Transcript

October 5, 2009
Istanbul, Turkey

MR. HANLON: Good afternoon, ladies and gentlemen. Good afternoon, welcome, and thank you very much for joining us. We'll give our colleagues in the press a minute to get some shots and then we'll proceed. The briefing will begin with opening remarks from Development Committee Chairman Augustin Carstens followed by remarks from World Bank President Robert Zoellick and then Managing Director of the IMF, Dominique Strauss-Kahn. We'll turn it over to Development Committee Chairman, Augustin Carstens. Sir.

MR. CARSTENS: Thank you very much.

Good afternoon, ladies and gentlemen.

I am going to give you now some of the most important points that we agreed on our meeting today. If you want the full details, please refer to our official communiqué, which is being made available to you in writing.

First of all, all committee members thank the people and the Government of Turkey for its hospitality.

Going to the substance, the global economy has shown signs of recovery, but risks remain. In many developing countries, the impact on poverty and on the most vulnerable people is still rising. The World Bank estimates that by the end of 2010 some 90 million more people risk being forced into extreme poverty.

In this context, we urge the member countries to follow through on their existing commitments to increase aid and its effectiveness.

We recognize that addressing financial constraints and investing in developing countries is critical for sustainable growth.

We welcome the vigorous response by the World Bank Group to the crisis. We support the World Bank's efforts to tackle long-term development challenges, including climate change and food security.

We welcome work on a post-crisis strategy on the World Bank and look forward to reviewing it at our next meeting.

On the issue of the World Bank Group financial capacity, we encourage the World Bank Group to make full use of its existing resources, and we are pleased the Bank is on track to provide over $100 billion in IBRD financing over three years.

We committed to ensure that the World Bank Group has sufficient resources to meet future development challenges and asked for an updated review of the World Bank's general capital increase need. This review should be completed by spring 2010 for decision. This also includes looking at the capital needs of the IFC.

We committed to explore the benefits of establishing a new crisis response mechanism in IDA, which could help protect low-income countries from crisis in the future. We also called on the Bank to provide a multilateral trust fund to support the recently launched Food Security Initiative for low-income countries.

We also committed to pursue the Voice Reform at the World Bank itself. Those of you who have followed the World Bank will know that we have already initiated work on reforming the voting power of the different member countries at the Bank's Board. The central feature of this reform is to strengthen the share of the total votes that are exercised by developing and transition countries.

Today, we stressed the importance of moving towards equitable voting power in the World Bank over time. We aim to see the voting power changed through the adoption of a dynamic formula for allocating shares and votes to each of the member countries. Such a formula would primarily each countries' evolving weight in the global economy, as well as its contribution to the World Bank's development mission.

We agreed today that the reforms should, in the first instance, generate a significant increase of at least 3 percent of voting power for developing and transition countries to the benefit of underrepresented countries. This increase of at least 3 percent would come over and above the 1.46 percent increase which we already agreed earlier under the first phase of the reform. We are committed to reaching full agreement on the reform of voting power by our next meeting in the spring of next year.

Finally, we agreed on the importance of continuing improvement in the corporate governance accountability and operational effectiveness of the Bank. We welcome progress so far and ask for a report for our next meeting on progress and proposals for advancing these reforms.

Thank you very much.

MR. HANLON: Thank you, sir. We will now turn to Mr. Zoellick, please.

MR. ZOELLICK: Well, thank you, Carl.

And I want to give a special thanks to Augustin Carstens, who has been a very strong chair of the Development Committee over the past years. Coming into this post, I couldn't have asked for a better partner as well as a friend and counselor. And I'm going to miss him, but I'm sure I'll stay in pretty close touch.

I also want to thank the Turkish Government and the people of Istanbul for being such gracious hosts. I know these meetings end up messing up traffic and making it difficult for local businesses and operations, but it is wonderful for all of us to have had an opportunity to see this extraordinary city and a wonderful country.

I am very pleased that the meeting that we had today at the Development Committee provided significant support for the World Bank's work. It made significant progress on:

• ensuring that developing countries will get a bigger say in how the institution is run,

• making sure that the World Bank Group has enough resources,

• creating a new facility to rapidly disburse grants and no-interest loans to the world's 79 poorest countries,

• putting into effect the G20's call for a $20 billion food security facility.

