Transcript

With Amar Bhattacharya, Director, G24 Secretariat
Pravin Gordhan, Minister of Finance, South Africa and Second Vice-Chairman
Rogério Studart, World Bank Alternate Executive Director for Brazil
Kaushik Basu, Chief Economic Advisor, Ministry of Finance, India
Olga Stankova, External Relations Department, IMF
Washington, D.C.
Thursday, October 7, 2010

MS. STANKOVA: Good afternoon, and welcome to the press briefing following the 84^th meetings of the Ministers of the Intergovernmental Group of 24 today, October 7, 2010.

Let me introduce our speakers at the briefing. In the center of the table is Mr. Pravin Gordhan, Minister of Finance, South Africa. He is Second Vice Chair of the Group, and he chaired today's meeting on behalf of Minister Mantega. To his right is Mr. Rogerio Studart, who is Alternate Executive Director at the World Bank. And to my right is Mr. Amar Bhattacharya. He is Director of the G24 Secretariat here in Washington, D.C.

I will pass the microphone over to the Minister, and he will make brief introductory remarks after which we will take your questions.

MR. GORDHAN: Good afternoon, ladies and gentlemen.

I am going to give you a brief overview of the Communiqué that you already have and highlight a few issues for you and then take your questions.

The first of the issues that the G24 looked at is the global economy, and essentially, in our Communiqué, we say that we are worried about the uncertainties in the global economy as they pertain both to developed countries and emerging and developing countries.

Our concerns are, firstly, that what we are seeing is a multi-speed recovery, as it is now called, and that this results in an exacerbation of the imbalances that we already have and creates difficulties both within the developed world but also between the developing and the developed world as well.

It is well-known now—and you have heard this, I'm sure, many times—that growth in advanced economies is becoming more sluggish, and generally, the estimations of growth for next year are going southward, so to speak. We don't mind it, because it is coming closer to us in the South, but that's not the point.

We are also concerned about the simultaneous and broad-based fiscal consolidation or austerity that we see in certain parts of the developed world. We believe, as the G20 has pointed out repeatedly, that uncoordinated and simultaneous fiscal consolidation poses a huge risk both for the globe as a whole and in particular for growth in the developing countries, and demand creation in the developed world.

Secondly, from the perspective of the emerging markets and developing countries, the MDGs, as we call them in the Communiqué, there is a growing divergence in monetary policy between advanced and developing countries. The current policies of the developed countries are leading to very significant capital flows into some of the emerging market countries, and as you know, this is putting upward pressure on exchange rates, creating overheating pressures, and carries increased risks of vulnerabilities and bubbles of different kinds.

The persistent uncertainties in the global economy require that, amongst others, the G20 take a much more assertive role when it meets in Seoul to ensure that it fulfills the role for which it was set out, which is macroeconomic coordination and cooperative action on all fronts on economic questions that affect the globe as a whole.

In this statement, we also remark on the role of the IMF and say that is also has a central role, and this is then connected to the issues that we raise about the reform of the IMF. If the IMF is to play a more central role and help to manage in a way in which it influences conduct in both the developed world and the emerging and developing countries, then it is important that we find ways to strengthen its legitimacy, relevance and effectiveness, as we point out in the statement.

The G24 supports a significant realignment of quotas and emphasized amongst other things that in the realignment of quotas, given the historical context in which we are operating, the realignment must lead to a shift in quotas from the "haves" of the world to the "have-nots" of the world.

There is a trend which is of concern to us in the G24 that there is an expectation by some that the emerging and developing economies must make the greater sacrifice so that other developing economies can benefit from the quota realignment. We believe that that will not be an appropriate way of dealing with a very high level of expectation in respect of the reform of the IMF that we have in the emerging and developing economies.

We emphasize that we agree with the current size of the Executive Board. You will be aware that there is a debate about whether it should be 24 or 20, but the key issue is not about 24 or 20; it is about whether emerging and developing economies have a greater presence amongst the chairs. Those that are overrepresented amongst the chairs of the Board have to find a way of increasing the presence of non-represented countries and constituencies.

In particular, the G24 supported the idea that Sub-Saharan Africa needs to have a third chair within the IMF, as it has recently obtained in the World Bank itself.

In addition to these issues, there are a number of other questions in respect of the IMF reform, including the manner in which the heads of the IMF and the World Bank are chosen and the necessity for democracy and greater transparency and participation by all countries of the world in this process.

We have agreed that we need to strengthen both bilateral and multilateral surveillance, but clearly, the debate that we are going to see in the period ahead is how an international institution like the IMF is able to increase its legitimacy, realign the voice and representation issues, give greater representativity on its Board, but also as a key, if you like, implementing agent of the G20, play an effective role in the crises and challenges that we face at the moment.

