Transcript of a Press Briefing by the Chair of the Group of 24 MinistersSingapore, September 16, 2006
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Mr. Baker - Good afternoon and welcome to the G24 press conference. Before we start, let me introduce you to the head table. Mr. Margarito Teves is the Secretary of Finance of the Philippines and the Chairman of the G24. Mr. Ariel Buira is the Director of the G24 Liaison Office. Ms. Felicia Miceli is the Minister of Economy and Production of Argentina, and she also is the First Chair of the G24. Mr. Jean-Claude Masangu Mulongo is the Governor of the Central Bank of the Democratic Republic of the Congo and he is the Second Vice Chair of the G24. Mr. Jeremias Paul is the Chairman of the G24 Deputies.
We have interpretation in French, English, and Spanish. Before we start, the Chairman of the G24 will make a statement.
Mr. Teves - Thank you very much. My colleagues on the presidential table and the Incoming Chair of the G24, Ms. Felicia Miceli, ladies and gentlemen of the press, good afternoon to all of you. The Ministers of the G24 met today to discuss issues of common concern. Our communiqué has been distributed to you. There will be translation in French and Spanish. The following are the highlights of our discussions.
(From left to right) Mr. Teves, Mr. Paul, Mr. Buira, and Mr. Baker
First, regarding the voice and representation of developing countries at the IMF and the World Bank, Ministers stressed the importance of reaching early agreement on a credible and timebound package of reforms that would ensure an increase in the voice and representation of developing countries in the Bretton Woods institutions. While welcoming the proposed ad hoc quota increase for China, Korea, Mexico and Turkey, they pointed out that the current package of reforms does not adequately address the fundamental issue of underrepresentation of developing and low-income countries as groups. Ministers noted that any package of reforms should include an early and substantial increase in basic votes, at least a tripling, and a new quota formula that accurately reflects the relative size of developing countries in the world economy. They also called for measures to enhance the participation of low-income countries in the decision-making and management structures of the Bretton Woods institutions.
Regarding global economic prospects, Ministers welcomed the ongoing and broad-based global growth in 2006. While prospects remain favorable, they underscored that the risks have tilted to the downside. Against this background, Ministers stressed the need for early and meaningful efforts to address the global imbalances, which should involve a concerted response. They supported the IMF's efforts to undertake a more proactive surveillance role, particularly through the recently initiated multilateral consultation process.
With respect to trade issues, the Ministers expressed deep disappointed over the suspension of the Doha Round of multilateral trade negotiations. They called for an urgent resumption of negotiations and urged the IMF and the World Bank to support this effort, including by helping make the case for the Round by highlighting its potential benefits, particularly from the possible elimination of agricultural subsidies and tariff escalation schemes in advanced economies.
Regarding IMF and World Bank support for low-income countries, Ministers are concerned that while some progress toward the MDGs have been approached, prospects for some countries, particularly in sub-Saharan Africa, remain quite challenging. In this context, they called for a significant scaling up of efforts on the part of both donors and recipients, including in order to increase resources as well as through better policies and improved governance and aid effectiveness.
Regarding debt reduction delivered through enhanced the HIPC Initiative and MDRI, Ministers called on donors to provide the necessary resources to extend the MDRI to all low-income countries. They encouraged donors to deliver their assistance more efficiently and predictably, and to align such flows with countries' own strategies for reaching the MDGs.
On strategic issues facing the IMF and the World Bank, Ministers welcomed the initial discussion in the IMF on a new instrument to support developing countries with market access that have strong macroeconomic policies and fundamentals, but that remain vulnerable to shocks. They called on the Fund to develop and implement such an instrument without delay, stressing that there should be no conditionality associated with the new facility beyond that required to maintain macroeconomic stability. Ministers also supported a comprehensive approach to strengthening governance and fighting corruption, while emphasizing that any strengthening of the World Bank's efforts in this area must serve to advance the institution's mission regarding poverty reduction and the achievement of the Millennium Development Goals. Given the importance of country ownership and the Bank's multilateral character, Ministers underscored that the World Bank should not disengage from supporting its members so as not to penalize the poor.