The meetings here in Istanbul are the first big gathering of policymakers since the G20, but there were many who were not at the table in Pittsburgh. This meeting gives all our members a chance to have their say on the direction of the World Bank Group; it was a G186 meeting.

Apart from today's Development Committee meeting, the World Bank also participated in events with civil society groups, a private sector initiative to improve the interests of girls and women, new ideas to draw on private capital to draw private sector development in developing countries, as well as numerous meetings with member countries and partner organizations.

The Development Committee recognized that the world economy is still in a precarious state. We may have broken the fall in financial markets but we are still some way from a self-sustaining economic recovery that provides more jobs, higher incomes, and expanded opportunities.

There are many risks out there. These include growing unemployment lines, rising protectionism, and still-large output gaps. The global economy could still suffer a setback, not least in 2010 when governments plan to withdraw much of their economic stimulus and debt rollovers could be combined with a rise in interest rates. We have no guarantee that the private sector, the main producer of jobs, will kick in. It is still not clear who will replace the U.S. consumer as a source of demand. The global engine of growth may have stuttered back to life, but it could easily stall.

The meeting kept the World Bank Group on track to giving its developing country members more influence. This moves reflects a concern that the institution remain relevant, effective, and legitimate in a world where power relationships are changing.

This meeting committed to reaching an agreement by the World Bank Spring Meetings next year on shifting at least 3 percentage points of voting power to developing countries. That would give them 47 percent, at least, and it also supported moving towards an equitable voting power to developing countries over time.

Now, these are difficult times for governments, and all their budgets are stretched, yet Committee members endorsed the pledge made by the G20 at Pittsburgh to ensure that the World Bank Group has sufficient resources, and it took a further step forward: Over the coming months, we will drill down on our analyses of the capital needs of IBRD and IFC for a decision by shareholders in the spring and in the context of the decisions on all the multilateral development banks. This would be the first general capital increase for the World Bank in 20 years. So, I am pleased that we've been able to move this forward in a constructive way and set a definite decision point.

And of course, this is linked to the issue of Voice and selective capital increase in our other efforts to try to augment our financial resources and capital.

The Committee also endorsed exploring the benefits of establishing a new crisis facility for the world's poorest countries. This would be considered as part of the mid-term review in November of the International Development Association, the World Bank's fund for the poorest countries. This initiative puts into practice a lesson from this crisis. We need to make protection for the most vulnerable a permanent part of the world's financial architecture.

The Committee called on the World Bank Group to set up a multi-donor trust fund to support the Food Security Initiative for low-income countries that President Obama announced at the G7 in July. Work has already started with a meeting yesterday to agree with partners on the operating framework for this fund. But, as some reinforced during these meetings, the food and fuel crisis hurt developing countries more than the financial crisis. And for many of them, that crisis is still not over.

Finally, we just came from a constructive meeting today of the Bali Dialogue, this time at the request Yvo de Boer, who heads the UN Climate Change Secretariat. He made an effort to come all the way from Bangkok, he's flying straight back, and this dialogue brings finance and development ministers into the discussion on how to finance adaptation and mitigation of climate change.

As our World Development Report noted last month, there will be considerable costs attached to financing climate change, and these have to be addressed promptly. The dialogue today discussed financing issues and the role of the Multilateral Development Banks, and the World Bank has pledged to play its part under the lead of the UNFCCC and the Committee of the Parties at the UN.

MR. HANLON: Thank you, sir.

We will now turn, if we could, please, to Mr. Strauss-Kahn.

MR. STRAUSS-KAHN: Thank you. I would like, myself to thank the city and the people of Istanbul for hosting us for these Annual Meetings.

As you know, Istanbul is the only city in the world outside the U.S. having hosted the Annual Meetings of the World Bank and IMF twice. So, it shows that we are happy being here.

I would like also to commend Augustin for his Chairmanship of the Development Committee, and to pay tribute to Bob Zoellick for the leadership is showing in the World Bank.

