The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

16 August 2011

Joint Press Conference with
Robert Zoellick
World Bank President

Press Conference

Canberra

16 August 2011

SUBJECTS: economy; global aid programs; international action on climate change; Qantas job cuts; food security

TREASURER:

On behalf of the Government, I'd like to extend a very warm welcome to Bob Zoellick, the President of the World Bank, to Australia as our official guest. It's good to have you here Bob. I've worked very closely with Bob over the years, particularly through the Australian American Leadership Dialogue and I think it's pretty fair to say that Australia has no greater friend in the United States than Bob Zoellick. But in recent years he has performed a very important role at the World Bank, a very important role in terms of putting forward a range of policies and initiatives which protect the poorest and the most vulnerable on the planet and there is much more to be done in that area and Bob is working very hard.  He may have some more to say about that in a minute.

Now the World Bank is one of our, or our largest multilateral development partner.  So we work very closely with the World Bank, and most particularly we work closely with the World Bank in our region and this is a partnership that will over time continue to grow stronger.  But the World Bank also played an important role during the global financial crisis and they did make a difference for the most vulnerable affected by the global financial crisis. But I think it's fair to say Bob personally made a difference particularly through his participation in the meetings of the G20, because towards the end 2008 the G20 really came of age and it moved to become a leadership forum not just a Finance Ministers forum.  And for the first time we saw both developed and developing nations come together to work on global economic challenges, and that work of the G20 during that time was very important. And it was work that really made a difference.  And it was work which made sure that the global economy did not go into a very deep global recession. It did go into a global recession, but because of the work of the G20 we came out of that, but we are now still living with the aftershocks of that global financial crisis and global recession. And we see the aftershocks of that global financial crisis and global recession in the volatile economy that we see internationally today. 

Clearly, events in the United States and events in Europe are producing great uncertainty and volatility, particularly in international markets. And the best way that we, through the G20, and as individuals can deal with the situation is with conviction and with resolve.  I know that that's the way that Bob approached this challenge in recent years through his contribution in the G20 process. This point about the need for conviction and resolve is made in an article which has been published by a number of Finance Ministers of the G20 in the international press in the last 24 hours.  And I'll also be talking about these issues of the global economy and its impact on our economy in the Parliament later today, but more of that in the Parliament this afternoon.

I also wanted to say a few words about climate change, because this is another very important global, economic and environmental challenge.  Countries around the world are taking action on climate change.  The G20 and other bodies, like the World Bank, have been working very hard on putting in place policies globally to deal with climate change and you can see a summary of these policies as you go through the very important work which was produced by the Productivity Commission a few months ago. 

The fact is that we're all in it together and everybody on the planet is impacted upon by dangerous climate change.  It does risk massive damage, not just to our environment, but also to the economy. What it means if it's not dealt with is more extreme and severe weather events.  In the case of our country, we will be particularly affected by those.  But it also means damage to our economy and to jobs, and in a country like this, damage to our coastal cities and damage to our tourism industry and of course damage around the world to some of the most vulnerable countries and people on earth.

So our Government will continue to make the case for dealing with dangerous climate change in a calm and a methodical way, because to grow in the future, to be a first-rate, first-world economy, you have to be powered substantially by clean energy.  A clean-energy strategy is a growth strategy and in this area the World Bank has done an enormous amount of important work.  So we are continuing to act on climate change, just as other bodies around the world are acting on climate change.

And finally, can I say that we really did appreciate the assistance of the World Bank when it came to the floods in Queensland earlier this year.  The World Bank has a great deal of expertise in dealing with crisis management, and Bob and his organisation did work with the Queensland Reconstruction Authority and for that we thank you.  Bob, over to you.

ZOELLICK:

Okay.  Well, I want to thank my friend, Treasurer Wayne Swan, for his generous words as well as for our discussions.  I also want to thank the Government of Australia and the people of this great country for the hospitality that's been extended to me everywhere throughout my visit.  It was a privilege to have an opportunity to meet with the Prime Minister as well as the Minister for Trade.  I also had a good discussion with Peter Baxter of AusAID.  And this morning, we were very fortunate, Mr Kuroda and I - of the Asian Development Bank - met with an inter-parliamentary delegation focused on the Millennium Development Goals and knowing that this was the first morning of the first day of the session, we very much appreciate their commitment.

