Transcript

Transcript of the Group of 24 on International Monetary Affairs and Development (G-24) Ministers Press Conference

October 10, 2008

Participants:

Mr. Masangu Mulongo, Chair
Mr. Mayaleh, First Vice Chair
Mr. Studart, Second Vice Chair
Mr. Bhattacharya, Secretary
Ms. Gaviria, Moderator

Ms. GAVIRIA: Good afternoon. I'm Angela Gaviria with the IMF's press office. I welcome you to this press conference of the Intergovernmental Group of 24 on International Monetary Affairs and Development. The Group, as you know, held today its 80th Meeting here in Washington. Let me now introduce the speakers. The chair of the G-24, Mr. Masangu Mulongo, who is also the Governor of the Central Bank of the Democratic Republic of Congo. To his right is Mr. Wa Bilenga, Chairman of the Deputies of the G-24. Next to him is Mr. Mayaleh, who is First Vice Chair of the Group of 24. And to the far right is Mr. Bhattacharya, who is the Director of the Secretariat. To my right is Mr. Studart, Second Vice Chairman and Executive Director of the World Bank. We will go now to opening remarks by Mr. Masangu Mulongo, and then we will open the floor for questions.

Mr. MASANGU: Thank you. I will make my introductory remarks and I will make them in French, and then the entire team around me will answer the questions that you may have about the sessions that we have had this morning.

(Interpreted) First of all, I would like to thank you all for coming to this press briefing on the meeting of the G-24 ministers, who as you know met this morning. We are meeting at an extraordinarily difficult and uncertain time. As you know, this crisis originated more than a year ago in the financial markets of advanced countries. During this period, the developing countries have been relatively resilient thanks to their solid fundamentals and financial buffers built up over recent years. However, it is clear that no one is going to be immune to the spillovers of the ongoing financial crisis, with some countries more affected than others already. Already, many emerging markets are being affected by the reversal in capital flows, the increases in funding costs, and shifts in investor sentiment, unrelated to economic fundamentals. While food and fuel prices have abated from their unprecedented all-time highs, they are still high by historical standards, and pose a considerable burden to many low-income countries.

Against this backdrop, our ministers have called for decisive and comprehensive actions to address financial market strains in the advanced countries and the underlying weaknesses in the regulatory and supervisory framework.

They also called upon the IMF and the World Bank to step up the needed assistance to ensure that emerging markets and developing countries are cushioned against the effects of the spillovers of the crisis. They noted that an introduction of a liquidity facility in the IMF is long overdue. They, however, did welcome the steps taken by the IMF and the World Bank to assist low-income countries, including the reform of the Exogenous Shocks Facility in the IMF, and the US$1.2 billion Rapid Financing Facility, and the Energy For the Poor initiative in the World Bank. They asked that these be deployed rapidly and flexibly, and noted that more will likely be needed in these fields.

The ministers also discussed the proposals on reform on voice and representation in the World Bank, and also discussed development and climate change, as well as financing for development in the lead-up to the high-level meeting which will take place in Doha at the end of November of this year.

You all have the communiqué that reports on our discussions, so let me offer you the floor. With the help of our moderator, my team and myself are prepared to answer your questions.

QUESTIONER: (Interpreted) Mr. Chair, you seriously dealt with the financial crisis I have just heard. It originated in the United States, where we find ourselves. You said, or did you ask the World Bank and the IMF to increase their assistance to the developing countries, the World Bank would have US$1.2 billion for this. When you look at the scant nature of the resources vis-à-vis need and when you look at the Paulson Plan, to use US$700 billion, you ask whether the Bretton Woods Institutions really understand the breadth of the poverty in the developing countries. We know the developing countries, rather the Bretton Woods Institutions, are supposed to cut poverty by half, by 2015. My first question.

Secondly, I would like to know what measures you have taken to confront the food crisis, which has not ended. And, also, about environmental protection, because there are countries which have forests in abundance, such as the Congo, which do not have what these countries should have, in terms of carbon credits, because of their protection of the environment. These are my questions. I thank you very much, Mr. Chairman.

QUESTIONER: (Interpreted) I am from Kinshasa. I just have a small question for the chair. An appeal was made to the international financial institutions for global initiatives. I would like to have some more clarification. We know that the United States has taken a number of measures on its side. The Europeans have also decided to do some things. The IMF, Managing Director, and the World Bank president have asked for international mobilization, so that isolated decisions will not be taken. That is where I would like to have some more clarification. What kind of determined and global initiatives have you called for outside of what is already being done?

