Thursday, October 7, 2010
MR. HANLON: Good morning, and thank you for attending this news conference with World Bank President Robert Zoellick.
Mr. Zoellick will begin with some opening remarks and then would obviously be pleased to take your questions. It is a busy day, and we would like to get started.
Mr. Zoellick, sir.
MR. ZOELLICK: Thank you very much, Carl.
I would like to welcome all of you to this opening press conference for our Annual Meetings. We have reorganized these Meetings so that they will be shorter and more business-like. The official part will now only be about two-and-a-half hours long compared to the previous day-and-a-half--something that Dominique Strauss-Kahn and I talked about when we first came to the Bank and the Fund, so I am hopeful this will be of greater focus for our Governors.
These Meetings are an important opportunity for me but also for the Bank staff to be able to listen and to learn about the priorities of our 187 member countries. I suspect we will be focusing on several areas where we have had discussions--assessing the crisis two years on; how the World Bank Group has responded, what more developing countries need, including IDA, and we will try to do some anticipation of future challenges and opportunities.
As far as the crisis is concerned, the world economy is recovering--that is the good news--but it is recovering at too slow a pace to bring down unemployment significantly, particularly in a number of the developed countries. And whenever you have high unemployment, you have risks of other tensions. We see this now in debates on currencies. Developed countries are easing monetary policies. Some developing countries are tightening in response to growth. Some surplus countries are intervening to lower the value of their currencies to boost exports. And all this is causing international tensions.
History shows there is no future in "beggar thy neighbor" policies, and in an increasingly interconnected world, we need not just to be conscious of the negative effects that policies can have on others, but we need to act accordingly.
Today we face currency tensions. Tensions can lead to trouble if not properly managed.
The recent crisis is still affecting jobs and livelihoods across the world. If ever there were a time that we should not turn our backs on international cooperation, it is now.
We should also recognize that today's low interest rates cannot last forever. At some point, interest rates will rise. So policymakers and markets will need to be ready for what can happen next.
Today's prices on bond markets will inevitably come down with consequent effects on portfolios and savings.
But today's market volatility and risks should not distract us from the fundamentals, and that is particularly what we try to focus on at the Bank. We need attention to balance sustainable, inclusive growth. Some economies have high savings and export-led growth while others are fueling their consumption with debt. The world economy will need structural changes to become more balanced and sustainable and, particularly important, a focus on conditions to fuel private sector-led growth.
One particular bright spot has been the growth in developing countries. They are growing at a faster pace than developed countries. Developing countries are expected to account for about one-half of global growth in the several years ahead. It is a very different world from the one even ten years ago. Their growth provides an important source of demand for exports in developed countries.
But some developing countries are facing headwinds. While many have regained access to the capital markets, bank lending remains weak. In net terms--so, new loans less repayments--bank lending is likely to be negative for this year as a whole. That will be particularly hard on smaller countries, poorer countries, that don't have as good access to security markets, or smaller countries.
Also, for many developing countries, the food crisis of 2008 has never fully gone away. Recent price rises and strife in Africa are a serious cause of concern. The rise in wheat prices over the last few months is affecting the price of other staples due to the increased demand for substitutes.
We are very pleased that the World Bank has been able to provide $140 billion in financing for the developing world since the middle of 2008. That is our IBRD lending, our IDA fund for the poorest, also our IFC for the private sector, and that is since the middle of 2008 when the global crisis really took hold.
But we know we need to do more. In New York last month, leaders affirmed their commitment to meet the MDGs by 2015. IDA, our fund for the 79 poorest countries, is a key part of this. Over the last 10 years, we estimate that IDA has helped save 13 million lives.
With a robust IDA replenishment, we could immunize 200 million more children, extend health services to over 30 million people, give access to improved water sources to 80 million more people, help build 80,000 kilometers of roads, and train and recruit over 2 million teachers.
We won't be discussing specific IDA commitment numbers at this meeting, but we will be asking donors to step up to support IDA by the end of the year.
A new multi-polar world means a variety of things. It means more voice for developing countries. We have been able to boost the developing country representation to more than 47 percent at the IBRD. That was a shift of some 4.5 percentage points over the last two years. And on November 1, we will add our third chair for Sub-Saharan Africa. I believe we can get to equitable voting power over time.
