Transcript of a Press Briefing: G-24Pravin Gordhan, Minister of Finance of South Africa & Chair
Kaushik Basu, Chief Economic Advisor of the Finance Ministry of India & First Vice Chair
Carlos Perez-Verdía, Executive Director for at the IMF board for Mexico & Second Vice Chair
Amar Bhattacharya, Director, G-24 Secretariat
September 22, 2011
|Webcast of the Press Briefing|
MR. THOMSON: Good evening, and welcome to the press conference of the Group of 24. My name is Alistair Thomson of IMF External Relations Department.
For those of us using the simultaneous interpretation, I believe that English is on Channel 1, French on Channel 2, and Spanish on Channel 3.
Here on the stand I'm joined by the Chair of the G-24 group, Minister Pravin Gordhan, Minister of Finance of South Africa; the First Vice Chair, Mr. Kaushik Basu, Chief Economic Advisor of the Finance Ministry of India; the Second Vice Chair for Mexico, Mr. Carlos Perez-Verdía, the Executive Director for at the IMF board; and the G-24 Secretariat Director Amar Bhattacharya.
Now, before we start, Minister Gordhan will give introductory remarks, and then we will go to a Q&A.
MR. GORDHAN: Thank you.
By now, I'm sure you must be tired of the word "crisis." This meeting of the G-24 is a meeting of some 20-odd countries who come together to reflect, if you like, a different voice both within the IMF and the World Bank and more generally in the context of the global crisis. Some of these are middle-income countries, some of them low-income countries, but all very much impacted upon by the crisis, but also in many ways reflect the hope of the future.
And the sentiment in relation to the current crisis was certainly one which said that we need coordinated and coherent actions from the global community at large and in particular the G-20; secondly, there's an interesting view developing from many of these countries who, if you like, are recipients of structured programs one kind or another, institutions that we have been sitting with today, but, in fact, correctly reflect solutions of the future rather than problem was the future.
Thirdly, there was a spirit which said that each country and each region needs to make a contribution to ensuring that there's growth and jobs and eradication of poverty around the world, and the countries around the table were certainly in a frame of mind would say that they would always make their contribution to ensuring that we have a more sustained and balanced growth around the globe.
They see themselves in the context of this hopefulness, if you like, as sites of investment, sites of infrastructure development, and offering new sources of growth and demand to the globe.
There was a very strong theme in all of the contributions and interactions with Mr. Zoellick and Ms. Lagarde on the question of jobs; for example, in the MENA Region, youth unemployment is a serious challenge, as it is in many other parts of the world as well, and an appeal to the IMF and World Bank that more intellectual and other resources need to be put to the service of answering the question: Where are jobs to be created? How are jobs to be created? In what sectors of the economy can they be created?
And regrettably, because, if you like, of the good times the world has enjoyed, there's still a paucity of thought, research, and effort on this particular question.
The issue of surveillance in relation to the IMF came up as well, and once again a very strong view that the IMF needs to be stronger, more evenhanded, and a lot more careful about ensuring that all the different economies of the world are surveilled just as carefully as any other, and that it leads to reflect upon its ability to detect crises early enough and be able to develop policy tools that will help countries to both anticipate the crises but also to respond to them.
In this context, more work the countries felt need to be done in relation to safety nets, and perhaps the development of different instruments that would help us in the smaller countries to, as some people have called it, "buffer" the shocks that smaller countries in particular are experiencing as a result of the crisis.
So, in sum, it was a very good interaction, if you like, between the IMF and the World Bank on the one hand and the 20-odd countries represented by Ministers and Governors of the Central Bank, and I'm sure Mr. Basu will add a few more words and insights in relation to some of the issues that we raised.
MR. BASU: Thank you very much, Mr. Gordhan.
I've just been sitting in on this fascinating meeting. I believe that the G-24 is at the cusp in terms of rising importance, and it is not difficult to see why, as was just mentioned. Inclusion and job creation is extremely important, and G-24 comes into this directly in two different ways: One is, as you talk in terms of inclusion, we could think of inclusive global growth and G-24 consists of bunch of countries that you want to directly focus on because these are countries that are emerging economies, developing economies, and a part of an inclusive agenda is a part of this.
But even more than that, something that was not the case earlier is that this is a segment that is taking on more and more of the driver's role in terms of global growth, not just alone this cluster of 20 and 20 plus country, but they are playing a bigger role than they've done in the past, as the industrialized nations, Europe, United States, they've done very well historically, but they've slowed down in terms of growth. A lot of the growth responsibility comes on this cluster of countries.
So, to that extent, I would expect it to play a very, very major role in years to come, and it's just as well that we had a very heartening meeting. India takes on the presidency with lots of things on the agenda.
Importantly, we do want to focus on food security--for us, that's very important, and by us I mean India, but India as a representative of this cluster of countries. It's extremely important. It's important for the world, so it will be a contribution to that.
