Manila, the Philippines
Robert B. Zoellick, World Bank Group President
October 27, 2011
MODERATOR: Thank you all, good afternoon ladies and gentlemen. Nor Gonzales here, your moderator. Over to my extreme right is our new Chief Economist for East Asia and the Pacific region, the Director of our Singapore office and, of course, as you all well know, former Country Director of the World Bank Philippines. And we don't have much time today, so the President of the World Bank Group, Mr Robert Zoellick will deliver his short remarks to brief us on visit to the Philippines and after some time, he would be pleased to take your questions. Mr Zoellick, please.
PRESIDENT ZOELLICK: So if Bert and I don't answer any of your questions, you could go to Motoo [Konishi] and Motoo will have to answer.
Well thanks to all of you for coming today. I'm very pleased to have this opportunity to return to the Philippines. I've always appreciated the warmth and hospitality of the Filipino people.
I had the privilege, this morning, of meeting with President Aquino, as well as with Finance Secretary Purisima and members of the economic team. This afternoon I'll have the opportunity to meet leaders and representatives of civil society, the business community and also an opportunity to talk to our sizeable World Bank and IFC staff here.
I was honoured to have the opportunity to visit Mount Samat on Bataan yesterday to pay my respects to the courageous Filipinos and Americans who died together and there was an opportunity to see part of the Philippines' proud heritage.
I was especially struck yesterday by the warmth and welcome and the commitment of the women and young children I met in Pasay City- women and children who have benefited from the Government's 4P programme, through which they receive modest benefits in terms of sending their children to school and getting medical checkups.
My prime purpose of this visit was to listen and to learn so we can better assist the Government of the Philippines with their reform programme. My visit has helped me to better understand the importance of President Aquino's programme for good governance and the Government's priorities to improve the business climate, develop infrastructure, increase investments in health and education and protect the most vulnerable people.
In Washington DC last month, President Aquino gave a speech where he spoke about the power of the Filipino people and his moves to turn People Power into strong, accountable government; a government that's working to promote inclusive growth and to help overcome poverty. There are and will, no doubt, be more challenges along the way. It's a tough business to fight corruption. It's also tough to combat the ravages and challenges that are beyond our control, such as the weather. And I'd like to express my personal sympathies to people for the lives lost during the recent typhoons.
I was able to assure President Aquino of the World Bank's support through a new rapid response line of credit worth $500 million that can be drawn on immediately in the event of a major natural disaster and I am pleased to announce a $2 million grant which will help the Philippines gain access to global best practices in disaster reduction.
While actively helping the Philippines boost its agriculture sector, the World Bank is also working to make the agricultural and fishery sector more climate resilient. We also stand ready to assist the Government as it deals with the public/private partnership agenda and to help business, rural investments and encourage improvements through our private sector arm, IFC: the International Finance Corporation.
I've also been impressed with the resilience that the country has shown to recent external stocks. Strong financial and trade resources and economic fundamentals have helped cushion the impact of the global economic turmoil on the local economy.
And so let me draw the connection between the financial dramas in the Eurozone in my visit to Pasay City.
Distant events, even in developed countries, can send shockwaves through trade and banking and investment markets, that hit developing countries. And the world learned the hard way during the East Asian financial crisis in '97 and '98, that the cost of turmoil hit the poor the hardest. They have no cushion. So, in these globally uncertain and risky times, the relatively new conditional cash transfer programme here in the Philippines offers a vital safety net to the most vulnerable people. It cushions already some 2.2 million families, about 6 million children for a very modest cost and the Government plans to expand it to some 4 to 5 million families.
It shows that good governance matters to help ensure that the right people get the right benefit at the right time in the right way.
The Philippines programme is one of some 40 conditional cash transfer safety net programmes that the World Bank has helped develop around the world.
The idea actually started in Mexico and then Brazil, which have launched these very successful anti-poverty programmes that cost about one half of one per cent of GDP. These conditional cash transfer programmes are a great example of how developing countries, with the help of the World Bank, can learn from one another.
At the World Bank we believe that every country should have a targeted, effective, efficient special safety net programme that doesn't bust the budget because, uncertain events, whether rising from Europe, the Americas or Asia, can pulverise the poor and the poor need a partner too.
President Aquino has said that good governance is good economics. I think that good governance is vital if the Philippines and other countries want to step on the pedal and accelerate growth to benefit all. I am pleased to take your questions.