Ministers expressed concern regarding the large and growing negative net transfers from the World Bank to middle-income countries, which is due in large part to the high cost of doing business with the institutions. Ministers considered that, in order to be successful, any enhanced strategy for middle-income countries must be flexible, multi-pronged, and comprehensive so as to respond to differentiated and evolving demands across such countries. They noted that there has been little progress on the use of country systems, and noted their importance in reducing the nonfinancial costs of doing business and in strengthening countries' institutional capacities. Ministers urged the World Bank to take the necessary actions to achieve timely progress in this critical area.
Thank you very much. We will now take your questions.
Question - Regarding the issue of vote and quotas, I see from your communiqué that members are not happy with the discussions on the formula so far. I wonder if they have expressed their intention to vote against the proposal that that has been put for their vote right now.
Mr. Teves - Well, there is room for improvement, it does not necessarily mean that we will vote against the proposal. We are looking for a more comprehensive package of reforms and adjustments in the quota, making sure that the members' quota will not be eroded over time and, in fact, be protected. We will try to vote for a substantial increase in basic votes, at least a tripling; that is what we will be looking for.
Mr. Buira - If I may add a word, Mr. Chairman. I think you all know that this is a two-stage process and the first stage includes the increase in the quotas of these four countries that are named here. Now, the second stage involves development of a new formula. The purpose of the new formula should be to reflect the increased role of the developing countries in the world economy because, as the communiqué states, these countries account for more than half of the world's GDP in terms of purchasing power parity. Of course, this is the only valid criteria for international comparisons. If you do it at market exchange rates, you will find that fluctuations in the exchange rate between the dollar and the euro have been 60 percent in the last five years, so that is not a reliable measure. Purchasing power parity is the only measure that statisticians recognize as appropriate and it is the measure used by the World Bank and by the International Monetary Fund in their own projections and in their own comparisons for all purposes except quotas.
Now, in the discussion of a new formula, the measure that has been suggested for the measure of GDP is market exchange rates, which has this problem. It has also the problem of underestimating, of having a bias against developing countries, because this cup of coffee in Guatemala will cost 25 cents, in New York it will cost 2.50 and it appears that the GDP of New York is ten times larger than that of Guatemala for the same thing. That is a bias against us. The other issue, of course, is the introduction of the factor of openness. Openness favors very small, open economies, say Luxembourg or Belgium, which is mostly the small European economies, where trade is perhaps often several times larger than GDP, but it is 15, 20, 25 percent of GDP in larger countries, imagine in continental-sized countries, whether it is Brazil or India or whatever. So, this is not, we feel, an appropriate measure. The appropriate measure would be one that takes into account the vulnerability of fluctuations in commodity prices for primary producers, the vulnerability of countries to fluctuations in capital flows, and these are the vulnerabilities of countries that use Fund resources. So, we feel this is the appropriate sort of measurement to include. The discussion is how is the new formula to be developed, which are the elements, with what weights, and this discussion is to take place over the next 12 months or so.
Mr. Teves - Let me just again summarize the position of the G24 members. The G24 members are unified in the aim to boost the quotas and voice of developing countries in the IMF and the World Bank. There is unanimity in the need to increase significantly the basic votes, which gives stronger representation to smaller countries. There is full agreement in the G24 that the new quota formula should be revised to reflect the economic realities of the 21st century. Much has changed in the world economy since the founding of the Bretton Woods institutions in 1944. The G24 supports an early and ambitious package of reforms that would reflect the growing importance of developing countries in the world economy today and in the future. This is where the work will be done within the next 12 months.
Question - I just wanted to check on whether there was unanimity in G24 whether the quota revamped system should go through a two-stage plan. Is the G24 supporting the two-stage plan? You have problems with the formula. As I can make out, you do not have a problem with the two-stage plan and I believe that some members of the G24 are not in favor of a two-stage plan; they insist that you should go for a formula and go for the quota working at one-go.