Infrastructure is being talked about, and we hope to focus a lot on infrastructure, and governance reforms of IFIs, we've had a lot of experience with governance reforms of the Government itself in India, and to take that further to international fora would be extremely important.
So, with those words I will stop and pass it on, however you want to conduct it, Mr. Gordhan.
MR. THOMSONMR. THOMSON: Thank you.
Now, the panel will take your questions. There are microphones to be passed around. So, please identify yourself and your media outlets and if your questions are directed at a particular member of the panel, please say so.
The gentlemn in the front here, please.
QUESTIONER: Thank you very much.
My question is that poverty and poor people around the globe are on the rise, and most of the countries are in trouble as far as economics are concerned.
You think global corruption in many countries playing a major role because of this? And what are you doing this time, and what's different from last year to this year?
MR. GORDHAN: Well, as part of the inclusivity agenda that Mr. Basu has been talking about, is precisely, if you like, the search for a new paradigm within which both the recovery and the future trajectory of growth in the globe needs to actually occur. It's not just good enough to look at a GDP number any longer. We've got look at the GDP number in relation to whether they are the right type of jobs being created in each of the environments in which we find ourselves. We've got to ask the question: Is it growth leading to greater inequality, ask it is in both Developed Countries and Developing Countries; and whether the benefits of growth are accruing only to a small elite or to the wider population itself.
There's also the inclusivity that Mr. Basu talks about geographically, can only one part of the globe, if you like, thrive economically and socially and other parts not, and how is this rebalancing going to actually occur. And within 10-, 15-, 20-year scenario, how do we create the greater sustainability both economically, socially, and environmentally in the globe. And those are some of the challenges as we go forward.
So, for us the pre-occupation is on the crisis and recovery from the crisis, we've also got to look five to 10 years ahead and make sure that we make decisions now which address precisely those questions of poverty, of corruption, of elites benefiting versus what is clearly happening around the world, which is where citizens in general are saying, what about us? Young people saying, where's our jobs? And others saying that it can't just be a few big culprits that benefit. We've got to look at issues of, for example, taxation and in a wider spreading of benefits as well.
So, those are all important questions, and hopefully, as governance improves and surveillance improves, issues like corruption must be tackled assertively both within each country but more broadly in the context of economic development and social development as well.
MR. BASU: Well, let me just second this. Poverty is as dreadful as construction, global or local. You were talking about global corruption. Whether there is a link from one to the other one causing the other frankly, I don't quite know. I mean, these are bad in themselves and so you have to tackle them.
And also a lot of the poverty can be perpetuated within the legal system. I mean, you can play by the law and still have parts of the world ravaged. So, to that extent, both of these we have to tend to separately or in case there are causal link, look for the causal links and try to improve them.
But one factual thing you should point out that it is not very clear that there is an increase in global poverty. What is bad is there is poverty enough. So, even if it's not increasing, it's decreasing. If it's decreasing, it's decreasing far too slowly. What is very likely what Mr. Gordhan just mentioned is inequality is almost certainly rising, whether or not poverty is rising. Poverty is probably not rising, but inequality and rising, and rising a certain amount of inequality you are prepared to live with, but when it becomes unbearable, that creates tensions of a kind that you want to attend to.
So, yes, I take both parts of your question, even though I can't quite see how one links to the other. Both are things that we ought to attend to, corruption, and the battling of poverty and in excess of inequalities.
MR. THOMSON: Thank you.
The gentlemen here in the second row, please.
QUESTION: Thank you.
Following on from your comments about poverty and inclusivity, it has been reported this week that India has changed the very definition of the poverty line, redefining it at a level, in fact, which is far lower than the way that the World Bank defines it, and I think this is something that has a knock-on effect in the availability of subsidized food.
Now, in your organization, as an advisor, can you explain the thinking behind that. How does that play into any hope of poverty alleviation?
MR. BASU: Actually, there are about three competing definitions of poverty that are used in India, and when we switch over from one to the other, we do not make, and we don't want anyone to make the mistake of using one definition for previous years and then switch over to the new one and do it for now because then we could have poverty going down just by changing the definition. Of course we don't want to do that.
But when we want to use that definition for certain policy purposes, like giving out subsidized food to the poor, we feel that some definitions we have viewed historically played a role for certain kinds of descriptions, but for this distribution of food, that definition is not ideal. So, we want to change over the definition.
But again, what is important to do is to use the same definition and track it over time, if you want to know changes.
And let me give you one set of numbers is that from 2005 to 2009, we know that poverty is going--has gone down actually quite substantially no matter which definition you use. So, of course, switching definitions would give you different pattern, but no matter which one you use it's going down.
But now we are going to go into a new food security program where we are going to try to reach out to a very substantial portion of the poorer population, we are playing around with new definitions so that we can do that job better.
