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MR. WOLFENSOHN: Thank you all for being here this morning. This is the press conference on the Development Committee work that we will be undertaking on Friday.
I think that you all have an idea of the agenda. Very briefly, we will be discussing the HIPC Initiative; progress and recommendations of the MDB Task Force; the Bank's net income; implications for the Bank of the Asia financial crisis, and the MIGA capital increase.
Let me just briefly touch on those and then leave most of the time for your questions. On the implementation of the HIPC Initiative, we are actually pretty pleased. I was recalling this morning in the G-24 Meeting that two years ago, the term "HIPC" was not invented, and there was no conception at that time that the multilateral institutions would ever be part of debt rescheduling or debt forgiveness. And I am personally very pleased that we and the Fund have been able to get our acts together to join with the other creditors, and we are actually quite pleased with the results.
There had been a lot of talk about the size of HIPC, about the speed with which we work and about flexibility, but in fact Uganda is already through, Mozambique is one year away. Within the framework of the structure of HIPC, Mozambique was $100 million-plus short, and we were able to raise that money so that Mozambique is now on a basis that it fulfills the requirements for viability.
We are agreeing on Bolivia, Burkina Faso, Cote d'Ivoire, already done, and Guyana, which is close to $6 billion in debt forgiveness, but over $3 billion in net present value terms. I believe that we'll be able to achieve the Mauritius Mandate, which is to get three-quarters of the group well on their way by the year 2000. Certainly, that's my objective.
We have had good support from the bilaterals. Two hundred million has come in from 15 countries. Of course, we could do with more, and if we got more, we could do more, but I would say that that's good progress, and I am really pleased with both the flexibility and the speed.
On the progress on the recommendations of the MDB Task Force, I think I can give you just a very quick response, and we have given a full report to the Governors. We think that that is working well. There are numerous committees that are working between the MDBs on aspects from legal to accounting to development practice, knowledge management. We have come together, and we meet at least twice a year at the heads of MDB level. Certainly that has made very significant progress in the period that I have been here, and I am very happy about that.
On the Bank's net income, I think that's likely to be a bigger story in the next six months than it will be at this meeting. At this meeting, I am proposing to introduce the issue to the Ministers on the basis that we do need to take a look at the net income of the Bank having regard to the fact that there are increased demands on us and that the structure of our income flows has been affected by a reduction in our lending at fixed rate, and we are now lending at a floating rate, that we have moved from lending in multi currencies to dollar lending, which has also had an impact on us. And I want the Ministers of both developed and developing countries to first take a look at the situation before they come up with a view that might be based on their positions, either as a provider of funds or as a taker of funds.
What I am trying to do is to look at the viability of the institution. I am happy to say we are not under any threat. Our ratings are not in any jeopardy. We are about as conservative an institution as exists, and that was demonstrated by the recent bond issue that we did, which was the largest bond issue ever.
But the fact is that as a financial person, I am concerned about having enough cushion and enough capacity to do the things that I think we need to do, so I will be introducing that subject at lunch on Friday, and I think in the coming months, we will have many discussions at the Board to try to see what we can do about it.
Implications for the Bank of the Asia financial crisis is something that I guess all of you know almost as much about, maybe more, than I do. It has certainly filled your pages.
The implications for the Bank, however, have been pretty straightforward. We came in under the leadership of the Fund in the time of crisis. That is the function of the Fund, to organize the crisis response. And although it is not part of the Bank's charter, really, to come in with crisis funding--that is the charter of the Fund--we have been able to come up with structural programs and quick programs of emergency relief that total $16 billion and which I think certainly have been, I think, helpful in terms of showing our level of support at a time of crisis.
But the real things that we've been doing have been in two areas. One is at the area of structural reform, and there, I point specifically to the work that we're doing in restructuring banking systems and the capital markets. I think you all know that the cry at the moment about one of the essential causes of the Asia crisis was the fact that there was lack of adequate knowledge and lack of adequate presentation of information from the banks and from the private sector and, therefore, lack of adequate supervision in those countries, particularly in Korea, Thailand and Indonesia, although not limited to those countries, and that as a result of that, there were excessive borrowings, excessive lending of short-term moneys into long-term, unhedged foreign borrowings both by banks and by the private sector.