Mr. Teves - Well, I tried to repeat that in my statement earlier that there is unanimity in boosting the quotas and the need to increase significantly basic votes which gave stronger representation to smaller countries.
Question - I was wondering: what do you think the likelihood is that the vote will succeed on the 18th? If it does succeed but there is still resistance among a large group of you, what effect do you think that will have on the legitimacy of the Fund? What if there is not unanimity amongst the members of the Fund during these next two years that is meant to be agreed, do you think that it could be prolonged beyond 2008, the discussions on this?
The Chairman - Okay. We are looking at anywhere between 2007 and 2008, but not beyond. Members of the G24 welcomed the recent deliberations regarding the issue of the voice and representation of developing countries at the Bretton Woods institutions, and these discussions have resulted in proposals regarding next steps, which include an initial ad hoc increase in the quotas of China, Korea, Mexico, and Turkey. We feel this is a welcome development. Looking forward, members of the G24 insist that the package of reforms must include a revision of the formula for determining quotas in order to ensure that it reflects more accurately the relative economic size of developing countries in the world economy. So, this formula may include, among others, GDP and PPP as well as the country's greater vulnerability to commodity prices, commodity price fluctuations, volatile capital flows, and other exogenous shocks. We will still try to go for a substantial increase in basic votes, a tripling. This is how we are going to work this out through other members of the G24.
Question - You did not answer my question. My question is what do you think the likelihood of the vote succeeding in the 18th and, if it does go through with some resistance, what would the impact of that be?
Mr. Teves - Most likely it will succeed.
Ms. Miceli - (THROUGH INTERPRETER) Yes. Let me stress that all of the G24 countries are very ambitious when we look at this initiative of having greater voice and representation for developing countries. Some countries do not believe that this is quite the right approach and that is why certain countries, and certainly Argentina, voted against the proposal. The same is true in the case of Brazil and India, who are also members of the G24. So, that is the answer.
Question - I want to ask a question to Felicia Miceli, and I will ask the question in Spanish; it is easier. (THROUGH INTERPRETER) You are the most senior representative of the Latin American group within the G24. I would like to know what was negotiated among the Latin American countries as regards the rejection vote to the initial IMF proposal. What were the reactions of Brazil and of Argentina to that proposal of including Mexico in the group of four 4 countries that have greater weight in Fund votes. If you look at the absolute size of GDP, Brazil is larger, and Brazil and Argentina together have much larger flows than Mexico. I wanted to know if you could elaborate a bit on that.
Ms. Miceli - (THROUGH INTERPRETER) The increase in the quotas of these four countries that were selected-Turkey, Korea, China, and Mexico-is due to the fact that these countries are the ones that are most underrepresented vis-à-vis their current economic size and the quota ratio that they presently hold and that is the reason why these four countries will be the first ones going into this scheme of increased participation. From that standpoint, the countries of Latin America, and it is not only Brazil and Argentina, most Latin American countries voted against this reform, but that is not our main concern. Our main concern is that this reform is being carried out in order to increase the voice and representation of developing countries within the IMF. We do not clearly understand that this process would lead to that objective and, therefore, we want to discuss further the two-stage process, but with clear commitments. Clear commitments to us means to include the idea that the representation of developing countries as a whole should not decrease at the end of the process. We are somewhat concerned, because this is not crystal-clear right now. We are worried about certain developing countries giving up their situation in favor of other countries and that would not help us reach the objective of the reform of increasing the voice and representation of the developing countries. That is the main reason why most of the countries in the Latin American region voted against this reform.
Was that clear?
Question - Yes.
Question - I am following up on something that you have been asked before here about the timeframe. You have said that you wanted it done expeditiously. Does that mean that you are unsatisfied with the current timeframe for the vote of the quota increase? Do you think it is a good pace now or you think it should go quicker?
Mr. Teves - Well, I think 2007 to 2008 would be reasonable, as there are even disagreements among different members on the exact nature of the formula and some specifics. So, I think a timeframe of 12 to 24 months would be very reasonable, not later than the end of 2008.
