Intervention at the G20 Finance and Development Ministers' Meeting
World Bank, Washington DC
Speech, E&OE - Proof Only
23 September 2011
I congratulate France on its leadership in advancing the Seoul development agenda and expanding that agenda in what is proposed now in Cannes. Lael Brainard from the US Treasury just made an interesting point about the two worlds in which we operate - the world of finance and the world of development. Of course the truth is those worlds are inextricably linked on a daily basis including in what we face in the critical weeks ahead given the absolute connectedness between what happens in the stability of global financial markets and the future flow of private capital to the developing world. These things are inextricable. They were after 2008, and they stand to become so again.
Mr Chairman, I would make five quick points concerning, firstly, the stability of global financial markets; secondly, sustainable global economic growth; thirdly, global market access for development; fourthly, the innovative use of public and private finance; and fifthly, the strategic use of ODA in the context of the report of the G20 Development Working Group which is before us.
Firstly on the stability of global financial markets, to reiterate what I just said before, the decisions which will be taken in Europe and in the G20 soon on the future of the financial markets is the most fundamental set of decisions which will be taken that will impact on development in the twelve months ahead. What happens in the financial markets radically affects the real economy, it radically affects therefore growth, it radically affects therefore the flow of public capital, and it radically affects the flow of private capital for the purposes of development. This is elementary. So these decisions are not intrinsic. We, the larger economies of the world, are fundamental to those who are the poorest economies in the world. Finance is the key.
The second point goes to the state of the real economy. In Pittsburgh in December of 2009 we agreed on a framework for strong, balanced and sustainable economic growth. Two years on, by and large our progress has not been complete on that task. Much work remains to be done, including credible trajectories back to surplus for deficit economies, also for appropriate changes to occur in global currency markets, and furthermore what we do in terms of the identification and promotion of the new drivers of global economic growth.
I refer colleagues in particular to an important speech given by Hillary Clinton at an APEC meeting in San Francisco last week on the mathematics of the role of women in development, a new driver of growth. The numbers are quite stunning when you sit down and analyse it carefully.
So therefore my point is this, again for the developing countries -- and we see already evidence of a partial contraction in economic activity or a slowing in economic activity in parts of Asia as a consequence of the contraction of demand in Europe and America -- what happens in the real economy, the decisions we take within the framework of sustainable economic growth that we agreed to in Pittsburgh, is fundamental to the rest of the world. It’s not an academic exercise of no relevance to the poorest economies.
My third point is equally critical in my judgement and that is that -- this is particularly in the field of agriculture -- if we’re expecting farmers in Africa and farmers elsewhere in the world to make long term decisions about investment in agricultural development they need to have long term signals in terms of price. And if they don’t get long term signals out of price, there’s a continued distortion of agricultural markets, then frankly these investments will not occur.
This goes of course to the heart of the Doha Development Round, and it’s called a development round for a particular purpose and that is that we deal effectively not just with tariffs and external barriers to trade, but also the future role of internal subsidies. We all recognise the political sensitivities in all of this but let’s call a spade a spade. This is fundamental to farmers deciding that the price structures in the world are worthwhile putting your life on the line for to actually start developing crops.
Fourth point goes to the innovative use of finance for both infrastructure and agriculture, and of course they are linked. Let’s always keep the maths in mind. There’s $120 billion each year of ODA between us, and over $100 trillion of financial assets around the world.
Therefore the critical question is how do we use public finance to leverage a much larger quantum of private capital for development, and then also on the capital flow front.
I also support in agriculture the recommendation concerning AMCs -- Advance Market Commitments -- and the real potential it has to unleash practical things like key technologies for development and with a commercial case around it as we’ve done for various problems with vaccines in the health space in the past. Also crop insurance schemes of the type that we referred to before.
And finally, and this has been I think a welcome inclusion to the agenda of the G20, how do we better arrange for private remittances around the world, $350 billion worth each year, massive transaction costs at present and semi-monopolistic arrangements for it, 10 per cent costs and plus being attached to the transfer of remittances from workers back to the poorest economies of the world. Basic reforms there would up the level of those savings and consumption in those poor economies and would be great for their development. So I believe the G20 can do an enormous amount in that area.
My last point today, Mr Chairman, is this, on the proper use of ODA and for the most effective use of ODA. Firstly we need to honour our commitments on ODA. I acknowledge and recognise what our friends in Great Britain are doing on that subject. We all need to honour our commitments on ODA. We all need to ensure that the use of our funds is the most effective. And again I go back to the question of how do we leverage private capital. One of the most direct and useful uses of ODA, one of those areas which many people refer to of course, is emergency food aid and we of course reference what's happening in the Horn of Africa.
This is critical. Looking back on a point though in response to my colleague, the Finance Minister of Spain, and that is, it goes to how we fund organisations like the WFP. The WFP has very few of us around the world who provide core funding and over multi-years to enable them to plan ahead for early warning systems and the pre-positioning of food. That's the truth. There's only a few of us who give them that core funding over several years. Here's also some news, in the Horn of Africa, in Ethiopia there would be a much lesser problem. Why? Because if an early warning system had been funded and there had been 400,000 tonnes of food pre-positioned -- in the case of Somalia, for security reasons, that has not been the case -- but my point to my colleagues around the world is if we're serious about this for the future early warning stems, pre-positioning means you've got to give core funding beyond individual appeals to the World Food Program for multiple years ahead. We're doing it now, for four years.
So Mr Chairman, can I say we can make a huge difference. I'm pleased, as I understand, that our session at the G20 will incorporate the conclusions of the Istanbul Conference, LDC4, on the least-developed countries. And again I congratulate France for its determination in taking this critical agenda forward. I look forward to these points that I referred to being reflected in the final communiqué to be agreed. Thank you.
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