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Speeches & Transcripts February 10, 2020

Transcript: Development and Debt in Lower-Income Economies - A Conversation Between Kristalina Georgieva and David Malpass

Watch the replay of the event on World Bank Live 

MR. MALPASS: Shall I start and say welcome to everyone, and please welcome Kristalina Georgieva back at the Bank for a day, and so we're very happy to have her here, and an exciting topic.    

MS. GELPERN:  And so, it is my special privilege to be here and say a couple of words of welcome to the audience, to everyone watching us online.  And this is a very important conversation on development and debt in lower-income countries.

My name is Anna Gelpern, and I am delighted to be here with David Malpass, of course President of the World Bank; and Kristalina Georgieva, Managing Director of the IMF.  It seems thoroughly weird to be introducing these folks in their own house.  But given the worldwide audience, just a few words are of the background that are particularly relevant to the conversation today.

David of course is a veteran of the debt world, and I think we would really benefit from your long perspective on these issues.  You've served at the U.S. Treasury.  You've been in the multilateral world and in the private sector, and really understanding why is this subject one that we keep coming back to depressingly often, and how far have we come.  Have we come far?

And then Kristalina of course, right before this you were at the World Bank and then at the European Commission, and you have an incredibly deep background in the humanitarian issues and coordination issues in particular, which are a huge challenge today given all the new actors and instruments that we're dealing with in this moment.  So, I could not be more delighted and privileged to be here today.

Now I'm a lawyer.  I'm not an economist.  And so, I have a somewhat different perspective on the material we're going to be discussing.  The Fund and the Bank released a terrific joint paper, and I think it's very important to see it in context.  They have been releasing an enormous volume of data and policy studies in this area, and I think it's a sign of the value that the international community puts on transparency in this space, even though we have a tremendous way to go.

And I think the report that comes out today has some of that sense, right?  On the one hand, there are many ways in which lower-income countries are better off.  They have access to financing from new sources.  Debt levels in some of them are leveling off.

On the other hand, the flip side of that is financing from new sources means new risks and new challenges.  And then, you know, what do we do about the fact that countries that just got debt relief, it seems yesterday, half of them are vulnerable again?  What do we do about the fact that on the one hand they have more market access but then interest costs are outpacing growth?

So, we have 45 minutes, probably less, and we're going to try to hit three themes--at least I hope we can.

First, how did we get here.  What does it tell us about all of the initiatives that have come before?  What have we learned? 

What is different this time?  Each time is different, but what is it now?  What are the challenges we're struggling with now?  And then most importantly, what do we do about it?  The institutions, the bilateral donors and creditors, civil society, all of us.

So, one administrative note that you may have heard before.  Each of you has a card on the seat.  Please fill them out.  If you have questions, please bombard us with questions.  There will be someone along the aisles, I believe, to collect them throughout.  Let's do it earlier so that we're not scrambling for questions at the last minute.  If you are online, I believe there are ways in which you can launch questions at World Bank Live, and of course tweet #DevtandDebt.  And it's right there, so I won't spell it out.

With that, David, you've been in this world for a very long time, and you manage to remain optimistic.  Or at least you're still at it.  How did we get here?  Is it fair to say that something went wrong between HIPC MDRI and today?      

MR. MALPASS:  Hello, thanks.  And I think it's very good to have a lawyer in this.  If we think back 30, 40 years, there were syndicated bank loans.  There was a lot of evolution of the types of debt, both from the standpoint of economics, finance, and law.  So, they're all working kind of together toward what I think is--I think we should be optimistic.

The idea is to mobilize savings of others so that it can focus on the best project or the best use of money around the world.  So, I really think we have to view it all positively.  The Bank did a big report recently on the four waves of debt.  So, we're in the fourth wave.

So as far as then your point of how did we get back to this spot, the nature of things is--and I talked about this some last year--that there's a conflict of incentives with government.  Politicians and leaders of government want fast action, and that means not doing enough in terms of the standards of the borrowing that they're doing, the project selection that they might be doing, do they really have a strategy for how their country is going to move forward.

And then the financiers are on the other side saying, “hey, I've got money to lend, let's go ahead.”  Whereas from the standpoint of the people in the country, what they want is long-term sustainable growth that really pulls up median income. 