Question - Well, I mean, 24 months, that is what the IMF is also proposing. Is there also unanimity on that view or some of the G24 members have a different view on that? You know, there is no clarity. Initially, you said 12 months.
Mr. Teves - We said a range of 12 months to 24 months. Our preference, of course, is 12 months, but not later than 24 months.
Question - Let me come back to the question of the vote. Can we get a very clear view that, if the vote on an ad hoc increase comes up, where is G24 going to vote? Is there a unanimous view on that? Are you favoring the ad hoc increase, is there a unanimity of views there, or are you going to vote against that because, if it comes as part of a package-I mean, we cannot get clear as to where you stand. Is there a split of views within the G24?
Mr. Teves - Let me read the package just to make it clearer. The communiqué says that, while welcoming the proposed ad hoc quota increase for China, Korea, Mexico and Turkey, Ministers point out that the current package of reforms does not adequately address the fundamental issues of underrepresentation of developing and low-income countries as groups. They note that emerging market countries, other developing countries and economies in transition account for half of global GDP measured in terms of purchasing power parity, hold most of the world's international reserves, and represent a majority of the world's population. In order to project this new reality in the world economy and increase the legitimacy and relevance of the DWIs, the voting power of developing counties and low-income countries as a group should be expeditiously increased and protected. In other words, despite the fact that the two-stage may not be something that is ideal, it is something that is probably realistic. As I said, we are aiming for movements along this direction and that is why we are looking at the timeframe of 12 months to 24 months wherein we can probably approximate what we would have wanted ideally.
Question - Mr. Buira, you have said at previous IMF meetings that you feared that unless this was addressed correctly, many emerging markets, especially those in Asia, could move away from the Fund. What to you think is going to keep them in the Fund now?
Mr. Buira - Well, I think that following the Asian crisis, you saw a number of countries in Asia build up reserves as a form of self-insurance to make certain that they did not have to come back to the Fund. Now, this had to do with their not liking the prescriptions, the policy prescriptions they had received on the one hand, and an issue that is behind this, the issue of a lack of representation, lack of adequate voice in the decision-making processes in the Fund, and this has raised the question of the credibility of the Fund and the legitimacy of the Fund. Reform is necessary to address these issues of legitimacy, representativeness, and credibility. You also noted that countries, some large countries in other parts of the world, also walked away from the Fund. So, the Fund is being left with smaller, poorer low-income countries as the major customers, if you wish. Unless you have substantial reform, you will not be able to bring back these countries into the multilateral system. This is not because they do not want to be multilateral; some of them are developing like the Chiang Mai initiative and so forth, mechanisms of regional support, because they do not feel comfortable with the broader mechanisms. But these are the issues, of course, and this is part of the reason why the Fund is moving.
Question - I will do this in Spanish (THROUGH INTERPRETER) As Mr. Buira just said in answering the last question, some of the G24 members have decided to pay back their debts to the IMF completely and to withdraw from its financing mechanisms. Other developing countries are planning to do this as well. Indonesia is an example. In the case of Asia, there is also a discussion as to developing funds with the regional reserves for mutual assistance programs to the countries. During the meeting this morning, there was a discussion about the possibility of developing a parallel system, a nonmultilateral system maybe, and the possibility of setting up new regional cooperative organs to create financial stability, or is this just a card in the deck to try to get the IMF to come up with these new loans without any conditionality?
Mr. Buira - This issue was not addressed by the Ministers; this was not discussed by the Ministers at all. There were technical discussions in the previous days of regional monetary cooperation in Africa, in Asia, and in Latin America. The papers are available to you on the web page of G24. They are technical papers.
Mr. Paul - I just wanted to clarify that the discussion that Mr. Buira referred to was a technical group meeting that was not discussed with the Ministers. These are not discussions at the policy level but really discussions at the technical level.
Question - Reading through your communiqué, most of the things raised or issues raised are not new issues. What do you think this time around the IMF and World Bank and possibly the donor community are going to (?) to you? Again, the issue of technical assistance has been a (?) To developing countries. For example, like my country Ghana, I did not see anything of that sort being highlighted in your communiqué. May I know is that not a major issue on your table now?
