Transcript

Washington, DC
Thursday, April 22, 2010

MS. STANKOVA: Good afternoon, everybody and welcome to the press briefing following the 83rd meeting of the Ministers of the Intergovernmental Group of 24 in Washington, D.C. on today, April 22, 2010, that was 83rd meeting of the Group. I will pass the microphone to Amar Bhattacharya, would you like to say a few words as Director of the G-24 Secretariat.

MR. BHATTACHARYA: No, let me turn this over to Rogerio Studart, who represents Minister Guido Mantega who chaired the G-24 meeting.

Thank you.

MR. STUDART: While I'll just give the floor to you for questions about the meetings, let me tell you that I have the pleasure to have first Vice Chairman and second Vice Chair represented here. And I'll just open the floor to you for any questions.

MS. STANKOVA: So, when you ask questions, please identify yourself and the organization.

QUESTIONER: One of the issues that the Brazilian Finance Minister--Economy Minister just referred to this afternoon was that the need for the reforms suggested today by President Obama in Wall Street should be presented to countries all over the world. So, the mechanisms of protection would be common in many countries. Specifically, he said, well, if you have derivatives being dealt by a bank in a country where there's no regulation, you essentially have no regulation whatsoever.

Has this been discussed, and what is the thinking of the G-24 in terms of a reform of the financial system?

MR. BHATTACHARYA: The thinking of the G-24 on the reform of the financial system, as you will see in the Communiqué is that it is imperative if we want to have sustained recovery because confidence depends so much on financial regulation and also there's a window of opportunity now to complete the financial reform agenda. Having said that, the main discussions on the regulation--reform agenda will take place in the G-20 which, as you know, meets tomorrow.

QUESTIONER: I'd ask this question to whoever would like to answer, whether Mr. Studart or Mr. Bhattacharya. The question of having a global bank tax and penalizing countries which have not been responsible for the crisis, and I refer particularly to countries in the Asian space like India or China, how does that logic work, and how would you build political consensus on them coming in and putting taxes on banks which were never a problem for us?

MR. BHATTACHARYA: I think I can answer that.

That's actually our view as well, that it's not about penalizing banks that didn't contribute to the crisis. There are two types of taxes that people are talking about: One is about recuperating costs in countries where the costs were very large, because there's a perception that this was inequitable. And second, from a systemic point of view, as you will see in the IMF discussion is to be able to focus on those banks that potentially pose systemic risks. But you know, for countries like Australia or India or China where the banks were not really responsible for--you know, for the crisis, it is in the proposal that, you know, it's across the board. And these are still under discussion and the proposals will really only be finalized and put forward at the Toronto G-20 Summit.

MR. PUJARI: Thank you, Chair. In fact, I just supplement what Mr. Bhattacharya mentioned, and if I invite your attention to Para 8 of the Communiqué, the last line reads the following, from which you can pick up that even the capital flows was one of the mentions.

"Changes to the IMF's mandate, including in areas such as financial stability or capital flows must be anchored in broad-based consensus and applied in the spirit of cooperation and mutual understanding."

So, therefore, while the G-24 was not very explicit in talking about the two taxes that you mentioned because even G-20 is talking about and we will--all the countries will come up. Please realize that G-20, for example, is a smaller group of caucus countries. We just broadly hinted that, about the capital flows, but specifically on the two taxes that you said, apart from what Mr. Bhattacharya mentioned, we did not go into a great amount of nitty-gritty. So, that is the issue here.

QUESTIONER: [Off microphone]--capital inflows right now. When you're talking about the danger of capital inflows to emerging economies right now, which the IMF Managing Director also voiced in the morning, does the G-24 world see that as a concern, because it's basically a shift in money power going from the advanced economies to the emerging growth economies?

MR. BHATTACHARYA: You're putting words in my mouth. I didn't even say that. All I said is that, in respect of the capital flows, we have our concerns in what way that we will handled. We talked about the surveillance system also, and we said that if the mandate of the IMF has to change about these things, then it must be based on a broad-based consensus. That's the point I mentioned.