And those two objectives are somewhat separate.  And so one of the things the Bank is trying to do in leading this transparency--I call it transparency of debt and investment--so we want sovereign entities, meaning governments, to actually say what are the terms of the debt and what's the goal of the investment, and then unbundle the two so that people can evaluate it, because it's very hard for us sitting up here to say what the limits of debt ought to be.  I think it's more possible.  And we can talk about how to push forward with transparency just so that people can evaluate it.

MS. GELPERN:  This is super helpful.

Kristalina, if I could just expand on this, so presumably the end goal is market access, prudent debt management, and mobilizing the trillions of dollars that these countries need for basic things like clean water, climate adaptation, hunger relief.  What is the right mix?

MS. GEORGIEVA:  Well, let me first say to the Bank staff here, great to be back.  I will give you a little secret.  When I was getting ready, I did my big thoughts, thinking, but I also put a red jacket especially for you.

My first point is that I'm very pleased to see that we are starting from development and then we talk about debt, and this is exactly what President Malpass did just now.

Congratulations for the IDA replenishment, $82 billion to be made available to countries that most need financing.

But we are faced with the reality that financing doesn't easily flow where it is needed the most.  The Fund did a study that concluded that for low-income countries to reach the Sustainable Development Goals, they need to ratchet up investments by additional 15 percent, up to 15 percent of GDP.  This is huge. 

And obviously we have to recognize that if we are relying on all this money to come only through borrowing, we would make a grave mistake in our advice to countries.  So, there is an important aspect of the discussion today that is about domestic resource mobilization, making sure that countries build up capacity of their own to raise money to invest but also to service debt in the future.  And we all know that the room for improvement is quite significant.  The Fund says between 3 and 5 percent of GDP can be built up as additional domestic resource mobilization.

And then we get to the question of debt.  In other words, my first important point is that before we get into who to borrow from, we need to look at what else can be done.  And what else can be done is domestic resource mobilization, and then improving the efficiency of how money is being used.

We look at public investments in low-income countries, and we can only trace 60 cents on the dollar in terms of what exactly money buys.  It doesn't mean that only 60 cents on the dollar buys something.  It just means that the quality of investment can be further improved.

And then we go to how to borrow from whom, what structure of the debt.  Obviously, we are keen to see more capacity to raise money from private sources.  And David has been very vocal on the importance of that resource.

But it only can happen if we have good projects that can be financed, and therefore the role of the public sector is very significant, both in the quality of what can be financed and also what the public sector borrows for, and from whom.

We all know the trends.  We know that there has been very significant increase of lending by non-traditional, non-concessional sources.  Clearly this is a concern.  Eurobonds last year averaged 16 billion euros in low-income countries.  It is three, four times more than just six, seven years ago.  And of course, they come with higher price.

And then we have the non-traditional lenders that are coming outside of the coordination mechanisms like the Paris Club.  So how we balance this is actually the big job of countries and of our institutions.

Main purpose of this paper is to say there can be better debt management.  We do have sustainable framework for debt management.  It can be applied.  And, we can bring, as David said, much more transparency:  who lends to whom, who borrows at what price, and why?

Let me make, finally, two observations.

One is that we recognize we are in this low for longer world.  Interest rates are low.  Money is cheap. 

Not for these guys, though.  If you look at the price of Eurobonds for low-income countries, it's not that cheap.  Eight, nine percent is not, not cheap.

But if you are seeking yield, if you have money and you are seeking yield, where do you go?  You go where you can get yield of that magnitude.  So, we have an unintended consequence of low interest rates in advanced economies that is the pursuit for yield in developing countries and especially low-income countries builds more risk.

And secondly, the second observation I would make is that we have now in many countries more sophisticated debt management offices.  But if you look at the paper, one of the most sobering observations there is how much more needs to be done.  Thus, a huge responsibility for us.

MS. GELPERN:  If I could push you a little bit and then maybe ask David to intervene, because you took us very nicely into the second theme, which is what's different this time, right?  There are a lot of different players.