My primary purpose here has been to come to listen and to learn.  I also came for the specific reason of saying thank you to Australia, because of generous commitments to some funds that we have for the 79 poorest countries called IDA, the International Development Association, and also further develop something that I tried to launch when I came to the bank in the middle of 2007, which is to build a strategic partnership with Australia, with issues particularly in the Pacific, but of course beyond.  So we find this to be a case of multilateral cooperation at its best.

The World Bank, like Australia, shares the view that development dollars have to deliver for people on the ground, so we look forward to working with Australia as it moves ahead with its aid program, whether it be in conflict-afflicted countries, promoting the private sector, helping with infrastructure that also creates jobs in both the developed and developing world or showing that gender equality is smart economics.

The Australian Aid Review has set a high bar for performance in development assistance at a time that we very much agree about the criticality of the need to show results.  There's no doubt these are some difficult and dangerous times.  Some of the woes of debt in the United States and the Euro zone trauma have unleashed a wave of worries and uncertainty about the global economy.  Adding to that are the high and volatile food prices. 

The World Bank just released a report in the past 24 hours or so showing that near record food prices mean that the poorest people in the developing world are living on the edge, struggling to cope.  And nowhere are high food prices, poverty and instability combining to produce tragic suffering more than in the Horn of Africa.  Domestic food prices have been soaring in the region.  White maize, or corn, is now 150 per cent more expensive than it was a year ago.  The bank is working with the Horn of Africa with a package of more than $680 million and I want to very much thank and appreciate Australia's efforts.  It's currently the fourth largest country donor to the Horn of Africa providing more than $80 million. 

The World Bank has worked very closely with Australia - it's a good example of our global partnership - to help deal with the issues of high and volatile food prices both in the near term but also over time.  Australia contributed to a crisis fund that we created when food prices soared in 2008.  It also provided $50 million to a global food and agricultural security fund that we at the Bank set up as a request to the G20.  So it's concerted action like that which can lead to dividends and real results, and it's very much our view that global cooperation is going to be critical for food security not only in the months ahead, but in the years ahead.

Vigilance is vital, given the uncertainties and volatility that exists today, whether it be in stock market trading rooms or farm markets in the developing world.  So the World Bank very much looks forward to working with Australia as we aim to move ahead and again I just want to take this opportunity not only to thank the political leadership of Australia, who've been very gracious with their time across various meetings, but also for the people of Australia at a time that I know is not so easy in terms of budgets, whether family budgets or government budgets, to continue to show support so we can have bipartisan support in Australia for the aid effort.

JOURNALIST:

Mr Zoellick, how fragile is the outlook for global growth and what is the risk around the ability of China, India, other emerging countries to be the same support for growth now that they were in (inaudible)?

ZOELLICK:

Well, as I mentioned over the past couple of days, I think over the past couple of weeks, we moved into a new danger zone.  It was in part the convergence of some of the events coming out of the Euro zone where, while political efforts I know were significant because you still have separate countries making decisions, they've not really gotten ahead of the problem and haven't really been able to deal with some of the fundamentals and structural issues.  That, combined with some of the uncertainty created in the discussions in the US over the debt limit and spending, I think frankly, created a real hit to confidence in markets.  What will now be important to watch is whether that hit to confidence also extends to consumers and businesses, and also how the governments respond.

Now, I'm pleased to see that the European Central Bank, the ECB led by Jean-Claude Trichet, is doing its part to trying to put liquidity in.  But part of my message is the efforts that central banks can do are still in some ways short term.  You have to get to fundamentals and here I compliment Wayne and Tharman of Singapore and also Jim Flaherty of Canada.  They wrote a piece today in the FT which very much emphasised what I've been trying to urge, which is start to have steps forward on economic leadership.  And I think this is going to be a real issue over the autumn.  So I think you're going to see this as a rolling process.

