoric?
MR. ZOELLICK: Well, the core point that I'm emphasizing, Bob, is you have a rebalancing possibility that is set up for everybody through the developing world, and the best way to lessen that is our capital increase so that we can leverage it, invest in developing countries, and expand them as poles of growth. So, that's the smartest thing that people can do for themselves as well as for the developing world.
The IMF is also taking part in starting a process of a multilateral surveillance exercise to review countries' forecast for coming out of the crisis, and we are working with them on that, focusing on the developing world.
I believe at this meeting, but you really need to talk with the IMF, the purpose is just to outline some of the early effort have--is given the countries, provided the data on how this surveillance exercise may work and start to identify some of the issues that countries are going to need to deal with in a cooperative fashion.
Those partly deal with the broader rebalancing subject. I suspect it's also going to deal with this question that I mentioned of multi-speed recovery. So, you've got some countries at a point where they're going to need to be increasing interest rates more quickly. This could have an effect on exchange rates.
This is also a question of how countries deal with the cooperation on the financial regulation and supervision.
So, I suspect that a lot of those topics will come up in the G20 context. It's my goal to make sure that the countries don't lose sight of the fact that there's a win-win possibility here by strengthening growth in the developing world.
MR. HANLON: Great. Thank you very much, ladies and gentlemen. We greatly appreciate your questions. I'm afraid we're out of time at this point.
Once again, thank you very much.
MR. ZOELLICK: Thank you.
OPERATOR: Thank you for attending this conference. This call has concluded. You may disconnect at this time.