I should comment that this was not just a problem of supervision in those countries because someone loaned to them. And in fact, regulated banks in developed countries, notwithstanding the fact that they didn't have adequate information, were in fact lending.
So it's not just an issue of availability of information; it's also a question of judgment, and it's a question of providing a system that the countries themselves want. And what we have been doing is working with these governments in terms of reform of financial systems, of capital markets so that you can get better transparency on the part of corporations, and on reform of those aspects of the judicial system, including commercial courts and bankruptcy law, which are an essential basis for the next two or three years of reform, which is necessary if we're going to get stabilization and continued growth in those markets.
We have been less headlines, if you like, and more trying to do this work and get it done. As I think you know, we got permission from our Board very early on to add to the 120 people we already have in our Financial Service Unit, and we have $25 million a year for two years in which we can put money out, not only in these crisis countries, but in countries which, thank God, are not in crisis, to make sure they don't get into crisis. And the money is being put out in the form of people. We have called on over 20 countries to help recommend experienced regulators, supervisors, people who have been through it before. And we will have within a very short time between 40 and 50 new people that we will add to our team. We have already got 15 signed up, 18 offers out, we've got 130 in the pipeline, and the quality of the people that we're looking at is really great, because what we want to be sure of is that we can send into the field people who have been there before and not people who are learning. At a time of crisis and at a time when you are trying to avert crisis, you had better have people who have experience. So we are very happy that we have been able to put that team together.
But the second thing that we have been doing, which has even less prominence but which for us is at the core of what we are doing, is on the social side. Too often, the unwritten story is about the millions of people who are put out of work and those who are in poverty and those who are near poverty who go back into poverty.
I think you know that in Indonesia, for example, in 25 years, poverty was brought from 60 percent down to 11 percent, and in a country of 200 million people, that means taking 100 million people out of poverty. But poverty in that definition is living on under $1 a day. But in Indonesia and in Thailand particularly, there are quite a lot of people who live on just above $1 a day. And the impact of a crisis like this on unemployment, combined with the impact of droughts and El Nino is such that you have a very, very large number of people who are being pushed back into poverty.
It is all very well for us to lose a job or a few dollars on the sort of base that we all have, but if you are living on $1 a day or on $2 a day, and you lose $1 or $1.25 a day, it may not be a lot to us, but it's the difference between viability and nonviability in those countries.
What we have done, of which I am very proud, is to go out and do social surveys, to go into the country, to go into the slums, to go into the areas where unemployment is high, and try to work out with the governments social safety nets, ways in which we can keep social services going in health and in education, to get food security, to try to get some equitable distribution of the social benefits, which is tough in some of these countries. If you take Indonesia, with 6,000 inhabited islands, you can imagine what it's like to get equal distribution in those countries of social services and social benefits.
Those are the issues that really grab us and in which the Bank is deeply involved, and it is there that I think not only in just the short term, but in the medium term, the real stability in these countries will be restored. Unless we can deal with the unemployment problems and the poverty problems, there is no stability. So it is there that I believe we are making a pretty significant contribution, and it is that that I will be talking about tomorrow.
And finally, the MIGA capital increase--I think you know that it went through our Board--gives us the possibility of continuing the expansion of MIGA, trying to push it out into new areas, with coverage of risks in more countries. I should add that I'll be talking to the Board tomorrow about the similar focus on the part of IFC, where we are moving not just to strengthen what we are doing now in terms of our reform of IFC, but to try to look at how we can make IFC not only an effective financial institution, of which there are many in the world, but an effective financial institution which does work which is solely related to development. It is the linkage between development and an effective financial institution that we are pushing both in MIGA and in IFC, and I will be reporting to the Development Committee on the progress that we are making.
I think that that is probably enough of an outline to you of the subjects, and you might find it more interesting to ask questions, so let me take your questions now.
Yes, sir? Sorry--I think the rules are to use the mike, so that they can be translated, and if you wouldn't mind saying who you are and who you represent, that would be helpful.
QUESTION: Mr. President, this is Gola Marshaf [phonetic], from the Daily [inaudible], Bangladesh.