But one of the constants, it strikes me--and this is something that you raised--which is that governance is important both for investment and for debt management, right?  So, and if the countries are borrowing from the markets, that's outside the G-20 framework--and as well it should be at some level.  Maybe we should have a more comprehensive set of norms.  But how do you ensure that by the time these countries have the access, they have some capacity and the internal governance capacity, if you will, to handle both the use of proceeds and the borrowing?

Maybe David, and then, Kristalina, you can chime in.

MR. MALPASS:  And I'll add to Kristalina.  An impact of this situation that she was describing in the low for long is the inequality that comes out.  And I'll mention two parts.

One is, developing countries, by their nature, are going to have a higher yield, meaning a higher cost, so there's an inequality that's kind of, if you want to call it north/south, or it's developed/developing.

But then within countries, there is also the inequality that comes from bigger, more established businesses getting more of the funds.  And so, we're in an environment that patently expands the inequality problem that we're addressing. 

And so, I think an important part of transparency is in order to flatten out a little bit--so we have to have financing situations for countries where education and healthcare can be actually funded, and yet it's in an environment that's almost inherently asymmetrical against that kind of funding.  So that's why I think it's urgent that this initiative in this understanding go forward.

Now as far as the governance then, it goes to the core of how do countries make decisions.  So, on that, you know, the World Bank has a giant governance practice specifically that works in countries to try to build the capacity--capacity, that's a fancy word, but it can mean which ministers have the authority to sign a contract.  If you're signing a contract, is it going to be disclosed?

You know, one of the practical problems that we're dealing with right now is some of the new lenders, the non-Paris Club lenders--and so I guess when we say that, people should sometimes read China into that.  They're not a member of the Paris Club.  They've escalated their lending, which is good in a way.  We want more lending into developing countries.  But it also means that the contracting terms need to be thought about in a way that's cooperative internationally.  So oftentimes their contracts have a non-disclosure clause in that prohibits the World Bank or private sector from seeing what the terms of the contract are.

So, as a practical matter, as we talk about governance, some of it is the pretty straightforward, in contracts with sovereign governments, please don't put in a non-disclosure clause.  Let the government disclose the terms, both of the debt and the investment. 

We recently had a team go to China and talk with them about that.  China has wanted to – s looking for ways to work with the world on contracting terms that are more consistent with what the world is used to.

MS. GEORGIEVA:  Well, let me--

MS. GELPERN:  Kristalina, if I could just augment this and to feed into your answer, which is that I've been struggling with what's in it for China, right, just to be blunt.  The non-disclosure clause is right there in the G20 framework.  If I'm a new lender, and if I haven't gone through the 80s and the 90s and the Aughts, and I have different instruments and non-disclosure clauses, why should I go to the Paris Club?

MS. GEORGIEVA:  Well, let me answer this first, and then I will go back to your broader question what can be done for countries to be better prepared.

We all live in a world in which there is a high degree of interdependency, and it is a more shock-prone world.  I don't have to say more today given how much pain a particular shock - the coronavirus - s already imposing on people and on the economy.

In this more shock--more interdependent and more shock-prone world, it is in everybody's interest to improve transparency and improve reporting, because ultimately there would be lenders that would be burned.  And we know that.

But more importantly, countries that are operating without full transparency, and their own full knowledge of what they have on the books, are likely not to do so well in terms of growth, building up their economies.  A group of economists actually did an analysis that shows that unsustainable debt undermines growth.

So, if you are anyone, China or anyone, if you want to see good return on your investments, it is in your interest to operate with higher transparency.  Of course, what is the problem?  Short versus longer term.  In the short run, if you can extract more, be more protected, you would be tempted to do it.  But medium/long term, there will be slap on the hand. 

Now what we see is that China and for that matter other new lenders are becoming more aware, because they're already faced with situations of unsustainable debt that puts their investment at risk.

And in fact, as David and I are very well aware, there is an appetite for more coordinated lending programs in China, and a knowledge in China about who lends to whom what, because you have state-owned enterprises, you have the official lending, not necessarily left hand and the right hand are fully aligned.

And I think self-interest is going to play a role.  The country is being much more assertive of defending themselves against risk of default is playing a role.  And of course, institutions like ours--the World Bank, the IMF, and others--we have a very important role to play.

