Transcript

Washington, D.C.
Thursday, April 14, 2011

MODERATOR: Good afternoon everybody, and welcome to this press conference of the Intergovernmental Group of 24. Before we start, let me shortly introduce the speakers of today's press conference.

The Chair of the G24 Meeting is Mr. Lesetja Kganyago, Director-General of South Africa's National Treasury.

Next to him is Mr. Venue Rajamony, Joint Secretary of the Government of India and First Vice-Chair of the G24 Meeting.

To the far right is Mr. Robert Merino, Director of International Affairs of Banco de Mexico and Second Vice-Chair of the G24 Meeting.

Finally, to my immediate right, Mr. Amar Bhattacharya, Director of the G24 Secretariat.

Mr. Kganyago will have short introductory remarks, and then we'll take your questions.

CHAIRMAN KGANYAGO: Thank you.

You should have received a copy of the Communiqué, but you may not have had the time to digest it, so allow me to highlight a few points from the meeting we had.

The global economic environment is stabilizing. However, t he nature of that recovery and the very expansionary monetary policies in advanced economies have had important spillover effects on developing countries, contributing to a surge in capital flows and overheating pressures.

Another concern that we discussed is the increased volatility and rise in commodity prices. Although the secular improvement in commodity terms of trade is generally a positive development, the sharp spike in prices, especially of food and fuel, is a concern for developing countries. Addressing this will require concerted actions to cushion the immediate impact and address longer-term impediments.

Beyond the recovery, the environment for growth and development in the post-crisis period will be characterized by major structural changes. A major challenge is how to ensure that growth in the future is inclusive and employment-intensive. A push to raise investment, including for infrastructure improvement, can help sustain and broaden growth poles in the developing world, but this will require a reinvigoration of development finance.

Finally, it is important that we are also mindful of the long-term imperative to tackle the looming challenge of climate change. For this, financing is also critical, so we have committed to contribute to the global efforts to develop a financing mechanism for climate mitigation and adaptation.

MODERATOR: Thank you, Mr. Chairman.

Now, before we turn to your questions, may I just remind you that you should identify yourself and your news organization. Who would like to ask the first question?

QUESTION: Good afternoon. I have a question about the recent goal by France and Germany for the establishment of international solidarity taxes, for example, for financing development, including countries outside the G24, like the least-developed countries, but also to finance adaptation to climate change.

Is there a reaction from your governments to those suggestions that the developed economies could go into financial transaction taxes, for example, as innovative sources of financing?

CHAIRMAN KGANYAGO: Thanks.

We didn't specifically discuss the issue of solidarity taxes. I think we must move from the point that taxation is actually a sovereign matter, and the discussions about having a global solidarity tax will take time for any of the multilateral groups to bed down [ph.].

But there is also a very important principle of taxation. It is where the incidence of the tax falls and whether it will assist to change the behavior that you are looking for. So, from where I am coming from, from South Africa, I do not see why somebody would say that they would want to impose a financial transaction tax in order to fund mitigation of climate change. I think it makes sense to follow the basic principle that says "polluter pays." So if you are to look at any form of taxation that would mitigate climate change, it makes sense that you will target those particular industries that are actually leading to massive emissions if you are to make a difference.

But suffice it to say that we didn't go into the issues of taxation in the discussions today.

QUESTION: You have been talking about concerted efforts to counter the rising food prices and the inflow of capital. Why kind of action do you think of?

MODERATOR: I think we're going to take one more question, and then we can [turn to the answers]—yes, please.

QUESTION: My question regards capital controls. The IMF Managing Director talked about the issue this morning, and he said basically that there is still the [inaudible] inside the IMF about the convenience to apply capital controls, and he said that the view of the IMF regarding that tool is more pragmatic now.

My question is if the G24 position in this regard is different, how would you say that capital controls are required in this moment, when some countries are suffering from overheating pressure because these capital flows like, for example, the case of Brazil and other countries.

MODERATOR: Thank you. Would you like to take those?

CHAIRMAN KGANYAGO: I think it has worked that you have taken two questions, because they are related.

With respect to food prices, you will be aware of the World Bank's Global Crisis Response Program. That is one concrete step that is being taken.

In the G20, where the G24 also participates, there is a program to improve agricultural productivity and food production. I think those will be the concrete steps that will have to be taken to deal with the issue of food prices.

In our deliberations, it also came that it is not just the issue of food prices, but it is also the issue of food security, that we are going to have to be producing food. And for governments, what is important is that this is a basic need for our citizens, and if we are to see the same effects that we have seen in 2008, when you had prices rising to the extent they did, and where you saw in other areas where you had food shortages, then we are going to be running into all sorts of problems. And that is why I kept talking about this World Bank food program.

There is also the Agriculture Action Plan that aims to scale up support for agriculture that would improve resilience to climate change, addressing binding land and water constraints and so forth.

So there are concrete steps in various multilateral organizations that are coming.