MODERATOR: Thank you very much. Now we can go for your questions. Okay, this briefing is on the record, so there are three microphones: one at the back and two here at the front. So please state your name and the name of your organisation before taking your question. Over to you, sir.
CHINA RADIO INTERNATIONAL: You mentioned about safety nets.
PRESIDENT ZOELLICK: Could you give me your name?
CHINA RADIO INTERNATIONAL: Yes, I’m Melo Acuña, I come from China Radio International based in Manila. Would you have specific programmes for returning overseas Filipino workers who are threatened by the economic crisis, both in the United States and Europe?
PRESIDENT ZOELLICK: Well the main issue that we looked at in that area is the remittances, which have been very important for the Filipino economy. So these are not people returning but this is the need to be able to continue to draw on those resources and it's a subject I discussed with the President because I've been very pleased that, from the data we have, the remittances of Filipino overseas workers has held up pretty well. And I think this is because they work across a broad series of sectors. Some overseas workers from other countries, that focus only in the construction sector, have been hit more by the downturn.
So we haven't really had the need to develop such programmes. We have developed them in other countries. So, for example, in the context of the turmoil in North Africa, we work with the Bangladesh Government to help not only get people home but give them a start. So that's the type of programme we could look at in the Philippines. So far we haven't needed it and that's good news for the Philippines.
MODERATOR: Thank you. Another question, over here please.
REUTERS: Good afternoon, sir.
MODERATOR: Your name please.
REUTERS: My name is Karen [Lema} from Reuters. You mentioned, sir, in your opening statement, you referred to the problem in the Eurozone. My question is related to that. The Eurozone leaders have struck a deal with the private sector as to how to address the sovereign debt crisis. We'd like to know your thoughts on it and do you think it will work and are you confident that that would be sufficient to address the problems of the international market and the economy? Thank you, sir.
PRESIDENT ZOELLICK: I think it's a very welcome and important step because we've seen that the ripple effects of the Eurozone can expand into waves that can hit developing countries very hard. So I compliment the leaders of the European Union for facing and making difficult decisions. Of course problems like this can't be solved by waving a magic wand and the implementation of the three core elements will require follow through to ensure that, with the market reaction, that banks can function more effectively and to ensure that the Eurozone countries are able to rollover their debt.
And I'll be, next week, attending the G20 leaders' meeting in France and I'm hopeful that this first important step can lay the foundation for a broader approach that will focus on helping the world economy resume growth, overcome joblessness and support the innovations so we can get the world economy back on track.
MODERATOR: Okay, thank you. Maybe somebody there from the back?
MALAYA NEWSPAPER: Yes, sir, good morning. Reuelle Castro from Malaya [newspaper]. You said you rated some of your impressions regarding the visit in the Philippines. Maybe no one has - do you, have you - is there a realisation for some sort of a need by the World Bank to increase its resource allocation for [government] programmes in the Philippines?
PRESIDENT ZOELLICK: We actually have increased our resource programme for the Philippines. We have - here, I'll double-check, but we've done about - we have a total of about $3.7 billion outstanding across the World Bank Group. So that includes about $2.6 billion from the IBRD, that's the public lending arm; and about $933 million, that’s almost a billion, from IFC, our private sector side. But just this year, we made about a one and a half billion to two billion dollars of commitments from IBRD and we expect to be up to about $200 million on top of that of IFC private sector commitments and we hope in the next fiscal year to have the IFC up over $300 million.
So we've been expanding the programme. The Philippines has been an important partner. The Philippines has been an important partner. But one reason I wanted to come was that, from the start of President Aquino's administration, I was very struck by the attention he's put on the good governance agenda, which is not only a question of stopping corruption, but it's the more efficient use of resources. So these conditional cash transfer programmes that I visited yesterday in Pasay City are important because they make sure the money are well spent. You involve the community in with the programme. They're using social media to get reactions to the programme.
So one reason I wanted to come was to see for myself and talk to the President and his senior team again to see how our team could be supportive of their reform agenda.
MODERATOR: Okay, thank you. Eloisa did I see your hand raise earlier? Okay, please.
ABS-CBN: Eloisa Calderon of ABS-CBN news channel. The IMF has seen that a financial crisis is brewing and it moved into a fiscal crisis. So you mentioned in your speech that you see shockwaves. Do you see this fiscal crisis transforming into something else since most governments have started easing and still they're still laden with debts during the crisis, do you see rising debt levels still and then you're back again to easing. So do you see this fiscal crisis from financial crisis to fiscal crisis, what would be next? Thank you.
