Transcript of Press Conference of the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (Group of 24), Washington, D.C.
April 15, 2005
Washington, D.C., April 15, 2005
Participants: Mr. Paul Toungui, Minister of State, Finance, Economy, Budget and Privatization, Gabon; Mr. Jeremias Paul, World Bank Alternate Executive Director for the Philippines; Mr. José Costa, Senior Advisor, IMF Executive Director's Office for Argentina; Mr. Philibert Andzembe, National Director for Gabon of the Bank of Central African States; Mr. Ariel Buira, Director of the G24 Secretariat
MS. BHATT: Good afternoon, ladies and gentlemen. I am Gita Bhatt, Senior Press Officer in the IMF's External Relations Department. Welcome to the press conference of the Chairman of the Ministers of the Group of 24. Let me introduce the head table. The Chairman of the Ministers of the G-24, at the center is Mr. Paul Toungui, Minister of Finance from Gabon. Sitting in for the first vice chairman is Mr. Jeremias Paul, World Bank Alternate Executive Director for the Philippines. Sitting in for the second vice chairman is Mr. Jose Costa, senior advisor in the IMF Executive Director's office for Argentina. The Chairman of Deputies of the G-24 is Mr. Philibert Andzembe, National Director for Gabon of the Bank of Central African States, and the Director of the G-24 Secretariat is Mr. Ariel Buira.
We do have simultaneous translation. English is on Channel 4. Spanish on Channel 2, and French on Channel 3. Before we open the floor to questions, Mr. Toungui will make some opening remarks.
MR. TOUNGUI: [Through translator] Ladies and gentlemen, the members of the Intergovernmental Group of 24 on international monetary affairs and development met this morning. As you can read in our communiqué which has been circulated to you, we consider the outstanding contemporary concerns of our countries in particular the world economic situation and outlook, crisis prevention, the Millennium Development Goals, international trade issues, the role of the International Monetary Fund and the World Bank, and governance in the Bretton Woods Institutions.
Turning to World Economic Outlook, the Ministers welcomed the continuing global economic growth. However, they remained concerned by the widening imbalance in global current transactions and by the total lack of progress in the implementation of the agreed strategy to remedy these imbalances.
On the issue of achievement of the Millennium Development Goals, Ministers considered that the year 2005 is a critical one for the assessment of progress achieved so far. They recall that the realization of the MDGs remains a considerable challenge, particularly in sub-Saharan Africa. To this end, they were of the view that the World Bank and other donors should step up their aid in order to support the attainment of these goals, in particular taking up the various innovative proposals for financing which have recently been put forward such as the international finance facility.
Ministers stressed the importance of completing the Doha cycle of multilateral trade negotiations. In this regard, they considered that improving outlets in industrialized countries along with gradual phasing out of agricultural subsidies, in particular, should constitute a priority in this ongoing process. Ministers considered the strategic role of the IMF. They agreed that the institution should continue to focus on its core mission while adjusting to changes in the world economic scene and to the evolving needs of member countries. Ministers stressed, in particular, that the IMF should support homegrown programs which take into account the priorities of the individual countries themselves.
As to the role of the World Bank, Ministers recalled that it should focus on poverty reduction and the other Millennium Development Goals. To this end, Ministers called on the World Bank to further enhance its aid to African countries in order to support them in the implementation of NEPAD. Specifically as concerns infrastructure investment. Ministers expressed disappointment over the fact that virtually nothing had been done to remedy a democratic deficit in the Bretton Woods Institutions. They are of the view that this situation undermines the legitimacy and effectiveness of these institutions. Ministers hope that concrete measures will be taken swiftly to expand the voice of developing countries as well as their participation in the decision making process in the IMF and the World Bank.
Lastly, Ministers paid special tribute to the President of the World Bank for his efforts in reducing poverty and for his financial support of the G-24. They welcomed the appointment of the new President and hope that he will further deepen the reforms and maintain the ongoing support to the G-24 from the World Bank.
MS. BHATT: I will open it up to the floor. Any questions? Yes, the gentleman over there?
QUESTION: When you last met here in October, your statement said that you hoped the new President of the World Bank would be chosen irrespective of nationality. That apparently has not happened. I wonder if you are disappointed at that.
MR. TOUNGUI: Thank you, Madam, for the floor. As we have said in my opening remarks, we hope and we will always continue to hope that the Bretton Woods Institutions will progressively become more democratized and will become more transparent in their choice of their managers and in the way they function, but now that a new head of the World Bank has already been chosen, we acknowledge him, but we hope that he will continue along the path established by Mr. Wolfensohn to try to support the efforts of the developing countries in their struggle against poverty and in the attainment of the MDGs.
QUESTION: I was wondering if you could say a little bit more about this precautionary facility that you are pushing for in the IMF. What kind of actions are you taking to push this in the IMF and how far are those actions right now?