Mr. President, you have been to Bangladesh on a fact-finding mission, and regarding the poverty alleviation, which is one of the priority projects that you have taken on since you have come into your office, one of the growing concerns is the banking system in a country like Bangladesh, and also the other countries, and the structural reforms that you have suggested.
Now, poverty alleviation is one side of the picture, where I believe Grameen Bank is making some headway; and number two is that on the banking sector, we are still lagging behind.
Do you see any red flag in that area? Is there any specific suggestion of the World Bank, sir?
MR. WOLFENSOHN: Well, I think that in Bangladesh, you are in the situation where you don't have a crisis, where you have a lot of poverty, where you need to strengthen the banking system because if you are going to get investment and you are going to create jobs, and you are going to have stability, as has been evidenced now in Korea, Indonesia and Thailand, you need to have a sound banking system. So the recommendations which we have made, which were readily accepted by the Government, were to strengthen the banking system.
But you have the most highly-developed system of micro credit and in that sense, poverty alleviation, of any country in the world, whether it's Grameen or BRAC or many of the other operations that you have there. Your country has taken the lead.
So I don't think that anything we do would be to change that. In fact, what we are trying to do is to copy it. So I think you are in pretty good shape in Bangladesh. You have got to solve some political issues that you have, but that's another question.
Yes?
QUESTION: Good morning. I'm Harry Dunphy [phonetic] from Associated Press.
Could you comment on reports that two of the G-7 members will propose today a new joint surveillance unit to be established from the IMF and the World Bank to monitor future crises and avoid the clashes that are said to have occurred during the last year's crisis between the two organizations?
MR. WOLFENSOHN: Well, I read that this morning, and I wasn't aware of it until I read it in the press. Let me first deal head-on with the issue of the crisis on 19th Street. There is no crisis on 19th Street. When we started, as I openly said at the beginning, I think we were all running around, and sometimes we trod on the toes of the Fund, and sometimes the Fund trod on our toes. But that was a transitory thing. We were all trying to work quickly.
I can tell you now that in the field, our people are meeting twice a week, and I check on this because I read reports of the difficulties every day. I can tell you that I am absolutely satisfied that at the moment, we are working very well with the Fund, and I get daily reports from the field.
I think that the coordination between us is now functioning pretty well. I think any suggestion of conflict is yesterday's news. I think that we have resolved it, and the reason we have resolved it is that we need each other, to be honest with you. We just have to work together, and what we need to do is to understand the surveillance issues which the Fund very properly has, the crisis issues which the Fund very properly has, and the structural reform questions and the poverty and social issues which are our main focus.
But there is not a clear line. When you get into crisis issues, you are dealing with questions that affect social and poverty and financial structuring, and what we had at the beginning were a few "hiccups" in terms of how that worked, and I think we have learned from it.
Now, if there is a suggestion that we have a joint committee, I'd be perfectly sensitive to look at that. What I would be less thrilled about would be to have an international committee to supervise us, because I think that would just create another committee, and I think it would be unnecessary.
But I haven't seen the proposals, and I'll look forward to hearing what they are. But the coordination is--I mean, honestly, it is working much better.
Yes?
QUESTION: Hi. Flavia Seguis [phonetic], from Journal of Brazil.
You are going to Santiago in the next few days, and I wanted you to comment about how you see this movement in Latin America from first- generation to second-generation reforms, what will the role of the World Bank be, and how you see Brazil is a standard-setter for reforms in the region.
MR. WOLFENSOHN: Well, I think what we are going to be talking mainly about are the social issues in Chile, and in particular about the reforms in the social sector, notably in education is the particular subject that I am going to be addressing down there. And there, I think what you are finding in your own country is that you have moved from a crisis approach to education to a ten-year approach. And Palo Renato [phonetic], your education minister, is now taking a systemic approach to education which is really the second level. The first is to identify the problems, be they in education, social or financial, and the second is to put in structural reform.
I think that Latin America generally is following through quite well on the second stage, not because of the World Bank's pushing, but because they want to do it. And that, frankly, is the only way this will happen. Reforms, be they in the financial sector or in the social sector, can only be carried forward if you have the domestic will to do it, and I think there is plenty of domestic will that is evident.
