Transcript

Transcript of a Press Conference of the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (Group of 24)

October 1, 2004

Transcript of a Press Conference of the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (Group of 24)
Washington, D.C., October 1, 2004

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IMF STAFF - Good afternoon ladies and gentlemen and welcome to the press conference of the Chairman of the Ministers of the Group of 24. The press conference is on the records.

Let me introduce the head table, The Chairman of the Ministers of the G-24, at the center, is Mr. Conrad Enill, Minister of Finance from Trinidad and Tobago The First Vice Chairman, is Mr. Paul Toungui, Minister of Finance from Gabon. The Chairman of Deputies of the G-24, is Mr. Ewart William, Governor of the Central Bank from Trinidad and Tobago And the Director of the G-24 Secretariat is Mr. Ariel Buira.

Before we start the press conference, the Chairman of Ministers of the Group of 24 and the Chairman of the Deputies will have a few remarks.

Mr. Chairman

MR ENILL - Thank you. It gives me great pleasure to be with you this afternoon at this closing press conference, as well as to report on the successful outcome of the meeting of the ministers of the intergovernmental Group of 24 on international monetary affairs and developments. As usual, we discussed the principal issues and challenges facing the international community. We have made available to you in the communiqué the conclusions of our deliberations this morning. Mr. Williams, chairman of the deputies, will provide a report which will highlight certain key recommendations which our ministers underscored.

MR. WILLIAMS - Coming out of the meeting of the deputies the ministers reviewed the global economic prospects with particular focus on the downside risk being faced by the global economy. Although the world economy is rebounding, and the recovery has become more broad-based, the G-24 ministers cautioned about the continued large global imbalances, the move toward a higher interest rate environment, the volatility of oil prices, and the existing serious geopolitical challenges.

Ministers agreed that a strong multilateral cooperative approach is critical to avert a disorderly unwinding of global imbalances and to ensure continued global expansion.

In particular, advanced economies need to address their fiscal challenges and structural challenges, while the U.S. has helped to support the global recovery through significant fiscal expansion and an accommodative monetary policy, there is a need to put in place a medium-term plan to return fiscal policy to a more sustainable path. In the European Union, monetary policy should remain accommodative and structural reform should be deepened. Japan should continue to address the lingering imbalances in the financial and corporate sectors.

Ministers expressed regret at the terrible loss of life and destruction of property wrought by recent hurricanes in the Caribbean and elsewhere, and called upon the multilateral institutions to provide prompt and substantial concessional assistance to the affected countries.

Another issue that ministers considered related to the importance of strengthening the momentum of trade negotiations under the Doha Round to ensure that trade liberalization continues to drive economic growth.

Ministers stressed that the Fund must continue to play a central role in the international monetary and financial system by helping members with sound economic policies maintain market confidence through financial support. The G-24 ministers regretted that the Fund has unable to develop effective lending facilities to help member countries prevent financial crises especially shocks to the capital account. Ministers questioned the benefits of proposing policy monitoring arrangements, which are considered voluntary, but include strong conditionality but no financing. Ministers cautioned against a proposed instrument becoming a requirement for lending for grants and for debt relief.

A fourth issue before the deputies concerned the governance of the Bretton Woods Institutions. There was frustration that after two years and the commitments of Monterrey, no real progress has been achieved in advancing the voice and participation of developing countries in the decision-making processes of the Bretton Woods Institutions. Against this background, the deputies had a wide ranging exchange of views on the way to unify developing countries behind a common package of reform measures. And clearly, agreement was not easy to reach.

As chairman of the deputies, I sensed a broad consensus that the G-24 countries had an important role in moving the process forward. But it was felt that the clear road map was needed to ensure effectiveness. On this basis, the deputies and the ministers agreed on a proposed road map which, although not outlined in the draft communiqué, would involve the appointment of a G-24 working group at the time of the 2005 spring meetings.

The terms of reference of this group will be prepared by the bureau of the G-24 for consideration and adoption at the spring 2005 meetings; the technical support group of the G-24 will provide support in its own Research Program, particularly the March 2005 technical group meeting will focus exclusively on governance issues, and including, for example, the design of a new simplified quota formula to properly reflect the relative size of developing country economies and so on. The road map requires the group to do their reporting according to a specified table, one important benchmark being the fall meetings of 2005.

Finally, ministers underscored the importance of increasing financial support to developing countries to achieve the MDGs, the millennium development goals. In this context, there was broad support for the new UK initiative for paying their share of the poorest countries debt service owed to IDA and to the African Development Bank. They also believe that the proposed international financing facility should be implemented without delay. Additionally, ministers took note that once economies continue to fall far short of reaching the agreed UN target of 0.7 percent of GDP for official development assistance.