MR. BUIRA: As you know, one of the Fund's roles is to try to prevent financial crisis, and it had established a contingency credit line for this purpose. Now, the contingency credit line, because of difficulties and restrictions in its design, was closed down in November 30, 2003, without having been used. But this does not mean the problem for which it was designed is not there. The problem is there. It is a very serious problem. It is the problem of volatility of capital movements, and we have to recognize that capital movements are volatile sometimes because the countries' policies are not adequate but often simply because the investors, say hedge funds and other investors, live in a very competitive world, and if they have money in one place, say Mexico, and then they find that they can get an eighth of a percentage point higher return in Thailand or Poland, they can move very quickly, and if many move, this can create a very destabilizing situation. Now, it was the intent of the contingency credit line to support countries that faced this type of difficulty to prevent crisis. In fact, if these financial crises are a matter of expectations, if people know that there will be support, then the speculative attacks will not take place.
Take, for instance, the case of Greece, which is a country, really an emerging market country, with a debt of well over 100 percent of GDP and fiscal deficits of over 6 percent of GDP in recent years. Now, this is much worse than countries in Latin America or somewhere else that have been attacked, but why was Greece not subject to speculative attacks? Because the expectation was that as Greece was a member of the European Community, of the European Union, that it would have the support of other countries in the European Union, and if you have the support, then there is no point in a speculative attack, you will not win.
Now, in the case of other emerging market countries, they do not have this ample support. So the idea was that the Fund would provide the support. The way in which the facility was designed was not operational, and we are hoping to establish a new one that is operational. The Fund has done some good technical work. There is a working paper recently on this which suggests that you need automatic access and ample and automatic access, and if they know there is ample and automatic support, then they will not speculate against you. So this is the idea.
QUESTION: The Board knocked down the CCL anyway. You would be seeking some sort of accommodation?
MR. BUIRA: We seek a new facility because the need is there. You see, we have been through a good period now of economic growth and ample liquidity, and low rates of interest. But what would happen if there were an interest rate shock and a downturn in the world economy? Well, some emerging market countries might find themselves in a difficult situation, and they would require assistance, and the Fund was established for this purpose. So this would be reasonable and in fact it would be fully within the Fund's mandate.
Now, the fact that it was knocked down only brings out the point that the minister had made earlier about the governance. There were 15 Directors supporting the continuation of or the revision of the CCL to make it a precautionary facility that was usable, but there were nine Directors who happened to hold a majority of votes, representing countries, industrial countries that would not require this facility, and they were not particularly interested in it. Now, if the Fund is to serve its members, it has to reflect better the needs of its members, and this requires a reform in the governance.
QUESTION: I would like to ask G-24 what lessons have you learned from the Argentinian experience to redesign the way you deal with the Fund and the Bank regarding the debt?
MR. COSTA: I am not the G-24. I think there is experience still going on, so I do not think this is already the time to take lessons from the Argentinian experience, but if you press, we can agree, I guess, on the fact that the international financial architecture is lacking instruments on structures that may contribute to make restructuring process more easy to bring about, so the SDRM project that was also knocked down I think remains as a task for the international financial community looking forward.
QUESTION: I was wondering if any concerns were raised in your meeting regarding the weak dollar and any sort of risks for that in emerging markets.
MR. BUIRA: As you see in the first paragraph, that we speak of risks, and the key risks include the increasingly unbalanced nature of global expansion, a tightening of financial conditions, concern about the widening current account imbalances which increase the risk of disruptive movements in exchange rates with major currencies and in interest rates.
Now, what does that mean? That if there were a continuation and a widening of these imbalances, which are financed by a relatively limited number of countries, the appetite for dollar assets may come to an end or may simply decline, and if people are not prepared to continue financing these imbalances, then you would have a decline in the exchange rate and a sharp increase in interest rates, and all kinds of unfortunate consequences for the world economy. A slowdown in the world economy, the possibility of financial problems in some borrowing countries and so forth. This is, by the way, you might have seen a statement by Paul Polkit a couple days ago to this effect. We are on the same wavelength
QUESTION: You talk about agricultural subsidies and the need to end them. I would like to see if you could elaborate on this topic.
MR. TOUNGUI: Well, I am not sure exactly what kind of specifics you would be seeking. As you know, at the present time there are a certain number of countries which are strongly subsidizing their agricultural commodities, and this is a problem which the developing countries have been bringing to the fore for sometime now. This is part of the negotiating framework for Doha. We have seen the problem of cotton, you in the press have followed this for years on end. There are other commodities which are also substantially subsidized by some countries, and therefore freedom of trade which is called for by all is not being afforded and the developing countries have difficulty in finding outlets for their commodities in these countries. This is a plea that we have been making within the G-24 as well as within the G-77 and the United Nations. This is an ongoing, long-standing problem, and it is very genuine. I am not going to quote the particular countries that subsidize to a very large extent their agricultural commodities. I think you are all familiar with them. Thank you.
QUESTION: I would like to ask to what extent is it a priority of G-24 to use the Internet to communicate much more directly with the public and the interested parties in the north about your positions? There are a billion users of—well, there is a billion Internet devices out there. At the moment none of them represent a G-24 position at all usefully. To what extent is that a problem for you?
