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

April 11, 2003

Washington, D.C.
April 11, 2003

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Chairman: Mr. Fuad SINIORA, Minister of Finance of Lebanon
First Vice-Chairman: Senator Conrad ENILL, Minister of Finance of Trinidad and Tobago
Chairman of the Deputies; Mr. Alain BIFANI, Director General, Ministry of Finance of Lebanon

Ms. Mboto FOUDA: Ladies and gentlemen, good afternoon, I am Lucie Mboto Fouda from the External Relations Department of the IMF. I would like to welcome you to the press conference of the Chairman of the Intergovernmental Group of 24 on International Monetary Affairs and Development. Mr. Chairman, you have the floor for your opening remarks.

Mr. SINIORA: Members of the press, ladies and gentlemen, it is a very nice opportunity for me to be with you today. The Ministers of the Intergovernmental Group of 24 met today amid very difficult global circumstances, which make the prospects for our own developing countries especially challenging. As is now clear, the World Economic Outlook has weakened substantially since our last meeting in September 2002. The continued fragility of investor and consumer confidence in advanced economies has translated into slow growth, low investment, and a decline in equity prices. This has led to a slowdown in world trade and continued weakness in commodity prices. Access to capital markets has dried up for much of the developing world, and our exports continue to face unfair treatment. Added to all these challenges are the costs and uncertainties caused by the disruptions and concerns associated with the war on Iraq.

But the heightened global uncertainty also reflects serious and more fundamental concerns regarding international decision making. The multilateral, cooperative, and institutional approach that has long characterized the governance of the international system is under stress. For the last sixty years, this approach has been the backbone of the effort to promote global peace and development. Today in the era of globalization and interdependence it is more important than ever that we reaffirm the multilateral, cooperative, and institutional framework in conducting the business of the global economy. The Managing Director of the IMF yesterday stressed the importance of cooperation in restoring global confidence. We, the Group of 24, we agree with him entirely.

For many years now, developing countries have made considerable efforts to pursue sound policies and reforms. These efforts have allowed many of our countries to weather the recent pressures and uncertainties. But this has been achieved at the cost of lower rates of growth, slower development, and added social pressures. Ministers of the G-24 stressed that the international institutions, and especially the IMF and the World Bank must proactively and effectively support developing countries' efforts to deal with the effects of the highly unfavorable global environment. In particular, the two institutions must stand ready to respond flexibly and quickly to the needs of members, and help them restore confidence and, thereby, capital flows. As the international community agreed in the Monterrey Consensus, the international financial institutions have an important role to play in this regard.

The Ministers today underlined that the plight of low-income countries, particularly those in sub-Saharan Africa, continues to require the sustained attention of the international community. As the president of the World Bank rightly stressed yesterday and today as well, other issues and preoccupations should not dilute the effort to support the fight for development and poverty reduction in the low-income countries. Not only do these countries face the problems associated with the continued decline and volatility of commodity prices, but they are also gravely affected by drought, HIV/AIDS, and other pandemics. Ministers noted that many of these countries have made remarkable strides in economic reform. But it has always been recognized that official development assistance and the opening of markets for their exports are equally important elements of the poverty reduction and growth strategy of low-income countries. However, Ministers pointed out that progress on these fronts has been so far dismal. The ODA has continued its disturbing downward trend and is now on average less than one-third of the internationally agreed target. Trade protectionism has grown, despite commitments made recently in Monterrey. At the same time, private capital flows to low-income countries continue to be negligible. Ministers considered that, on current trends, the Millennium Development Goals for the low-income countries will not be achieved.

The Ministers recalled as well that the international community committed last year at Monterrey to increase the voice and participation of developing countries in international economic decision making, including in the governing structures of the international financial institutions. Regrettably, there has been very little progress towards that goal. Ministers reiterated that the issue of voting power and quota shares are important and should be addressed. But the issue is also broader. The voice of developing countries will have more weight only if the major countries decide to actually listen and to be open to true and global participation.

What we need today, the Ministers emphasized, is not only a reaffirmation of our commitment to the goals as agreed in Monterrey, but also a clear chart and framework of accountability that ensures that all partners to this global endeavor are indeed doing their part. Ministers underlined that it is very important at the present time to work very closely together with great determination because through this approach the international community can ensure a better future for all countries. That was in brief what were, let's say, the matters that were discussed by the G-24 meeting and the communiqué that was issued and approved by the Ministers today.

Ms. Mboto FOUDA: Thank you, Mr. Chairman. I would like to introduce the other officials, members of the panel. To the right of the chairman is Mr. Conrad Enill, the first Chairman of the G-24 who is Minister of Finance of Trinidad and Tobago. To his left is Mr. Ariel Buira from the G-24 secretariat. To the extreme left is Mr. Alain Bifani the Chairman of the Deputies of the Group of 24. He is also Director General of the Ministry of Finance, Lebanon.