That, in essence, are the main issues covered in the communiqué.

QUESTION: You mentioned in paragraph 2 of your communiqué that savings of developing countries, reserves are migrating to the developed countries. I was wondering whether that was not due to the fact that the developing countries do not have any confidence in the banks of the developing countries, and so the remedy is not to protect, but to improve the stability of banks in developing countries so that they can lend to each other? And secondly, you mentioned that quotas should be on the basis of PPP. Have you worked out what the difference in the quotas of the developed countries, how it compares with the present one?

MR. WILLIAMS - In the case of the first part, the accumulation of reserves by developing countries, particularly the Asian developing countries, and in fact it is not only the Asian developing countries. They have the largest reserves, but developing countries are finding themselves having to accumulate large international reserves for security reasons. The facilities do not exist in the lending institutions now, whereby they can get easy access to multilateral financing for precautionary purposes.

The process of reaching agreement on programs with the multilaterals is a long and complicated one. Conditionality is also a major issue, certainly from the point of view from the developing countries, and access is a major issue. So, in the absence of significant access, in the face of tight conditionality, and in the face of the various other processes that are involved in dealing with multilateral agencies, the developing countries tried to take precautionary action by building up large external reserve situations. As you know, that means, in fact, lending to the industrialized countries.

Mr. BUIRA - On the part of quotas based on market exchange rates and purchasing power parity, there is a very significant difference. The current quota formulas, which measure GDP in multiple exchange rates, substantially underestimate the size of the GDP of developing countries. And, this is because there are significant differences between the prices of traded goods and those of goods that are traded only internally in the domestic economy in developing countries, that do not exist in developed countries. Prices in developed countries are normally much the same whether you are in the international traded goods sector, or in the domestic economy. But, in developing countries, there are large sectors that are less integrated into the world trade, and where price levels and salaries are well below international prices.

Now, this has significant repercussions. For instance, if you have a haircut in Washington, you may easily pay 25, 30 dollars. If you have a haircut in a developing countries, you would probably pay 5 dollars or something of that order. Now, you are obtaining the same service, but it is valued at 5 dollars at current market exchange rates when you had your haircut in India or Latin America, and 30 dollars when you had the haircut in the U.S. Now, this does not really mean that the U.S. GDP is six times larger. It was exactly the same product. And in fact they took greater care or greater pains in the developing country, but it was measured as the one where six times bigger than that. And this produces an enormous bias against the developing countries.

Let me tell you what happens with current formulas. If you take the smallest seven European countries, which at market exchange rates account for 1.2 trillion dollars of Special Drawing Rights or SDRs, and they represent something like 3 percent of GDP of the world when you measured it in real terms of the purchasing power parity terms, these countries have a quota of 17 billion dollars, SDRs. If you take the largest seven Asian countries—which at market exchange rates have a GDP of twice the Europeans—when you measure it in purchasing power parity, they account for 23 percent of world output, and guess what? They have a smaller quota than the Europeans. They have a quota of 15.5 billion as compared to 16.9 billion in the case of the Europeans. This is the disproportion, the absurd situation that we are faced with. This is why the developing countries say that you should eliminate the bias that is incorporated in current formulas by basing them at market exchange rates.

QUESTION: In the communiqué that has been circulated, you advocated for greater assistance from the Fund and the Bank to the Palestinian people. Now, I just want to know how meaningful any assistance to the Palestinian people can be without a resolution of the security and political problem arising out of Israeli occupation. Secondly, one of the problems that confronts economies in the third world is natural disasters such as locust infestation in north Africa. Have you made any recommendations for prevention and have you taken into account the impact of these natural disasters like locust infestation, lack of rainfall, so on, in the next couple of years.

MR. WILLIAMS - Let me make a comment on the natural disasters. There is a reference to natural disasters in the communiqué, specifically to the hurricanes that affected the Caribbean region recently. And, the recommendation is that the multilateral agencies take efforts to assist these countries on the basis of concessional lending. The fact of the matters is that there are in existence now facilities for natural disasters in the Fund, for instance the Compensatory financing facility or CFF.

But even in the situation of the CFF, again, the issue of quotas comes in, which we assess the size of the lending, and subliminally there are elements of conditionality that is attached even to these compensatory, or these facilities that have do with natural disasters.

The G-24 ministers would like, the proposal is for a situation where there is more generous, there is a more generous approach to lending facilities for natural disasters. The one that we dealt with specifically is the case of the hurricanes, but I am sure that the same principle could apply to instances you talk about. The Palestinian problem, I do not have a clue about it, but I am sure some of my colleagues do.

