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Speeches & Transcripts

Update on Global Economic Prospects 2011 - Media Roundtable Briefing

January 12, 2011

Merrell Tuck, Justin Lin and Hans Timmer Update on Global Economic Prospects 2011


MERRELL TUCK: Good morning. Welcome to this press briefing for Global Economic Prospects 2011, Navigating Strong Currents. I'm Merrell Tuck, the Senior Communications Officer in Development Economics Section of the Bank.
This is an embargoed briefing, and I'm very pleased to introduce our two leading experts. We have our Senior Vice President and Chief Economist, Justin Yifu Lin, who will give a bit of a short big picture on the report. And we have Hans Timmer, our Director for the Prospects Group, who will give more of the main messages and some of the trend analysis at the outset.
And I wanted to mention as well, we have one or two journalists who I believe have called in on the conference line.
So, I'll hand it over to Justin in just a moment, but just to remind--as you've seen, all the embargoed materials on the desk as you entered, the embargo is at 7:01 p.m. this evening, and I know that we put out copies of the press release and the full report. There are several language versions and there are also associated materials on our Online Media Briefing Center, which I expect most of you are registered for.
So, without further ado, let me pass it over to Justin Yifu Lin.
JUSTIN LIN: Well, good morning. I am delighted to have this opportunity to underline some of the main findings of this new report.
The first thing that I would like to say is that more than two years after the crisis triggered by the collapse of the Lehman Brothers, now the world economy has entered into the new phase of recovery.
We know that most developing countries have recovered to the pre-crisis level activity, or close to the pre-crisis level of activity. That means that we have went through this bounce-back phase to a more mature growth phase, and by that we expect the growth rate this year in the developing countries will moderate somewhat.
And according to our forecast, the growth rate for the [correction: developing] countries in 2011 will decline from 7 percent of growth rate in 2010 down to [6] percent, and next year, 2012, it’s likely to recover a little bit to 6.1.
What I'd like to say, is this is still a very robust, strong growth. Developing countries are close to their potential growth or even a little bit higher than their potential growth, and also compared to the high-income countries, their growth rate will be more than twice, because according to our forecast, the high-income countries growth rate this year is likely to be on the average 2.4 percent, and it's a decline from 2.8 percent last year, and next year is likely to recover somewhat to 2.7 percent.
And for the global economy as a whole, the growth rate, according to our estimate in 2010, was 3.9 percent. This year it’s likely to be 3.3 percent, and next year likely to be 3.6 percent.
And the second thing I'd like to report is that the recovery from the crisis is steady, but not everything is rosy, and especially for the high-income countries and also some countries in the ECA Region, that is, Europe and Central Asia Region.
High unemployment remains the main challenge. That means that monetary policy, fiscal stimulus, as well as the growth [so far] have not been able to get the labor force back to work yet. And this reflects two forces. One is the substantial excess capacity built up in the inflated sectors like housing, office space, as well as in some manufacturing sectors during the boom period before the crisis, and [the excess capacity is still there].
And it also reflects the need for those countries to restructure their economies, and that means that households need to increase their savings, consolidate their fiscal positions, and their financial positions. Banks are lending--it's not contracting, but it's not expanding rapidly yet. They also need to improve their regulation.
And also the firms, the investors, although they may have some fund liquidity, but they are pursuing high yields, and many of those high yields are in the more dynamic and growing emerging markets, developing countries.
And for developing countries, although as I indicated, the growth rate last year, this year, and the coming year are all quite robust, the fallout of the crisis is not completely over. From what we see, the report shows there are three main risks that we need to watch over.
The first is the financial markets situation in the Euro zone, and I'm sure you're all familiar with that.
And the second is that large capital and financial inflows into developing countries are concentrated on a few well performing developing countries, due to the low interest rates in high-income countries.
And the third relates to food prices, commodity prices, and fuel prices. In the last year, especially in December, there was a surge in prices, and it certainly poses challenges to a number of developing countries, and implications for the vulnerable people, the poor people, as well as the growth recovery. And those three risks could derail or slow down the recovery. Certainly the probability may not be high, but that is an area we need to watch over.
For the world and for high-income countries, and also some developing countries, to have a sustainable recovery and growth in the future, I think three areas are most important.
The first one, certainly, you need to conclude the financial reforms and improve regulation to avoid crisis in the future. And also, for most countries, fiscal stimulus policies need to move into more sustainable and targeted areas.