I have little to add to what has been said. The recovery as we all know is arriving, it is the beginning of the recovery. Still, we all know it is very fragile, both because unemployment is lagging behind and for many countries it will take ten to twelve months to have unemployment decreasing. That is for advanced economies, it can be worse in some low-income economies. So, there is no way to say the crisis is over when we still have this big rise in unemployment in front of us, even if growth is coming back.

The other reason is that there are some risks, I do believe that the scenario we all believe in is the right one, that the recovery, sluggish—but nevertheless, recovery will take place in the coming months, but there are some risks, and there may be some problems. So, we should not be complacent. That is. I think, the message on the macroeconomic side.

Now we are trying to work around with the World Bank to mitigate the effect of the crisis on the low-income countries. We do it with our own tools, but I would just like to underline is one point, which is that in many countries, including African countries, the reaction—the possibility to react to the crisis was much bigger than probably would have been a decade ago, because in many countries, the right policy put in place and the advice of the World Bank and the IMF had created some fiscal room, some monetary room which made it possible for government to have some policy to tackle the crisis.

So, I'm not saying that the crisis had not very severe consequences on low-income countries, it does have, but these consequences are probably less dramatic than they would have been had this monetary and fiscal policy been absent.

So, the gain hard won during the last years cannot be lost, and that's why we need absolutely to provide the low-income countries and also some emerging countries with enough resources just to keep their head out of the water and be able to take advantage of the recovery which is just arriving. I think we are doing this as much as we can, and during this meeting which, in my opinion, was very successful, the feedback we had from most of our members was that finally the multilateral institutions, the two sisters from Bretton Woods, the World Bank and IMF, tried to do their best and help effectively their membership.

MR. HANLON: Okay. Thank you very much, sir.

We will now open it up for your questions. I would ask you to please to wait for the microphone. Also, if you could identify yourself and the name of your organization, and kindly indicate which member of the panel you would prefer to answer your question.

Let's go to Mr. Thornton in the front row here, please.

QUESTION: Thank you, Phil Thornton from Emerging Markets.

This is probably a question for Mr. Zoellick, but maybe Mr. Carstens, as well.

You talked about the potential need for new resources over the coming months, but both the United Kingdom Government and senior politicians in the U.S. have threatened, effectively, to withhold funding from the World Bank unless there are certain changes in behavior, and I just wondered whether you thought this was worrying that rich countries were prepared to play hardball with funding for low-income countries.

MR. ZOELLICK: Well, first, to start out with the factual situation.

As I reported to the Ministers at the last meeting and this one, the World Bank was fortunate that it came into this crisis very well capitalized. And I told them I am by nature a fiscal conservative. I believe that we should use those resources and be in a position that, if we needed more, to do so by saying we earned them.

We were asked in the spring to put forward a review and report to the Development Committee, which we presented. I think it is on our website. And what is clearer to see is that demand is moving beyond the $100 billion we have been asked and called to act on. We will likely have another record level of IBRD lending, $40 billion or plus this year on top of the $33 billion last year. And I pointed out that while we are in a position to lean forward now, that as we start to get towards the middle of next year, we are going to start to face some serious constraints, and we'd have to ration and obviously focus on the lowest-income countries.

Because we're not a commercial or investment bank, we can't turn loans around overnight. We either do project loans that take months to prepare, or if they are loans related to budget support, they are often involved with reforms. So, we're starting to encounter now, as we work with developing countries, some serious pressure on those issues.

As for the U.S. and Britain, what actually Secretary Geithner said in the session is that we have a reasonably good case for increasing capital and that he is willing to work with us to build a consensus. At the same time, he emphasized—and he and I have talked about this long before, that to be able to build support with legislative bodies we also have to stress a reform agenda. I know he's emphasized some points on transparency, which I something I fully agree with and we're already in process to change our disclosure policy to make more like the U.S. Freedom of Information Act Policy.

So, those reforms are important in their own right, but secondly we know that it is going to be natural as we work with shareholder countries, they are going to have aspects that they want either to change the nature of the Bank or frankly to help with their legislative process.

As I mentioned, it is sort of a coincidence, I was at the U.S. Treasury Department in the late 1980s, the last time we had a general capital increase, and I remember working with Secretary Baker. At that time, the price from an opposition Congress was a huge housing bill.