PRESIDENT ZOELLICK: Well I hope the next will be recovery. And that's why the news coming out of the Eurozone is good news, because this has been a weight on the shoulders of the world economy because people have been uncertain about what would happen to some of the European banks; some of the European sovereign debt ability to finance itself; not only Greece, but whether this could spread. And so while the steps still require implementation, I hope this will help send a signal of renewed confidence.
But coming back to what we saw. When the Eurozone moved into a greater stage of crisis in August, what we saw in developing countries was that their equity markets, their stock markets tended to tumble, on average by over 20 per cent. Their bonds spread, so the money that the extra money of interest rates that they would pay over a baseline like US treasuries also increased. Some of the currencies gyrated. They had been appreciating, then they came down. And we started to see some effects on trade and exports. And this has happened a little bit to the Philippines; some of the exports have slowed down.
Now the real question that the Eurozone action I hope will help with is that I was worried that as the confidence problems in Europe and the United States, if they spread to developing countries, it could start to slow down the domestic demand. So things like business investment and consumer spending in emerging markets. And that would have moved the problems of the global downturn into a whole new stage because one of the things we've seen in this downturn is developing countries had actually provided about a half of global growth, so they were helping to prop up the international economy. And so if they were pulled down by Eurozone events, that could be harmful not only to their people but to everybody in the world economy.
So that's one reason why the news is important and I think that the Eurozone leaders should be complimented for it. As I said, there's no magic wand. This is going to require some very difficult implementation. The actions with the banks are going to extend over into the middle of next year. There's still a lot of elements that have to be worked out with the new EFSF financing facility. And as I emphasised, all of this basically buys time and you need to use the time. And one of the reasons that I'm hoping the G20 meeting can go beyond this is one will have to try to use this time to build some of the foundations for growth, not just dealing with liquidity crisis.
MODERATOR: Thank you. Any other questions from this room? Okay, let's go to the back please. Cai?
BUSINESS MIRROR: Good afternoon, sir, I'm Cai Ordinario from Business Mirror. I just wanted to ask because some developing countries are proposing a food reserve. What are your thoughts about this and how do you think the floods in Thailand is going to affect food prices in the immediate or medium-term and how will that impact on countries like us, who are net importers of food?
PRESIDENT ZOELLICK: Well on your first question about the food reserve, the World Bank has worked closely with the French Chair of the G20 and with a number of the UN agencies to propose some improvements to limit some of the volatility in the international food system and also to provide some added security. So there was an agreement among Agriculture Ministers that if countries imposed export bans, which are - only make the problem worse, that they wouldn't apply to humanitarian purchasers such as the World Food Programme.
And this is very important because in 2008 when prices shot up, the head of the World Food Programme and I were actually calling Heads of Government to make sure that the World Food Programme could get special access if their country had put on an export ban. And the system shouldn't have to work on the basis of us making special pleading to make sure that they can buy the products they need.
A second step is to try to get better information on stocks and production. Some of the developed countries, such as the US, have had this information public. It's very good. It helps avoid the uncertainty of numbers that markets can't read. And so the G20 agreed to develop a new system called AMIS. It's a information system on agriculture: Agriculture Monitoring and Information System.
Now third you talked about reserves. One other idea that the G20 is going to look at is whether there could be a special pilot programme that the World Food Programme is developing with the ECOWAS countries. These are countries in West Africa. And it's not reserves in terms of trying to manage the price. It's basically to have some stocks available in the event of an emergency situation and the World Bank has been trying to support the World Food Programme and others in developing that system. So I hope next week, that the G20 will advance that as a pilot to test it to see how it works.
In addition, and this applies for countries around the globe, we can also take advantage of high prices and make this into an opportunity for poor farmers. So if we help farmers increase their production and productivity, including right here in the Philippines, we could take advantage of higher prices to help boost incomes. But in each country there are different issues. It may be property rights, it may be seeds, it may be irrigation, it may be fertiliser. In Africa about 50 per cent of the product is lost on the way to market. So we at the World Bank are investing about $6 billion to $8 billion a year by ourselves on the agriculture development side.