I can give you just one example. I am just back from Central America, and in Guatemala, Honduras and the Dominican Republic, which is just outside Central America, you now have focuses on ten-year programs, on objectives that are national programs, that take you out of Stage 1 of identification of specific things you should do and set objectives in terms of water, power, education, financial systems, justice systems. And in a way, what you are doing in Central America and in some parts of South America to try to establish those objectives gives you the assurance that you are going to have a second and a third stage follow-through.
The thing you have to worry about in development is that someone gets a bright idea, they go and do a project, and they don't follow through. I think that what you are seeing in Latin America is follow-through which is not engendered by us or by the Fund but which is engendered by better governance. So I am basically pretty bullish on what is happening down there.
Yes, ma'am?
QUESTION: Colleen Ryan, Australian Financial Review.
You were at Mr. Rubin's speech yesterday about changes in the international financial architecture. What are your views on his plans, and do you feel he has gone far enough?
MR. WOLFENSOHN: I thought he made a very good speech yesterday. I think he clarified a lot of issues. I don't think it was a revolutionary speech. I think it was a very balanced speech. He made a number of very key points that I thought were very good--the fact that in a crisis situation and at a time of trouble, the issue of responsibility between public and private sector must be shared; that bailouts are not to bail out the private sector, that if the private sector gets involved in difficult situations, they can't rely on governments to bail them out--they have got to take full responsibility; that if you can have transparency and openness, it allows the private sector to make better decisions.
It was much along the lines in fact that we are all trying to follow. I thought it was a very balanced, very good speech, and it made a number of key points on the transparency issues and on the role of the private sector which I thought should be made and need to be made.
If, in Australia, a bank lends to somebody, and they go bankrupt, you don't expect the government to come in and bail them out, and therefore if an Australian bank lends to someone in Korea, they make a decision on whether they should lend to Korea, and if they do, and it goes bad, they ought to share the responsibility of trying to work it out. That's what Bob was saying yesterday, and I think it's unarguable, and I thought he did it very well; I thought it was a very good speech, actually.
Yes, ma'am?
QUESTION: [Inaudible], United Arab Emirates.
Sir, how do you rate the situation in the Arab countries now and the economic growth there, if there is any, and could you comment on their role in the World Bank, their reform in the World Bank?
MR. WOLFENSOHN: Yes. They are a very important shareholder of the World Bank. You have a problem which is not caused by Asia. You have a problem caused by the oil price, which is, I guess, pretty disruptive in terms of income flows. That is obvious. It is covered in all the Arab press, so you don't need me to tell you that you have that problem.
There are also, however, the various political problems, both internally and in relation to the Palestinian/Israel situation, which at this stage is not progressing, as it appears, very well. In that sense, the World Bank is doing two things. First, we are working with the countries, many of them on an advisory basis, in relation to economic adjustment in the light of an oil price decline. But in the case of Gaza/West Bank, we are deeply involved as perhaps the most important single force in terms of creating jobs and economic activity.
I go there very frequently and in fact will be seeing President Arafat again in three weeks' time on one of my regular visits. We have created 5 million man-days of jobs in Gaza and the West Bank, and unless you have economic activity, you cannot have peace, so our central focus is basically, again, on job creation and on social programs, and in that sense, we are contributing to the stability in the area and I think with some effect. We are part of a global effort. We are not the only one, but I think we do have a very prominent role.
Yes, sir? I'll go to the back next.
QUESTION: Malcolm Brown, South Africa Broadcasting.
Do you think Pretoria will be more welcoming to World Bank finance now that the Asia crisis has made itself felt in South Africa?
MR. WOLFENSOHN: Well, we have done our first loan with Pretoria, of $40 million, recently, and I think, first of all, that our relationships with Trevor Manuel [phonetic] and Taban Beki [phonetic] are particularly solid. We have a very active office, as you know, in South Africa.
I don't think that you are under any particular pressure because of Asia. I think the relationship has been building up pretty well between us. And we are not pushing money on South Africa. If they need any financial assistance, we will be glad to provide it.