MR. BUIRA: Mr. Chairman, I would like to refer Mr. Thompson to our web page on the Internet, and you will see all the communiqués of the G-24, and you will see a lot of research work. We have a very active research program that is producing nearly 30 papers a year, and these papers are available to you on the Internet. Perhaps the failing might be that we do not have enough links to other pages or to other centers so that perhaps people have to look for the G-24, and they do not come across our work when they look for something else, but we are using it, and it is being widely consulted. I know that many students and academics and so forth refer to it. Thank you.
QUESTION: Thank you. This is for Mr. Toungui. Another issue on Mr. Wolfowitz. Were you satisfied with the consultations that happened prior to the nomination of Mr. Wolfowitz by the U.S.?
The other issue is, we have heard every single meeting on the IMF and World Bank and you pushing for increased representation, but I was wondering exactly how far. I mean, one realizes the political process, but I was wondering how far that discussion has gone and that you are feeling if there is going to be change anytime soon.
MR. TOUNGUI: Well, thank you. I was not consulted as concerns the nomination of Mr. Wolfowitz, so I cannot say whether I am satisfied or happy about it. All I can say is that Mr. Wolfowitz has been designated as the new President of the World Bank and along with me all the countries of the G-24 feel that what we should do now that this has been decided is to seek a continuation of the approach taken by the Bank towards the developing countries because we consider that the support given to the developing countries by Mr. Wolfensohn was correct, so we want to make sure that there is no backtracking. We want it to continue in the right direction. Now, we simply have to take note of this appointment. There is no sense in looking backwards in our rearview mirror. We have to look forward. Looking forward, we want to strive to ensure that the positive claims and urging of the G-24 so as to have greater transparency in the BWI will take place, and that one day the situation will be far clearer for everyone concerned. But for the time being, we take note of what transpired. We wish Mr. Wolfowitz every success in his endeavors, and we hope we will be involved as members of the World Bank in the reflection on furthering the assistance provided to the developing countries, which we represent. Thank you.
MR. BUIRA: May I add a few words on the second part of the question. How far has the discussion on governance gone? Well, we have had three years since the Monterrey Consensus, and so far there has been very little progress, but we cannot give up, and we cannot give up for a very good reason. You see, at the time the institutions were set up 60 years ago, the world was a very different world. The U.S. was the largest creditor nation and the largest if not the only source of capital exports. Today it is the largest debtor nation, and it is absorbing 80 percent of capital flows. At that time the industrial countries accounted for most of world output. Today the G-7 accounts for around 43 percent of world output, and if you take the developing and transition economies, they account for a little more of world GDP measured in real terms, that is in terms of purchasing power parity. If you look at reserves, the reserves of the developing countries today are considerably higher than the reserves of the industrial countries, so the current system of governance is completely out of line with economic realities, and what is happening as a result of this is that people are moving away from the institutions.
The recent experience of Asia is very telling. You had the Fund play a major role in the Asian crisis between 1997 and 1998. The countries did not like the experience. What they have done is they have been accumulating reserves to a considerable extent to avoid having to come back.
So what is happening, Europe moved away from the Fund, Asia has moved away, some of the larger countries elsewhere are moving away. So what is the Fund going to be left with? Sub-Saharan Africa, Central America, perhaps a few countries in Central Asia. That is not what we want. We want a multilateral system for international monetary cooperation in which everyone is represented in a fair and open way. This in the end will come to pass because otherwise institutions will become irrelevant, and it took a lot of effort to create them, and we do not want to destroy them. On the contrary, we are the users and the beneficiaries, so we wish to support them, but we wish to reform them to make them more useful.
MS. BHATT: Thank you. We have time for one last question. Any questions? If not, then I would like to ask MR. TOUNGUI to make some concluding remarks.
MR. TOUNGUI: [Through Translator] Thank you very much. I would like to thank all of those who have come to exchange views with us today. As we say in our communiqué, the year 2005 will be absolutely critical in our path towards the achievement of the MDGs. There are many actions under way to this end on the world scene, there is the very important summit to be held in New York in September.
As you know, in the year 2000 the heads of state from all over the world, developed and developing nations, made certain commitments which were confirmed in Monterrey with the Monterrey Consensus, and we in the G-24 consider that it is time to move verbal promise to performance. What we are calling for in our exchanges with the IMF and the World Bank is precisely the kind of action which got its impetus with the world summit of 2000 and was confirmed in Monterrey and then in South Africa as well with its major summit on sustainable development there, and we hope that all of the initiatives being taken today and timidly supported by some but not by all, we hope that these multiple initiatives will all flow together so that by the September summit in New York the entire global community will confirm the commitments made. Take note that not a great deal of progress has so far been made, but to give fresh impetus to further movement forward.
We in the developing countries are calling, clamoring for democracy and good governance, but this should be a global phenomenon, and this kind of call, and this demand should not be made only towards the developing countries. We believe that the World Bank should also speak out to those who are giving us lessons and call upon them to take the same steps. We are not criticizing this, as we say in our communiqué, but obviously setting the example is far better than merely spoken words. Thank you very much.