You asked about its effect in China and India. The difference now with 2008 is coming into this most recent phase those countries who actually had recovered quite well, had very strong growth, and if anything the risk was overheating.  So I don't think you can expect the role that they played with big stimulus programs, particularly in China.  But the circumstances have changed a little bit. So as China started to worry about its inflation rate, I think that led to some balancing of the consensus in China to move towards appreciation of the currency.  That can help deal with some of the inflation rate.  It's also a contributor, I think, to some of the stability in the international system.

So I think, Wayne and I will be attending meetings of the Finance Ministers.  There will be meetings around our September annual meeting, there's the heads of government meeting of the G20 where Australia has played a very active role throughout the crisis.  That's going to be in France in November.  And so I think that the issues that, frankly, Wayne and some of his colleagues and I have been trying to (inaudible) are going to have to be dealt with because otherwise you're not going to deal with the fundamentals of growth at the same time as your trying to deal with some of the debt issues.

JOURNALIST:

In the next 24 hours or so, there will be quite a strong focus on Europe.  You talked in recent days about them muddling through.  Do you think that a logical, decisive course of action for Europe would be something like a stronger fiscal union or some kind of common bond? What are your thoughts on that?

ZOELLICK:

These are obviously decisions for the Europeans, but my key point is, you know, I go back a way since I led the US negotiations in German unification and worked with Chancellor Kohl and I saw the creation of monetary union.  I think there were a couple of paths that Europe could have taken.  It could have had a smaller Euro zone, it could have kept to the discipline of the fiscal programs that it didn't and kind of broke through.  So now I think leaders are going to have to decide, will they - as other European leaders have done - find a way to move towards a fiscal union that compliments the monetary union, and there's different ways that that can be done.  You mentioned some that people have been debating.  Or are they going to take an alternative course?

But my key message is that the process of providing liquidity, the process of kind of hoping that global growth will get everybody out of this, I think those prospects have run their course.  That's what markets are communicating.  So these are decisions for the Europeans.  I think the IMF can play a key role play in helping that.  It's the type of thing that I'll have a chance to discuss with Christine Lagarde.  But I also think it was extremely healthy for this piece that Wayne and Tharman and Jim Flaherty wrote, because frankly those are some economies that have performed relatively well in the global economy.  It's important for important for both Europeans and those in the US to understand others have a stake in this game and that while these are European decisions for Europe, that we're part of an international economy and we all have a lot at stake.

TREASURER:

Could I just make a point to follow up on that, because I think we shouldn't conclude that 2011 is 2008.  There's always a tendency here to look [at] what's going on now through the prism of events that occurred in 2008 and there are some fundamental differences.  Those fundamental differences particularly go to the fact that growth in this region is strong and the fundamentals here are even stronger.  That applies to us nationally and it applies to the region. But, nevertheless, as Bob has pointed out, there is danger out there, and what we're calling for in the article that we've published in the last 24 hours is for those countries most immediately at the front of these challenges to take decisions nationally and regionally that they need to take.

JOURNALIST:

Just on domestic matters, Mr Swan, OneSteel announced it's going to slash 400 jobs, and Qantas has announced its going to cut 1,000 jobs. What does that say for the sector of the economy that is not the resources sector and does the Government have any further action it's going to take on the steel industry, given BlueScope's announcements?

TREASURER:

Well, the most important thing here most immediately for those workers involved in those companies is that those companies look after their workers and do the very best for their workforce in the circumstances in which they find themselves. In the case of Qantas, the announcements relate to their international business, which has been experiencing challenges for some time.  In the case of steel-making, there are challenges which are thrown up by the strength of the Australian dollar.  These are challenges and structural changes impacting on the economy from a change in circumstances, because it is expected that the Australian dollar, because of the high level commodity prices, is going to remain higher than it has traditionally and that that will last for some time.  This is putting structural pressure on businesses such as steel-making.