And the third is that, for the world to get out of this crisis, for high-income countries or high-debt countries to get out of this crisis, the most important thing is to promote growth. And we need to look at this from the framework of demand management to supply side stimulus so that, with new growth, with higher productivity, jobs can be increased and government revenue can be increased, non-performing loans can be reduced, and then the recovery will be sustained and growth can be further enhanced.     
I would like to give this opportunity now to my colleague, the Director of our Prospects Group, to give a more detailed briefing about our main findings. Thank you very much.
MERRELL TUCK: I believe Hans will us a few slides and these slides we'll also make available on our online media briefing center.
HANS TIMMER:  Thank you very much, Merrell and Justin, and thank you very much for coming.
Indeed, I will use three slides to illustrate some of the forecasts that Justin already summarized to illustrate some of the points that he mentioned and to illustrate some of the elements of the story line of the report.
First of all, the overall growth picture. You see here GDP growth for the world, for developing countries, and for high-income countries, including our forecast. And indeed, this is a broad-based, solid, continued recovery.
As Justin said, we expect global growth to slow down to 3.3 percent this year, down from 3.9 percent last year, but that is largely the consequence of the dynamics created by the very strong bounce-back at the end of 2009, beginning of 2010. The broad picture is one of continued broad-based global recovery for almost all parts in the world.
At the same time, as we said before, these growth rates are not strong enough to undo the damage that was done during the crisis in all parts of the world.
These growth rates, if you have seen a half a year ago, a year ago, but even almost two years ago, our forecast, are very similar to what we have forecast earlier, and that is actually something that doesn't happen that often, so it is a very stable environment also in terms of a lack of surprises. At the same time, underneath this global picture, there is a striking picture developing.
Basically, it is a tale of two words. On the one hand, you have most developing countries that have overcome the consequences of the crisis, that are producing again at full employment or almost full capacity, that have become the driving force of the global economy. Those developing countries have shown since the start of the crisis much stronger import demand than export demand. So, they are recovering on their own strengths, and they have become also the stable factor in the global economy.
On the other hand, you have most of the high-income countries and some developing countries, most of them in Central and Eastern Europe that are still facing the consequences of the crisis and the consequences of the excesses that were developing during the boom period before the crisis. Those are the countries that still have to reduce the unemployment, that still have to strengthen the banking sector, that still have to strengthen their competitiveness, and that have to deal with the fiscal consequences of the crisis.
So, you have a very diverse picture behind this overall global recovery in growth terms, and that diversity in that picture is well illustrated in my second graph, where we zoom into the growth performance of the developing world and we disaggregate the developing world in a somewhat different way than we do normally. Normally, we look at geographic regions, but now we look more at different groups of developing countries with different characteristics.
So, first of all, on the left-hand side, you have a group of middle-income countries with relatively deep financial markets that have received strong capital flows. To some extent, those strong capital flows were a challenge, also, but to some extent, those capital flows actually helped them recovering, also.

We identify in the report nine of those big, large, middle-income countries. And what you see in the graph that that is the group in the developing world that is rebounding fastest. That is the strongest driver of the global growth.
They were affected by the crisis, they had a slow-down in 2009, but their rebound is much stronger than elsewhere.
On the other end of the spectrum, you have the groups--you have the group of countries that are still struggling with the consequences of the crisis, not unlike the high-income countries. It is the third group here in the graph, the ones that still are restructuring their economy to try to get back to balance. Many of those countries you will find in Eastern Europe.
And there, you see that, not surprisingly, the crisis hit much harder than for the other developing countries, and also the bounce-back, despite the fact that the contraction was very large, the bounce-back is very modest. Those are the countries that still have a lot of structural problems to address.
Then, in the middle of these two extremes you have the rest of the middle-income countries, and they're actually much more like the strong performance than like the problem countries. So, there comes the conclusion that most of the developing countries, overall, there is a strikingly strong performance of the developing countries which includes, then, also, on the right-hand side, the low-income countries, and that is perhaps the most encouraging element of this picture. If you look at low-income countries, even if you split them up in different forums here and resource-dependent countries, countries that depend more on remittances and tourism, and even fragile states, then you see that quickly they returned to the very strong growth performance that they showed also during the boom period before the crisis.
For example, in Sub-Saharan Africa, if you take out South Africa then, again, we are at average growth rates of above 6 percent, similar growth rates as they achieved during the period before the crisis; overall, a very strong growth picture.