Mr. MASANGU: (Interpreted) The first two questions, and even the third one, are closely intertwined. The first has to do with the scantiness of the sums which have been mobilized internationally. And, the question would be whether the western countries really understand the breadth or scope of the crisis in the continent such as Africa.

And, you also speak of the food crisis. The crisis began with the real estate crisis, the housing crisis, and this affected financial markets, and also affected the prices of fuel and commodities, and food, increasing those as well. So there is a link, the crisis spread to different sectors and began to impact the whole continent, but at differing speeds. Yes, there is a lack of sufficient funds being mobilized. This is true. We just lunched with Jeffrey Sachs, Prof. Sachs who gave some frightening figures. Two or three examples I could give you where you can see that we do have problems mobilizing sufficient funds to face the food crisis, to confront the development needs of mankind. For Africa, we need US$25 billion for a population of 800 million inhabitants. The rescue package, with the Paulson Plan, talks about US$700 billion, and the US$700 billion has been mobilized in a week. Whereas, we have had different meetings in the G-7, and elsewhere, where we heard promises being made for development and to help countries in trouble. These promises have not been respected in the face of an international crisis, which may spread very quickly, become systemic, with the risk of the international, whole world economy falling apart, or collapsing. We need to avoid all of this having a worse domino effect.

This is the crisis, the breadth of which we need to understand. We need agreement, consensus, coordination, internationally, so that together we can confront the crisis so a multilateral effort needs to be made.

Coordination among the different policies, everybody cannot deal with just his little corner of the world. We have to all look at what our neighbors are doing. We have asked that the mechanisms in place be examined, for instance the IMF, within a framework of the highly indebted poor countries, does have a facility for reducing poverty and promoting growth. It is insufficient just to set up a facility which is called the Exogenous Shock Facility. This is something new. There is the World Bank, which also has set up a facility for US$1.2 billion to respond as quickly as possible to the different needs. And finally, there is a World Bank initiative, which is called initiative to solve the energy crisis in the least developed countries. These are all mechanisms which have been set up. These are new facilities. We are all looking for solutions, solutions that need to be found, together to resolve this crisis.

Now, the food crisis, too, in some countries there are agricultural subsidies, and customs barriers and other kinds of barriers. The meeting which is to take place in Qatar to discuss this subject of international trade, and to see how we can act on that issue.

So, this is what I would say by way of a reply regarding the scantiness of sums which have not yet been mobilized, and also the impact on the food crisis. It exists. The financial crisis is talked about a lot more. The energy crisis does still exist. So does the food crisis. So, we have to confront this whole range of crises, which we just call in two words, the financial crisis today. Perhaps the First Vice Chairman would like to add something.

Mr. MAYALEH: With regard to the crisis, we were concerned with this issue during our meeting. The situation is very serious. And, we have to have an eye on the spillovers, particularly the spillovers in our countries. Developing countries face very difficult problems already with regard to growth, and we now have to strike a balance between growth and inflation, and are we going to be able to do it? This requires a great deal of effort, and it also requires support from the Bretton Woods Institutions.

Let us also look at the issue of reform. Reform is not only for developing countries. All the countries of the world need to reform and reform needs to be in depth. Because, we realize that this system that is some 60 years old is no longer working, and so we can't reform using old instruments. We have to come up with appropriate instruments to deal with this crisis and the new situation facing us.

The system is now showing its cracks, showing its weaknesses, and therefore, we have really to take a very in depth approach to reform. We need a new financial order to deal with this situation. And, as I have said, the effects are extremely serious, not only for developed countries, but also for developing countries. In our meeting, we also address the issue of voting rights, and this, too, needs to be reformed. As the Managing Director, Mr. Strauss-Kahn, said, very rightly, this will perhaps be done over time. However, it needs to be done quickly. This is a very important point. Because, as we see quite clearly, at this point in time, the crisis started and spread within the U.S., then spilled over to Europe, and in the developing countries, we would also feel the effects. But the developed countries have the means to deal with the problem, but we who are developing countries, or emerging countries, could collapse under the weight of such a crisis. Our banking systems could come really crashing down. And, so, it is extremely important for us, that the IMF and the World Bank identify very clear objectives for providing support to the developing countries in the midst of this crisis. And, I would like to say that since the setting up of the two Bretton Woods Institutions, this is the first time that a developing country, Egypt, is going to be the chair of the IMFC. And, I welcome this development. But, what we would like to see is close collaboration between these institutions and the G-7, and all of those agencies that are involved in trying to come up with solutions. And we ourselves need to be involved, because we are affected, and therefore there needs to be broader cooperation and collaboration.

