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Global Economic Prospects - WB Press Briefing

PRESS BRIEFING
Global Economic Prospects and the Developing Countries 2002:
Making Trade Work for the World's Poor
Washington, D.C., Wednesday, October 31, 2001

PROCEEDINGS
MS. ANSTEY: I think we'll get started. It's a little after 10:00. Let me welcome you to this press briefing for the launch of "Global Economic Prospects," our yearly publication, which this year is especially devoted to the effects of September 11th and to the issue of making trade and the trade architecture work for the poor.

Let me remind you that this press conference is embargoed until 1 o'clock.

So let me straightaway introduce you to our distinguished panel. On my left is, as you know, Nick Stern, Senior Vice President and World Bank Chief Economist, and he will go on to make some introductory remarks.

To his left is Hans Timmer, one of the chapter authors. He's also manager of the Global Trends Team and a World Bank Lead Economist. And to his left is Aaditya Mattoo, who is also a World Bank Senior Economist. Hans will talk about the prospects and Aaditya will talk very much about the trade and the Bank's call for a new trade architecture that will work for the poor.

So, without further delay, I'll hand you over to Nick.

MR. STERN: Thank you, Caroline. Good morning.

We're here to talk about two things: prospects for the world economy, particularly since the tragic events of September the 11th, and trade. And the context for trade is particularly strong this year, particularly important this year, because the meetings in Doha, ministerial meetings which we all hope will launch a new round of WTO, take place just a few days from now, and also in an economy that's slowing down and where world trade has slowed down, it's very important to do all we can to keep up measures on trade. So I'll concentrate my introductory remarks mostly on trade, but let me say a few things about the prospects right at the beginning.

We're now expecting much slower growth in the developed countries than we had been anticipating half a year ago. Our anticipated growth for this year for the rich countries, developed countries, is around 1 percent or so, or slightly less--that's for this year--and for developing countries only 2.9 percent. That is a very substantial fall from the growth rates of last year, which were around 5.5 percent. So much slower growth this year in both the developed and the developing countries and, indeed, slower growth than we ourselves and many others were predicting just half a year ago.

Now, looking forward to next year, we're expecting only a slightly faster growth in the developed countries with around 1.1 percent. That will be concentrated in the second half of the year. We expect quite a slow start to next year, but with growth picking up for the second half, with 1.1 percent our central estimate for the developed countries. And the developing countries we think should be around 3.7 percent, a little faster.

Now, medium-term prospects we see as being stronger for 2003, and we believe that for developing countries that's founded on something which is extremely important if we look back over these last 10 or 15 years. Better prospects, that rebound for developing countries in 2003 is founded on their real progress in terms of economic reform over the last 10 or 15 years, with tremendous strides on the macroeconomic front and much more stable macroeconomic conditions which have been created by developing countries themselves, but also a significant expansion on the trade front. And as trade slows down this year, it's very important to do all we can to move that trade expansion forward in a strong way. And we've got specific ideas as to how that could happen.

That takes us to the main theme of this year's report, which is how to push forward and expand market access for trade.

Essentially what we need now is a new trade architecture. That new trade architecture will have as a centerpiece the WTO discussions which we all hope and trust will be launched at Doha. Those will be discussions between countries about how they together work to bring down trade barriers. That's at the heart of the WTO discussions. That's the first piece that we see in the new trade architecture, and it's very important that that is a successful launch of the WTO. But further than that, it should be a round now that's focused on the interests of developing countries and, in particular, market access of their exports, with agriculture and textiles obviously being high on that list. That's what we mean by development round, and that's the first piece of the new development architecture.

The second piece in that new development architecture is working to tackle the behind-the-border barriers that there are in developing countries. By that we mean roads and ports and electricity supply, telephones and so on, the hard infrastructure, if you like. But it's also the softer infrastructure, the ability to meet the kinds of conditions on hygiene and safety and other things that the importing countries will require from the developing countries. So there's the--the way in which customs procedures work and so on. So there's the hard and soft infrastructure which is a crucial part of the behind-the-border trade issues.

A third part of this new trade architecture is that the rich countries can take their own initiatives. It doesn't have to be in the WTO. The rich countries can take their own initiatives to reduce barriers, and the "everything but arms" initiative by the European Union I think is a very good example of an initiative taken outside the WTO, but very important to the prospects for exports of the poorest countries in the world.