Mr. Paul - Of course, the issue of technical assistance to developing countries is certainly a topic that is close to our hearts, especially in the World Bank. While that was not discussed during the discussion, that is really in the back of the minds of the Ministers, because you have a limited time to discuss things. But it does not mean that that is not important to the Ministers.
Question - One of the strategic issues you looked at was supporting a comprehensive approach to strengthening governance and fighting corruption. I would like you to give us any specific measures that might have been suggested or discussed on good governance and fighting corruption, and if Mr. Mulongo could also tell us how these changes and recommendations would impact on our economies in Sub-Saharan Africa.
Mr. Teves - There was no specific discussion except by way of an example wherein one country was seeking for help and, after the World Bank has looked into its requirements, the World Bank felt that this country would be able to make use of the support coming from it. True enough, their assessment was correct. They were able to make use of the money, and it was not even enough. So, there will have to be what I would call country-specific requirements related to governance. We cannot adopt a universal formula for all these countries. Certain countries may already have attained certain levels of governance vis-à-vis others. So, the World Bank would have to consider the level of involvement in governance issues as far as these countries are concerned.
Question - From the supply point, is there any particular mechanism that you would prescribe or you would prefer in addressing issues such as corruption?
Mr. Teves - I would not have a universal prescription for all. I would have for my own country but, as I said, my own assessment of what would be that formula might not be relevant for your country. I only know that issues like transparency and accountability of how we devise programs, how we use our resources and getting the people to own these programs and participate would give us a good direction as well as participation on this issue of governance and ultimately will result in positive effects rather than not having those parameters at all. So, I would not prescribe any formula that might be not relevant to other countries.
Mr. Mulongo - (THROUGH INTERPRETER) Thank you for giving me the floor. I would like to endeavor to reply to the question put by the journalist from Ghana and add a few words myself. It is true that Ministers are in favor of improving governance and combating corruption, but we also said that a comprehensive approach was required and this obviously takes into account both supply and demand. In other words, there has to be an effort made by both parties as to the impact on the African countries that you referred to. First of all, every country has its own program, its own agenda and action plan, and the World Bank and other institutions providing assistance to combat these must bear in mind those plans and programs drawn up by the individual countries if they are to have a lasting effect on combating governance. This is most important and an example was quoted this morning. The President of the World Bank, when he was addressing us, sought to describe the impact of corruption. As he said, when there is money that is being diverted, this is unacceptable because it could be used for investing in education and better health services. That is the additional information I wanted to add.
Question - I have a question for Mr. Teves and Madam Miceli. I understand that the IMF needs 85 percent of the power vote to approve this resolution. You are talking about that many developing countries are opposing and have, in the case of Latin America, already voted against the resolution. My question is if this opposition covers at least the 15 or 16 percent of the power vote needed to kill the resolution.
Mr. Teves - I am sorry that I do not have that kind of information for me to make an intelligent answer, because I do not know that 85 percent. Maybe the members of the panel can answer that question.
Ms. Miceli - (THROUGH INTERPRETER) According to the information that we have, the 85 percent voting power has already been obtained so that the decision will come out of the Board of Governors. This is the information that we have so far. In other words, there is no absolute certainty because some countries did not vote and some countries may change their votes from abstaining. It might be possible to achieve that 15 percent figure, but we are more or less convinced that the necessary percentage will be obtained in order to approve the resolution.
Question - Could you please, each one of you, disclose how did you vote on this issue, each one, just to make things clearer for us?
Mr. Teves - My appreciation of the voting process is not-it was not done individually but collectively, since we vote on the basis of consensus.
Mr. Mulongo - (THROUGH INTERPRETER) It is true that the question was put individually to us, but I believe that today's press conference is that of the Group of Twenty-Four and we should be speaking on behalf of the G24. According to the information that we have, the Minister of Argentina said that, in fact, the 85 percent, which is the required majority, has already been obtained. So, I do not think we can reply individually. We are only four parties represented here.
IMF EXTERNAL RELATIONS DEPARTMENT
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