QUESTIONER: (Interpreted) Mr. Chair, and I am addressing the whole panel on the table, you keep talking about the crisis over and over, financial crisis. The president of the World Bank and the IMF Managing Director said there are three crises, and you mention them. The president of the World Bank said that we should talk about food, fuel, and finance, the three Fs. So, can we say that we are involved in a recession on a global scale? Why are you talking about recession? It is the women and children of poor countries like ours that are going to suffer, can you say that there is a global recession? Say recession. Don't be afraid to use the word, and just talk about crisis. Crisis. Because we, the women and children, are going to suffer and we're not afraid of words and you shouldn't be. Please use the word recession. I apologize for being so frank. But, call a spade a spade.

QUESTIONER: (Interpreted) Some of the G-24 countries will be participating in the G-20, with Mr. Paulson, and I would want to know what you think of the G-20 and what role you will be playing there. Mr. Masangu Mulongo talked about the US$25 billion that Africa will need. Is this in terms of general aid, or are you talking about purchasing of toxic assets? What does the figure mean?
Mr. MASANGU: (Interpreted) I defined what the crisis is a little while ago. It started with a real estate crisis, housing crisis, then there were, there was the energy crisis, the rising oil prices, and then the food prices. So, in French we can't say three Fs, the three crises: Food, fuel, and financial crises. So, we agree fully on that.

And, we also agree that as a result of these crises all of the economic projections, global projections, point to a slowdown in economic growth in various countries. And, in some cases, we are already in a recession, at the beginning of a recession. So we are not afraid of the word recession. It has been already evoked. If you want to find solutions, you have to analyze situations with a very cool head.

A crisis of this scale, of course, will affect first and foremost the most vulnerable groups, and we know who those vulnerable groups are: Women and children. And, I could add, households that are low income households and don't have sufficient wherewithal, as well, to deal with their debts. Some of these households may be simply heavily indebted households that cannot service their debts for houses or for cars and so on. So, they join the ranks of the most vulnerable groups.

With regard to the other question, it is a general aid for US$25 billion. And, this US$25 billion should come via aid from the U.S. So it is US$25 billion that was pledged for aid to Africa, which we cannot mobilize, which has not been allocated, but within just a week or two, US$700 billion dollars was found to rescue the financial assistance. So it is a comparison that I was making.

Money was found to bail out Wall Street. But the billion pledged in aid to Africa has not been mobilized because of difficulties.

We could find other figures to compare with. What is the defense spending of the U.S. per day? And these are figures from Jeffrey Sachs, US$1.9 billion is spent per day by the Pentagon, so these figures can be used comparatively.

With regard to the G-20 meeting, the upcoming G-20 meeting, as G-24, we are interested in coming up with solutions. We have made some proposals within the G-24, proposals discussed among all our members regarding financing, the new facilities that I mentioned, the First Vice Chair talked about voice and representation, and there we want to have an increase in the representation of emerging countries, to reflect the realities of the economy of today in relation to the realities as they existed when the Bretton Woods Institutions were set up. That is in response to your various questions.

Mr. STUDART: I represent Brazil and several other countries at the Board of Executive Directors. Brazil is at the moment the president of the G-20 and the meeting was requested by Minister Mantega of Brazil. The idea of the meeting is to reinforce the need for coordination of not only the developed countries, but developing countries in an effort to reduce the impact and shocks created by this crisis. The G-20 does not have the capacity, doesn't have the mandate to summon those leaders in short period of time, which generates very little capacity for coordination and rapid response. So, the idea is to look at this as the idea of coordination and need for coordination as has been mentioned by several leaders, government leaders, and Minister Mantega was the one to request the meeting and to create the mechanism for quick response to a crisis like that.

If you allow me, Chairman, let me say something, since I am Executive Director of the World Bank, as well, let me say a little bit, something about the Bretton Woods Institutions and the capacity to respond.

The bad news is that they are not prepared, we all know that. I don't want to talk about the IMF, but the fact that we have been struggling, we have a proposal, the G-24 has supported the proposal for an instrument of rapid, provision of rapid liquidity for a significant period of time and that only now when you have a significant crisis, this puts it seriously on the table, shows the IMF lacks the instruments to deal with the crisis of any proportion, I would say, this one in particular.