The last part of that new trade architecture is work--and this is the kind of work that the Bank does all day, every day, but it's of crucial importance, and it's in support of and in partnership with the actions of the developing countries themselves to improve their environment for business. If exporters are to get active exporters and to take the opportunities that we trust will be provided by the dismantling of barriers, then the whole investment climate of business environment in developing countries themselves has to be improved; governance a central issue here.

Now, we believe that if work on that trade architecture, that new trade architecture goes ahead strongly, it could have a very powerful effect on the reduction of the numbers in poverty. I won't go into our specific estimates here. You'll find them in the GEP itself. But we could be seeing, if we're successful in this endeavor, hundreds of millions, many hundreds of millions of people moving out of poverty in the coming years. And this kind of new trade architecture will be a fundamental aspect of our ability as a world, the world community, to meet the millennium development goals which were set just a year or so by the community of nations through the UN.

So this new trade architecture is a fundamental part of the whole development process. It must get a real start in these next few days in the WTO ministerial meetings in Doha, but beyond that, there are these three other parts of the new international trade architecture which we're looking for, which we will be working on and which we will be discussing and pressing over these coming weeks and months and years.

Now, that's all I want to say by way of introduction. Hans Timmer on my left, as Caroline said, will take us through some of the specifics on the prospects, particularly post-September the 11th, and then Aaditya Mattoo will develop some of the trade issues which I've already described.

Thank you.

MR. TIMMER: Thank you very much, Nick, and good morning, everybody.

Toward the end of my introduction, I will be able to give you some good news when I'll talk about the long-term prospects of developing countries. As Nick indicated, whatever is happening at the moment, we shouldn't forget that the growth potential in many developing countries is at the moment much better than it used to be 10 or 20 years ago as a result of successful structural reforms. But let us first jump into the cold water of the current economic conditions.

The international environment has become very harsh for developing countries, and this graph shows selected indicators comparing 2001 with 2000. And we see that the volume of world trade, for example, accelerates this year from over 13 percent growth last year to merely 1 percent growth this year. And this is the sharpest deceleration on record, and we have to go back to the beginning of the 1990s to see world trade growth not higher than 1 percent.

For non-oil commodity prices, we see for the fourth year in a row a decline, and this year we are talking about a dramatic fall in prices of 9 percent.

There's one positive element in this picture, and that's the decline in interest rates, in interest rates especially in the United States. The accent of inflationary pressure made aggressive monetary easing by the Fed possible and at almost half the LIBOR. And as a result of that, some of the debt service on part of the outstanding debt for developing countries has been reduced.

However, at the same time, financial conditions have deteriorated for new lending and rollover lendings, as shown by an increase in spreads and less willingness of international investors to engage in new commitments. The last two bars show new capital market commitments, excluding foreign direct investment, declining by 30 percent, 3-0 percent, this year from last year, from $240 billion last year to only $160 billion this year.

So while developing countries' export receipts are declining as a result of stagnating volumes and falling prices, at the same time financing conditions are deteriorating.

What initiated this deterioration in the external environment? To answer that question, we have to look at the industrial, the rich countries. At the moment all three OECD regions are simultaneously in a downturn, illustrated in this graph by the growth rates of industrial production in the three areas. And this is the first time since the mid-1970s or the early 1980s, the first or the second oil crisis, that something like that is happening, a simultaneous downturn in all three regions.

And this time it started in the summer of 2000 in the United States. After some monetary tightening of the Fed, the economy cooled down and seemed to be heading towards a soft landing. And then towards the end of the year, what had remained of the high-tech bubble burst further and a soft landing turned into a much harder one.

And Japan followed almost immediately in a downturn, mainly because exports are so important for Japan. It's the single most important engine of growth at the moment in Japan. And domestic financial tensions in Japan, exacerbated by low growth and the fall in equity prices, made this sharp increasingly--the downturn increasingly sharper.

First, it seemed that Europe could escape this downturn, but Europe also fell in the second quarter of this year. The main transition mechanisms were through the financial markets, the equity prices, and also because the ECB hesitated to decline further the interest rates, and also some domestic problems mainly related to the overinvestment in the telecom sector played a role in Europe.

In the third quarter of this year, it seemed that all the downturns bottomed out and still a quick recovery was the most likely scenario, and then came September 11th. And that changed the short-term outlook drastically. Even with huge uncertainties remaining, it's already clear that the impact is significant and goes much beyond the impact of natural disasters like earthquakes.