I want to--you asked us what is being done, what can be done, and I want to bring an element of positivism, because last year--was it June or July when we adopted the debt sustainability framework, the new debt sustainability framework in both institutions at the same time?  I'm looking at June?  July.  Okay.  Last year July.  Sorry, 2018 July, we have adopted this framework.  This is a short period of time.  But since then, out of the 69 countries that are covered by this framework, 53 already have gone through debt sustainability analysis and have taken measures to improve their reporting.  And in 11 countries, the transparency of debt has tangibly improved.

And I want to give Senegal as an example, where today we know more about the debt of Senegal, 10 percent of GDP to be exact more.  When I met with the minister of finance of Senegal, he wasn't so pleased because it looks like the debt has gone up.  It hasn't.  It is now visible, and it is visible to decision-makers so they know how much space they have to borrow to invest in the future. 

And I hear it from everybody in this field that while we have been going through some buildup of debt, over the last two years we are seeing actually stabilization.  And I would venture to claim that more transparency, better reporting is part of the picture in improving the trend on debt.

MS. GELPERN:  And that is certainly good news from the report.  This is one of the very impressive developments that the report highlights.  But I want to play devil's advocate for a minute, which is that you see 10 percent more, but there's still a whole lot that is invisible--perhaps not in Senegal, but is the disclosure and the disclosure capacity keeping up with, for lack of a better term, sort of the arbitrage capacity of those who are not?

And it's not just China.  I mean, that's one thing.  You know, the system is very fragmented, right?

MS. GEORGIEVA:  But actually, if you read the report, it is quite sober in that regard.  It says that Management capacity on many accounts is still relatively weak in low-income countries.  So, we are faced with a duality.  Sophistication of lending instruments is going up.  Multiplicity of sources is going up.  And capacity to handle is falling behind.  And I think it is so important that we have these conversations, we talk about this, and most importantly we come with practical examples of how improvements can be made.

Here in this room I see people who have given their heart and soul to build capacity in low-income countries to invest better, improve the lives of people.  I think the more we can spread that notion in the private sector, in those that may not be yet in the tent, build that tent as big as possible, the better.

And never forget:  Ultimately, it is the countries.  We can help.  People know that at this point I would make a point that is familiar now to many.  We can take a horse to water.  Cannot make the horse drink.  So, getting that eagerness of the horse to drink based on good evidence and self-interest we have to do more of.

MS. GELPERN:  So, I would love to spend the rest of the time before the Q&A on some of the types of practice prescriptions and policy interventions that are possible or maybe even are already in train both for the institutions, for the donors, and all of us, really.

I would be remiss not to mention debt restructuring, right?  And this is something that of course both of you are intimately familiar with.  Both institutions have spent decades really innovating in this space, which is both wonderful and deeply depressing.

And with the new actors and the new instruments, even if everyone is operating in good will and trying to do their best, there is an enormous amount of just translation to be done in order to get everybody on the same page and invested in a regime that can achieve sustainable results. 

David, maybe you can start us on this topic.  And Kristalina, I would especially love to hear where are we on the Fund's policy reviews in this area.

MR. MALPASS:  There are several aspects of this.  So, I want to throw a bunch of buzzwords out for people so they know the extent of the challenge.

As we think about debt transparency, state-owned enterprises are a challenge.  Which ones do you want to count, and what are the terms of contingent liabilities that countries have taken on?

You made the point what's in it for China to be more transparent.  But I think what Kristalina was saying, if you bring a horse to water, that's also for the borrowing countries, how do we get them to want to do it?  Because the temptation of giving collateral, of giving liens on their assets where they're not getting full value for doing that, of creating a pricing environment where they undersell a given commodity over a long period of time in order to get money up front.

So, these are all very real individual problems going on.  So, as we think about debt restructuring, I think we have to be brought down to almost - there's going to have to be some division of the various kinds of debts and what the tools are to go at it.  Which countries need it, and which need it in a way that will get them better development down the long run?  If you go in right away and say I'm taking on this debt but I plan to restructure it, that's not going to be a very good path to development.

So, I think we may need a process for IDA countries, meaning the poorest countries.  Within IDA19 we have a new process, the SDFP for acronyms, which is sustainable framework for development that's going to be quite powerful within those countries.  We will need something special or there will need to be something special for Argentina because it's so big, and on down the list.  I didn't mean to foreshadow.