This picture, the strong performance in developing countries, but also the differentiation within the world, has consequences for capital flows. And let me show you a picture on the capital flows, because that is also an important part of the global story at the moment.
And again, we disaggregate the developing countries in a somewhat different way than we do normally, and we look at their capital inflows differentiated to the kind of capital inflows that we are talking about.
And then, again, on the left-hand side, you have those top nine large middle-income countries with deep financial markets, and they show a very specific picture.
What they are showing is that they are the ones who received in 2010 an upsurge in short-term capital flows. The consequence of the very different stance of monetary policy in different parts of the world, the consequence also of the search for yields, the consequence of the very strong performance of those countries, which, to some extent, is helpful, but if it's very volatile, can be difficult to absorb, also.
But you see, in the darker bars, that is the group of countries that received that kind of--what some people call "hot money."
So, if you are talking about those kinds of short-term capital flows to developing countries, it is not to all developing countries. It is really restricted to a small group of large middle-income countries.
Then, if we look at Europe and Central Asia, where many of the countries there still have to restructure, still have the consequences of the excesses of the boom and the consequences of the crisis. There you see a very different picture. There you see that capital inflows continue to decline. You see very well illustrated the excesses of the boom period, the record high capital inflows in 2006 and 2007, and very much also in the form of bank lending. A lot of bank lending during the boom period went into the private sector of those countries. Bank lending has come down, bank lending is not recovering, and that is globally true, especially with a lot of impact on those countries. So, there, you see, again, from this angle, illustrated, the problems that those countries are facing, and one of the reasons why those are the countries that are not rebounding quickly.
Then, on the right-hand side, the low-income countries--and again, a very encouraging picture, like the growth picture that I showed before. For low-income countries, foreign direct investments, the direct investments in their economy are most important. They don't have access to a lot of other forms of capital, and those foreign direct investments have been relatively stable. And actually, those foreign direct investments to the low-income countries have been more stable than foreign direct investments to all developing countries.
This picture has all kinds of consequences. It means that a big part of the developing world is facing now different kinds of challenges than immediately after the crisis, especially in that group of nine middle-income countries you see inflationary pressures emerging and you see for most of the developing countries that they have to continue with the tightening of their monetary and their fiscal policy because they entered a different stage of the cycle, which is somewhat complicated because, at the same time, there is still a big part of the high-income countries that are in a very different phase.
And when we talk about inflationary pressure, of course, we spent a lot of focus on the commodity markets, also. We are very concerned about the rise in the food prices, as Justin also said. We see some similarities with the situation in 2008 just before the financial crisis, in the sense that it coincides with very strong performance of the emerging economies. It coincides with a very broad increase in commodity prices, especially in the oil prices, and increasingly, for all kinds of reasons, there is a stronger correlation between oil prices and food prices, and it also coincides with a situation where there is a lot of liquidity in the market. So we are very concerned, as we were in 2008. We continue to be worried, actually, all the time over the last three years, and we focus now very much on the impact of those food prices on the poor.
At the same time, the situation is also slightly different from 2008, because, first of all, in the big grain markets, the stocks are much larger than the tight situation in 2008, and also it is much more localized, much more diverse and, in real terms, what is ultimately relevant for the consumers in developing countries, the prices are still somewhat lower than in 2008.
Then, finally, let me stop by reiterating what Justin said. There are, of course, still risks, and it is striking that those risks are mainly in the high-income countries. Developing countries are the stable force.
We do a couple of analyses to try to understand what the potential impact of that risk is for the developing world. We come to the conclusion that, increasingly, developing countries have become more resilient. You often see in these simulations that the impact is not big, but if you would move towards an overall anxiety in financial markets then, of course, we have seen two years ago how devastating that impact can be, so, we still focus on those high-income countries, but, at the same time, draw the conclusion that developing countries have become very resilient.
As Andrew Burns, the main author of this report, recently said, if the global financial crisis were some kind of a stress test for the developing countries, then they passed that test with flying colors. So, in that sense, I would like to end on a positive note. Thank you so much.
MERRELL TUCK: Thank you very much, Hans.Well, why don't we do this now: take a few questions from the room. And then, of course, I can see if Reuters [on the phone] wants to also ask a question. So, I suggest perhaps we gather three questions for starters, and do identify your organization and who you want to direct your question to.
So, I see Teresa and then the gentleman in the blue sweater and Bob Davis. Why don't we start with that.