Our staff increasingly reflects the changing world. For the first time in our history, all of our Managing Directors as well as our Chief Economist are leaders from developing countries.
But a new multi-polar world also means changing how we at the Bank research economics. We certainly recognize that we don't have all the answers, and we have to revisit old assumptions and open our doors to new ideas. So we are very excited about moving to a new model for development research, one that gives people outside the Bank the tools to do their own research and come up with their own conclusions. It can draw on the experience and knowledge of people in developing countries, those who are closest to the problem of poverty.
This week, the Bank has doubled the number of indicators that it is releasing to the public--so we will now be at 4,000--and providing them free-of-charge. We are complementing the data by sharing software applications to led others crunch their own numbers and to double-check ours.
Today we are launching an "Apps for Development Challenge" to encourage others to provide new solutions to help us reach the Millennium Development goals.
Today we are also launching a two-day Global Open Forum, which will be a live internet discussion on key development issues of the day.
So we are trying to throw open the doors to how we do business, and we hope others will follow, because in a networked development architecture, this will be how we need to work.
We have a busy few days ahead of us. We are looking forward to working with our 187 member countries.
I'll be pleased to try to answer your questions.
MR. HANLON: Okay. Now we'll throw it open for questions.
Let's start with Phil Thornton here in the front row, please.
QUESTION: Thank you.
Phil Thornton from Emerging Markets newspaper.
Mr. President, you had some very strong words on the currency issue, but I would imagine that a lot of the countries you are concerned about are effectively sort of victims of a drive-by shooting. I was wondering if you could indicate quite how bad the impact is likely to be on developing countries, lowest-income countries; and more importantly, if you could be specific about what you would like concrete to come out of these Meetings. Do you want the new Plaza Accord to oversee coordinated management of currencies?
MR. ZOELLICK: Well, this really started with the breakdown of the fixed-rate exchange system, the old Bretton Woods system, in the early seventies, and a lot of these issues are not new. I was at the U.S. Treasury at the time of the [inaudible] Plaza Accord, so this was an issue of volatility and disputes in the 1980s.
I think what has changed are two things. First, we have more and different players, and particularly some of the emerging market players, unlike the old G7. And second, we are in the midst of a very severe economic downturn, and that adds to tensions.
So my suggestion would be that first, one needs to manage the tensions. If one lets this slide into conflict or forms of protectionism, then we run the risk of repeating mistakes of the 1930s.
Second, in general, surplus countries should try to resist intervention to boost exports.
Third, I think we need to recognize that it is hard to come up with a new system to manage some of these problems at a time of tension, but we also need to recognize--and I have seen this over 30 years--that when the tensions recede, so does the interest.
So this will be a question for the countries because they have different perspectives and positions on this, but maybe they should urge some combination of whether it be the IMF, the WTO, the World Bank or others could help in this process, to look at some of the options for dealing with these issues that arise.
This is something that Keynes talked about at the creation of the IMF in terms of obligations of surplus countries. There is some loose language for the IMF to deal with this. But it has never fully taken hold, and ultimately, it will have to be the countries who decide this--and they are on different sides of the issue. But maybe, if we can get them to recognize that over time, everybody has an interest in making the system work, maybe there is a need to re-look at some of those issues.
But the fourth--and perhaps this is the most important issue from my perspective--is that one should not divert from the fundamental issues of growth and some of the structural issues that allow us to rebuild a healthy world economy. So, for example, I have emphasized in the case of China that while I believe the currency should appreciate, that is not a silver bullet, and this will have to go to some of the issues of switching the savings-consumption balance. We have talked with the Chinese about some ways to do that. The Chinese have themselves expressed interest in doing that and building it into their next Five-Year Plan.
But it is not only a responsibility for the Chinese. The U.S. has the reverse situation. It has relatively lower savings and higher consumption. So these will be issues that the U.S. will need to deal with, particularly in terms of spending and budget issues.
And the core one, at least as I see the international market, is that all of these tensions add risks for the private sector. Over a year ago, when I talked about getting out of this crisis, I mentioned a hand-off from the public to the private side. It is very important that the policies continue to create an environment for private sector-led growth.