MS. GEORGIEVA:  No, I'm actually very much going to continue from where David left it.  In a world in which the traditional forum for debt restructuring, which was the Paris Club, is no more the way to go about it, we have to work on two sides. 

One is to expand the international cooperation on debt sustainability.  Here again the World Bank and the Fund have a big role to play.  The G20 has a big role to play.  And this has to be a focus of attention.

But then, two--this is one track, get it so that there is a capacity to bring private lenders, Eurobond issuers, nontraditional donors--sorry, lenders, traditional lenders, bring them together.

But the second track is to just improve the process of accumulating debt.  We are seeing now much more attention to collective action clauses in new issuances.  I am told 87 percent of low-income countries in the paper are getting into that space.

The paper also tells us that while this is true and, relatively speaking, positive, at the same time comprehensive debt restructuring that has been taking place recently has been painful and not very effective.  Either it would undershot on how much needs to be restructured so there has to be a second restructuring, or it is protracted, or not all parties step in.  So, we have to recognize that this is a very painful reality for the countries that are faced with that process.

And last but definitely not least, we need to be mindful that in this world of pressure for debt restructuring, the very best we can do is to emphasize much more strongly prevention, because prevention is better than cure.  Don't get in this place to begin with. 

And for many countries, I would really argue that when they are in trouble around debt, they ought to get serious about the microframework that may have contributed to be in this place to begin with.  And I think any way you cut it, there is no substitute for responsible policies.

MR. MALPASS:  Can I--?

MS. GELPERN:  Please, yes. 

MR. MALPASS:  One short point, and it's the first one I made, the conflict of incentives.  So, when you're talking about debt restructuring, we have to be cognizant the leaders of the country may be satisfied with something that's less than what the people of the country really need, because they're looking at it and saying, well, if you will delay my payments for four years, that serves the term of office or the near-term horizon.  So, there needs to be some resolve by, I think you can call it the international cooperation, to say we've got to look for the best interests of the people, and have it--when there is a debt restructuring, let's evaluate it fairly and see that it's deep enough to really improve the lives of the people.

MS. GELPERN:  This is super important, and actually I would like to prod you both along these lines. And we are easing into questions even--we're answering questions as they come in without knowing that that's what we would be asked.  So, this is great.

So, the paper points out that more and more restructurings take place outside the IMF program, without an IMF program in place, right?  So, in the olden days you would--and this is quite stylized, as I'm sure you know--you would face debt distress.  You would go to the IMF.  Then you would go to the Paris Club.  You would get comparable treatment from everybody else, and top up new financing right into the sunset.  It was never quite that smooth, but there's a sequence.

In a world where, as you said, the Paris Club is no longer the center of gravity, and there are alternative sources of financing, how do you ensure that the policy framework is conducive to sustainable outcomes, too little too late--

MR. MALPASS:  Can I add two and then turn to Kristalina?  There are other multilateral development banks than the World Bank.  So, I want to add to the complexity of your question.  If there are other entities which have access to very low-cost financing in international markets and insist on lending to countries with very low terms associated with it; that adds to the difficulty.

And can I just add the private sector into that?  So, there is in this low-furlong, low-yield environment where central banks are buying giant amounts of government debt, long-duration government debt, and that spreads through the yield curve, what that does is leaves a situation where the restructurings are not as forward-looking as they need to be.

MS. GEORGIEVA:  The problem we are faced requires much more outgoing and intensive work than it was in the days you describe.  I mean, let's face it.  The world has changed.  It will continue to change.  When I was growing up, I lived in the center of a capital city and I would leave my apartment and not close the door because nobody's going to go steal anything from me.  That world is gone. 

We have to recognize it is a more complex world.  It is multipolar, multifunctional.  And what it means for people like us, and the institutions we represent, and everybody else, simply more legwork, more outreach, more relentless engagement.  Because if we are not doing our job as the world today requires it, then we are going to let poor countries down.

It is not like low-income countries want to be in a big debt mess.  Most of the time they don't.  They do have the political dimension of elections and so forth.  But recognizing that there is a big difference in knowledge and capacity and skills of what is being offered as debt products and the sources of these products, and how this debt is being managed in a large number of low-income countries, and that this balance has to be corrected actively with all the complications that requires--so, you know, probably I would finish with this one word: legwork.