But I think that what you have there is a change in government, a look at many of your sound social programs, and whatever you need will be generated internally, not by us trying to push it on you. But I think your leadership has a pretty good feel for the needs and I think they are a lot less fearful about the Bank than maybe they once were.
Let's go to the back. Yes, sir?
QUESTION: I am wondering if you can tell us more about which kind of recommendations the World Bank and you give to creditor countries to improve their banking regulation and surveillance to make your job in the emerging markets easier when you have to implement the structural reform of the financial systems.
MR. WOLFENSOHN: Well, we don't give a lot of advice to the creditor countries, but we give a lot of observations, which I think they know themselves. If you have $70 billion of loans to Indonesian private sector, made by foreign banks and financial institutions with inadequate information on which to make it, then it is not a question of supervision, it's a question of judgment in those banks as to whether they were making sensible loans in return for the return that they were getting, the higher rates and the risks that they were undertaking.
Supervision and control will never get rid of the capacity of people to make judgmental errors, but what you want to be sure of is that you can catch it early enough and know that it doesn't endanger the Bank or the financial system.
My understanding is that the exposure of the banks to the three countries--Indonesia, Thailand and Korea--is not such that it is endangering the banks. It's going to put a hole in their profits for some time, but I think in that sense, the reporting to the financial authorities has been a useful insurance policy. But what you cannot do is intervene and run the banks by regulators, and I don't think anyone would suggest that, but I think it is certainly true that if you had better information and more consistent accounting standards, greater transparency on the part of both corporations and borrower banks--you will remember that in Thailand, the borrowing essentially went through banks and was then relayed through to corporations--what you need is the transparency so that creditors can have a better shake at making an efficient judgment, rather than lending on the basis of name or environment, which is the way a lot of these loans were made.
It's a funny business--I've been in the banking business now for nearly 35 years. We always learn the lessons in a crisis, and a few years later, it's clear that they are un-learned by the next generation of creditors or investors, and that seems to happen in the most well-organized of countries. So I think there is a general recognition this time that we could have done better. We'll probably fix this, there will be a new architecture, there will be greater transparency, but my guess is that in five or seven years, there will be another crisis based on some other factor that we don't now anticipate. That's the way it's been, as Walter Cronkite always says, at the Bank.
Yes, the gentleman in the back with the red tie.
QUESTION: Mr. Wolfensohn, looking back at this disastrous experience of the Asian crisis, I think that at the World Bank, you can be rather happy because you didn't wind up with egg on your face, as the IMF did. But as an investment banker, you should be pretty much in the queue as to whether these big packages the IMF came up with, without the banks on its side, were realistic. I haven't heard much from your position in terms of criticizing these big packages, because from the German angle, we started early to criticize and tried desperately to get these packages, the financing, down to more realistic sizes and get the banks in early.
What is your position? I think that for the future crises, it is going to be very dangerous--I think of the Asian Development Bank, which has a huge balance of payments program--I think it is going to be falling back on the multilateral banks if we have other crises where they are misused in these programs coming up as project finance institutions, winding up with huge, huge balance of payment financings.
So I am very, very uneasy, but have a pretty good feeling about how the World Bank came out. But I think you should have known--maybe you didn't use your influence to control or to influence a little bit your friend at the IMF to cut down the gentlemen in the treasury to be more realistic on the size of the financings.
MR. WOLFENSOHN: Well, thank you for your advice. I don't think that's a question. I appreciate the observations.
[Laughter.]
MR. WOLFENSOHN: Yes, ma'am?
QUESTION: Mr. Wolfensohn, since you emphasize the social impact of the Asian financial crisis so much, I was wondering if you could give us an update on what the social impact continues to be in South Korea. We hear a lot about how well the government is doing in instituting reforms, but we don't hear so much about what the social impact is, the rising unemployment, the bank closures, and what the effect is. Could you give us some more specifics on what the Bank is doing in South Korea?
MR. WOLFENSOHN: Sure. You had first of all a relatively full-employment society in Korea, and you had a movement from the countryside into the industrial areas. You had very little social underpinning. The tradition in Korea was that if you were out of a job--as in many parts of Asia with which you will be familiar--it was the familial structure which saved you; you didn't get a handout. There were not the social unemployment facilities.