JOURNALIST: Teresa Bousa with EFE for Mr. Timmer. I wonder if you could comment--you just were talking about risks. What do you see as the main risk for the recovery, and if you--you know, Portugal is now under a lot of stress. I wonder if you could comment on the situation in Portugal and also how do you see the macroeconomic situation in Spain. Thank you.
JOURNALIST:  Hello. Hugues Honore with AFP. You were talking about the similarities between now and 2008 about the food crisis, but we all know it has been solved. There happened to be a huge banking crisis. Commodities--all markets are globally deflated. This is not the type of outcome that now people would wish. How would you see that we could put a stop to the inflation of commodity prices in the world in the current situation?
JOURNALIST: Bob Davis from Wall Street Journal. We're just about a few days before the meeting of the leaders of the two biggest economies, and one issue that's come up--that's always come up--is the exchange rate, and if you look at the inflation in China, Tim Geithner today talked about. He said that he thought the real exchange rate would appreciate; the Chinese currency would appreciate against the dollar and real exchange rate of around 10 percent per year.
If that's right, what effect, if any, would that have on either economy, either the Chinese economy or the U.S. economy?
MERRELL TUCK: Okay. We'll start with those questions. Hans, the first one from EFE was for you.
HANS TIMMER: So, what are the real risks for developing countries—that is the perspective that we take in this report. As I said, and as we say in this report, the main real risks that are remaining now are in the high-income countries, and they are related to the consequences of the crisis, they are related to still-unresolved issues in the banking sector, they are related to the high unemployment in many high-income countries, they are related to the fact that many high-income countries are lacking competitiveness now in their economy. Now, that, at some point can generate, again, financial tensions, and, from the perspective of developing countries, what is happening in individual countries, wherever, in the high-income countries, is actually not the most important thing. And why is that? Because all the indications are that developing countries are much more resilient than they have been in the past and they can relatively easily absorb these kinds of smaller shocks. You see that over the last year where the spreads in different groups of developing countries hardly respond to changes in spreads in individual high-income countries; they are very, very stable, until the latest data that I have seen.
You see that also in the simulations that we are running where we do simulate in, for example, Europe or parts of Europe, and then the consequences on developing countries are relatively small, and that is not only simulations; it is also the experience in reality over the last year. We have seen a rebound in developing countries almost irrespective of the recovery in high-income countries. So, we are not focusing on risks in individual countries, but we are concerned about the fact that not all problems have been solved in the high-income countries, and for that reason it is important that policymakers continue to work on resolving those more structural issues and don't just stick to the more short-term crisis response.
So, that is the story line in the report, most relevant for developing countries. There was another question on how we can stop inflation.
MERRELL TUCK: Why don't you start a bit on commodities, and then Justin may have something to add, and I'm sure he would want to attempt to answer Bob Davis' question.
HANS TIMMER: So, the situation in the global commodity markets is still not as severe as it was in 2008 just before the crisis, and the main reason is that there is either a lot more stocks in those commodity markets or there is under-utilized capacity.
For example, in the oil market, the situation was very tight in 2008, and then the prices continued to rise ultimately up to $150, strengthened, probably, by the financial markets, exacerbated but ultimately driven by those fundamentals of very tight, tight markets. That situation is now very different.
There is still large under-utilized capacity in OPEC, and if you look at the last year, then all the additional demand for oil was supplied by non-OPEC, and that put a limit on the price increases.
And although recently the oil prices moved to the area of $90 a barrel, I think you can argue that they actually have been remarkably stable in the recovery, for a long time hovering around $75 and now moving up to $90.
The second point that you have to take into account is that we always look at dollar prices, but for developing countries, again, the point of view in this report, the prices are often very different because many developing countries saw their currencies appreciating against the dollar or saw inflation that makes those prices in real terms somewhat lower than it seems.
So, we don't see the same kind of pressures at the moment in the commodity markets as we saw in 2008, but clearly you do see the reflection of the recovery that extends also to our analysis of the food crisis, partly because they are linked for several reasons to the oil prices. It's probably not a coincidence that, over the last two months, the internationally traded food prices increased at the same time as the oil prices increased, but partly also because you have there still large stockpiles which were not available in the crisis of 2008, but clearly we are in an upward trend, and the consequences for people in individual countries can be serious.