MR. MALPASS:  I'll maybe make my point more specific and invite the IMF to help with this.  We have a situation where other international financial institutions, and to some extent development finance institutions as a whole, certainly the official export credit agencies, have a tendency to lend too quickly and to add to the debt problem of the countries.

So, in Pakistan, the Asian Development Bank is pushing billions of dollars into a fiscally challenging situation.  In the case of Africa, the African Development Bank is pushing large amounts of money into Nigeria, South Africa and others without the strongest program to sustain it and push it forward.  In Kazakhstan, the EBRD is pushing forward with loans where lots of work is put in by other institutions and then the lower interest-rate investment is made.

And so, we have a very real problem of the IFIs themselves adding to the debt burden.  And there's pressure then, I think, on IMF to sort through it and look at the best interest for the country.

MS. GEORGIEVA:  Can I just say because I stopped halfway of what I should have said.  The other half is that there is a huge responsibility in this more complex world for us to be demanding of ourselves: who do we lend, what for, and how confident we are that underneath the programs we support there isn't an iceberg of debt not visible to the public?  That demanding from us is hugely important. 

And also, I want to say that we have 26 programs in Africa.  It's not like the Fund is not there.  We are engaged in many of these countries.  And I fully recognize, as does my staff, the responsibility to promote debt transparency, debt sustainability on us in this new complex world is so much higher.

MS. GELPERN:  You know what's fascinating about this last exchange is that the institutions you mentioned are not the new plurilaterals, right?  These are institutions that go back to mid-20th century.  And the fact that we have trouble coordinating among established institutions with stakeholders that have been around the same table for decades is a little worrisome about what it tells us about our capacity to bring in new institutions.

MR. MALPASS: To leave out the European Investment Bank, EIB, is pushing more with even lower terms than the ones I already mentioned.  So, there's been a lot of focus on the AIIB, the Asian Infrastructure Investment Bank, but it in a way has been better at coordinating.  It's based in Beijing, but it's sought to have standards that are equal to the World Bank standards, and they've been explicit about that.  And so that's, as a practical matter caused less problem in this area than some of the others.

Now that doesn't mean what the future shall bring.  But your point is exactly right.  It's the traditional coordination that's been most problematic so far.

MS. GELPERN:  So just--actually, why don't we go into the questions, because some of these we've skated near but not quite nailed down.

So, the very first one, you will not be surprised, would a global sovereign debt restructuring mechanism lead to more creditor coordination?  Let me just step back with a little bit more context.  You mentioned collective action clauses, Kristalina.  That's exactly right.  And we have a robust model on the table, and to the extent the fastest growing category of debt in many of these countries is Eurobonds and foreign currency bonds, 87 percent is not 100, but we're in fairly good shape.  But part of the complication of course is that for most of these countries this is not the bulk of the debt.  It may be the fastest-growing category, but it's a very heterogenous debt stock.

And some of the terms--when you mentioned earlier collateralization and different borrowers, different lenders, different guarantees, it's an awfully complicated world.  With private debt and even municipal debt, that's what bankruptcy is for, right?  Why not revisit that idea?  Wouldn't the private sector now have appetite for this now that in some ways they're in the minority at the table?

MS. GEORGIEVA:  Complexity means that we are more in herding cats territory than we were before.  But it doesn't mean that we shouldn't try to expand the framework that allows us to be more effective in debt restructuring.  So, I take your point.  The answer to your question is, yes, we need to look for ways in which we build a stronger coordination, cooperation around debt, for sure.

We also have to recognize that we have to be brutally honest and act accordingly when it comes down to situations that are unsustainable debt situations.  I look at our directive from Africa.  Mozambique comes to mind, a situation that was not sustainable and therefore action needed to be taken.  And that I think for us in the international organizations world, how can we be inclusive and do the legwork and at the same time be very honest and decisive in action?  This is something that we need to embrace, because otherwise I don't think that David and I would do our service.