The World Bank has a completely different mandate, the mandate is not focused on financial stability, but long-term issues and poverty alleviation. The World Bank has got several instruments, but is very slow. The capacity to raise money is still limited vis-à-vis the dramatic situation of the poor around the world. I completely agree with you. I talk about a deepening of the crisis that we have been facing for many decades, which is the crisis of malnutrition, crisis of poverty, the crisis of debt provision, the crisis of exclusion. Neither the World Bank nor the IMF are prepared.

The good news is that they are good platforms. They could be prepared if the government leaders of the members of these institutions have the capacity in a short period of time to respond. The responses can be short-term and long term. In the short term, and I want just to focus on the World Bank, in relation to the IMF, for instance the question of an instrument is already on the table, but the World Bank, if you mention the food crisis, it is interesting to notice that this is the US$1.2 billion which has already been used, by the way, the fast procedures to disburse US$1.2 billion, were created in a very short period of time, given the leadership and the demand of the leadership to reduce the procedures and speed up the process.

So, the World Bank showed through this food crisis initiative that it has capacity to increase, to speed up, to create new instruments and to speed up the procedures to disburse in this case.

Furthermore, these institutions, because they have been too conservative, I would say, they are liquid, very liquid. The IMF, I don't want to talk about the IMF, but the capacity to leverage in the IMF is something around US$200 billion, but I don't want to quote that number. The World Bank is very liquid, and it can be expand very quickly its loans. What will stop us from doing that? Conservative thinking and the idea that you have to control every process because there is a lack of trust, a lack of understanding of the need of the clients and in particular the poor.

The World Bank can rapidly increase its instruments, it can increase the volumes of loans provided. Furthermore, the World Bank can be an instrument to channel funds that are already available, in trying to find a way through, that they cannot find a way through. Let me make it very simple. If the World Bank would start issuing bonds, for instance, and the World Bank is stripped because its significant callable capital, and uses those funds in order to provide, for instance, for an increase of social safeguards in order to protect the poor in this moment of crisis, if the World Bank could use that money to finance programs to increase production in agriculture and so on, it could have a significant role, at the same time facing the short-term challenge and providing for a reduction of this impact to the poor in the long run.

So, the bottom line is, this crisis is bad, and it is going to affect even further the lives of those who have been in crisis for awhile, the poor particularly, women that have to take care of the children who suffer from hunger, so on. It is a disaster.

But, if there is only one good thing coming out of this crisis, it is the concept that in the crisis, we are all together on the same boat. Since now, the developed world sees clearly the need for coordination to solve the problems that were created in the developed economies, maybe we have a chance to put that energy also to solve the problems that were already there, and were not addressed in the way, and the speed, and with the strength that we needed.

So, looking at the future, I think this is an incredible opportunity that we have. As president Lula has been saying and other leaders have been saying, to have a profound change of the multilateral system. Therefore, for instance, we welcome very much the recent speech of President Zoellick which said basically the same thing, even though with an architecture that we can't discuss, but the idea was more or less the same, as President Lula and other leaders of the G-24 have been saying, that it is not a question of just reforming the multilateral system. We have to reinvent that. We have to create a multilateral system that is capable of facing the crisis, but also that happens once in a while like this one, well, this is big, this is not once in a while, once every hundred years, but also face the crisis that humanity has been facing for many, many decades. And that we see, and we have not done enough.

QUESTIONER: (Interpreted) You are going to pass the flame to whom, and what is your balance sheet as head of the G-24, what have you done? My second question is to the Vice-chair, because he talked about reforms and the speaker just said that the Bretton Woods Institutions need to be reinvented, because they're 60 years old, and there are a lot of cracks in them. So, how do you read this in the G-24, because President Zoellick spoke here yesterday and said that reform was needed, and one should not merely listen to the G-7, but rather to the G-24, the emerging countries. What is your place, the G-24's place in all of this, and what do you intend to contribute in this very deep reform? What can the developing countries do?
Lastly, vis-à-vis precious metals and commodities, the western countries have the technology, but the developing countries have the raw materials. These developing countries do not have the capacity to set prices. In the G-24, in the face of this crisis, you need money, do you sell, you sell to the western countries, you sell these precious metals to the western countries, you didn't talk about carbon credits when I asked a question about that, but I would like to ask you about precious metals and the sales of those as well.