And at the first stage, if you remember, when Kim Dae Jung came in, when he was elected, but before the actual assumption of power, there was a need to come to a deal with the unions to try to get them to agree to something that they had not previously agreed to, which was the firing of people to try to reform the companies. And that brought out a tripartite agreement between the Government, private sector, and the unions, and they all came out together and said they would do it, provided there could be some social spending to try to alleviate the problems of unemployment.
What we have done with the Government is to try to direct some of our funding to the provision of a social underpinning, but it is not part of the Koreans' character to have that very strong social underpinning because, as they told me when I was over there, the tradition is that you work to get paid, and they don't particularly care for the social aspects or the social underpinnings.
Having said that, Kim Dae Jung, now that he has been in, has come out with a program to try to make sure that people who are unemployed have something to live on, that health services are provided, and we are trying to work our way through with them how they can give effect to what is a massive cultural change in their country. There has not been the system of the social safety net.
The second aspect of it, though, is the movement back of people from the cities to the country. One of the places where it has hit all three countries is that where you have had an industrialized society, and you had people leaving the country to come to the city in order to get work and then send money home to support people in the countryside, when they are out of a job, they are now, in many of the countries, returning back to the country, and they are returning to the country in virtually all of these areas at a time when El Nino and the drought have already placed pressures in the country. So what you add to is the social burden in the country areas, and that is a dramatic problem, because the people who have been away, very often as breadwinners, are now returning no longer the breadwinners to an environment which is already under stress, and many of them are coming back. And that is a very, very big problem, not just in Korea, but in Thailand and in Indonesia.
So it is that aspect that we are trying to deal with, but in response to the specific question on Korea, they do have an agreement between the Government, the unions and business. They are trying to work it through. We are trying to get the social underpinnings and the social safety net. And the biggest thing that will change it, frankly, will not be social safety nets, but reemployment, and the thing you need to watch for is actually the reemployment and the restructuring of Korean industry, and that gets into the last point, which is central, which is the restructuring of the chaebols, which has not gone very far thus far, and needs to if you are going to have a resolution of the problem, because a number of the activities of the chaebols are very uncompetitive, and you need to deal with them.
Yes, ma'am?
QUESTION: Yes, Mr. President. Maria [inaudible] from [inaudible] in Mexico.
How could the financial crisis affect the prices of oil and oil exports from Mexico, and do you have some advice for the Mexican Government to protect itself from future crises like we are seeing now in Asia?
MR. WOLFENSOHN: Well, I think there is a crisis of sorts in oil-exporting countries, and those countries which are heavily dependent on oil. Mexico is not overly dependent, but has some dependence on oil, and the impact of Asia is much less the cause of that problem than the drop in the oil price and the breaking of the cartel and the overproduction, which has brought oil prices down to one of the lowest levels, historically.
I don't think that it is the Asian crisis directly that affects that. Certainly a reduction in world growth of maybe 1-1/4 percent or thereabout will have an impact, but my sense is that the oil price issue is much less a result of Asia than it is a result of overproduction in the markets, and there, I guess the best advice I could give the Mexicans is to talk to the other oil producers to see what they can do about getting a more rational system.
Yes?
QUESTION: Sir, what do you think is going to be the impact, because Mexico is just coming out of a crisis, and how do you think this is going to affect, for example, the poor people in Mexico?
MR. WOLFENSOHN: Well, I think you have a big social question which you are seeking to address in Mexico, particularly in the southern states. I will be meeting with the Minister either today or tomorrow to go over what he perceives as the current issue in Mexico. Certainly, a reduction in the oil price is not a help to you at this time; you couldn't say that it is. My own judgment is that it is not terminal. It is a bump in the road. But it does seem to me that the President and the financial team are doing a pretty good job at this stage. I will be better able to answer that question at the last press conference after I have seen the Minister.
Yes, sir?
QUESTION: Serge Servikio [phonetic], from [inaudible] Newspaper, Argentina.
About four weeks ago, the Directors of the Bank approved the Country Assistance Strategy for Argentina for 1998 up to the year 2000. In that Strategy, as you remarked, the priorities are social and judicial reform, and there is mention of the need to eventually assist Argentina in case the Asian crisis hits more strongly in Latin America.