Let's remember why I worry so much about debt in low-income countries.  Because what it means is that if it is not properly managed, interest rates, often high, takes away precious resources from education and health and infrastructure investments, takes it away from people who are most in need of quality of investments.  And that is the tremendous responsibility we bear to stand for them.

MR. MALPASS:  Exactly right.  One point, can I make a pitch for transparency of debt and investment?  So, I think it's very hard today to resolve the restructuring questions and what to do with the private sector questions.  But a starting point that is hard enough for the world, for both the debtors, the creditors, the international institutions, is to simply identify the debt and try to get disclosure of the terms. 

So, I really want to stay focused on that and recognize it as an urgent thing.  Over the next--I mean, it doesn't sound insurmountable.  Can't we find out what the debt of, as you said, Senegal?  But we found it so hard at the Bank that we've gone on a different course, which is--or we're still doing that, trying to diagram all the debt, but just do individual pilot countries.  So, take Angola or Senegal or on down, and say let's try to figure out all we can about all the different types of debt that are being done and the terms that are on it.  That's proving to be more challenging.

And you named it, Anna, that each time people identified one type of debt or way of adding debt, then the lenders and the borrowers figured out a new way to do it and a different way that didn't get picked up by the existing system.  So, we're trying to move as fast as we can to identify as much of the debt as we can, with the idea that that will then lead to the proper handling later on.

MS. GELPERN:  We have a lot of terrific questions, and what I'm trying to do here is group them in categories.  And there's one in particular that I want to make sure we get to.  We'll circle back to the love of my life, debt restructuring.  But let's not forget financing for development, which is something that you started with, Kristalina.

So, here are two questions.          

Who is to finance developing countries if we stop international financial institutions, export credit agencies, in China?  I'm not sure anybody suggested stopping them, but I think the broader point is where's all this money going to come from?  And if everybody's going to be honest and above board and disclose all the costs, isn't that going to create frictions--maybe the good kind?        

And so, if I could just also add another question that strikes me as coming from the same sort of bucket, how does a program like global concessional financing facility contribute to--and I'm going to rephrase--so the question is already significant debt and middle-income countries.  But how does it fit into the debt sustainability thinking more broadly?  And what is a way to address the debt without ending or curtailing programs like this?

MR. MALPASS:  Can I try the first one, who's to finance?  So empirical evidence shows if countries are transparent, they actually are able to get financing at a lower interest rate.  So, I think we have to take kind of our model, that there's a lot of savings in the world that would like to find borrowers who want to be transparent and who have a transparent investment project that they can get into.  So, I'm a little less--I agree that that's an issue that ought to be raised, but it's not so much--this is not a project of cutting off the financing.  It's enabling and mobilizing much more financing.      

MS. GEORGIEVA:  Let me--I agree with David, that debt transparency is a way to bring more financing to low-income countries.  But I want to answer your second question, which is on the global concessional financing facility and what about facilities of this kind. 

For those who may not be familiar with the term, it is a facility that buys down the interest rate for loans to middle-income countries affected by exogenous factors, more specifically Syrian refugees in Jordan or Lebanon, or for that matter Venezuelans in Colombia.  What the facility does is gets donor money not to pour in the country as donor money but to bring down the cost of borrowing so there can be a large-scale investment, including in areas of potentially higher return.  I think it is a good model to allow money to go further and to bring institutional capacity and project preparation, project supervision.  And in fact, at the Fund we are much smaller in terms of concessionality than the Bank.  We only have about $1 billion a year in our zero interest rate facilities.  We are thinking of looking at these instruments.  Is there a better way to serve countries in desperate need for more financing?  And in fact, we are looking at the global concessional finance facility model as something that might help.  Stretch your money so you can do much more in generating growth and jobs in countries in trouble. 

MS. GELPERN:  So, we have--this is super rich and informative.  We have five minutes and eight questions.  I don't think we're going to get through all of them, but let me try again to do a little grouping.  So, there's one set of questions that has to do with technical assistance, your joint work on technical assistance in particular on debt capacity.  And has the time come to move away from demand-driven to mandatory technical assistance?  Now I'm not quite sure how you make this--extending your metaphor about drinking water--but I think there's another question that uses the word mandatory, shall we say.  How do we make disclosure of contracts mandatory?  How do the World Bank and the IMF improve the accountability of lower-income countries for each cent invested?     