QUESTIONER: I just wondered if Mr. Bhattacharya had a view, given that your previous role has been very much about poverty reduction.
MR. BHATTACHARYA: On this, I think that the way the explanation was provided is just right because the aim is really to make the policy intervention work; and, as long as you're consistent in the measure, as Dr. Basu pointed out, I think that just makes absolute sense.
MR. THOMSON: The gentleman in the front we here, please.
Would you please ask me--explain if you have forecast about the food rise in prices and how it impacts on the life of millions of people in the worldwide, which should be the impact of the current crisis on the million of people in our countries.
MR. BHATTACHARYA: The impact on food prices on developing countries is quite profound, and it's quite different than one would think, particularly the world has changed. Of course, Developing Countries have a natural comparative advantage in producing food, yet today, out of the 40 low-income countries, 38 are at the time food importers. But that does not mean that they have to be at the time food importers tomorrow.
So, the challenge, and it was very much the discussion we had at Ministerial Meeting today was how to make the investments really to reintegrate agriculture in these countries so that they can exploit their natural comparative advantage.
So, the challenge is how do you deal with the short-term impacts of food prices, particularly on poor and vulnerable populations while laying the foundations for long-run food security, and that's really what Dr. Basu talked about and what several Ministers mentioned at our meeting today.
MR. THOMSON: Thank you.
The gentleman in the second row over here, please.
[Question off microphone.]
MR. BHATTACHARYA: Actually, this was also something that the G-20 looked at, and there is a big debate right now about what are the causes of the increase in prices? Are the increases caused by rising demand in particularly Emerging Markets issue and the answer appears to be there is a long-run trend of demand, but the recent increases cannot be attributed to demand increases and from Emerging Markets in particular.
Yes, there have been supply constraints; yes, inventories are at an all time low. Certainly financial investments have increased hugely and are probably contributed. The debate is still raging. I don't think anybody has come to conclusive answers, but I would say that it is probably an area where not only the G-20 but we in the G-24 need to do a lot more work.
MR. GORDHAN: And there is, if you want to be a bit more pointed, the whole question of the financialization of commodities, and there were comments from the French presidency of the G-20 about whether speculative activity is actually giving rise to some these both the volatility in the prices but also increase in prices as well.
But these economists analyze this more quickly now, and tell us whether what's the root cause of some of these difficulties. As you correctly point out, this has a huge impact on people around the world.
My question is quoting Mr. Gordhan that we now--cannot look at GDP alone anymore, so we have look at social, and we actually have to look at the people. My question is: Was there any discussion about innovative financing instruments to fight poverty such as, for instance, implementation of financial transaction tax that is being discussed in G-20.
And I have a second question as well, which is, one way to reduce inequality, if that tax also would reduce a little bit of the speculation that is being in the market, especially in the financial aspects of commodities, financial commodity.
MR. GORDHAN: It's a very brief comment. We didn't look at the issue of tax financial transactions in a direct sense or innovative financing.
One of the, if you like, underlying themes was to actually say to the IMF, we've got to look at new instruments, which would help us to undertake the infrastructure investment, undertake investment in agriculture, and enable us to, as various countries, exploit the various advantages that we might have resource-wise and so on.
Maybe Dr. Basu would want to comment on that.
MR. BASU: Well, let me just add, yes, we did not discuss this at the global level wasn't on the agenda, but there is one little bit I could add over here from the Indian point of view, is that this is a very major problem in India, financial intrusion. We, for instance, have numbers like in the rural savings, 41 percent of that savings is held as cash because these people are basically outside even the banking system.
So, India has just started something very, very innovative, and, depending on how it works during the presidency, actually we could bring it a bit more into active global discussion; using biomarkers to get the poorest people living in remote areas to be drawn into the banking system, and our plan is to have, just like customers go to ATM machines, to have individuals with handheld machines to go to their customers in the remote areas and do banking by that method.
So, this has just been started, it's a major program because we are acutely aware it's extremely important to reach to the poorest by including them in a financial inclusion program. This is a domestic program and doesn't quite address the issue that you raise, but hopefully there will be lessons from that.
MR. PEREZ-VERDÍA: Thank you, Minister.
If I could add just a couple of interesting points that came out at the meeting, on financing instrument, very much in the Fund's purview is the analysis of our safety net and whether we have the instruments that are going to prevent innocent bystanders from falling afoul of this current crisis, so this recurrent analysis which going to be very much in the Fund's agenda coming forward, that was highlighted by Ms. Lagarde.
And President Zoellick, on your question of speculation and financing, it was actually very interesting because we had the other side of the view there, and it's using financial markets to reduce volatility for food producers, consumers very much like some Emerging Market countries are already doing.
MR. THOMSON: We take a question here in the second row.