One thing that struck me is that the Bank put this emphasis on judicial reform and fighting corruption, and at the same time, in the same strategy, the same program, there is a loan to fund the Yacyreta Project that the Government itself in Argentina dubbed "a monument to corruption," and there was a document at the World Bank a year and a half ago, a [inaudible] report, that was very strongly critical of the Argentinean Government, and the Bank itself, the Bank's performance itself on that project.
So I would like you to comment on the strategy for Argentina and on this particular point.
MR. WOLFENSOHN: Well, I think Yacyreta [phonetic] has been commented on a lot by us, and I guess a lot in your press, both in your press and in the adjacent countries' press that are involved.
I think it was your President Menem who said that it was a "monument to corruption." And I think that at the base of the effort by your Government and by your new Justice Minister who, as you know, was previously Ambassador here--he was brought back to try to reform the justice system as an essential element in combatting corruption.
Without speaking of Argentina, it is generally true that you cannot combat corruption if you don't have an effective justice system. That is pretty clear--if you have corrupt judges and a nonfunctioning judicial system, you can throw away any ideas of combatting corruption, because you can't bring people to justice.
This is not a comment on Argentina. I am not personally aware of the level of instability in the justice system. But clearly, the new Minister and the Government itself are anxious to have a frontal attack on corruption and so indicated to us, and we said that we would give them as much support as we could in bringing about that reformation.
We are dealing now in 15 countries with anti-corruption packages, all of which include some element of judicial reform, so what is happening in Argentina is no different than what is happening in a lot of other places.
The Yacyreta problem is a separate and rather sad case in which we are doing everything that we can to try to alleviate the results of what was not a very satisfactory project--and I think you know that.
QUESTION: And what is the general strategy for Argentina?
MR. WOLFENSOHN: The general strategy for Argentina is constructive. We have a positive strategy. As in every country, when they are talking to us now, they say they want to have some extra protection or extra assurance of any impact from the Asian crisis.
What is interesting as you look at the impact of the Asian crisis--and I get every day reports on exchange and markets in both Asia an din Latin America--is that the Latin American markets have essentially recovered significantly compared with the impact on the Asian markets, and in terms of direct investment, there is no indication currently that there has been a reduction in what would otherwise have happened in terms of direct investment in Latin America as a result of Asia. That is an important distinction from the earlier Mexican crisis when, as you will remember, the Mexican crisis affected investment and lending in Uzbekistan and India and Russia and so on.
I think the international community is a bit more mature now, and I don't see any specific aspects that relate to Latin America other than a general slowdown and a general malaise.
Yes?
QUESTION: Martin Benis [phonetic], from the Netherlands.
Are you worried about the fact that economic recovery in Asia is coming too soon in the sense that the climate for reforms may disappear?
MR. WOLFENSOHN: I don't think economic recovery has yet come to Asia. I think that you had a couple of very satisfactory bond issues that have been placed in the market at 350 basis points above LIBOR, and in that sense there is a euphoria. But I think that economic growth has not yet returned by any means. In fact, in Korea, Thailand and Indonesia, they are part of the major source of the changes in the global figures on growth.
I think we are in for a workout here which is going to take time. The steps that have been taken, I think, are very good and very constructive, and I frankly pay tribute to the Fund's packages for bringing about some stability. But in Indonesia, for example, you are still at the beginning of negotiations on the corporate debt. You have a $70 billion, give or take a few dollars, overhang of unresolved corporate debt to foreign lenders. In the case of Korea, we are still working through the overall debt problems of the chaebols, both international and domestic, and the weakness of the banks.
In Thailand, there has been an advance--a very significant advance--in terms of restructuring the financial system, but I don't think anybody would say yet that economic activity is returned to the level that is necessary. The balance of payments is better in most of the countries because they are not importing, but I think that to declare victory is not something I'm worried about at the moment. I still sense a great commitment on the part of these countries to reform, and they are coming to us for reform packages; it is not we who are going to impose it on them.