QUESTIONER: On this issue of the tax, I mean, you mentioned that it shouldn't be across the board, but there is a concern there that you have the tax in some countries and not in others that financial institutions can move money around and circumvent the taxes. So, I wonder you--if you talked about that.

And also, on the issue of capital flows, Brazil has introduced controls, and I was wondering if, at the meeting, any other country was considering or mentioned the possibility of introducing capital controls. Thank you.

MR. BHATTACHARYA: Let me just take the first one.

As Mr. Pujari said, we did not have a detailed discussion on the tax issue, but in the technical discussions we have had, it's not that the principles are across the board, but the kinds of institutions that pose global systemic risk are not in our countries. In our countries, the challenge actually is producing development finance, often for poor people. So, you know, you don't want to tax those institutions and thereby undermine their development role.

MR. STUDART: Well, on capital--first of all, Brazil has introduced a tax on financial--on financial flows.

First of all, we did not have a detailed discussion of technical issues in the G-24, just the principles, basically, that we shared. The main concerns that I think all developing countries and developed countries have is the quality of any financial transactions, we are for leveraging the results in more lending to productive sectors, for development, for poverty alleviation. We are, of course, very careful because of the recent experience with any financial expansion that leads to speculative bubbles.

So, this is why you have on the table several types of discussions regarding the regulations to avoid, for instance, the proposals that the U.S. have at the moment to avoid the deleveraging that's going to cause again financial bubbles that do not result in any sort of economic growth development, and you have other solutions being proposed. What is going to be the outcome of that, we do not know, but we know that the principles are to avoid, again, as I said, at the same time to stimulate expansion of financial transactions that lead to more foundations of investment, of production and so on, and to avoid financial flows that lead to speculative bubbles that can be reversed and have the consequences that we see at the moment.

MR. PUJARI: May I supplement that?

MR. STUDART: Please.

MR. PUJARI: With the permission of the Chair, let me supplement to that.

As I mentioned earlier, there are certain issues that are getting discussed and created a little in the G-20, of which all of us are members, and all the three countries were sitting before you, Brazil, South Africa, and India are also members, and that--and we [inaudible at 10:13] on that. So, there are two different fora. In one fora the emphasis is something, the other fora--but having said this thing, the basic reason why capital is flowing from one country to another country is not a concern. The concern would be if the capital flows on a speculative purpose, and then it comes back very quickly causing problems in the destination country.

So, one reason what economists might talk about is that, if the rate of interest are widely different and there is some reason by which some certain people have been keeping the rate of interest artificially low and some other country naturally higher, then the capital moves but it will come back. But these are the issues we did not get into great amount of detail, though each of these countries here have our views on that which we have articulated in the G-20. This is a group of developing countries, so our focus was something different on that.

QUESTIONER: You mentioned in the Communiqué that you would like to see when the World Bank discusses capital increases later this weekend--you'd like to see more than what's on the table at the moment. I was wondering if you could put a bit of a figure on that.

And also, do you link that to reforms, voice reforms, in the World Bank? Is that something you'd like to see before the World Bank gets more capital?

MR. STUDART: Well, you're talking about the interview that I had recently given about the capitalization. Is that what you were referring to?

In the Communiqué, I'm sorry.

Well, listen, I think that the main principle or the main idea that we all had in mind is this: The multilateral development institutions are more needed than ever because we have challenges that--we still have the pending challenges of poverty alleviation, the mandate that we have, and they have--that's not been addressed, and we're going to have setbacks in terms of the Millennium Development Goals. You have all the multilateral challenges that are increasing danger to the stability of the political--economic stability, climate change, and so on. You have several mandates that are there that are being put on the multilateral development institution and the capital base and therefore the capacity to lend and to intervene in support of addressing these multilateral is still very small. Even in the World Bank, even with the capital increase that we're going to have now, the lending which had tripled to address the crisis is going to go back to around $15 billion, which is the average in the past ten years.

Now, if the problems are bigger, how can you have a smaller or the same size of a World Bank? This is the problem that we are trying to flag here.