I was wondering, I'm interested in what you were saying about the financial instruments. Are we talking about--you raised the issue of infrastructure, but are you talking something more like a swap lines, something that could access--countries could access as far as, you know, when credit does dry up, if this crisis continues?
Then I have another question, considering what's going on, there's talk about the IMF needing more funding, do you still believe that these dates for quota increases in the next round of governance changes are still adequate? 2013-2014 is quite a long way off. And considering what the BRICS were saying today about that the Fund might need more resources, whether you think this needs to be quickened.
MR. PEREZ-VERDÍA: Thank you.
On the instruments, really what we are going to start with is reviewing what we have already and whether those instruments can be modified. I'm thinking about the FCL (flexible credit line) or the PCL (precautionary credit line), and whether they can be modified in any way perhaps to address short-term needs. That's pretty much where that is going at the moment.
On the issue of--this is very much in the interest of G-24, the 2010 reforms being met--we stress it in the Communiqué--which is in terms of timeline the different issue in the quota formula review and when the next general quota review happens, which is a different subject altogether about the resources of the Fund.
So, what we're stressing here is the need to adhere to the commitments made for the 2010 reform, the 2012 quota formula, and the 2013 review.
MR. GORDHAN: I suppose the bottom line is the G-24 is raising a lot more assertively this bystander question. We are not the origin airport ins of the crisis, we do such the consequences of the crisis, we do believe that some of the instruments we have right now, like the FCL and so on are appropriate, but can we--and this is where the G-24 Secretariat is going to come in--can we review all of these? Can we find on the one hand more proactive ways of anticipating crises and having instruments, and, on the other hand, look at other instruments that could be more effective in dealing with some of the challenges that we are dealing with?
And I think the sentiment that's coming across is that we, and a large number of countries that find ourselves in this position, we can't be on the margins of the IMF and World Bank programs. We needed to come to the center in some ways and receive a lot more of the intellectual contributions and the expertise to be focused on our problems and get the Fund and the Bank to begin to respond to them in a lot more concrete way, but also in a lot more meaning of the way. And that, then, of course, linked to the voice and quota questions.
So, today was an interesting milestone in terms of the voice being heard differently, and I'm sure that we are going to get the right kind of responses as we go forward as well.
MR. THOMSON: We have another question here in the second row here, and then we will move to the gentleman there at the back.
QUESTION: Thank you very much
Just a follow-up on the governance question. I see there's nothing in the Communiqué about the issue be of succession, which is so controversial earlier this year, given that the World Bank job may or may not come up next summer. Do you have views about how the process should be run?
MR. GORDHAN: I think all of us here have, as countries, made very clear that we would support the regional G-20 view, which is that succession here must be open, democratic, transparent, non-regionally based, and so on. There were some comments in this meeting about that, although that certainly wasn't the focus of our discussions.
But I suppose democracy arrives over a period of time.
MR. THOMSON: Okay. I think we've got time for just two more questions. First of all, the gentleman there and then the gentleman right at the back there. I'm afraid that's all we will have time for tonight.
QUESTIONER: Ah, yeah, I wonder if I could get any of the panelists' thought.
You do mention the euro zone crisis, and you say it's important for them to take action very quickly, but I wondered if there was a view in a meeting that that Greece and the other countries in Europe are being treated fundamentally differently from the way Emerging Market economies were treated during the Nineties and whether there is a feeling that your patience as IMF members with Greece and some of the other countries in Europe is running thin, and whether rather the IMF support for the bailout countries in Europe is something that can't continue for the indefinite future.
MR. BASU: Well, in fairness, I think there was a sense of that feeling, that the treatment is not quite what it would be for an emerging country getting into trouble, but, you know, this is a perception that even one the IMF now it's beginning to be shared, and that's a hopeful sign when similar situations you take similar stands, and we are not quite there, but I think we are moving towards that, and that was aired by some people today, and that has been aired by even important IMF personalities in recent times.
MR. THOMSON: Thank you.
Last question, please.
In your Communiqué there is a sentence going "governments must continue to have the flexibility to adopt policies they consider appropriate to mitigate risk from volatile capital inflows."
Do I understand this correctly that there has been some push towards your countries to open up or stop certain kind of backstop that prevent massive capital inflow?
MR. GORDHAN: The incoming Chair will answer all those questions.
MR. BASU: You know, I mean, this is again a recognitions that pretty much in keeping with the drift of global view, that the one-size-fits-all and open up your capital markets which used to be a sort of mantra in the past. That's dying out, and it is a recognition that, look, I mean, it hasn't always been the best policy when you push that on all countries, so you give some space for variation over there, and that was repeated here, which is pretty much in keeping with again, fortunately, in my opinion, with the drift of views that you will see in the big international organizations.
MR. THOMSON: Thank you. And thank you for participating in the G-24 press conference. Thank you to our panelists, and good evening.