In the United States, consumer confidence plummeted and retail sales declined 2.5 percent in September. This is the sharpest monthly decline on record. And at the same time, it was consumer spending that was thought to be the most important ingredient of the quick recovery that was expected.

Of course, several sectors are especially hard hit in the United States, and also the high-yield spreads shown in the figure surged as a result of the increased uncertainty in the United States. Similar effects, although less pronounced, can be observed in Japan and Europe. So, once again, the downturn sharpens, and this will mainly manifest in 2002 growth rates. We now expect for the OECD regions next year growth of only 1 percent, and it's hardly faster than the growth this year.

Of course, this deterioration has a negative impact on developing countries through lower trade volumes, higher trade costs, lower commodity pries, and higher financing costs. And this graph shows that some of the deterioration in the external environment is already in the data. The spreads increased, especially in Latin America, after September 11th. Commodity prices in one month fell 6.5 percent, and that's very, very exceptional to see in one month a fall that large. The last time that we saw this was in the middle of 1997, and it was the start of the Asian crisis. But then the fall was mainly the result of the devaluation of currencies, and now it's really pointing at the weakness in the commodity markets.

For the oil prices, which also fell, of course, after September 11th, we already expected a decline, and the decline that we are observing now is still in the ballpark of the expectations. But for the other commodity prices, we marked down our forecast significantly.

What does this mean for growth in the developing countries? The harsh external environment translates into lower growth for all regions this year compared to 2000. The deceleration for East Asia is especially sharp, and that's because of their intense trade relations with the United States and with Japan, because of their specialization in the high-tech market, and also because of their domestic business cycle, which is much more pronounced relative to other regions after the sharp rebound following the Asian crisis.

Also, for Latin America, times are very tough at the moment. Mexico is participating in the hard landing in the United States through the NAFTA links, and, of course, other countries are suffering from the weak commodity prices and from financial strains in the regions.

The strong deceleration in Europe and Central Asia mainly reflects the crisis in Turkey and the deceleration this year in growth in Russia after the very strong performance in 2000.

The other less globally integrated regions are less affected. However, this is somewhat misleading because we are just focusing on GDP, on production numbers here. For example, Africa is not so much hit by lower trade volumes, which would translate in lower production, but they are mainly hit by a decline in commodity prices, which translates in lower income.

This year, for example, per capita income, not production but per capita income is actually declining by some 0.7 percent in Sub-Saharan Africa because of terms of trade losses.

Looking ahead, we see that the real recovery for developing countries is not achieved until 2003. Next year, at most, a modest recovery can be expected and that's under the assumption of stabilization in Argentina, in Turkey, and Brazil; no further escalation after the terrorist attacks; and the gradual recovery of consumer and business confidence in the rich countries.

To finish my introduction, let me touch upon the long-run developments. Each year we examine the growth potential of developing countries to assess the impact of structural factors on development goals, the achievement of development goals; and, even more important, to be able to assess the impact of structural policies in a forward-looking mode.

My last graph shows just one element of that analysis, and it shows the number of poor people, defined as those people living on less than $2 a day. It shows it over the last ten years, and it shows also the expected developments over the next 15 years.

The graph shows impressive reductions in poverty in East Asia. During the last decade, the number of poor declined by 200 million people, despite an increase in the population in that region of also 200 million people. And this reduction in poverty in East Asia is a result of 6 percent annual growth in per capita terms, a rapid integration into the global economy, and also an impressive shift towards manufacturing. And, of course, these three factors are strongly interrelated.

Although per capita growth is somewhat expected to--is expected to be somewhat lower next decade, the reduction in poverty will continue in East Asia and almost result now to be even more impressive over the coming 15 years, and that's because of the underlying income distribution.

The number of poor in South Asia, according to this measure, is expected to be stable, which is actually an improvement given the fact that the population is still growing. And when you look behind these numbers, you see further improvements in South Asia because more people are getting now closer to the $2-a-day mark.

Latin America and some other regions are also more or less on schedule to reach development goals, but, of course, the main message of this graph is that in Africa, despite structural reforms and more openness, the number of poor is expected to increase further without additional policies.

So a very important development issue at the moment is why some of the poor countries are unable to benefit from structural reforms and more openness, unable to benefit in the same way as most of the middle-income countries are doing. And that's why, like also Nick said, this year GEP focuses on the global trade agenda that is needed to make trade work for the poor.

And let us turn now to Aaditya who will summarize the main findings and the recommendations related to that trade agenda.

MR. MATTOO: Thank you, Hans.