But I think that the other question that you raised had to do with rising capital flows, and that links to our Mexican colleague's issue with respect to capital controls. The G24 Ministers did not approve of the framework that the Fund had actually proposed. There is talk of a toolkit. Now, if there is a toolkit, various countries that are facing different problems will pick different things from the same toolkit depending on country circumstances and will not think it is a useful thing to then try to integrate this into the Fund's surveillance program.

We actually think that different countries face different circumstances and that the countries should be having the discretion to respond depending on where they are in their business cycles. In some instances, yes, it might be that you have to take a monetary policy response; it might be that you have to take a fiscal policy response; it might be that you take measures to limit capital flows.

So the idea of having a toolkit is a good one. What we had a problem with is to then say that these things get integrated into the surveillance program of the IMF and will form the basis of the advice of the IMF staff.

So those deliberations will have to continue until we can find each other.

The second issue where we had a problem with the Fund's approach was the fact that the focus tended to be on receiving countries, and nothing is said about what concrete steps have to be taken in countries that are actually sending capital or are the sources of these capitals. And on the basis of that, we are saying that there is still more work that has to be done. You cannot just say that there are these inflows that are coming into developing countries without dealing with the source of the problem.

MODERATOR: Thank you, Mr. Chairman.

QUESTION: Mr. Chairman, just to make clear your point—are you saying that you are against any attempt by the IMF to impose capital controls in those countries who seek financial assistance from the IMF?

CHAIRMAN KGANYAGO: Well, then we are back to the issue of conditionalities. I think we talked about the streamlining of conditionalities, and if this is now going to be a new conditionality for an IMF support program, then we are going to be having a problem.

Capital controls, as I have said earlier on with the taxes, are a sovereign issue. It is a question of how countries feel that they have to respond to the surge in capital flows, and that response of countries—the IMF had put in a range of toolkits. They are not scientific discovery. These are tools that, as economists, we have always known, but country circumstances differ, and I think it would be wrong if the IMF is to then take a step that says that if you are going to be given this assistance, it is a condition that you impose capital controls, because what would be the wisdom? It used to be that the IMF used to say that for you to get the IMF support, you must liberalize your capital account. Now, it would be quite striking if you fast-forward a couple of decades later, and the IMF then turns around and says: For you to get our support, you must impose capital controls.

Fortunately, it is not something that is coming in the Fund paper. There is nothing in the Fund paper that suggests that the IMF wants to put it as a condition that for you to get IMF support, you will have to impose capital controls.

MODERATOR: I believe there was a question to the left; the lady on the left.

QUESTION: Talking about the food crisis, I would like to know if the G24 talked about suggesting that countries eliminate subsidies—I am talking even for European countries and other countries that are imposing subsidies to their agricultural sector. And second, how will you cope with the gap between producing more food and the moment that—nowadays, the high demand—how you cope with that gap or how you suggest—

CHAIRMAN KGANYAGO: I am missing the last question.

QUESTION: Yes. I mean—it's okay—some countries are saying we need to produce more and not to put controls to price, controls to commodities. I agree that you need some time to produce more, for instance, food. So, how are you going to solve the problem of high prices nowadays? Do you get it?

CHAIRMAN KGANYAGO: I think my colleagues are—they say they are getting it, so I am going to pass it to one of them just now.

CHAIRMAN KGANYAGO: The issue of subsidies to agriculture, we didn't discuss in this meeting, but it has been a subject of our previous meetings that the subsidies to the agricultural sectors of the major developed countries are actually undermining the efforts of farmers from developing countries. We do not believe that the persistence of these subsidies is in line with the principles of fair international trade. If there is to be fair international trade, these subsidies have got to go at some stage.

Many of us who are coming from developing countries in many respects got rid of these subsidies because we believed that it was good policy to get rid of these subsidies. Now, our farmers are subjected to the rigors of market forces and competition, and we actually believe that, as developing countries, in most respects, we have a competitive advantage in the agricultural sector given our natural endowments, and it is just not fair that countries from the developed world are actually subsidizing their agricultural sectors almost to the detriment of farmers from the developing world.

Do you want to say something about this gap about production and—

MR. RAJAMONY: Well, I think the question was answered to some extent earlier, when food prices were discussed. Essentially, developing countries have been arguing that much greater investment needs to go into agriculture worldwide, that agriculture should form a much larger component of official development assistance, and that agencies like the World Bank have a much bigger role to play in bringing agricultural research institutions and strengthening agricultural research which can further lead to greater productivity across the world. So, food being an extremely critical element in the consumption basket of the poor, the large majority of the poor who live in developing countries, this is an issue which must receive long-term focus by institutions, by the concerned institutions across the world, especially agencies like the World Bank.

QUESTION: Because IMF will release several spillover effect assessment reports this summer, I just wonder how the G24 will interpret these kinds of reports, and will you consider this as IMF's direction toward disciplining the big powers?

Thank you.

MODERATOR: We will take another question.

QUESTION: I am [inaudible] from 21st Century Business Herald, the leading financial daily in China. I have several questions for the Chairman.