Qantas I think is in a slightly different position and I think that today they've explained the circumstances of some of their international routes and how their position there has deteriorated over a long period of time.  What we are experiencing here are the challenges that do come from a patchwork economy.  Our fundamentals are strong, but not everybody is doing well, and there are soft spots in the economy, particularly those that are impacted by a higher dollar.  What the Government will continue to do is to attend to the fundamentals of the economy, strengthen it in every possible way we can, to make sure we maximise the opportunities that are flowing from the resources boom or strong resource prices, but also spread the opportunities from that as far and as wide as we can across the rest of our economy.

JOURNALIST:

Is there a case now given the global uncertainty for the G20, particularly the Finance Ministers to meet earlier than scheduled?  And there's been talk about the G20 Finance Ministers working cooperatively.  Exactly what areas should they be cooperating on?

ZOELLICK:

You know, I always find that just as important as the meetings, is the preparation for meetings.  So I know there's often a call for a meeting to sort of create a sense of cohesion, but whether it be by phone calls or by other connections, this is really at a stage where you still have sovereign governments having to make decisions.  In Europe, they do it within a super-federal structure.  And it really is going to be the responsibility of each of those sovereign entities to make the calls about how they're going to face not only the short-term challenges, often assisted by the central banks, but also go to the medium and long term and that varies by each market.

So, for example in the United States, which I can speak to since it's my home country, I think it's a question of not, the debt isn't going to be crushing over the next week or month but what markets are looking to is a long-term action plan that goes beyond discretionary spending.  That's what was dealt with in some of the past cuts you've seen over the years.  That means going to what we call the entitlements issues whether it be social security and Medicare.  I think a growth strategy could be pushed forward with the ideas that are starting to gather some momentum about a broad-based tax reform, like the one I was involved in with in 1986 at the US Treasury where you kind of broaden the base and lower the rates.

And a third pro-growth strategy is open trade.  I mean, so far we've been able to hold off the dogs of protectionism but, as you get slowdown, these risks could build again.  In my view, when I was Trade Representative and negotiated the FTA with Australia, the best defence is a good offence.  The situation in Europe is a different one and the situation in some of the emerging markets are somewhat different.  I will say and this is again, I deal with a development institution, I pointed out in some ways how the world has turned upside-down and half of global growth is now coming from developing countries.

So the countries that I work with in the emerging markets have actually recovered rather well and are a source of growth and, frankly, in the Asia Pacific region you do have that feeling for growth.  I was in Hong Kong on the way here to Australia.  I'll be in China and Singapore in about three or four weeks.  But we're still part of a global economy and so that's where the G20, whether by phone calls, whether frankly, this action that the three Ministers I mentioned and George Osborne - that's a way of informally starting to shape the debate and that's why I think it was constructive.

TREASURER:

And I should add to that.  I mean, there are telephone conversations going on all the time and I've been speaking to a number of colleagues over recent weeks.  So you shouldn't assume that there isn't a level of discussion going on already.  But as Bob has pointed out, first and foremost there are decisions that sovereign governments have to take.  There are decisions that they have to take within Europe itself.  We can encourage them, as we have done in the article that we've produced, to attend to that as soon as they possibly can. But what it does do, particularly for our next meeting, is that it means that we've got to try even harder to make sure we make progress on the Framework for Strong, Sustainable and Balanced Growth that we've been working on recently.

As Bob rightly points out, one of the most fundamental things that could be done relatively quickly if we could get the global will to do it would be to restart, kick-start, the trade round.

ZOELLICK:

I'll take your question; just one last point on this.  You know, one of the reasons I've been trying to make these points - I'm in such an unusual role. I'm a steward of an international institution.  We have 187 members.  I've been around, I've done these things, I know how hard this stuff is.  So part of it is countries are going to have to work within their own political systems to move these forward.  But I'm trying in a way that I can to start to condition both the political leadership and the general public is, you've got to do more than you're doing and you have to move more actively on some of the growth items.