Mr. MASANGU: (Interpreted) I am the outgoing chair. The incoming Chairman, to whom I passed the torch this morning, is Mr. Mayaleh, the minister to my right. He is from Syria. And, the next Vice-chair is Mr. Studart from Brazil, the Second Vice Chair, who was chosen this morning. South Africa will be Second Vice Chair. These are three-year terms. That is the way it works.

Mr. Mayaleh, who is now the Chair, this morning gave his views on what his priorities would be on the financial crisis, and the voice and vote issue in the Bretton Woods institutions. He also said that we would continue to discuss climate change, and the financing of development. These are the issues, which are covered by our common mandate, because we have been working together. We discussed these issues in this last year.

Regarding the reforms, there is a whole range of reforms which have been undertaken in the IMF and in the World Bank. They're not finished. Economic formulae are being sought which take account of the weight of the economies of the emerging countries and decision making, when we talk about the representative nature of the various countries. We are also talking about positions within these institutions.

This morning Mr. Zoellick told us that he has made eight important appointments and seven have come from emerging countries. And developing countries. So, this is what we have been discussing reform-wise within the G-24. We have pushed for these things, and we have seen a solution on the horizon. There is a new post that has been created, a manager post, director position for countries south of the Sahara. Each one of the groups were very, very large, so now there are additional chairs and this will lighten the load for the single director that we used to have. And, my best wishes go to both of them. That is what I have to say regarding the reform of the Bretton Woods institutions.

We have also discussed the financial crisis, of course. We have all given our views and we are seeking a multilateral solution, that is important. We are supporting the efforts of the IMF, and of the Bank, as well.

Now, on climate change, the World Bank is very involved in this area. Its first mandate is development, of course. But, on this problem of climate change, once again, we, member countries of the G-24, have contributed very little to the heating up of the atmosphere, and so when you talk about forests and conservation of the forests, and other treasures of the planet, it is very normal for us to pay attention to the countries that own these treasures, and that we find a way to help them, compensate them in their efforts to find the best way to develop, while polluting as little as possible. Each economy is unique, of course, and having said that, I think that each economy needs to put in place a policy that encourages development first and foremost, but takes account of the environment, depending on the technologies chosen.

So, in terms of a balance sheet, this is really what the G-24 has accomplished this year. We have a document which summarizes in great detail what has been accomplished over the past year. The document is available to anyone who wishes to read it.

Now, regarding raw materials, indeed we all sell our raw materials on markets. These markets are determined by supply and demand. We have techniques to be sure that the seller country gets a minimum price for the raw materials. This involves specific contracts that can go in both directions. The price can be set, which you may find reasonable today, but tomorrow the price goes up, and you lose money. Or, the price goes down and you are protected. When you just look at oil, well, years ago it was US$20 a barrel, it went up to US$140 a barrel, now it is going down. It is about US$80 a barrel today. So, these are things that fluctuate. That is the market. And I think that most of us have opted for the law of supply and demand. There are perhaps problems with it, which we think are problems of this particular moment, because the markets have not had the proper self-corrective mechanisms, when there has been excessive risk-taking, or excessive profit-taking. I think the international community is working on this to see how we can regulate commodities markets as well as financial markets. Mr Vice-Chair, maybe you would like to add a little something before we finish?
Mr. MAYALEH: (Interpreted) I think that you looked at all of the various angles of the issue, but I will try to add something by saying that in my speech this morning, when I took over as chair of the G-24, because you asked the question as to how the G-24 could contribute to reform, I talked about improving the effectiveness of the G-24 itself in taking decisions. And also, the effectiveness of influencing decisions in the financial institutions.

So, we need to have concerted, cooperative actions aimed at achieving financial stability, global financial stability, and reducing the impact of the crisis on our economies.

And, we said that we are willing to work closely with other partners to try to come up with solutions to the problem. Our countries are very vulnerable, our economies are very vulnerable. And, we suffer a lot more than those countries that are in the throes of the financial crisis at this point in time. In our countries we have population, as said in the room, women and children who are suffering.

These countries, our countries, have to be supported, and when we talk today about the sums that need to be made available to these countries, we, too, agree that these funds fall short of the needs, far short, just a billion or so is really nothing, when you look at it in the light of the scope of the crisis.

And, this crisis, this particular crisis does not require just an injection of funds. It requires recapitalization, recapitalization for us and for the banking system, so that you prevent rather than cure. Curing requires huge amount of sums, but prevention sometimes requires much more limited resources to produce the same effect. So, prevention is better than cure.

Ms. GAVIRIA: Thank you all for participating.