QUESTION: I have a question about paragraph 6. I just want to be sure that it says that the G-24 believes that the U.N. should take the lead in humanitarian reconstruction in Iraq and that the World Bank and the IMF should play their roles based on what the U.N. decides.

Mr. SINIORA: I think this is a matter that in time everybody will recognize and will discover that this is a major effort that really requires the work, the support of all countries, not only because of the magnitude of the situation but this is the way it should be done to really address international problems such as the one that we have on our hands in Iraq.

QUESTION: You mentioned that financial institutions should do something for capital development, private capital for developing countries. Given the fact that private capital flows where everybody spends money, what exactly can they do to attract? Isn't it the job of the countries to make them attractive to capital?

Mr. SINIORA: Let me say here that what was really made, as you know in the Monterrey Consensus, and then I will carry on with the answer to your question. It says in here that the Monterrey Consensus stressed the need for relevant international and regional institutions to provide export credit, co financing venture capital, and other lending instruments, risk guarantees, leveraging aid resources, information on investment opportunities to the developing countries, and agreed that additional source country measures should also be devised to encourage and facilitate investment flows to developing countries.

You see, what we have been really suffering of in most developing countries is the scarcity of capital resources, and that was what really mentioned in Monterrey is the importance to create the conducive environment and to see how this can be really contributive in terms of creating the conducive environment in these countries in order to help them to really be able to attract the necessary capital, whether it is public capital or private capital. So this is something of great importance, and that is what has been emphasized today by the Ministers in their communiqué as well as in the discussion that took place. This is also something on witch we should all join forces together in order to create the right environment and to provide the necessary tools for the developing countries to be able to attract capital. This is not only restricted to capital. As Mr. Wolfensohn said today, there are a number of other measures that should have or should be taken in order to improve level of education, ability to really provide important services, whether it is in fighting epidemics or in handling water for irrigation and others. All this can really help in creating a better environment to attract capital, particularly from private sector. The importance of the international organizations, that they can really provide some sort of a seed capital on which further capital can be provided by the private sector.

QUESTION: I have an extra meeting questions. It is about the protestors on the street. What is your position about the protestors on anti-globalization?

Mr. SINIORA: Well, I do not think that the G-24 Ministers meeting have addressed this point. On the other hand, as a person, I'm very much well rooted in democratic principles and would say that we definitely have to understand and try to really explain and try to really create a continuous dialogue with these people, and there is always through dialogue, we can develop, more insight into their thinking, into their views and ideas, and we may be able at the same time to convince them of what we believe. This is something that is very interesting and very important. I believe that we have always to understand the views of the young people, and it is important that we create this dynamic, ideas and to ultimately carry on the continuous, reforms that we should always introduce. Within the various countries, whether they are developed or underdeveloped or developing, we will have always to keep our windows open to seek further development of new ideas.

QUESTION: It is surprising for me to hear you saying that you would like a dialogue with these people to develop more insight into their ideas but not yours and convince them of what we believe. Are you so sure you are right? Don't you think maybe they can make you create, develop some insight into your ideas or maybe they can convince you of what they believe?

Mr. SINIORA: I think you misunderstood completely what I mentioned. Let me make it very clear. I emphasized dialogue, and dialogue means a continuous give and take in which we who are in responsible positions, we benefit from their ideas, and we have the benefit of explaining our ideas to them. So this is a continuous process in which both are going to benefit. It is not restricted that we monopolize knowledge or that we monopolize the right things and they represent the wrong things. To the contrary, we believe that we have always to keep windows open. I am repeating that this is my point of view. This has not been discussed by the G-24 meeting. We believe that we have always to keep windows open in which new ideas can flow in and I think the young people are the ones who can develop new ideas, new visions, and this is what we have to benefit.

QUESTION: In paragraph 8 you refer to the Doha Round, and I have a question regarding that. As you know, a deadline just passed in April, and there are some people who, you know, start asking if the deadline to have a final agreement in the Doha Round for 2005 maybe, you know, that will be a real deadline, I mean a deadline that we want to come to be postponed. So I just wonder what is the position of the Group in this sense? Can we expect any concrete results for this new round of negotiations for 2005 or are we going to see another setback as we saw in April?

Mr. SINIORA: Normally you would see that not everything that is really planned comes true. Understand that there has been some delay on implementation of the conclusions that were made in the Doha Round. I believe that probably what will happen later on at the meeting in Cancun, we can really make up for lost time in this regard. This should give us further incentives to work harder in the coming period so that we can make up for the lost time.