Now you asked - the rice issue. We've been monitoring this very closely because we were one of the first international institutions in 2008 to warn of the dangers of high food prices. In general, food prices have gone up about - our food index has gone up about 18 to 20 per cent over the past year. It's come down a little bit over the course of the past couple of months. Most of the price increases were in other grains, they weren't in rice. I think on the rice front and this is a subject that I discussed with the President and the economic team. I think the good news is the Philippines has some significant rice stocks. The expectations that for the harvest in terms of being able to add to those stocks are encouraging about increased production that the Government has been seeking in the Philippines.
There are some reports that Vietnam's sort of outlook for production is also relatively better and India has lifted some of its bans. So Thailand is obviously a key rice producer and we still don't know yet how much of the production is lost with these terrible floods. So we have to watch all these conditions quite carefully but for now I'm hoping that the Philippines will be able to avoid some of the problems that it encountered a couple of years ago.
MODERATOR: Okay. We're down to the last three minutes of this media conference. I'm sorry sir, but there's one - somebody there or - this one please.
ASSOCIATED PRESS: I'm Tess Cerojano from the Associated Press. Can you elaborate more on the gross strategies that you were talking about? What would the priority be for the G20 meeting?
PRESIDENT ZOELLICK: Well when I talk about growth, I'm talking about some of the structural reforms that you saw many of the East Asian economies undergo over the past 10 years. So it varies by economy. In the United States, for example, there's discussion of a broad-based tax reform that would broaden the base and lower rates to create incentives for growth. Second, the idea of opening trade markets. Trade competition is one of the best ways to improve the overall productivity of an economy. In some countries such as the Philippines and others in South East Asia, infrastructure's very important.
One of the drivers of growth in China over the past 10 years has been the building of infrastructure which created jobs starting in the '97 crisis. It built future productivity because goods could move more quickly and easily and at the same time, it also boosts business for exports. So these are issues that economists discuss as microeconomic or structural issues and that's in contrast to much of the discussion you hear around the Eurozone which are called the macroeconomic: getting the budgets and the deficits and the debt.
So I don't mean, by any means, to think we can let up on the macroeconomics. But the point is, there's still a lot of people out there without jobs and the issues that the Eurozone or the actions the Eurozone has taken are important actions but they won't deal with the fundamentals of growth to get those people back to work and help the overall global economy.
MODERATOR: Okay, we have time for just one last question. The gentleman at the back. This is going to be the last question.
BLOOMBERG NEWS: Good afternoon. Carl from Bloomberg News. Sir, my question is about what's happening in Europe right now. So basically the European leaders have acted. My editors want to know what are you thinking? Should Asia support, you know, the enlarged fund, the rescue fund? You know, like China and Japan, should they invest with these funds because they will also gain as the whole economy stabilises, right? I mean this whole idea of, you know, global, everyone should help each other. Thank you.
PRESIDENT ZOELLICK: Sure. Well there are three core elements to the Eurozone's package. The first one is to strengthen the banks. And so the idea there is to make sure that the banks have sufficient capital to bear losses. And the banks can raise their capital themselves through retained earnings or issuing stock or if they're unable to hit their capital levels through that means, they could do it through national infusions or the EFSF.
So the first opportunity is that it's possible for investors around the world to look to invest in some of those banking institutions. But that's a private decision.
The second one: and this is the one that I think your question relates most to is the Europeans have come up with sort of two options in dealing with this EFSF: the European Financial and Stability Fund. One is a form of first loss or insurance. The second is a special financing facility and, from what I've been able to see, I don't yet have a precise sense on how that would operate but that looks like the one where others would participate.
From the information that's been released, the IMF would play an important role in that and the countries that you mentioned, countries in Asia, North America, all 187 members of the IMF, participate in that fashion. So in that sense, the role of the IMF, which has been important in trying to reach resolution but also provide supplementary financing, shows the commitment of all the global players in trying to resolve this issue.
The dimension on top of that, whether there would be additional funds invested, it's a little hard for me to tell from now how that would work and what would be the economic interests in doing so. But I expect that will be a subject we'll learn more about as we approach this G20 meeting next week.
The third element is the negotiation with the banks on the debt reduction for Greece and that, obviously, is just a matter of the existing bank holders.
MODERATOR: Thank you very much Mr Zoellick. That concludes our media conference today. We have a press release. Please take a copy as you leave the room. Transcript of these proceedings will be posted on our website.
Thank you very much for coming.