So, we're into the world of politics here, and I, from having talked with Secretary Alexander, he emphasized the same issue in terms of his concern about coming forward with a reform agenda, and we'll have others as we go along.

What I was pleased about was, from the developing countries—and Augustin can comment on this—there is a very strong message about the need to be prepared for uncertainties in 2010, but also from a number of developed countries, we've got pretty good support from Australia, from the Netherlands, from Spain, the Nordics, and Canada, and Switzerland all said they are very open. Japan emphasized their historic role.

So, I think what this meeting does is, by giving a hard decision point, we will now move beyond reviews and studies to try to work through these issues, not only with the World Bank Group, but also with the regional development banks.

Some of the issues that Secretary Geithner mentioned and others mentioned go to the comparative role of the World Bank and the regional development banks, and the other point he mentioned which is important is which capital obviously has to be related to assumptions about the role of these institutions after the crisis, and this includes the meeting that I just came from dealing with climate change where there is an interest in these institutions playing an additional role.

MR. HANLON: Chairman Carstens.

MR. CARSTENS: Yes, complimenting what President Zoellick just mentioned, that I fully support and ratify, is the fact that the way we see in the developing world the next years is a situation where there will be a huge excess amount for funding in capital markets to a large extent by the issuance of public debt by pretty much all countries, and in particular, the developed countries.

And this also might take place in an environment of increasing interest rates as you know the support that is provided to monetary policy is reduced gradually through time. So, that will represent a difficult market situation to obtain funding for many countries, and this certainly underlines the usefulness of developing banks, and in particular of the World Bank, to compliment resources to emerging markets and, in a way, help, in a decisive way, the development process.

This also has to be put into the context of the fact that the world economy will be in the process of recovery, and therefore it will be in the interest of emerging economies and developing economies to accelerate the process of transformation of their own economies. Therefore, I think there is a very strong case to capitalize the World Bank, but also other multinational development banks.

And to put it short, some countries, in a way, recognizing the fact that the capital increase would make sense, basically, they asserted that, when there is a time to increase capital, it is also a good opportunity to do some reforms in those institutions, and in a way to put it in a very transparent way to assure that taxpayers' money is put to good use.

So, I think that in this case the World Bank and its members are more than prepared and more than ready to embrace that reform process, provided that we can move both in front quickly, because I think time is of the essence here. You know, the tightness of markets will be there, and we need the World Bank to be able to respond as it has in an extremely efficient fashion since the outset of this crisis.

MR. HANLON: Thank you.

Let's take our next question, please.

The lady in the middle here.

QUESTION: Hello, [inaudible] Hurriyet Newspaper.

I would like to ask a question, Mr. Strauss-Kahn, and there are two speeches from Turkish Government about IMF agreement, and our Prime Minister has talked with the Wall Street Journal, and he said we are very closer to get agreement with IMF.

And yesterday, our Deputy Prime Minister, Ali Babacan, said we are not able to agree because we don't believe in what the Fund is suggesting.

What is your response to that?

MR. STRAUSS-KAHN: You better ask the government.

We are discussing with the Turks. As we said at the outset of the meeting, we are not going on discussing during the meeting, so we will resume discussion after the meeting.

And as I have said a week ago, I think the Turkish economy is going well. There may be some projection in which they believe they will need us, we will be ready to help. If the government believes they don't need us, we will not be there. I mean, we are just at the disposal of our membership.

So, I don't want to comment about differences in comments by members of government. We will just resume our discussion in the coming days and when something is needed.

MR. HANLON: Okay. We will take our next question, please.

Mr. Guha [ph.], at the back, please.

QUESTION: A QUESTION for MR. ZOELLICK, please.

MR. ZOELLICK, as you mentioned in your own remarks in answer to an earlier question, one of the things that some of the governments have asked you to do as part of the discussion around capital increases is to clarify the relative role of the World Bank as compared to the regional development banks.

Could you give us a little bit of your thinking on this. What should be the division of labor? What should you be doing and what should they be doing?