The third major issue that we dealt with is the issue of development priorities. The Ministers noted that the recently concluded UN Summit on the Millennium Development Goals as well as the substantial challenges outside of these Goals still remain a serious issue in emerging and developing countries. We emphasize that the actions taken by developing countries before the crisis had a lot of gains, although some of them are uneven, including a reduction in the levels of poverty, an increase in school enrollment, improvement in children's health, better access to clean water, and more effective treatment of HIV and AIDS, but some of these have lost ground as a result of the recession and will require more coordinated efforts, but also for the aid from developed countries to materialize so that developing countries can fulfill their requirements to their citizens.

There is also a link which we are increasingly making between growth on the one hand and development on the other hand, and there is a discourse in the World Bank Group about how we connect the growth of the global economy with the longer-term development needs and how we make development, if you like, move from a more project-based approach to a more holistic and structured approach which will enable countries across the world to address their development challenges.

Ministers have called on the IBRD and the IFC to carefully monitor their own financial capacity and initiate reviews of their capital adequacy.

The last point I want to make is that Ministers in the G24 noted that IDA has been a pivotal instrument in the support of low-income countries and that the recent review of results highlights its many achievements in the areas that I indicated earlier, including health and education, and that as we approach the conclusion of the ambitious replenishment of IDA16, it is important that both developed countries and the more resource-developing countries make an appropriate contribution to capitalizing IDA16 and give the World Bank and IDA the resources that it requires to assist developing countries.

I'll stop here and say that South Africa now takes over the chair, although we acted in the chair today in behalf of Minister Mantega. India becomes the First Vice

Thank you.

MS. STANKOVA: Thank you, Minister, and congratulations on the changes.

Let me introduce Mr. Kaushik Basu, who has just joint the briefing. He is Chief Economic Advisor in the Ministry of Finance of India, and he is Second Vice Chair of the Group.

Would you like to add anything, Rogerio or Kaushik?

MR. BASU: Just to thank you and to assure you that this is an agenda that is worth taking forward. And for India, this is an honor and a great responsibility which we hope we will participate in properly and fully.

Thank you very much.

MS. STANKOVA: Thank you.

Then, at this time, we will take your questions. Please introduce yourself and your affiliation when asking questions.

QUESTION: I was just interested—this issue now has been interjected by Secretary Geithner and now by the Managing Director regarding governance reform, linking it to other issues, namely, currency. That seems to throw a new wrinkle into the whole discussion, and I am wondering, a) do you think that's a fair wrinkle to add at this point, and b) how is this being interjected into the debate and the discussion over changing how the institution is run?

MR. GORDHAN: Perhaps we didn't come across clearly, but there is no linkage between the two. All we are saying is that we need to give the IMF greater legitimacy in the eyes of all of the countries, not just the traditional constituency, all of the countries belong to the IMF.

Secondly, we are saying that reform in its own right is important for achieving that legitimacy but also to recognize the changes that have happened in the world over the past 10 years in terms of the development of economies in different parts of the world, and also the necessity to recognize that it is more than just the G7 that is systemically important today, and therefore, those countries, including those that are poor and require a different kind of attention, if you like, which the MD agreed with today, must be given attention and attended to in the right way. So that is Issue 1.

Issue 2 is that we are raising, if you like, expectations that the IMF could, given its global role and given the fact that it is one of the few global institutions that looks at financial matters, that it could begin to play a role in this area. But clearly, the ultimate solution lies in the political understanding that leaders will reach between now and when we meet in Seoul or when they meet in Seoul in November.

QUESTION: I was wondering what we can expect realistically that the advanced economies will do with monetary policy in order to ease the pressure of inflow of capital to emerging markets—if anything.

MR. GORDHAN: Sorry, I didn't get the question.

QUESTION: There is some concern that monetary policy in advanced economies is helping the inflow of capital to emerging markets, so I was wondering what we can expect them to do at this point, realistically.

MR. GORDHAN: That is why, particularly from the G20, you have heard the idea, post-Pittsburgh, of a Framework for Balanced, Sustainable and Strong Growth. We have had the IMF undertaking a multilateral surveillance exercise to see who is doing what and how the policies either align with one another or don't align with one another.