QUESTION: How do you think debate will go on this weekend on the role of the United Nations for the reconstruction of Iraq? You take a clear stance, but other countries think otherwise.

Mr. SINIORA: I think, first of all, these questions should be addressed to the World Bank and to the IMF people. So I cannot really talk on behalf of these two institutions. Although, I think the two representatives indicated through press and various meetings that they are interested in seeing how they can find a role for these two important international institutions, but they wanted guidance from the United Nations, and they are looking for the proper route to really take in that regard. So I think one has to see how things are developing in the coming days and weeks in this matter that will ultimately arrange to find a legitimate way, a legitimate way of putting the right track for these two institutions to see what they can do for Iraq.

QUESTION: The war against Iraq has created deep schisms between the United States and the United Nations, between the United States and continental Europe. At the same time, the G-24 represents a very diverse group of nations which perhaps has more differences than similarities. Have the recent changes in the political situation actually shifted the nature of the G-24's agenda and has there been any sort of conflicts within the group?

Mr. SINIORA: No, I think if I may read to you the communiqué which really indicates that there has not been that conflict that you are talking about. It says in paragraph 6, that Ministers expressed grave concerns about the serious situation prevailing in Iraq in the wake of the war and the resulting humanitarian plight of the civilian population and the destruction of the country's physical and social infrastructure. They call on the United Nations to address the situation in accordance with its charter, including the potentially large humanitarian needs of the Iraqi people and to contribute to the task of reconstructing the country following the war. Ministers also call on the international financial institutions to stand ready to play in full coordination with the United Nations a strong supportive role in Iraq as well as in other affected countries.

I think the statement is very clear. It really leaves no room for any doubt or any—or it may indicate any conflict within the Group of 24 about this method.

QUESTION: My question relates to the skepticism you have expressed regarding the sovereign debt restructuring mechanism. That refers to paragraph 12 in the communiqué. I had understood before that the skepticism you had already expressed in last year's annual General Assembly was due to fears that such a mechanism would actually impede access to financial markets, and in the meantime we found some evidence produced by IMF staff which to our understanding showed that there was not too much foundation to those fears and that actually orderly debt workouts would rather work in favor of market access for developing countries which coincides with the research that we have been doing from the NGO side. I wonder what was behind the skepticism that you have expressed again here.

Mr. SINIORA: I think that the SDRM really did not work and probably it will expire probably within not a long period of time. In fact the problem is still there, and there are new ideas that are being floated at the present time about finding solutions or ways out of this problem by resorting to market friendly approaches to debt restructuring. One of the new ideas, the collective action clauses that are being suggested, that would really provide some sort of funding in which the private capital can cluster around. So the problem is still there. It is not a matter of just expressing skepticism. It is a point that really we are drawing the attention on to this matter that requires a joint effort on behalf of the international community and the international institutions to really find solutions for many of the countries that do have debt problems.

QUESTION: On Monday we have a meeting in New York, at the ECOSOC, together with Bretton Woods Institutions. I am representing an NGO, Catholic Development Agencies, 15 countries, and we will make a proposal that under the financing for development process, the Monterrey Consensus, an informal working group should be established on that which would include private sector as well as developing countries and experts. That working group would address middle income debt, and take over the efforts made on SDRM but in a more independent manner and would also address the problems you have in your paper on debt sustainability. I wonder if you would support and participate in such a group.

Mr. SINIORA: Let me read to you the Monterrey Consensus. We stress the need for the International Monetary Fund and the World Bank to consider any fundamental changes in countries' debt sustainability caused by natural catastrophes, severe terms of trade shocks or conflict when making policy recommendations including for debt relief as appropriate. So this is what was really mentioned in the Monterrey Consensus.

Now, the role that you are suggesting regarding the NGOs, I think there is always room, and this should be always encouraged, and the experience of so many countries in which they really include the role for the NGOs is highly welcomed, and this can prove that any effort that is exerted through the NGOs normally, has succeeded. Another section of the Monterrey consensus says to promote fair burden sharing and minimize moral hazard, we would welcome consideration by all relevant stakeholders of an international debt workout mechanism in the appropriate forums that will engage debtors and creditors to come together to structure unsustainable debts in a timely and efficient manner. Adoption of such mechanism should not preclude emergency financing in times of crisis. That is the part one of the question, but the other part that you have mentioned about the NGOs, that was rightfully said. In my country, we are trying to give more weight and draw to NGOs. This is proving that it is of great help and the return on the investment or the work or the spending that is being made is proving to be of great value, and I think our experience is shared by other countries' experiences as well.