You will see from this graph that developing countries have increased their share in world trade over the last 30 years, from less than a quarter in 1970 to more than a third now. But most of these gains have come from increased exports of manufactured products.

Integration in agriculture is lagging behind. If you look at the right axis, you'll see that in 1970 exports of both agricultural goods and manufactured goods were roughly the same magnitude, about $20 billion. By 1999, exports of manufactured goods had increased to over $1,300 billion; whereas exports of agricultural goods were only about $200 billion.

Most of the increase in manufactured exports has really come from South and East Asia and from Latin America. Within the group of developing countries, it's really only the middle-income countries which have participated in this increase in expansion of exports. In fact, middle-income countries, you will see from this graph, have increased their share by some six percentage points. The other low-income countries only witnessed a half-percent increase in their share, and the least developed countries actually saw a slight decline.

One reason for this is that the products produced by the poor actually face higher levels of protection. The poor have a comparative advantage in agriculture and labor-intensive manufactured goods. And it's precisely these products which are subject to the higher levels of protection in both developed and developing countries.

You see from this graph that the products produced by the poor on average face tariff levels which are twice as high as the products produced by the non-poor.

Looking ahead, what needs to be done to ensure that trade contributes to development and poverty reduction? As Nick said, this report has a four-point agenda as its central proposal.

First of all, and perhaps of greatest immediate relevance, the WTO must continue to play its traditional role of helping reduce barriers to trade through reciprocal liberalization, but with one important difference: more effective participation by developing countries. For instance, today, of the 30 least developed country members of the WTO, less than half even have a presence in Geneva.

There would also be more effective, more serious engagement by the poor countries if the rich would demonstrate a willingness to reduce barriers to trade in areas of export interest for developing countries: agriculture, textiles, apparel, and the supply of services through the temporary movement of individuals.

It is also necessary that agreements in other areas, like intellectual property and standards, should be sensitive to development priorities.

The second point is that while ideally trade barriers will be reduced for all countries, it might be feasible and desirable for the rich countries to unilaterally move faster in offering liberal access to their markets to the poorest countries. The European Union's "everything but arms" initiative is one example of such a step forward.

But while market access is important, developing countries would gain tremendously from reform of their own policies with regard to trade, with regard to investment, and a range of other regulatory policies. And, therefore, they cannot wait for the conclusion of a successful round of negotiations and must give priority to their own domestic reform.

However--and this brings me to the last and perhaps most critical issue--many of the poor countries will need international support both to implement reform and to build domestic trade capacity. This is at least three dimensions.

First of all, there is a need to strengthen the regulatory and institutional framework ranging from customs administration to standard setting, to more effective regulation of financial services and telecommunication services.

Secondly, there is a need to build the hard infrastructure through which trade takes place, whether it's ports or communication networks.

And, third, it is necessary to ensure that the poorest sections of society continue to have access to essential goods and services, and, in fact, such access should be improved, especially where new initiatives might threaten access. For instance, the reduction of subsidies in agriculture could conceivably increase the price of food. Stronger intellectual property rights could increase the price of medicine.

If this four-point program were to be successfully implemented, there are likely to be substantial gains, both from the elimination of inefficiencies arising from protection and from the realization of productivity gains arising from greater openness. Our estimates suggest that over the ten years following liberalization, world income could increase by as much as $2.8 trillion, and more than half these gains would accrue to developing countries.

It's also important to remember that these estimates really only capture liberalization of trade in goods. Liberalizing trade in services could conceivably produce much greater gains.

Consider the impact on poverty reduction. This is a chart you saw a moment ago in which the baseline scenario suggests that with the normal rates of growth, the number of poor will decline from some 2.8 billion to 2.2 billion. If there were to be successful integration, they would see, according to our estimates, a further 50 percent reduction in the number of poor. That implies that we would see another 300 million people lifted out of poverty, especially in South Asia and in Africa.

Thank you.

MS. ANSTEY: Thank you very much. We'll open it up for questions. Please do say who you are and your media outlet.

Let me just interject one thought. There was a lot of mention here of the international development goals or goal. Let me just remind you that the foremost of those goals is the pledge by all the members of the UN to try and reduce absolute poverty, the proportion of people living in absolute poverty by half by 2015. So that was what was being referred to here.

Okay. Questions? Here in the second row in front.

QUESTION: Harry Dunphy from AP. Mr. Timmer said that the September 11th attacks had an impact far more significant than natural disasters such as earthquakes. I wondered if you would be prepared to address what possible impact bioterrorism might have?