At the same time, you do see also in local markets--but there, I have to give it to Justin, then--some price increases in the food markets which are not just a reflection of what we are seeing at the global level, sometimes a reflection of very volatile weather patterns, something that we will have to learn to live with, probably for the coming years, if not decades, but partly also the reflection of overall inflationary pressures that start in those countries.    
MERRELL TUCK: Okay. Justin, please. You can comment on commodities and food what responses can be made to keep inflation down, and then the question about the world's two largest economies.
JUSTIN LIN: Yes. I'd like to first respond to the inflationary pressure that we observe in a number of emerging markets, including China, India, Brazil, and so on. And I think this inflationary pressure domestically reflects two dimensions.
First, as I mentioned that earlier, in the past two years, because of economic recovery, growth [in many developing countries] is close to their potential, or even above their potential.
And second, it also reflects that in the past two years, in order to cope with shocks from the outside, [developing] countries adopted not only fiscal stimulus but also expansionary monetary policy, including to the credit supply and so on, and I think both contribute to this higher inflation pressure in these number of countries.
And how to cope with that? I think certainly now with [countries] close to the long-term trend of growth potential and with the inflationary pressure, certainly in these countries, it will be advisable for monetary policy to move from expansionary to a more neutral position. And I think that is true in China and maybe also in other countries.
And regarding the real exchange rate in China, and it's observed, yes, in the past year, if you calculate by the nominal appreciation and also the inflation rate, the real appreciation in China reached a little bit more than 10 percent.
And with real appreciation, certainly, it will affect the tradable sectors. Exports will be less competitive. The imports will be more competitive, and that has the implication for jobs and also for the growth rate.
At the same time, this real appreciation is driven by mostly substantial inflation, and the government, as I mentioned, needs to change from expansionary monetary policy to more neutral monetary policy to reduce the expansion of credit in order to bring down the inflation rate, and that will certainly also have some implication for the growth.
But by saying this, I'd like to add that the emerging markets, both China, India, and other emerging markets--they are likely to maintain great economic growth because the potential for their industrial upgrading is huge, and also further improvement in infrastructure, social dimensions, and all those investments in improvement will certainly give more momentum for growth. At the same time, like in China, the fiscal position and external account is also strong.
So, according to our estimate, our forecast, the growth rate of China this year is likely to be above 8.7 percent growth rate.
JOURNALIST (BOB DAVIS): Can I just have a follow-up on that. You said it had implications for jobs, with the export sector being somewhat less competitive, the import sector being more competitive. Would that be a net plus in terms of jobs or a net minus in terms of jobs?
JUSTIN LIN: I think that, marginally, certainly, it will be affected--marginally.
JUSTIN LIN: Down a little bit. Yes.
MERRELL TUCK: Okay. I'd like to see if Reuters [and Dow Jones on the phone] have a question. They are connected remotely.
JOURNALIST (DOW JONES): I am, yes. I don't have questions at this time. Thank you.
MERRELL TUCK: Okay.Let's take a cluster of other questions. Yes, there's the lady in the beige jacket.
JOURNALIST: Thank you. ShanShan Wang with China Radio International. I've got two questions for Mr. Lin. 2010 has seen a 35 percent increase in China's imports. How do you see the trend going this year, and how much will trade contribute to China's GDP this year and how much will domestic consumption contribute?
And for Mr. Timmer, you mentioned just now the recovery of developing countries is quite stable and that, in most high-income countries, it's tentative. How long would it take before high-income countries could go through the tentative phase and move onto stable recovery as you forecast it? Thank you.
MERRELL TUCK: Justin, perhaps we could start with you.
JUSTIN LIN: Certainly, trade is a very important sector in China. We know from the statistics that both exports and imports, combined, contribute to over 65 percent of China's GDP, and last year we saw the growth rate in imports increase substantially higher than the export growth rate, and they contribute to the rebalancing of the Chinese economy.
We expect that the Chinese economy, in the coming years, is likely to rely more on domestic demand, both in the rural sector and urban sectors, and will be a major force for driving China's growth. This is a restructuring process that China will continue to engage now and in the coming years.
MERRELL TUCK: Hans, I don't know if you want to try and handle the one on high-income countries.
HANS TIMMER: Yes, I wouldn’t characterize the recovery in high-income countries as tentative, as if a little thing would happen and then you would be in a very different situation again. In that sense, the global recovery and also the recovery in high-income countries is becoming more stable, but the problem in high-income countries is that recovery is not strong enough--not strong enough to reduce the unemployment that was created by the crisis, not strong enough to address some of the other structural issues that have developed in the high-income countries, not strong enough to regain competitiveness vis-à-vis the very strong emerging economies in the world. And how long that will take depends very much on the policy reactions.