And of course, I mean, they're all--there's a general capital increase that we all support, and we support it even more than the one we have here on the table, but also the selective capital increase which has to do with Voice is not sufficient because the Voice is still not sufficient. We still believe that the parity would be a better way--parity between developing and developed countries would be a better way to address the democratic difference [ph.] and the governance challenge that we in institutions like that. It's not just a matter of bringing--of making it a fairer multilateral development institution, it's a question of how to address with a better governance the challenge that we have--of--so, as we see now, the world is changing very rapidly and the role of countries are changing very rapidly. The challenges are increasing and we still have a World Bank and a governance for the World Bank and other multilateral institutions that belong to at least last century.

MS. PHETLA: And can I add to that.

MR. STUDART: Yes.

MS. PHETLA: Yes, I just wanted to add to Rogerio's point just in response to the question about financing, and in addition to the capital increase issue.

Also, during the course of this year from the point of view of low-income countries, especially in Sub-Saharan Africa, there is also the replenishment of the concessional lending window of the World Bank, and for economies in our Region, it--to add to this complexity around the range of issues that Rogerio has raised, you will recall that, in 2005, expectations were raised in Sub-Saharan Africa with respect to doubling official development assistance by 2010.

So, where governments had some expectation and perhaps engaged in--some countries we are aware engaged in expenditure planning processes and so on to--if you'll recall, in 2005, there was a lot of discussion about absorptive capacity and so on.

So, we have this moment with respect to the selective capital increase, but I've also appealed to you to keep tracking this discussion about financing, because the issues for low-income countries will play out in the course of this year and the replenishment of the concessional lending window will be concluded at the end of this year.

MR. PUJARI: Very quickly, our German colleague asked a specific question, the answer to that is no. We don't have a specific figure of capital increase, but as the Chair mentioned earlier, what we are looking at, the annual postcrisis lending. That lending must be higher than what was there pre--and I suppose you have read Paragraph 16 in asking this question. May I also invite your attention to Paragraph 15 of the Communiqué where, in a different context, we also say, "but the key test will be increased scale"--this is the question, increased scale--"and effectiveness of support." So, we are also calling for effectiveness of support and the scale of support.

Thank you.

QUESTIONER: Just a follow-up question. If I understand correctly, then, a--the vision of representation of 47 percent for the developing countries and 53 percent for the developed countries would not do. You guys want a 50/50; is that it?

MR. STUDART: Yeah, that's it, but we think that a more appropriate governance structure would be parity.

Nevertheless, we have to say that this is a step in the right direction. I mean, this is the first time, even though we don't have formula, the principles guiding the reform of the World Bank are specific to the development mandate of the institution. This is the first time it ever happens.

Before, the World Bank discussion in terms of realignment was associated with the IMF, which has its own mandate. But the fact that you're making--you have the specific principles for the World Bank--lead us to think that, first, we're moving in the right direction and, for the first time in the history of multilateral institutions, you see the development as a full multilateral problem that has been solved in a multilateral way. And most of--I daresay that the vision of the World Bank has been thus far--that is a conduit for aid. It's not a conduit for aid; it's a multilateral institution to address multilateral issues. I think this reform is bringing this to the table.

Now, is this enough? No, but at least we're in the right direction. Hopefully, by 12/15, were going to achieve equitable voting power.

MR. PUJARI: Let me invite your attention to Paragraph 17 of the draft Communiqué. One sentence says it all: "They viewed the shift of voting power of at least 3 percent to DTCs as a first step towards the goal of equitable voting power." So, 47 percent is not our aim; that is not the mission. That is only the first step, because this flows from the Communiqué that the G-20 leaders had made in April, at least 3 percent shift. So, that's the reason 44 becomes 47, but the aim is that, in the foreseeable future, there must be parity, and which finds mention in the Communiqué, Paragraph 17.

MR. BHATTACHARYA: Indeed, if I am naughty about it, there will be more than parity, give the fact that the developing countries right now are going more than two-and-a-half times faster than the developed countries; given the fact that the developing countries are the sole borrowers of this institution; given the fact that the developing countries are making increasingly the contributions that keep this institution going.