MS. ANSTEY: I think Mr. Timmer was hoping that Mr. Stern was going to step in on this.

MR. STERN: Let me see what I can say. It's obviously the kind of thing which is rather difficult to be precise on. A lot of these have to do with confidence, consumer confidence and so on. But my own assessment would be that the scale of the action on bioterrorism is so much smaller than the scale of the action that we saw in the tragic events of September the 11th, that that impact would be very much smaller. As I say, it is difficult to be quantitative, but I think we could say that it's going to be much smaller than the ones that we've seen.

MS. ANSTEY: Thank you. Yes, in the middle. The microphone's coming.

QUESTION: Paul Blustein from the "Washington Post." I'd like to ask a question about the chapter on intellectual property, and wonder if you could sort of clarify exactly what you're saying there. You seem, at least to be sort of saying that the TRIPS was a bad deal for developing countries, and I wonder if that's a reasonable interpretation of what you're saying?

And also, in looking at the specific proposals that will be before the delegates in Doha next--what, in a few days, would you favor the language that's being supported by Brazil, India and some other developing countries that would, that some of the richer countries are concerned would substantially weaken the TRIPS agreement?

MS. ANSTEY: Aaditya, do you want to take that, and maybe Nick might follow you?

MR. MATTOO: I think as this chapter recognizes, there can be no doubt that the TRIPS agreement implies, when it is fully implemented, a substantial transfer from the third countries to the rich countries where much of the inventive activity today takes place.

So what the report proposes, in fact there are three essential elements. First of all, that there be a phased implementation of the TRIPS agreement where some of the poorest countries perhaps have more time to put into place full intellectual property protection.

Secondly, the report recognizes the need for what is referred to as compulsory licensing in poor countries, which essentially implies that some poor countries today do not have the capacity to produce medicines that they might need in emergencies. And it argues that there is a need to establish a consensus that the poorest countries should have the right to commission production in third countries which do have such productive capacity.

And the third point, which I think is critical, is a recognition that access to essential medicines in the poor is not just jeopardized by TRIPS, that even the provision of these medicines at the cost of production would still leave many people unable to afford such medicines, especially because there are such weaknesses in health delivery systems.

And therefore, the report proposes the creation of a Global Health Fund, which has already been suggested before, the idea being that there should be a mechanism of reconciling what is after all a difficult balance. You want to provide incentives for research and development, especially with regard to diseases which are primarily found in poor countries, but at the same time you want to ensure adequate access, competitive access. And the creation of such a fund would provide incentives for research and development, but also ensure that eventually these licenses could be purchased and the drugs could be made available more widely, more cheaply.

MR. STERN: If I could just add. I think it is the case that when the TRIPS agreement was put together, the developing countries, and probably the development community, did not understand or did not take--if it did understand, didn't take full account of the implications of the TRIPS agreement for developing countries in terms of the kinds of prices and resource transfers that Aaditya has described.

Therefore, as part of the coming discussions, I think it does make sense to think of ways in which one can respond to what we now understand would be the implications of TRIPS, and there I think we have some specific suggestions exactly as Aaditya has outlined, that there is something to act on, and I do not think that those full implications were understood at the time.

MS. ANSTEY: I would just add that, in the past, Jim Wolfensohn has been on record as saying that in the case of antiretrovirals, he has supported the production of generics.

QUESTION: A quick follow up. Just quickly looking through that chapter, I mean, aside from the question of whether countries can export, for example, generic drugs to countries that don't have the capacity to product them, and I realize there's apparently some problem in the TRIPS that needs--everyone agrees needs to be addressed there, but aside from that issue, most of what you seem to be saying is that, well, there's all this flexibility built into the agreement, countries just need to take maximum advantage of the flexibilities that are built in. Am I reading that correctly, or are you saying that there needs to be some sort of more fundamental rewrite of the agreement itself or some sort of declarations that would substantially tilt the balance back toward the developing countries?

MR. STERN: I think what we would want to start with is a very strong look at the flexibilities that are there, and take the maximum we can within those flexibility constraints, and in so doing, you might find that there are some things that you have to have another look at, but I think it would be best to start with what you can do in the context of the current agreements, but pushing very strongly on the flexibility side in terms of phased implementation, compulsory licensing and the kinds of funds which Aaditya was describing.

But, Aaditya, is there anything you'd like to add on that?