And if I could just sort of throw in one thought which we haven't really highlighted, but which is apparent in everything you say, the constituents are the people of the country, right?  So, this idea that debt disclosure, debt transparency, investment transparency is something esoteric, technical for the World Bank and the IMF is utterly misguided.  Public debt is public.  The people should be in a position to hold their governments accountable.  But what about that mandatory disclosure, mandatory technical assistance, make them do it?          

MS. GEORGIEVA:  Should I?  Okay.  So, look, I think I am actually a fan of getting disclosure standards in place, making sure that they are properly designed, and then moving from voluntary to mandatory disclosure.  I think it is the right pathway.  It doesn't mean that it's easy.  It gets me into trouble.  I'm making the horse drink.  But actually, if you think about it, it is not what choices countries make.  They can still borrow less responsibly.  It is about that duty they have to their own people and to the global community within which we operate, that to me it makes total sense.  What can we do in our modest way?  It is in our own operations to be more demanding of ourselves, so what we do and we don't do when information is not made available.  And that is entirely--it is actually mandated to us, to use this word "mandated."           

But I'll tell you more optimistically that we see a great deal of interest in building technical capacity for debt management, a great deal of interest in building capacity for fiscal management, in other words domestic reform resource mobilization.  So, frankly, the horse wants to drink.          

MS. GELPERN:  She sure does.          


MR. MALPASS:  And I'll add for the lawyers, so the Bank, when it lends, has a negative pledge clause, which means that other lenders are not supposed to come in with liens or with collateral requirements.  So, using that clause, there's the non-concessional borrowing policy, which has not been pushed enough.  The IMF has--in terms of the non-disclosure clause, the IMF, has under Article 4 and other parts of the IMF rules, an ability to really push and ask for information.  So, I think if we as a community, everyone should kind of agree on this as a direction and then push hard on it.          

MS. GELPERN:  Guess what?  You answered two questions I haven't even asked.  So, what do you do about collateralized debt, and negative pledge clause is a big part of it.  And another question takes us back to HIPC and MDRI and how do we--what else do we have in our toolkit to--           

MR. MALPASS:  On that, so HIPC, the Highly Indebted Poor Countries Initiative is still ongoing.  So, it started in the late 90s.          

MS. GEORGIEVA:  Yes, Somalia is going to--          

MR. MALPASS:  Kristalina created it, maybe, and others in this room.  And so, Somalia, we're working on finalizing that, and there will be more.           

So, there are some of these initiatives that I think were good in their concept.  They're old now, and they're being affective.  And so, we can build on that as a process as well, in MDRI as well.          

MS. GELPERN:  So, the only thing that's left in the really rich pile of questions here--well, there's lots left, but I think it's worth closing on the reminder that of course poor countries are not the only ones with a whole lot of debt.  And the trouble is--and you mentioned the inequality problem, right?  There are some countries that carry several times the debt stock--several times the size of the economy, and they're still okay.  The interest rate environment is helping them and the maturity structure of their debt is such that we're not as worried as we might be.  But in this particular set of countries, they can't afford that.  And so, this is a set of vulnerabilities that unfortunately we can't sit back and relax for the next 10 years and not worry about it.           

MR. MALPASS:  I'm concerned about it.  So, inequality has the added problem that new entrants don't get the money to start a business, a woman doesn't get borrowing ability from banks.           

And as we think about the overall policy that's going on, we have the three major central banks--Japan, U.S. and Europe, and Bank of England for that matter--buying long-duration debt using short-term borrowing.  So, they borrow overnight and put it into long-duration assets.  So that is a specific recipe for inequality, which is a big challenge.  That literally means businesses that are well-established and large get much more capital, cheaper capital, and that's not really a growth model. 

And we see it showing up in Europe with the very low growth numbers decade after decade, really year after year, but it's been going on for over a decade, that is simply not enough to pull up developing countries.           

MS. GELPERN:  Speaking of not enough, we just do not have enough time.  Maybe we can book a full day of your time one day, but we have lots of unanswered questions although you have hit on so many that weren't even asked yet.           

Thank you so much.  Let's thank the President and the Managing Director and everyone here who has contributed.