MR. PUJARI: Yes, there isn't--the choice of word is not parity, but equitable voting.

MR. BHATTACHARYA: Yes, exactly.

QUESTIONER: Sorry to be dense on the first question, but I understand you're here as the Group of 24, but on the other hand, you are also members--your countries are members of the Group of 20. And so--and in Brazil, in particular, there's a huge bank, Bank "Icatu [ph]." As I understand the bank tax proposal, it's not meant to pay back past bailouts, it's meant to protect countries from the possibility of future bailouts.

So, am I correct--I think I understood you all to say that the three countries, South Africa, Brazil, and India oppose the bank tax; is that correct?

MR. BHATTACHARYA: No.

MR. PUJARI: No.

MR. STUDART: No. I would say this--

QUESTION: Okay. Well, that's why I'm trying to make sure--

MR. STUDART: --but this is, the issue that we have here is that we are here responding about the G-24, even--it's just a coincidence that all these countries are members also of the G-20. But I think it would be more appropriate to answer those questions in the G-20 press conference.

MR. PUJARI: Tomorrow, when we finalize the Communiqué there, it is quite possible that the stance taken by G-24 may be different than G-20, maybe it is the same. It is just a coincidence that the Chair--the first Vice Chair and the second Vice Chair are also members in the G-20.

QUESTION: And one other specific--there was a line here about how you oppose--it's on Paragraph 10, how you oppose the proposal to prequalify countries for precautionary facilities through Article IV. Can you explain what that is and why you oppose it?

MR. PUJARI: We are opposing--it says that Ministers look forward to further discussion of other proposals on precautionary lending and collaboration with regional arrangement.

Is that the sentence you're reading?

QUESTION: No--[off microphone.]

MR. STUDART: No.

MR. BHATTACHARYA: No. The reason that the link is being opposed is because the purpose of surveillance is surveillance; it's not lending, and it would undermine the independence of the surveillance, it would undermine, therefore, its effectiveness, and it could lead, you know, to an excessive focus of surveillance on emerging markets, which should not be the aim.

MR. SKANKOVA: Reaching over there.

QUESTIONER: Actually, two questions. One is, dealing with the tax from the standpoint of in the WEO earlier this week, it talked about how taxes and capital controls and such don't have--are not a long-term solution. And so, it strikes me as maybe contradictory that there's a proposal to have bank tax or two different taxes put on the books to save against further crises. So, it seems as if there's a split of thinking within.

And secondly, you mentioned that the IFC--sorry, the IBRD is not funded enough, it's too low. So, I'm wondering if you can put some hard figures on that from, I think, Paragraph 16.

Thank you.

MR. PUJARI: I answered this question.

MR. BHATTACHARYA: I thought he answered the question.

MR. PUJARI: I answered this question in response to our German colleague's thing.

No hard figures because what we're looking at the postcrisis lending level--

QUESTIONER: [Off microphone.] I didn't know you were referring to that specific--IBRD.

MR. PUJARI: Yeah, Paragraph--I also mentioned Paragraph 16 there, and we are, as a group of countries, we are looking at the post-crisis lending to be higher than the precise level of lending.

So, therefore, obviously, it will require more money, but no figure we're coming up with. We leave it to them to decide and what they'll do.

And one of the reasons that we are asking for this is the understanding that, as Rogerio said earlier, future sources of global growth are likely to be--and I think there's widespread agreement on that--certainly, the Managing Director of the IMF, when he spoke to us this morning, gave their analysis--are likely to be in the developing world. There's no--there's fully widespread agreement on that.

Therefore, it is not something we are asking for out of self-interest, but also to serve a global public interest.

QUESTIONER: And I'm sorry, in answer to the first question about the contradictory messages.

MR. STUDART: The thing is that we all have our personal opinions and also have opinions related to our countries, but we did not discuss that in details in the G-24, and we are trying to basically convey to you what was decided and what was discussed in the G-24.

MS. STANKOVA: So, I think we have no more questions; therefore the briefing concludes.