MR. HANLON: Okay, thank you very much.
Let's go to the gentleman in the front row here, please.
QUESTION: Thanks, Carl.
Dani Jiang from Xinhua News Agency.
Mr. President, you mentioned that we need to rethink the development economics nowadays, and I know that you just came back from a China trip. Do you have some specific ideas how China and other emerging markets can contribute to development nowadays? You mentioned last year that China is a stabilizing force in the global recovery. Do you still think so?
MR. ZOELLICK: Well, as for your first question, part of the focus since I came to the Bank is recognizing that we are beyond an era of North-South knowledge transfer, but we are in a world of South-South knowledge transfer and potentially South-North. So, at a time when many developed countries are concerned about budgetary issues, I find it interesting--I saw a news report of a U.S. commission looking at infrastructure, and it was all government financing. And with the full range of developing countries I look at now, it is often a mixture of public and private financing, so there are ideas that can come from all sides.
Clearly, China suggests that there are lessons that people can try to draw. China has always, I think, been correct in assuming that there is no one-size-fits-all, that there is not a direct transfer. I think it was Deng Xiaoping who said years ago "What you should learn from us is not the specifics, but learn from the method about questioning and trying to find one's own way, drawing from others."
So, one of the things that I did on this most recent trip was actually go to one of the poorer provinces, Guizhou Province, where I think there can be additional support in the rural finance system, the small and medium-size enterprise system. This really relates to the structural question. The nature of Chinese development has tended to focus on some of the big enterprises and financing. I think there can be more done in the rural and small and medium enterprise side.
But in general, I will say that I find that in our discussions with the Chinese officials, whether it be provincial leaders or in Beijing, there is a real interest in this exchange and dialogue. In fact, there is this topic of how to make the rebalancing work effectively, whether it is better social services so people don't need the high savings rate, whether it is some of the industrial structure. That is a very live topic that people want to engage with. Equally important are topics such as how to avoid the so-called middle-income trap. When you get to $3,000 to $6,000 a year, sometimes countries tend to stall. This is a subject in China. How to have innovation in an open fashion, so not one that closes off others. How to have more open and inclusive growth.
So this is what the Bank is about, and when I was in China, we had an African delegation there, but there are also things--and I think this is the Chinese approach--that it can learn from others. So this is the type of environment we are trying to create.
Your second question was is China still--I think the Chinese growth has been very important in this recovery, and I think it had a very strong and effective stimulus program. I think this rebalancing issue that we are talking about is one that is going
to be in China's interest to address as well as others.
MR. HANLON: Thank you very much.
Larry Elliott, please, in the second row; thank you.
MR. ELLIOTT: Larry Elliott of The Guardian.
There could be an easier time to be rattling the tin for IDA replenishment than the current one, with virtually every country in the world trying to cut public spending and have austerity programs. How is that program going? Are you confident of getting as much for IDA16 as you got for IDA15, and what sort of message are you sending to some of the more reluctant donors this time?
MR. ZOELLICK: I hope so, Larry, but we will have a meeting of the IDA Deputies right after this Annual Meeting, and we'll get a better sense.
I guess I would send the following message. One, all you have to do is walk through the Atrium in our building, and you can see the focus on results. And understandably for donor countries, there is a critical interest in being able to show that there is value for money, people can get specific purposes, and IDA has had a very good record on that.
Second, as we have discussed here, part of the nature of the new world economy is that the help for developing countries also comes back and helps developed countries. If they are healthy and growing, if they eventually become multiple poles of growth, this will also be a source of demand for the developed world.
Third, recognizing that this was going to be a tough period, I started to work with some of my colleagues to come up with some innovative ideas to generate additional internal funds. So we have been talking with some, what are called "IDA blend countries" that are on the border of moving out, about whether they would be willing to harden the terms a little bit so we get more money back.
We have talked with some of the past IDA borrowers about whether they would be willing to prepay earlier so as to get money back.
We have talked about--we are adding donors, some of them being former IDA recipients, so we are getting some of the emerging markets to contribute more, and that was actually something that we linked to our share increase.