MR. MATTOO: No.

MS. ANSTEY: Okay, great.

QUESTION: Emily Schwartz from Bloomberg News. I was wondering if Mr. Stern or Mr. Timmer could address when--in terms of your outlook right now, this is the weakest performance in how many years, and how important is it that the numbers this year make it look like there will be no per capita growth worldwide? Does that mean there's a worldwide recession under way, and what's the implications of having no growth on a per capita basis?

MR. TIMMER: It's the weakest outlook since 10 years ago, the beginning of the '90s, if you look at global growth GDP. In some sense it's a bit more dangerous at the moment, and that's because of the fact that all three industrial regions are simultaneously in a downturn at the moment, which was not the case in the beginning of the '90s, but it's definitely worse on a global level than during the Asian crisis.

We are not seeing negative per capita income growth, but we haven't seen that in a very, very long time. It depends a little bit how you interpret the numbers in the beginning of the '80s and the weight you are using. Perhaps then there is some kind of a comparison. Perhaps then there is an argument that you are very close to zero, but normally we never have negative growth, also not in per capita terms on a global level.

QUESTION: The worst in how many years?

MS. ANSTEY: Emily--

MR. TIMMER: You have to go back now 10 years in time to see a similar growth rate for the global economy.

MS. ANSTEY: On the right here.

QUESTION: My name is Alex Keto with Dow Jones Newswires. My question is for Mr. Mattoo. You correctly pointed out that for a lot of poor countries agricultural exports is one of their better hopes. However, in the wake of September 11th, what is the political reality that developing countries are going to open up their domestic food markets to exports from these countries and make themselves more vulnerable to disruptions? Because when you do open up your food market, obviously your domestic producers will be displaced.

In other words, my question is, given the crisis of confidence between the developing world and the developed world, how can you liberalize trade while taking into account national security interests?

MS. ANSTEY: You meant rich countries opening their markets?

QUESTION: Yeah.

MS. ANSTEY: Yeah.

MR. STERN: Can I just say a word or two and then pass on to Aaditya. The scale at the subsidies in the rich countries is just enormous and we have to be very clear just how big that is. In the rich countries you're talking about annual subsidies for agriculture of the order of 300 billion or so a year. That's roughly the GDP of sub-Saharan Africa. These subsides are very, very big, and it's a major problem for the exports of the developing countries. The combination of those subsidies and the high tariffs in the rich countries on agricultural products is, in my view, something which is untenable and would not continue and we have to work out ways in which those things can be changed.

It's a ripoff for the consumers of the rich countries. It's a ripoff of the taxpayers of the rich countries, and it's seriously damaging to the prospects of the poor countries. We have to find a way out of this, and it has to be part of the whole WTO agreements.

Over time the people of the richer world and the people of the poorer world will benefit from the removals of these agricultural subsidies and agricultural barriers. There will be adjustment processes, and it's important to manage those adjustment processes carefully, but we should be crystal clear on the objectives, and it's to dismantle those agricultural subsidies and the barriers.

QUESTION: I guess my question was more on the political realities. The economic argument is clearer. Though my question really is, will developed countries accept being more dependent on food imports from developing countries in light of the events of September 11th?

MR. STERN: I think that economic realities should feed strongly into the political realities. After all, if we can find ways of making ourselves all better off, then it's the job of economists to explain this clearly in the political discussion, and we hope thereby to influence that political discussion.

I think the food security side is unlikely to be really a major problem. On the whole, if you diversify your sources of supply, you're less likely to suffer from uncertainty. So I think we should see those moves as actually, if anything, pointing in the directions of increasing overall food security rather than reducing it.

MS. ANSTEY: Thank you. In the front there. The microphone's just coming.

QUESTION: Jose Puertas from Agence Press. On the same issue, you're saying that the opening of the agricultural global market will be maybe the best hope for the developing countries, but the experience points out that when you produce all this trade barriers, the prices of the products go down, not up. And these developing countries can hardly get any benefit from the prices going still down where they are as of right now. So how do you this--a scenario developing in a way that will actually benefit the developing countries?

MR. STERN: Basically over time expanding the opportunities for the exports from the developing countries, reducing the barriers, widening those opportunities, should make the prices that they receive themselves higher than they would otherwise be. Now, that's in the context of a long-term downward trend in commodity prices. So what we're talking about is how these policies would affect things relative to what appears to be a fairly steady downward trend in commodity prices.