MR. ZOELLICK: Well, I think first, Krishna, as we discussed with the Ministers this morning and as I discussed with the heads of the MDBs yesterday, I think one way to phrase this is the deeper cooperation.

So, for example, we discussed the experience in the crisis in Central and Eastern Europe where the EBRD and the European Investment Bank took a leading role in terms of trying work through both some of the financial sector issues, but we've supported from the IFC side IBRD as well as MIGA and the IMF obviously also had its program, so as a way where we were playing a complimentary role.

And then, of course, the primary regional organization through the European Commission also came in with additional funding.

Minister Sri Mulyani pointed out a case where, when the crisis first hit and she was looking to possibly go to market, she was concerned that if she didn't show she had back-up financing that she would be approaching the market in a weaker position. So, the World Bank worked with the Asian Development Bank as well as bilateral donors, Australia and Japan, to put by some contingent and standby funding.

So, one category is the nature of cooperation, and I think that there are things we can deepen. We approached the Inter-American Development Bank on some things.

You can drive this down further. For example, we recommended to the regional development banks that in the critical issue of sanctions for corruption that we try to use a common tribunal and we try to make sure that sanctions of one apply to sanctions of others. So, that's another type of way we can try to cooperate.

In terms of the World Bank's comparative advantage, we are still in a unique position because we cut across all regions, all sectors. We deal with middle-income countries, poorest countries, we deal with private and we deal public sector, and what that helps us do is take the knowledge and learning of experience from one area and apply it globally.

So, again, just to give you a practical example, Mexico was one of the leaders with these conditional cash transfer programs, the Oportunidades Program. The Chairman of the IMFC in Egypt has sought to develop a similar one as part of their refinement of safety nets, and this is part of a broader learning lesson about safety nets coming out of the 1990s crisis where the macroeconomic packages didn't include safety net reform. So, of the $59 billion we did last year, some $4.5 billion went to safety nets, learning some of the lessons, so that's another element.

A third is we are probably, at least extremely well placed working with the regional development banks to work on the global public goods agenda, issues that either globally or regionally cross national borders but have to be implemented very much in national programs, and this Bali Breakfast that we convened is a good example. I had Yvo de Boer fly all the way from Thailand and ask me frankly to organize this meeting so we could help the development and finance and economic ministers contribute to the negotiations by thinking of financial architecture. So, that's another particular area of work.

So, what I think is a very reasonable request is that some of the institutions have approached their capital requests with different frameworks.

In our case, we looked through possible capital increases that might be necessary as part of larger resource packages and with the assumption that, coming out of the crisis, we'd be doing about the same level of business as we did before.

Some have assumed a more expanded level. Some of the developed countries very much urge that. They think that there will be an ongoing role in that, but I know from my experience with the U.S. Congress they will look at all these institutions as a batch, and frankly, they'll also look at it with bilateral funding, and this will be true in the case of most governments.

Most of the Ministers around the table understand that multilateral funding is often more efficient and effective and doesn't overburden developing countries, but their legislatures often like to have the flag on the funding.

So, those are some of the issues that I think we'll now come to serious grips with in different governments, and this is ultimately a political process, Krishna, that has to go through legislatures. And so, what I think is useful now is that we've got some months in intensive work to try to come to grips with those in a coherent way across institutions.

MR. HANLON: We have time for a couple of additional questions.

This gentleman right here in the front row here, please.

QUESTION: My name is Hasan, from Investment and Marketing, Karachi, Pakistan.

There are two questions that I wanted to address to President Zoellick.

First, will you put more flesh on the bone, when you mentioned about the donor trust fund. What is the volume of the fund and what is visualized the utilization of the fund for the better good in a certain timeline.

And the second is that you said that there has been a capital increase for the first time after 20 years. You must have needed the capital much earlier, also. And had this capital increase been there, maybe the severity of the crisis might have been slightly reduced.

Your comments.

MR. ZOELLICK: Well, on the first question, I mentioned a couple of trust funds.

The first is in the agriculture area. We are coming out of the L'Aquila Summit. There were pledges for $20 billion for agriculture security, but frankly, coming into the Pittsburgh Summit, those were still pledges on paper, they were far from seeds on the ground.