If the policies don't address those more structural problems, then it can take very long, and we have seen that during the 1980s in Europe, for example, where you also had a big crisis at that time started with the oil--the rise in the oil prices--addressed in the beginning as if it was a demand problem, but slowly governments came to the realization that actually it was a supply shock and you needed structural reforms in those economies, and you lost almost in the 1980s in the same way in Japan. It took a long time and they are still working on it, to really recovery from the crisis at the end of the 1980s.
Now, some of these similar kinds of problems are occurring now. There have been investments in areas that cannot return. You have to find new competitiveness in other areas, and that is something of the long run, and it requires a long-term view, it requires attention on the issues on the supply side, not just a discussion on the macroeconomic short-term management.
MERRELL TUCK: Okay. We've got a question here.
JOURNALIST: Lina Liu with China's Xinhua News Agency. My question is for Mr. Lin. As China's President, Hu Jintao, is visiting the United States next week, I'm wondering, from your point of view, what's the implication of the economic cooperation between the two major economies in the world to the global economy, to the global recovery? Thank you.
JUSTIN LIN: Well, the U.S and China are two of the largest economies in the world, and the strong, dynamic growth in both countries will contribute to each other's growth as well as to the global growth.
And this is particularly important in the current global situation, and I'm sure that China's economy is complimentary to the U.S. economy, and the U.S. economy is not only an important market for China's export; it is also important source of China's technology, China's many other resources.
So, the economic collaboration between China and the U.S. is good for China and also good for U.S. as well as good for the world.
And then, so, that's the reason why we can see there is a very intensive interaction between China through the strategic dialogue as well as the high-level visit. And I think the visit of President Hu Jintao is in the spirit and I'm sure will further strengthen the collaboration between U.S. and China, and for the good of U.S. and China and the world.
MERRELL TUCK: Thank you. Yes, we've got two questions, the gentleman here at the front and a gentleman back there. So, go ahead.
JOURNALIST: Daniel Stone with Newsweek. You just mentioned some of the benefits of the U.S.-China relationship, especially both of them being the world's largest economies at this point. In preview of next week, what are the challenges of that relationship, too, that both of them are so big--and you mentioned the import and export markets. What are the challenges posed by the size of both of them?
JUSTIN LIN: I think that the challenges certainly on the U.S. side is how to get economic recovery and how to draw down the unemployment rate, and for that to increase, somehow the export to China will be helpful. But for the U.S., we know fundamental how to come back to economic growth, as Secretary Geithner mentioned--it mainly depends on U.S. policies.
And for China, certainly, to continue the dynamic growth, you need to continue the reform, move more closely to a well functioning market, as well as to upgrade its industry, to improve its social safety net and environmental area, and so on. And for that, certainly China can benefit from the experiences, technologies in the U.S. and also in other high-income countries.
And there is some disagreement on certain issues, but for that, I think to improve dialogue, improve understanding, is the best way to address those kinds of disagreement.
JOURNALIST: From China News Service. With President Hu's visit, first nations have emphasized several times now they need to be in the same boat, but last year we see many and sometimes very strong disagreements in terms of currency, the trade, bilateral trade. And so, do you think China's President Hu's visit will help to ease these differences and help China and the U.S. to be really in the same boat--for Mr. Lin's question. Thank you.
JUSTIN LIN: Well, I think we have too many questions on China. I have to mention now I am the Chief Economist of the World Bank and I stopped being a specialist on the Chinese economy.
But since you raised this issue, yes, there is always some disagreement and that's true for any countries. And we know that you have two feet, and you need to rely on your two feet to walk, but sometimes one of your left feet may kick your right feet. So, even in that kind of situation, you cannot say our two feet our totally in harmony.
So, by that, I would say, if you look over the U.S.-China relationship, yes there is always this dispute, that dispute, but if you review the overall progress, I think it is always an improving situation. But I say improving situation does not mean that it does not have problems or issues. You know, when we address those issues, new issues may come up, and we know that the media, press, has the responsibility to highlight those kinds of differences, but I would like to say agreement is the major trend, and this agreement is a driving force for the further progress in individual countries and also in the relation among countries.