MR BUIRA - I think we agree with your assessment of the security problems, but it is better to try to provide some economic assistance to give them relief, and to find employment and to find housing, so forth, and alleviate the very difficult situation. But—

MR. WILLIAMS - The practical matter is that the institutions we are talking about do not have much direct influence on the political problem, and I guess what you do is, you try to make the best within the framework that you can influence, and the framework that can be influenced by the multilateral agencies, the agencies to whom we are making recommendations, is dealing with the financial problems.

QUESTION: My question is simply this: How do you create employment for people who are fleeing from gunfire, from people who are facing genocide? How can you, as the Bank and Fund, to give them money, what is the import of the money, what really is the money do in a situation where the people are being exterminated?

MR. ENILL - I guess the answer would be that, those who are in fact there would be the ones we are focusing. I think the governor made the point that there are issues that are outside our area of influence, and these we would simply highlight at this particular level so that the appropriate agencies, the appropriate influences can be aware of them. But, there is a limit to what the G-24 as a group can, in fact, influence, and to the extent that we can so do, we have placed this particular matter on the agenda, we have stated in much the same way that you have, the need for us to deal with these matters quickly, so that the conditions that you have expressed can, in fact, be neutralized. There is a practical situation, and the situation is that aid agencies can only provide relief in a particular framework, and that, quite frankly, is what we are doing. There is also another situation which is that learning from that particular experience we have said other countries who may have similar types of situations, we would want to look at providing a similar sort of assistance within that particular framework. The lesson here, I think, is that notwithstanding the circumstances which we have identified and those we have difficulties with in other instances, the model we have used to relieve some of the pressures can, in fact, be replicated in other parts of the world, and be successful.

MR. WILLIAMS - In passing, I do not think dealing with the economic part of it is mutually exclusive or is inconsistent with the continuation of the dialogue and the action to deal with the political. It is the same thing with the national economy. When the Fund or Bank gives advice, it gives advice in a particular sphere of influence. But, in the final analysis, creating incentives for investment assume that political security is there, and it assumes that the government or that other powers see about the political security. It is a question of dealing with the sphere of influence that you can handle.

QUESTION: You talked about the G-24 working group. Can you give more detail on who will head the group, the size of the group, how much clout it will have, and what kind of depth of reporting and influence you expect it to have by next year?

MR. WILLIAMS - Let me start off and then pass it on. As we said, this was a contentious issue in the context of the G-24 discussion, and there was broad agreement on the fact that the G-24 should be playing a role. There is no doubt. There is broad agreement on the fact that there is a need to have a clearly defined agenda so that the effort does not flounder. And, the deputies gave the go ahead to the technical group of the G-24 to work out the specific details, including the terms of reference, including the specific arrangements of representation and so on, including a timetable for reporting. So, the G-24 dealt with it at a pretty general level. The Director of the G-24 Secretariat is here, and I guess he has some ideas as to some specifics of the road map.

MR. BUIRA - I do not think I have very much to add. The purpose of the meeting of the group would be to formulate a common position, to develop our own proposals in order to strengthen our hand in future discussions of this important matter. The group should at some point develop a package of measures that include increasing basic votes, revised quota formula, so forth, in order to reflect the interests of the different groups of developing countries. The working group composition would be an open one, to allow all countries to participate and express their views. Members would probably be high officials, Executive Directors, members of their offices. The precise terms of reference is a task that was left to be undertaken, prepared by the bureau, and to be submitted to the spring meeting of the G-24.

In the meantime, it was thought that it would be useful to focus the research efforts of the technical group meetings, which are normally held twice a year, to focus those for the next meeting in March or so, on issues of governance. In order to develop ideas, advance proposals that would help the developing countries with intellectual arguments, and with a more solid position to put forward. Indeed, I think that this is an important step. If you look at the paragraph 10 of the communiqué, you will see some of the ideas that are in the minds of the G-24 as to how to approach this matter. But, at this stage, what we are doing is, we are going to have some further technical, some research work that will support the work of the working group whenever it is established, and that should help us have a more unified, and more intellectually solid, positive position.

MR. ENILL - One of the things the ministers wanted to make very clear is that this is an issue that one needed to advance within a particular time frame, because it is on the agenda, but the governor is right, it is a contentious issue, and it requires a certain kind of participation going through a process that at the end of the process, will yield a result that all the parties can, in fact, agree to. And I think this is a step in that direction, and at the next meeting we would be in a position to talk a little bit more about the work that was done and certainly some of the recommendations that may come out of that work. Of course, once that is done, it has to go to another level, a wider level, in order to get consensus, and then move the process forward.

Thank you.

(whereupon the press conference ends)