So this depends on the overall target, but I think we have a reasonable shot of having about 75 percent of the added resources from some of these new tools. But to drive that forward, we do need the donor countries to continue to try to make good contributions, and we want to try to work with them and their parliaments and others to make the case.
I am pleased in the case of the UK that even though there is an environment of cutting down the budget, they are going to try to defend development assistance.
MR. HANLON: Okay, thanks very much.
Bob Davis I think had a question.
QUESTION: President Zoellick, when you were answering the question about currency, you said that perhaps some sort of combination of the IMF and the WTO might get involved, and you also made reference to Keynes. I think--my history may be off--but I think Keynes' suggestion had something to do with penalties, tariffs, for countries that were out-of-whack. Can you explain what you were thinking of?
MR. ZOELLICK: Bob, I don't have a specific proposal by any means.
What I was reflecting on in part with the added discussion was my experience dealing with this in the eighties, realizing that you now have a wider set of countries, and that if you believe in multilateralism, I think there is a role for institutions to play an intermediating part with the key countries.
We can't ignore the fact that the countries are the ones who make the decisions here. So the reason I referenced Keynes was that the traditional problem in this field-- whether it was at the time of Keynes or whether it was at the time when I dealt with these issues in the eighties--was that the burden is all on the deficit country, not on the surplus country. As you know, the U.S. at that time rejected Keynes' approach, so the language in the IMF is much weaker, but there is a reference to this.
So my point was not to try to push a specific solution. It really is to say--and it is a recognition that given the tensions that have been created, my first priority is to manage the tensions and get on to the fundamentals of growth. But given the way the international system works, with the G20 and others, maybe there could be some thinking about having the institutions look at these in a slightly less tense context and try to come up with some issues that will benefit different countries, because as the question suggested, some developing countries, as you have had a looser monetary policy--there is money going, a lot, out there; it is chasing yield--some of this for the developing countries has meant that their currency appreciates. That puts them under stress versus others.
So this isn't a developing/developed country issue. You have some developed countries that have surpluses that have been intervening. So I think there should be a common interest in trying to figure out how to manage this. I am not so naïve as to think that there is going to be an automatic system, but maybe the time has come.
One of the things, Bob, that I have seen over the years is that sometimes, when you have a moment like this, it is important to try to take it and steer it in a constructive direction. So that was just the nature of the suggestion.
MR. HANLON: Okay. Let's take a final question if we could, please.
QUESTION: Alex Brummer, Daily Mail London.
In your opening remarks, you referred to the 1930s and protectionism in relation to currencies, and I just wondered how fearful you were that these tensions could go wrong and that we could spin off in that direction, with people putting up trade barriers against each other.
MR. ZOELLICK: I don't think it's the most likely course by any means, so while I know the nature of the business is to try to find aspects that kind of emphasize the tensions, my own sense is that we have managed a lot of these trade protectionism issues relatively well, but as the head of a multilateral institution, I see part of my function as trying to anticipate and trying to see potential risks and trying to speak out on them before they occur, which is some of what we have talked about today and some of which I'll do with the Governors, so hopefully, we can try to avoid them.
So I have avoided some of the rhetoric that some people have used that is a little bit more inflammatory on these topics, and as I referenced, I have seen this in different contexts for some 30 years, but I don't think one should take this situation for granted, because my primary message is that we are still in a very fragile recovery, and people have to be careful about some of the downside risks.
In particular--and you can see this across developed countries--with slow growth, it is growth--and by the way, I don't expect that we are going to have a double dip--but with slow growth, you are going to have unemployment stay relatively high, and that puts political pressures on people. So it is important that we try to create an environment where they work to resolve those differences in a cooperative fashion as opposed to ones that exacerbate tensions.
The last point on this goes to the point I have emphasized. From the start, I thought there were some important government interventions, but for an effective recovery, you are going to need to get the private sector investment and consumption back to a more normal pattern. People see that, for example, in the U.S., the corporate sector is in pretty good shape, large amounts of money ready to invest. But the more we create an environment of risk and uncertainty and fear, well, that's going to make it less likely that people will invest.
MR. HANLON: Once again, thank you so much for joining us.
We will be making Mr. Zoellick's remarks available on our website