QUESTION: In paragraph 12 you describe the view of the G-24 towards collective action clauses as open minded, which sounds a bit ambivalent perhaps, maybe not actively engaged, perhaps a bit passive. I wonder if you could clarify that. Is it the view of the G-24 that collective action clauses are a viable option and should be embraced by some countries?

I ask because some people are skeptical. They believe that the successful sale by Mexico of bonds with the collective action clauses was somewhat of an aberration because of its fairly high investment grade and that other countries that issued these bonds have to pay higher borrowing costs.

The SECRETARIAT: The collective action clauses have been seen as a more market friendly approach to debt restructuring, particularly by the emerging market economies. I believe there are three or four countries that have already included them in their bonds in public debt. Egypt, Mexico and one or two others. It is not just the last instance of Mexico, although the country did play something like three and a half billion very successfully with very low spreads, and that was a way of testing the acceptance by the market to this. As you know, the SDRM proposal provoked a strong negative reaction on the part of at least seven organizations of bankers, traders, investors, and so forth, and this confirmed the preoccupation of some of the emerging market economies that this might not be the way to go. It seems at the same time that the initial support of the U.S. Treasury for this approach has diminished or perhaps has been withdrawn, and if there is no support for a particular approach from either the debtors or the creditors, it is not going to make much headway in its present form. But of course it will continue to be analyzed and studied and perhaps new modalities will be found that are more acceptable.

QUESTION: I am representing a Danish NGO coalition. You mentioned two proposals of quota redistribution and proving of the basic votes, and I would like to ask you to elaborate a bit on that because I would like to know if that is implemented what consequences will it have in terms of distribution of Executive Directors? Will it help the problems of some groups having, for instance, 20 countries behind one Executive Director? And if the quotas are redistributed, will that help the poor countries or will it mainly improve the position of the developing countries which have a large economic turnover?

The SECRETARIAT: The proposal of the developing countries of the G-24 has two components. One is that the basic votes that were established at the outset of the creation of the basic creation of the Bretton Woods Institutions in 1944 be revised. Each country was given 250 basic votes, and these accounted at the time for around 11 1/2 percent of total vote. With time, and the rest of the voting power was the result of contributions, that is of quotas. Now, over time, quotas have increased 37 fold, but basic votes remained the same. This means that small countries have lost out very significantly.

The basic votes today represent a little over 2 percent but this is because the membership has increased from 44 to 184. So had the membership not increased, basic votes would be around one-half of one percent so this means that you go from 11 percent or so to one-half of one percent for the original members. It was felt necessary when Bretton Woods Institutions were created to have basic votes because it would give small countries who are being regulated a voice in the discussions. This was felt to be necessary. Now, this voice has been greatly held over time. The other element is the quotas. The quotas are clearly out of line. For instance, the economy of the European Union is a little smaller than the U.S., but the European Union has 30 percent more voting power than the U.S. As a result they have eight or nine Directors. This means, then, that the developing countries have much fewer chairs and much fewer Directors. This is what causes the problem that you referred to. There are two African Directors who have to represent 45 countries. It must be very difficult to keep in mind the problems of 45 countries, and as well as to be able to participate in the policy discussions of systemic issues and so forth. So there is a great imbalance here.

Under the same line, Denmark has a bigger quota than Korea, but with all respect, you will recognize that Korea is a much bigger economy and more important in world trade. Belgium has about 50 percent more quota than Brazil, but Brazil is a much bigger economy. Belgium has 80 percent, 74 percent more quota than Mexico, but the foreign trade of Mexico alone is bigger than the GDP of Belgium. Now, this clearly is out of line. So these things have to be corrected. Developing countries have to have a fuller, a fairer representation.

QUESTION: Mexico is currently restructuring its debt using constructive action clauses, especially because of the political and economic instability it faces

Mr. SINIORA: This is not a subject on which the G-24 has anything to say. This is, what the G-24 said was that the collective action clauses are seen with an open mind, that some members have found them useful, and they have no objection to this. So if Mexico has found it in its interest to do so, this is fine. Moreover, Mexico is not undertaking a restructuring of the debt. The collective action clauses which have been included in all Eurobonds issued in the London market and are now being included in several other important financial markets are, if you wish, a preventive measure because they would permit to restructure debt should it ever become necessary, and it may never become, but without being subject to what someone called the tyranny of the minority. If you have bonds, you need unanimity to restructure. Now, the collective action clauses would allow that the 75 percent majority or some such majority determine action that will be obligatory for all debtors, for all creditors. So that if somebody just one man who owns one bond does not want to restructure, this does not prevent the restructuring of the debt of a country. This is the purpose of the collective action clauses. But it does not mean that you are going to restructure simply because you include them in future issues.


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