The first is about the food crisis. You mentioned that you discussed about the food crisis this morning. My question is how do you evaluate the influence of speculators in the financial markets for the food crisis? Do you think it is a major reason? And how long will this food crisis last?

The second question is about climate change. In your speech, you mentioned that the advanced economies should keep providing financial support to the emerging markets for climate change. Does that mean they didn't provide the capital in time, as they promised in the previous two years? Can you give us some explanation about that?

The third question is about the emerging markets. As we know, the IMF will hold a discussion about the future of the emerging markets this afternoon, and I understand most of the G24 countries are emerging countries. What is your opinion about the future of the emerging markets?

CHAIRMAN KGANYAGO: That is a mouthful.

On the question about how the G24 is going to respond to the spillover reports from the IMF, when we get them and we have read them, then we will be able to provide a response. At the moment, we have not seen them. As a group, every time the IMF comes with reports or documents that we feel have an impact on us as developing countries, we engage with them, and we come with some common position, but it would be premature for us to comment about reports that we have not seen.

You had a series of questions. I don't know if anyone would want to deal with the climate financing. I think that our Mexican—I am quite happy to deal with it, but Mexico is still the Chair of COP, so I think you should feel free to deal with that. Then, on the speculators on financial markets, you know, this issue of the role of speculators is quite a striking one, because there is this notion that financial markets should only be used for hedging purposes. When you go out in the financial markets, and you want to place a hedge, there is somebody who is prepared to take that risk on the other side. That person who is prepared to take a risk on the other side believes that your view, your perception, of risk is wrong, and they will take a position on the other side. They are most likely the speculators.

So speculators don't play a very important role in financial markets. The question that we need to be dealing with here is the financialization of the food market, because things have gone—it is the futures markets and all of this that there is this feeling that they are driving the food prices.

But at the same time, I think that we need to be cautious that you cannot slam the brakes on those markets, because to the extent that there are any farmers who would like to take a hedge on future price movements and so forth, these play a very important role.

What we should be striving for is transparency and adequate regulation and supervision of these particular markets rather than saying that they are bad, and we must get rid of them and so forth.

How long will this food crisis last? Well, how long is a piece of string? We do not know. Even with the economic crisis, we are seeing that there are signs of recovery; we are coming out of a recovery—but we should not be complacent, because this crisis might still be with us for some time to come, and I don't know; I can't give you a definitive answer of how long I think the food crisis should be.

The future of emerging markets—I guess the term "emerging markets" was coined because these countries were thought to be down there, and they are coming out, and they are growing, and they are becoming an emerging economic force. And depending on whose calculations you believe that the future of the world economy lies with what is going to be happening to growth in emerging markets in the future, and even now, as you see global economic growth, the bulk of that growth is coming from emerging markets, so emerging markets do have that future.

Does anybody want to take the issue of climate financing, or do you want to leave me on my own?

MR. MARINO: Just a few words, Chairman.

We at the G24 believe that climate finance is one of the very important issues on the agenda. It is, as you all know, one of these global public goods that we have to address, and the emphasis of the G24 is to continue to pound on this issue, to get financing for this purpose.

QUESTION: Barry Wood, from RTHK in Hong Kong.

When you mention capital flows and monetary policy in the advanced economies having a deleterious impact in emerging market countries, can you quantify the amount of inflation that is coming as a result of those actions? And also, what about exchange rates? What was said in your meeting about the upward pressure on, say, the rand or the real and other emerging market currencies?

CHAIRMAN KGANYAGO: Yes, the capital flows do lead to an appreciation of currencies, and within the G24, many of our countries face not just a surge in capital flows, but we have also seen a significant appreciation of the domestic currencies.

Of course, these things have had an impact on the export sectors of our countries. It has also had an impact on the import-competing industries in our respective countries. That is why we had this extensive discussion about what is it that must be done to manage the capital flows to the developing countries. In some respect in some of our countries, you find that these inflows come in, and they could potentially lead to the rise of asset price bubbles. Now, depending on what the impacts of the flows are, the responses of different countries are going to be different, and that is why we were arguing that, yes, there is this toolkit, there are all these tools in there, and different countries should be given the discretion to respond differently based on their own particular circumstances.

[With regards to the] impact on inflation. We can't quantify exactly how much of the inflation that we are seeing now in various emerging markets is as a result of this, but we do know that this flood of money into these countries does lead to a rise in inflation.

I think that of particular concern here is that the inflation is mainly reflected in food prices, and with the impact that it would have on our respective populations, the key issue here is that as time goes, there might be second-round effects that begin to kick in as a result of the rise in food prices, and when that happens, then you will actually begin to see what we have seen in many emerging countries where monetary policy begins to tighten. So that is the thing. I don't know if my colleagues here—we might have experienced different things in our respective countries.

MODERATOR: Okay. With that, I would like to conclude this press conference. Thank you very much to the speakers, and thank you for coming.