QUESTION: Danny Xufeng with Xinhua News Agency. President Kim, what is [unclear] the performance of the Chinese economy this year and the strength of the reform measures [unclear] alongside the government recently. Secondly, in your view, how does the global economy faring in terms of [unclear]?
DR. KIM: Well, we were very encouraged, and of course in the third quarter there was a 9.3 percent growth, which was much higher than expected in China, and we are also extremely encouraged by what’s come out of the plenary -- the commitment to let market forces determine the distribution of resources, the opening of the Shanghai Free Trade Zone, the commitment for further reforms even in things like the Hukou system, you know, where the government, I think, is extremely serious about the reform agenda that it set out.
As you may know, we’re working very closely with the Chinese government on a report on urbanization and the commitment to building clean, livable cities for the some 300 million people who will be moving into cities over the next 20 or 30 years, I think it’s extremely impressive.
So, everything that I have seen coming out of the government in terms of its commitment to the reform agenda is very encouraging, and the fact that the growth numbers were also up is a further encouragement.
In terms of the global economy, you know, I think there’s still many downside risks. I think we’re all waiting to watch what happens in the United States with the resolution of the budget situation. We’re hopeful that that will move in a positive direction. We think that growth in the United States looks very encouraging. The jobs numbers were very encouraging, and as long as the Congress can resolve this budget issue, we think that the growth prospects for the U.S. are quite good.
I was just in Japan, also another country that is extremely committed to its reforms. They’re increasing their revenue with a tax, they have, in addition to the tax that they will be implementing, they announced just recently when I was there a stimulus package
So, we think that the fact that there has been four straight quarters of growth in Japan is also very encouraging.
Although the European economy, we would all like to see the European economy growing faster, but the fact that it continues to move in a positive direction, we think, is also encouraging.
There are still many countries in Europe and also many countries, especially middle income countries, that need to be more serious about their reform agenda, both in terms of expenditures and in terms of managing debt, but overall, we think that now given that a tapering of monetary easing has not yet happened in the United States, that many of these middle income countries should be moving in a direction to implement the reforms that they know they need to make right now.
QUESTION: May I ask you about the [unclear] number? What would you say the U.S. policy makers, as they get ready to debate this and to communicate how they’re going to pull back their asset purchases, what needs to be heard in order to reduce the volatility and [unclear] for the other parts of the world, even though that’s not their mission?
DR. KIM: So, you know, I think both Chairman Bernanke and Future Chairman Yellen are very much aware of the impact that any change in the U.S. economy has on, for example, borrowing costs in developing countries. So, since Chairman Bernanke’s announcement of eventual tapering of monetary easing, the developing countries as a whole have experienced about a 50-basis point increase in borrowing costs.
Now, we think that’s about a third of the increase that they’re going to see over all, so there’s going to be more increases. But the thing we have to remember is that if there is tapering in the unconventional monetary policy, it means that there is growth in the United States. And growth in the United States is positive for the global economy, and so if the tapering is communicated effectively and if the tapering is gradual, which we hope it will be, then the impact of a growing U.S. economy will help to offset the impact of rising interest rates.
And so what we all hope for is an exit from quantitative easing that will be smooth and happen over a period of time so that the developing countries can adjust.
QUESTION: Do you think that [unclear] you know, emerging markets should be [unclear] opportunity to make reforms [unclear] do you think they’ve done so?
DR. KIM: Many countries are moving in that direction. Again, China is one country that we’re very encouraged to see their reforms. You know, the countries that are in the middle of an election cycle, Indonesia and India, they’re doing the best they can given that they’re in the middle of an election cycle. I think we also see a very steady hand on the economic rudder in Turkey. Turkey also experienced some movement of capital outside of their country, but I was just -- I just visited there and their Ministry of Finance and Mr. Babacan is an extremely savvy and brilliant leader and I think that they’re moving, again, in a direction -- in a positive direction as quickly as they can in the middle of also an election time.
QUESTION: And then just a quick question about the reorganization. Have you gotten any feedback from the World Bank [unclear] in the past couple months [unclear]?
DR. KIM: Well, you know, not direct feedback, so we’re trying to speed up our processes so we move more quickly. We’re also working very hard to provide better global knowledge that can be used for local solutions, for example. We want to bring all the best experience about creating more effective healthcare systems, educational systems, building better roads, and we want to very quickly be able to draw on our global knowledge in order to provide better local solutions.
But what we’re hearing is extreme amounts of positive encouragement about the change agenda as we’ve laid it out. Now over the next six months is going to be a critical period where the implementation process is going to accelerate.
QUESTION: [Unclear] what about the situation in Latin America in connection with Fed tapering and the volatility [unclear].
DR. KIM: Yeah, you know, we were very -- going back to 2008, we were very happy to see how quickly the Latin American economies rebounded from the downturn and also, you know, there are many positive aspects of Latin American economy.
But if you look at certain countries that are very reliant, for example, on mineral exports, you know, there is going to be volatility in commodity prices and one of the things that many countries, especially the ones with mineral wealth, have to think about, is diversifying their economy.
Many of them, like Peru, Chile, for example, are really looking at ways of doing more value-added work and diversifying their economy in that way.
And so, for the entire Latin American economy, you know, I’m just back from a trip to Asia. The thing that I would want to say very strongly to them is that they’ve really got to think hard about laying the foundation for medium- and long-term growth. Countries like Korea and Japan are, in many ways, more developed, but if you look at a country like Korea, they are constantly trying to think about how to tweak their educational system, how to tweak their vocational educational system, how to give encouragement in Korea, specifically, to the creative economy.
You know, President Park has said many times that PSY, the singer, Gangnam Style, was no accident. The Koreans have been trying to look for their next set of exports for quite some time and in this case it was cultural products.
So, there are so many possibilities in Latin America. I know Peru is specifically looking at cultural exports as part of their economic future and we would just strongly recommend that American economies need to build resilience into their own economic plans by focusing on diversifying their economies and for the countries that are dependent on it to really move beyond simply commodity exports as a method for economic growth.
QUESTION: Just that one phrase that you said, you said that communicated effectively. There’s been so much discussion about what that means. Does that mean that it would be [unclear], as far as how to react to this, to have a communication about this is the time, or these are the steps, or these are the kind of things that are as much [unclear]?
DR. KIM: Well, I think what Chairman Bernanke did was communicate as soon as he felt that he had enough information to be able to say that this would happen, he did. And that’s the best we can ask, that as soon as they know, they should communicate it.
And again, you know, the markets reacted as they did, but he communicated the future tapering in May, and here we are in December and it still hasn’t happened.
So, you know, we feel that he did exactly the right thing by communicating in advance that it could happen. Again, we’ve seen about a third of the overall impact and we’re going to see more over time, but even with the two-thirds remaining, if the tapering happens over a longer period of time gradually, which is what we would expect, as long as that happens we think that the emerging economies, especially in the four countries, can adjust.