If you open up those opportunities to developing countries, there will be more markets in which they can product, there will be greater demand for their products, and that will increase the price which they receive. It will reduce the price which consumers pay in the rich countries, and it will reduce the returns that the producers in the rich countries get, but that's part of the adjustment process which has to be managed carefully and which is a serious issue. But it's an adjustment process that we really have to tackle and take on, and that agriculture and textiles have to be part of the discussions in writing from Doha in the next WTO round, and they have to be a central part.

MS. ANSTEY: Yes? Second row here.

QUESTION: Anna Willard from Reuters. You mentioned--you said the outlook for the developing world depends on an improvement in the crises in Turkey, Argentina and Brazil. Does that mean that you see a risk of contagion from those crises if they get worse?

MR. STERN: Let me just add--start with one or two things, and perhaps, Hans, you could follow up.

I think what we're seeing now, following 1997, is a much more discerning investor community. They look much more closely at what the real conditions are country by country. They don't run Filipino peso just because it's called the peso, and they've heard that the Mexican peso is in trouble, as has happened in earlier crises, not the 1997 one. So I do think that there's a much more careful investor community that is much better informed. And that's one reason why I think the risks of contagion are less. They're not zero, but they're less than they were in 1997.

Another reason I think that the risk of contagion are less is that developing countries themselves over time have improved their macro and general economic policies, and that makes them more robust to shocks of various kinds. And that's an issue which we must always keep at the front of the story, because in any difficult times, it's good policies and good foundations that are going to give you the protection, and that's something that we must all concentrate on in any of these kinds of adjustment processes. But I think there are these two reasons why contagion, although it's a possibility and a potential problem, is less severe as a threat than it was three or four years ago.

But, Hans, is there anything you'd like to add on that?

MR. TIMMER: No. I can only reiterate it. There are two risks to our forecast. First is the crisis in individual countries themselves, and the second one is the contagion. And like Nick said, the chances for contagion are not that large, precisely for the reasons he mentioned. And actually, that's not only the expectation, but that's also the observation this year, where we saw in periods also after September 11th, sharp rises in expense, for example, for Argentina and Brazil, without sharp rises in respect for other countries.

I would say that the risks of individual crisis is probably somewhat larger than the risk of contagion, but in both cases, still the most likely forecast is an orderly unwinding of all the tensions that we are seeing.

MS. ANSTEY: Yes, second row here.

QUESTION: Thank you. Rich Miller of "Business Week." In the press release, Mr. Stern, you were quoted as saying in the short term problems are serious and call for urgent response. Yet the response, obviously, that you've outlined here is a medium term response. I wonder if you could outline what the sort of urgent response might be, especially from the Bank's point of view?

MR. STERN: What we're talking about here is a short-term slowdown over the next year or so, while we've already been experiencing it this year, and that slowdown is going to continue into next year. And it's important that what looks like a slowdown of two or three years doesn't turn into anything worse. We don't think it will, but it's important that the world community acts together to make sure that the engines of growth keep going or at least start to revive quite soon. And that is a responsibility for countries to follow in their own way and in their own circumstances.

I do think that the United States, on the monetary and fiscal side, has responded strongly to the challenge of trying to revive growth. That means that if you want to look at the major engines of growth, you would look at Europe and Japan. Japan is struggling with the problems of deflation and structural reform, and it's important there that progress is maintained and those problems are tackled. Similarly we're seeing a slowdown in Europe which is I think a good deal stronger than many of us anticipated just a few months ago, and I think it's also important that the European economies and European Central Bank think carefully about their response.

It's not for us to tell these countries what to do in their economic policy. What we want to do is to draw attention to the common responsibility to keep growth going, so that in thinking these things through, the international community should think not only about the implications of their own economies, but the implication for the world economies as a whole.

It's part of the story which I think has been--or lesson, which I think has been well learned, that international challenges, international problems require international responses. That's true of looking at the overall world economic growth. It's true of trade issues of the kind we just described. It's true of the overall fight against poverty. So in terms of the short term, we were thinking primarily of some of the macroeconomic responses, particularly of the rich countries.

But I also think that even in the short term, the signal from a strong movement ahead in Doha would actually be a very good one from the point of view of international confidence in the short terms, as well, of course, as building the concrete measures of the longer term.

QUESTION: Is there anything the Bank can do?