JOURNALIST: Thank you, Merrell, and thank you for holding the briefing. My name is Andrei Sitov, from the Russian News Agency. I wanted to ask about Russia. I looked in the report and you project--well, I should probably not go with the report in that respect. I think there is a feeling that the Russian rebound from the crisis is not as strong as it could be, or could have been, and I want to ask about the policies of the Russian Government in this situation.
You say that there is a rebounding of the stimulus. I cannot really see how you view this, whether it is good or bad, whether it should be down there, rebounding--given that the rebound is not so quick. Should they be continuing the stimulus, in your opinion, the Russians? Thanks.
MODERATOR: I think that was the last question we'll have time for, but do you want to split this between the two of you? Maybe you want to start on Russia and, Hans, you may have something to add.

HANS TIMMER: In our view, the important thing for Russia is not unlike what is important for several other economies in Eastern Europe and even several high-income countries, and that is not so much try to get the timing of the stimulus or the exit of the stimulus right but to transition away from short-term stimulus to much more structural policies, because the problems are broader than just a shortfall in demand.
So, with that, we are not saying that you should immediately exit or issue more stimulus. What we are saying is that that kind of policy increasingly becomes less effective, and increasingly what is needed is addressing the more structural problems, more the supply-side problems, and one of the issues in Russia, of course, and that is not necessarily a fault of the government policies but more a characteristic of the economy, that is the lack of diversification, and the very strong dependence on oil at the moment, as a result of which, the hit during the crisis was also large not only in volumes but of course also in prices. And as a result of which, it is very difficult to rebound because you are losing competitiveness in all the other sectors which would make it easier to have a very broad-based rebound, as we are seeing in many emerging countries in Asia.
Now, the policies should be directed to how you can solve these kinds of issues, and in that sense, it is actually not that strange that we are relatively vague about the timing of the short-term stimulus because our assessment is that it is not the most important thing at the moment.
JUSTIN LIN: I think that [Russia's prospects] are also related to the issue I mentioned [as part of my earlier answer]--fiscal stimulus, and there is an argument that such stimulus efforts need to be consolidated in order deal with the large accumulation of public debt.
But as you mentioned, the unemployment is not fully recovered, and there is a need to extend government support, including through fiscal stimulus and so on.
And how to address this dilemma? I think the most important thing is to move into the direction whereby the fiscal stimulus is used to make invest in areas which enhance future productivity and growth potential. And if you can do that in the short run, you create jobs, helping to solve the issue [of high unemployment and sluggish demand]. But in the long run, the [goal is to] relieve bottlenecks to growth, to enhance growth potential, and to spur economic growth to enter into a new higher phase. In this way, not only the economy will become more dynamic, at the same time the government revenue will also increase and it can pay back to the debt now.
So, in that sense, those kinds of policies have been advocated during the recession, you need to have a Keynesian type of stimulus, but we can go beyond Keynes, because often with a Keynesian approach you dig a hole, you fill the hole, that's stimulus. But if we construct a highway to release the bottleneck of transportation, or if you make an investment in the clean energies and that reduces pollution and also energy costs in the future, that is more useful. Those kinds of projects constitute supply side stimulus.
And I find in a number of countries, they use these opportunities, turn the crisis into an opportunity for enhanced growth potential in the future, and this is one lesson we can learn, and this is also one lesson--one message from this report, and I hope that Russia, through your report, and maybe other countries, through your help, we can find a win-win solution for coping with the crisis now and to promote growth, increased growth, in the future.
I would like to say, after the crisis erupted, the World Bank's program has moved in two directions.
The first one, certainly, we need to have a social security program to help the poor to weather through the challenges.
We also have a program to support small- and medium-sized enterprises in order to create jobs.
But the third area, and that is a very important area in infrastructure programs, and that is very prominent in our program both in terms of IBRD, IFC, as well as our IDA program.

And I would also like say, in the G20 meeting in Seoul, they came up with a development consensus, the Seoul development consensus. Infrastructure development is a very important part of that consensus. I think that will be a good way for addressing both the unemployment slack in the capacity as well as pave the foundation for the long-term future growth.
MERRELL TUCK: Okay. Thank you very much. We are concluding this press conference now. We will do our best, by the end of the day, to have a transcript of the proceedings, as well. And again, we'll put that on the online media briefing center, and I appreciate everyone coming today and also respecting the 7:00 p.m. embargo. So, thanks again, and thanks for putting up with the changes to the venue and the time. Thanks.