In fact, the thing that gives me the greatest comfort is that I think that what we've got here is a cultural change. You've got a cultural change of economies which essentially were run on a familial and closed basis, where information was not made readily available. I have been going to Asia for decades, and the one thing I've learned from my Asian friends is that you don't ask them about their balance sheets or their income statements or their financial positions, because they will never tell you. And they didn't do that personally, they didn't do it corporately, and they didn't do it as part of the banking system.
And now what their governments are saying is we want to move, because of the global economy, to global standards. It is because they can no longer live in an isolated way. And I think it is a decision that is taken by the Asians themselves which is going to take this thing through, not because it is being forced by us.
Now, you will have a kickback when things start to move, and then the old strong families and groups will say let's go back to our old ways. My own judgment is that that is unlikely to happen because of the integration of global markets.
QUESTION: Mr. Wolfensohn, do you accept the growth projections put forward by the IMF on that basis?
MR. WOLFENSOHN: Which projections?
QUESTION: The growth projections for those countries--it just follows on from what you were saying--do you accept the growth projections that are put forward for Japan and the Asian countries that have been in crisis, because in the past, it seems the IMF has overstated those projections. That is pretty important, I would have thought, for the job that you have to do.
MR. WOLFENSOHN: Well, I haven't studied those projections. We've got our own views that in the short run, these countries are going to be affected, which we have been very clear on, and I don't think you have to be either in the IMF or in the Bank to know that there is going to be a short-term effect that is pretty harsh on those countries.
I myself think that you've got a two- or three-year workout here to try to make sure you get back on track. And the facts are just evident. You cannot reorganize the 11th-largest economy in the world, Korea, in five minutes. You cannot reorganize Indonesia in terms of its structural imbalances in five minutes. How can you?
What you can have is what I think has happened already, which is you've got each of the countries, and most recently Indonesia, coming in with packages which give you confidence that they are approaching it in an intelligent way. And I am not looking for instant fixes; I am looking for appropriate growth, strengthening the structures, putting underpinnings into the social sector so that you don't have social strife, so that you get adequate food, adequate medical supplies, so that you can deal with the rural sector and make sure it is stable, so you don't have uncertainty, and you can hopefully get internal competence in terms of provision of food.
I think that anybody who thinks that that is a five-minute fix is just not looking at the facts, and I don't think any of the governments think it's a five-minute fix. What they want to do is to restore confidence, which they appear to be doing, that they are on the right path to regenerate growth. And I think it is as simple as that. I don't think it's complicated. I think there is a lot of hard work to do in the next two or three years in terms of structure and in terms of social reform.
Yes, ma'am? I'm afraid this is the last question. I'd like to stay here all day, but--this is like an annual exam in international economics, and I'm hesitant for the last question, but tell me what it is.
QUESTION: I am from Trade Union World. Yesterday, Mr. Camdessus laid out some of the work of the Interim Committee, particularly on the new architecture, and much of that is the mandate of the IMF, but there are some issues which cross over in terms of, for example, governance and work on sectoral issues, as well as the private sector.
My question is whether the World Bank is involved in that work on setting up this new architecture.
MR. WOLFENSOHN: Well, I sincerely hope so is the answer. I assume we'll be part of this new architecture.
But in relation to trade unions, which you say you are from, they are part of the new architecture, too. On my first trip to Asia at the beginning of the crisis, I met in Singapore with the trade union leaders of all the affected countries. I have met with them twice again since, and I have met them in each of the countries. I think it is crucial to have the support of labor; they are an essential element in society, and I don't think you can get a resolution of any of these issues unless you have the trade union movement with you. They are deeply affected, and the role they play was most evident, as I said earlier, in Korea. They could have stopped the package in Korea. They had the strength to do it, the two rival unions or two strong unions there, but they came together, and I think that any part of the new international monetary architecture has got to include not just the Bank and the Fund and the bilaterals; it has to include private sector, and it has to include civil society, because without those players working with the governments, you cannot have an effective economic system.
So I think that what you will find is a lot more recognition of the fact that the world is not driven by the Bretton Woods Institutions; it is driven by a partnership between those institutions, bilaterals, private sector, civil society, and for me, the new architecture is to learn to work together in a way that you can bring all of that together for the betterment of the countries in which we are operating.
Thank you all very much.
[Whereupon, at 11:28 a.m., the press conference was concluded.]