MR. STERN: Well, the Bank, as you know, works primarily with the poor countries of the world, and in the various ways, some of which I was describing, we're working strongly in helping poor countries take part in the expansion of trade opportunities. We have the integrated framework initiative, which is working precisely on the kinds of soft infrastructure, customs administration kinds of issues which are necessary to take advantage of expanded trade opportunities. We work directly on the governance issues without partners in developing countries to try to get the investment climate and growth going. We work directly on the whole set of issues of investing in poor people, education, health, participation and so on, so that they can take part in these growth processes. We're pushing very strongly and partly through the GEP itself today in the discussions on international trade to open up the possibilities for poor countries.

So these are all ways in which the Bank goes about these--about its work, which feed directly into the kind of opportunity, expansion and confidence building and basic capacity infrastructure and so on that are crucial to developing countries participating in the growth process.

But those are our partners primarily. We look to the rich countries to keep the growth process going. We look to the rich countries to open up their markets, and we look to the rich countries to provide generously, more generously aid resource to help keep this process going. So that's the way in which the World Bank participates as it has continuously done in the processes which we're describing.

MS. ANSTEY: I would just add to that the President of the Bank is meeting on a weekly basis with all the heads of the MDBs, the African Development Bank, the Asian Development Bank, the European Development Bank, the IADB and Horst Kohler of the IMF to look at particularly vulnerable areas, vulnerable regions and vulnerable countries and try and assess what the international institutions may do in countries that have been particularly hard hit by terms of trade or by drop in tourism or private investment pulling out. So that is being done very much on a multilateral basis across the community.

MR. STERN: Can I just add one more thing? That we'll be adding, following on from Caroline is saying, we'll be ahead of the IMFC and Development Committee meetings in Ottawa in just over two weeks time. We'll be sharing with particularly the Development Committee, which is particularly associated with the World Bank, the ways in which in these new circumstances we have examined all our current programs in the different regions where we work, looking to see how we can deliver strongly on those, and assessing the increased needs as a result of the events of September the 11th and the slowdown.

QUESTION: So some acceleration essentially of lending to particularly hard-hit regions, is that what you're saying?

MR. STERN: What we're doing is to look at the extra needs as a result of these new conditions, and examining how we can respond. And in some cases we would expect that to involve higher lending.

MS. ANSTEY: Yes, sir, I'm going to put you on hold since you asked a question already.

QUESTION: Khalid Hassan, Associated Press of Pakistan. Since the Republican Administration came to the White House, there has been a tendency, a marked tendency to look inwards, and unilateralism, is that a multilateralism. Do you think 9-11 will strengthen and deepen these tendencies, and therefore, the opening of the two you speak of and you obviously hope for, do you think really is going to take this, because--is America going to pull into itself, which of course will have a universal impact on all that you today at least hope will happen. Thank you.

MR. STERN: I don't share that interpretation of the current policies of the United States. If you look at, for example, the way in which Ambassador Zoellick has been taking a lead on the discussions on trade reform, I think you can see a position that is very internationalist and very pro-trade, and I think that has been a very important change in initiative which does not fit the description that you described. I think it is the case that throughout the world people have realized more deeply, after September the 11th, that international problems require international responses.

So I do think that we will see, as a result of these events, an increased internationalism throughout the world, including in the United States.

MS. ANSTEY: Okay. Maybe--it's 11 o'clock. Anybody--yes, in the middle?

QUESTION: I'm Jim Toedtman from "Newsday." But isn't that contrary to the history of past recessions, where you've seen an increase of protectionism follow the downturns in economy?

MR. STERN: I think it is the case that you do hear protectionist voices more loudly at times of recession. That's one reason why it's particularly important to speak up now on the importance of expanding trade and the great long-term benefits that there are, and the great benefits to confidence that there will be even in the short run from being seen to expand the opportunities of trade. So we take the point you're making, and that's one reason why we want to speak up particularly strongly now.

It is the case that transport costs have risen as a result of the events of September the 11th. It is the case that insurance costs have risen. It is the case that some trade and services like tourism are threatened. And it's very important, in these circumstances, to work to overcome these costs and not let security issues become barriers to trade, and not to let world recession amplify protectionist voices.

I do think that we're seeing a rather promising and enlightened response internationally on those fronts, and we want to add our own words, analysis and ideas in that direction.

MS. ANSTEY: Thank you very much. We will be posting a transcript, as soon as we have one, on our website. Thank you.

[Whereupon, at 11:02 a.m., the press conference concluded.]

The report summary and related materials are available to the public at:
http://www.worldbank.org/prospects/gep2002/


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