The next challenge—in the post-Pittsburgh context, we have also now increasingly talked about imbalances in the global economy. Clearly, if there are imbalances in the global economy, whether they are related to monetary policy or whether they are related to demand and consumption, and from a developing country point of view, other issues like currency flows as well, what we need is a process over the next month where we recognize that we are going to require, as we say in the Communiqué, coordinated and, if you like, consensus actions which ensure that the interests of the different constituencies in the world are taken care of and that in arriving at any consensus, we will have to find a way in which different players give and take, if you like, so that we can create a more stable global environment.

QUESTION: Talking about governance reform, you mentioned a third seat for a Sub-Saharan African country. Which country are we talking about? And also, more generally, about the ongoing discussions, how are the talks going, what are the sticking points, what are the problems that need to be resolved before we reach an agreement, and do you think we can reach an agreement this year?

MR. GORDHAN: I think at this stage, the issue is the third chair rather than who occupies the chair. There are other processes that we will follow as we have done in the World Bank to find an appropriate solution. Africa has over 50 countries, so we have to find a way of getting their different voices, geographically speaking and speaking in terms of their particular interests, expressed more effectively in the Board itself.

What are the blockages? Clearly, if we accept the principle that the "haves" now need to recognize that they have got to deliver something to the "have-nots" which creates a more equitable situation within each of these institutions and that we need to reflect the new historical realities that we actually find ourselves in, nobody will voluntarily give up anything, so we have to find a way of persuading one another that this is in the common interest of the globe as a whole and that it is very important to incorporate the new voices and the new emerging and developing countries within the democratic framework of the two institutions that we are talking about.

QUESTION: Conversations and declarations have been very polite about the question of the currency. How, in your opinion, problematic is the problem of currency nowadays in developed countries and in countries in development, mostly and specifically in China, Brazil, Peru?

MR. GORDHAN: South Africa.

QUESTION: And South Africa.

MR. GORDHAN: So, what do you want to know?

QUESTION: Beyond the politeness that everybody refers to as to the need to do something about the problem, what are the real dangers in your opinion—what can happen in the next months?

MR. GORDHAN: The real danger is that we will lose the benefits of the extremely effective and good cooperation and coordination that we have seen in the G20 post the financial crisis and during the financial crisis. So, when we had a crisis, the G20 came together, the rest of the world worked with the G20, and we did the things that we needed to do to ensure that the recession didn't become a depression, that we had responded appropriately in terms of fiscal stimuli, that where banks needed to be bailed out, they were bailed out—although in each of our countries where that happened, different mechanisms were used.

At the same time, there are countries like Brazil, South Africa, Australia, Canada, and Indian where the banks were not affected in any way, where our regulatory systems did work better than anywhere else in the world, and no bailouts were necessary in those environments.

So there are going to be future challenges. Yesterday, it was the financial crisis; today, it is the currency crisis; and tomorrow, it will be other imbalances that we face.

So the most important thing is for leaders to find both the mechanisms and the spirit which brought them together in November 2009—or 2008—in Washington and to create a climate where we can take into account both national interests on the one hand, but the interest of global stability on the other hand as well. And yes, of course, we are all very polite people, so you are going to hear polite statements.

QUESTION: Do I understand correctly, Mr. Gordhan, that you reject the linkage that Mr. Strauss-Kahn made this morning between reform in the governance of the Bank and what he called "responsible behavior" in exchange rates in currency markets?

Secondly, do you accept the principle which we heard yesterday from Mr. Blanchard that emerging countries must appreciate their currencies? Do I understand correctly that you are rejecting that?

Finally, I am fascinated by the language that you are using very diplomatically about "haves" and "have-nots." Is what we are seeing here actually a confrontation between the former "have-nots" and the people who were in power in the former rich countries? Could you comment on that whole balance of power and wealth in the world shifting and changing?

Thank you.

MR. GORDHAN: No, I don't think there is any confrontation. We wear ties and decent dresses, like you, and we talk politely and, as we have done over the years, try to persuade the world to recognize the new realities that we have and ensure that the structural changes that we want to make in the IMF and the World Bank, amongst other institutions, begin to reflect the new reality. I think there is lots of space for persuasion, there is lots of space for frank discussions, and there is a lot of space for what Mr. Strauss-Kahn called "mature conduct" on all of these issues—"mature conduct."

So I wasn't there when he said that, so I'm not sure what kind of connection he made between the two issues. Safe to say that both of the issues that he raises, the G24 agrees with—a) that you are going to need changes in the Bretton Woods Institutions—we have long gone past 1944 and the occasion that created these institutions and arrived at a different era, if not epoch, in the 21^st century. The second issue is I think he is calling for the same reasonableness, if you like, and recognition in a mature sense of the challenges that all the countries face, saying that we need to sit around the table as we have done before in confronting some of our challenges and come up with a solution which the world expects us to do.