JOURNALIST:

Mr Zoellick, what priority does the World Bank give to climate change and particularly the pricing of pollution, carbon pollution?

ZOELLICK:

Well, in climate change, obviously the UN, through the UNFCCC, is the lead player on this.  So we've tried to play a supportive role in multiple ways.  And because we're a development institution, our focus has been how to try to see how you can integrate climate change strategies - whether adaptation or mitigation - with your overall growth and development strategies. 

You're never going to be to be able to address climate change unless you change unless you get the developing countries engaged.  Obviously they put emphasis on growth.  So we need to try to find some of the win-win areas. So, for example, we focus very heavily on energy efficiency. There are huge gains to be had in saving fuel costs as well as cutting carbon. Coming out of the Bali meeting and the meeting most recently in Cancun, forestation and avoiding deforestation is another multiple winner.

One that we're working on with Australia is soil carbon.  This is a good one for the upcoming Durban summit, which is a case of helping better agriculture, food security, at the same time you can figure out ways to measure the soil aspects, some of the technology developments.  Some of this doesn't have to be whiz-bang stuff. 

We've worked with Mexico City and many other cities so that they have energy-efficient bus systems and have had significant improvements in fighting pollution and also, frankly, in having more efficient transportation. We're working with North Africa on what would be the biggest concentrated solar power development program. We hope that will lower the cost, also create clean energy.

At heart, what we do is we bring this together through some climate investment funds, which Australia has also contributed to.  We've had contributions of about $6.5 billion. We've been able to leverage that through other World Bank funds, regional bank funds, about 30 per cent private sector, to about $50 billion to support climate change efforts with over 45 countries.  This is in a way a practical building from the ground up because every time we do one of these with North African countries, Mexico, adaption projects with Pacific islands, we build support in the international system.

We see ourselves as a supporting power in the UNFCCC.  And since you referred to trading systems, one of the things we do as public good is report on the state of those trading systems. So some of the references to that is we try to explain what's worked, what hasn't worked, how to make them more efficient.  So remember we're primarily a development institution.  So we're trying to figure out how can we get developing countries to see the multiplicity of interests.  I will point out, I'll be in China again and this is one of the issues that, you know, China has had tremendous growth, but, frankly, they're now having to go back and clean up a lot of stuff they had before.  So we're seeing China move to more of a green growth path.

JOURNALIST:

Mr Zoellick in your opening remarks, you talked about food security and rising food prices.  In this country there's a rapidly emerging debate, energy versus arable land down the east coast, where the practice of coal seam gas mining is encroaching on arable farmland, and it's quite a polarising debate.  Do you have any observations on that domestic debate as to which should be a priority, energy security or maintaining arable farmland?

ZOELLICK:

No.  I do want a word on food security because this is an area where, frankly, I'm not sure if I can think of a better global partner for us on this issue.  I've really been trying to highlight this in my tenure.  Here's a very compelling situation.  What we're now seeing in the global system is that you've got stocks for, say, corn or maize and wheat at relatively low levels historically.  Rice is a little bit better, but rice tends to be a thinly traded commodity.  At the same time you're slowly starting to see demand increase from emerging markets as people get higher incomes.  What that means is we're in a period where if you have bad weather, crop failure - so a couple of years ago we had a wave of it from Europe to North America, Australia, Argentina - you've got to expect price volatility that will start from relatively high levels.

What I've basically been warning people and one aspect why I stressed the G20 needs to put food first is that when you have food prices start to not only rise gradually but spike, the poor are the ones that are least able handle this. It may represent 50 to 60 per cent of their budget.  So this can present an opportunity which we're working with Australia to help Sub-Saharan Africa increase its agricultural production, take advantage of those high prices but you have to get from here to there. There are some danger spots as we saw in North Africa and you see in Somalia and others.  The last point I'll say is we do see energy and food much more closely linked than 10 years ago.  That's partly biofuels, but it's also partly the use of energy for fertiliser and other activities.

TREASURER:

Okay we might leave it there. Thanks a lot.