And so, we worked with the U.S. chair and others to try to get an understanding coming out of the G20, which was then reinforced here to have a trust fund that we would help coordinate working with the FAO and the World Food Programme and bilateral agencies and IFAD and others, and what we were doing here was actually, a week after the G20, trying to have a session to start to operationalize that and come into the framework arrangement.

I also mentioned perhaps the crisis facility, and the crisis facility is also something that came out of the G20 discussions, and the idea for this is, within IDA, which is $42 billion over three years for the 79 poorest countries—Pakistan is one of the beneficiaries—that we felt that one of the lessons we learned going back to Dominique's point is that there were some poorest countries—and we did a study particularly about 43 that were really badly squeezed by this—and they had no cushion, no place to go to in an event where there are shocks.

So, what this facility is designed to do is not only have some money targeted to them, but frankly go through some of these issues related to procedure so we could move more quickly just as, in general, in IDA we tried to have a rapid response facility.

That will be in the mid-term review. We will have to see what money we can allocate at present from IDA15 from that $42 billion. And then, as we do other IDAs, that may be a source of contribution.

As your second question about whether we must have needed capital before this, the answer is, not on my watch, and I don't really think so, beforehand. So, one of the benefits was that the Bank has built up some capital additionally through retained earnings. We—and this goes back to Krishna's point—take about 46 percent of IBRD income and devote it to IDA. So, a lot of the money that we are able to make we give to the poorest countries, but a couple of years ago, the Bank was actually in a very strong capital position. And therefore, in this crisis, we were in a position to ramp up a lot of lending and activities quite quickly.

Now, the more capital we have, the more we can do other innovative things. So, for example, for some of the IDA countries, we can do enclave lending.

We can stretch for Pakistan as an interested example of one that sometimes had IBRD lending, we can take greater risks.

So, as in any financial institution, the better your capitalization, the more you can use capital in innovative ways. We use capital for the advanced market commitment for pharmaceuticals, which was a commitment by countries to pay certain money in advance, but you have to make sure it is backed by something; it is backed by our capital.

So, I honestly think it is important for international institutions not to be seen as always having their hand out, but in this case, in a crisis like this, I feel we're building the record of having earned the possibility of additional support, which we're not only going to get from a capital increase. We're also doing it from some of our internal resources, including a price increase we put into effect.

MR. HANLON: Okay. We'll take a final question, please.

Yes, sir, in the front row on this side, please.

QUESTION: This is Jim Peter [ph.] from HaberTurk News Channel.

My QUESTION basically will go to Mr. Kahn, and it will be about the unemployment levels.

From consumer spending data, we know that household incomes are at the bottom, and unemployment is record high. When you think that the income of households will reach crisis levels?

MR. HANLON: Your question is for?

QUESTION: Mr. Kahn.

MR. STRAUSS-KAHN: Me or Carstens?

QUESTION: And another question is that we know that several labor—

MR. HANLON: Just let me take the one question. Thanks.

MR. STRAUSS-KAHN: What I told you is it will depend a lot upon the countries. The crisis arrived almost at the same time in advanced economies and after a couple of months in emerging countries and then again in low-income countries at the same time for the group of countries.

But the exit will be different depending on the countries. Some countries will recover earlier, some it will take more time, but in each case it will at least take from now on eight to ten months before unemployment will decrease.

So, you can't expect, even if the figures of growth are rather good—you can't expect unemployment to decrease very rapidly.

So, it put in front of the agenda the question—the policy that could be used to fight against unemployment, and also the fact that for—the situation is of course very different in developed economies where the question is some—a couple of points of purchasing power, a couple of points of unemployment will compare to the situation in low-income countries where it goes to a question of life and death and starvation.

So, the problems we're going to face in the coming year may be much more important, much more difficult to solve in low-income countries and some emerging countries than in advanced economies.

That's why what the World Bank and for much more limited part the IMF can provide to this country will be absolutely critical, and that's why the question of resources is so important. So, the question of resource has been solved for the IMF at least for a while, and now the question which is at stake is to find enough resources for the World Bank.

MR. HANLON: Thank you, sir.

And that concludes our briefing for today. Thanks again for joining us.