We need, ultimately, a package of solutions. I think most people would recognize that there is no single silver bullet. So what that package looks like is what we need to have constructive discussions about.

QUESTION: I was wondering if you could explain a little bit what you meant by that there is concern within the G24 that there is an expectation that some of the emerging and developing countries must give the greatest sacrifices so that other developing countries can benefit. Who are you talking about here? Exactly what are you talking about there?

The other issue is do you think that the IMF Board dispute between the U.S. and Europe needs to be settled immediately, or should it be part of the bigger package of quota reforms that is going to Seoul?

MR. GORDHAN: On your—give me your first point again.

MR. BHATTACHARYA: The "have-nots"—

MR. GORDHAN: Oh, the "haves" and the "have-nots."

QUESTION: No, no.

MR. BHATTACHARYA: No, no. The "have-nots" paying for the "have-nots."

MR. GORDHAN: Yes. Now, that's a very simple point. If you needed to equalize seven on the one side and three on the other side and reach a position where each side has at least five each, it is very clear what needs to move where to give you five each.

Now, on the other hand, you could say that, by some miracle, the three have to give up something to somebody to create an impression that we have five on this side, or somebody amongst the three has more than the rest, so what you need to do is equalize amongst the three first and find a solution in that particular area. That's why we are saying that the broader principle is that the IMF and the World Bank have over many years been predominantly controlled by G7 countries, in particular Europe and the United States, and is there a recognition on a global basis—because these are discussions that we have had within the G20—that the time has come—and I have said this repeatedly now—where that must actually change. And the question is whether it is the chairs or the quotas or the voice or the representation—how do we create a more democratic environment and representation in the IMF and the World Bank, including, as the MD said to us, a greater diversity of ideas as well in both of the institutions. And I think some of them are doing fairly well in bringing wider representation into the institution. It is not just on the issues that we are talking about, but people who work in these environments as well.

That's part of the package, ultimately.

QUESTION: I'm sorry, Mr. Gordhan, but on the issue of the Board, does that need to be resolved? I mean, the package going to Seoul would include quotas and so on, but do you think that the Europeans need to make interim steps now, before Seoul? I mean, what the U.S. generally wants to see is some kind of step now and commitment from them to move and then something greater coming out of the package for quotas.

MR. GORDHAN: I'm not sure what the U.S. is saying to Europe and what Europe is saying to the U.S. I come from Africa, so I don't hear often enough what they are saying to one another.

What we do know is that if we want a constructive outcome, then we require, if you like, that total package. As part of that discussion on that package, particular constituencies might want to clarify or achieve particular objectives that are bilaterally important, and that is within their right to actually do so, provided, as far as we are concerned, that there is a package which emerges that satisfies all of our needs.

Do you want to add, Amar?

MR. BHATTACHARYA: I just wanted to say, as you were suggesting, Leslie, there are two distinct issues. There is a quota realignment issue, and there is the election of the Board. The election of the Board is on a timetable which technically has to happen at the end of October. The commitment on the realignment is January of 2011. They are approximate, but they are not exact. And as you also suggested, in the discussions, what is absolutely clear is that the U.S. push has been, really, to rebalance the Board in favor of, actually, emerging market and developing countries.

So they both go in the same direction. The quota realignment is intended to shift voice to emerging market and developing countries, and the same thing with the Board. The issue of the Board is, as you said, what is the down payment, what is an adjustment in the future, and as far as we are concerned, as the Minister said, it is important that there be space for additional emerging market and developing countries, and particularly on the developing country side, additional space for Sub-Saharan Africa.

MS. STANKOVA: Thank you.

We have time maybe for one or two more questions.

Please, the gentleman in the fourth row.

QUESTION: Thank you.

You mentioned pressure on exchange rates from capital reflows, and my question is do you think that currency intervention is the appropriate action to respond to such broad pressure.

MR. GORDHAN: I am only a temporary chair of the G24, so I don't have any status in commenting on those issues, but I think if we look around the world, our Korean colleagues and our Brazilian colleagues have tried some techniques, our Korean colleagues have done that, our Indonesian colleagues have done other things, your Japanese countrymen and women have tried something; so different countries, depending on how they perceive the challenges specifically to their environments, are utilizing the tools that they think are appropriate. But the key issue is not how we do it individually but how do we do it in a coordinated and cooperative way, so that we don't solve an individual country's problems but leave the systemic issues untouched. I think that's the balance that we are looking for currently.

MS. STANKOVA: Thank you.

MR. GORDHAN: Thank you very much.