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Vol. 2, Issue 4 www.joanveon.com
THE 1999 IMF/WORLD BANK MEETING
AND THE CONTINUAL LOSS OF FREEDOMS
by Joan M. Veon
Over the last five years as I have attended UN and UN-related conferences almost all over the world, I have been shocked at the power which the whole system has amassed--over countries, agenda, and people. While there have been numerous empowerments in the making which will basically transfer what is left of national economic sovereignty, this conference unveiled a number of deeper and additional empowerments and transfers of power to the IMF/World Bank.
The theme of the 1999 IMF/World Bank Annual Meeting held September 25-28 in Washington, DC, was "On the eve of the Millennium....Setting the Agenda for Global Growth and Development." While this meeting did not specifically deal with Y2K as it was a non-issue, it did, however, emphasize "development." It is this word which has been the "foundation" for all that the United Nations and all of its agencies and commissions like the IMF and World Bank, are looking to do to "help the people of the world." World Bank president James Wolfensohn unveiled a new "Comprehensive Development Framework" (CDF) which calls for "local ownership and participation and which brings a holistic approach to the table." He said [in order] to "work with the broad development community--the United Nations, the European Union, bilaterals, regional development banks, civil society and the private sector [must] build a new generation of genuine partnerships."
In this regard, Wolfensohn discussed "good governance" with complete legal systems which protect human rights, property rights and contracts, and which gives a framework for bankruptcy laws and a predictable tax system along with an open and regulated financial system and appropriate regulation and behavior that is transparent." He stressed that in order to have this new system, it would take a "willingness to reform systems of government, regulations, and institutions."
How many banks here in the U.S. do you know who make it a habit of getting involved with those who borrow from the bank on a daily basis? For example, Wolfensohn talked about a "holistic" approach to lending which will give the World Bank the ability to change a country's legal system to reflect all of their pet causes and positions on human rights, property rights, contracts, bankruptcy, and taxation? To help you understand how pervasive this is, it is like the bank you have your mortgage with telling you that you have no authority to make any changes to the house unless you have their permission---because, after all they are lending you the money to buy the house. So, if you want to change the kitchen and they believe that the changes you want to make are not in line with their guidelines, then you will not be able to make the changes you want but will have to modify them until they give their approval. In the above case, what they want to do is even worse than that---they want to "reinvent the country" in their image!!!! Currently the World Bank is spending $5B a year for civil service reform, budget management, tax administration, decentralization, legal reform, judicial reform and institutional building." Should I remind you that the U.S. pays annual dues to the World Bank and that it is our tax dollars being recycled?
In this regard, Wolfensohn called for "global rules and global behavior [with] a new international development architecture to parallel the new global financial architecture which would be comprised of coalitions. Let me mention that this word "coalition" is a new word. I have not seen it used before. Wolfensohn wanted coalitions built "on the cooperation of all the players--the United Nations, governments, multilaterals, the private sector and civil society. A coalition that breaks the chains of debt, that has a trade system that works with rules and norms which are fair, one that recognizes that environment knows no borders, and one which recognizes the power of modern research to democratize health--to harness new vaccines to eradicate AIDS, Malaria, TB and Polio."
This meeting also called for: a Global Alliance for Vaccines and Immunization, the creation of the Group of 20 or GX, the creation of a global commodities intermediary, debt-relief for the most highly indebted poor countries (HIPC's) and full convergence across countries of domestic financial infrastructures.
In a workshop by the same title, the World Bank kicked off their international effort to immunize those in poor countries where AIDS and other diseases are rampant. A new group called the Global Alliance for Vaccines and Immunization, which is comprised of the World Bank, UNICEF, the World Health Organization, the Bill and Melinda Gates Children's Vaccine Program, and the Rockefeller Foundations, is now fostering public-private partnerships between multinational and transnational corporations, foreign governments, foundations, and non- governmental organizations to help with the immunization of EVERYONE IN THE WORLD. The AIDS Task Force was launched in April 1998 and since 1986, the WB has lent nearly $1B for 81 HIV/AIDS projects in 51 countries. Please see my questions.
- Global Alliance for Vaccines and Immunization (GAVI)
Since their first meeting in 1975, the Group of Five, now the Group of Eight (politically with Russia) and the Group of Seven (financially without Russia), have basically become a "Global Board of Directors." In other words, what they say they are going to do is what they want the rest of the world to do. The lesser developed and non-G7/G8 countries have been protesting the fact that they have no say. At this meeting, and with strong support coming from the United States, the Group of 20 or the GX was formed, which will include the G7 plus "systemically important" developing countries. This is a reform which has come out of the Asian crisis, along with the creation of the Financial Stability Forum which is intended as an early warning system to head off future financial crises and to promote the creation of stronger national banking systems.
- The Creation of the Group of 20 or the GX
For the past twelve months, I had been concerned with regard to the downward trend in commodities--oil, gas, gold, silver, copper, aluminum, tin, wood, coffee, etc. I did not know why until I went to this meeting. There they unveiled the intended creation of the Global Commodities intermediary to protect small countries and help buffer their crops and mining of natural resources during times of fluctuating commodity prices. This would be done by giving the small farmer access to commodities price risk insurance. The cost of insurance would be between $80m and $350m a year and would bridge the gap between private providers of price insurance instruments (banks, brokers or traders) and potential users in developing countries. At this point, it has not been made public if this commodity intermediary would be part of the World Bank. Interestingly enough, in the 1930s, Socialist John Maynard Keynes, who advised Roosevelt on the New Deal deficit spending, advocated measures to stabilize prices of raw materials proposed and international agency for commodity risk management.
- The Creation of a Global Commodities Intermediary
As outlined in my quarterly economic newsletter through Veon Financial Services, I view the actions of the world's central banks which over the past 12 months decided to sell up to 50% of their gold supplies, as a concerted effort to destroy third world countries who only have the proceeds from the sale of their natural resources to keep them alive. I specifically outlined the precarious position of Ghana, the second largest producer in Africa. Please refer to my questions to the Finance Minister of Ghana under the workshop entitled, "Commodities Risk Management in Developing countries." There he stated that Ghana was not in serious shape as a result of the low gold prices (less than $265 per oz. at the time) because of the commodity options which they held.
Interestingly enough, at the IMF meeting that same weekend, 15 Central Bank Ministers announced they would not sell any more gold than what they have already stated. As a result, the price of gold on the following Monday rose $11 per ounce which was followed by additional rises of $70 per ounce, sending gold from $265 to $318 per ounce. What this did was put Ashanti Gold and the government of Ghana into a liquidity squeeze which increased its hedging liabilities. As a result, Lonmin, the $1.49B gold, platinum and coal mining group of Lonrho made a conditional bid for Ashanti. Lonmin already owns 32% of Ashanti while the Government of Ghana owns 20%. Ashanti declared early in October that as a result of its hedge book which it transacts with 17 banks, that it had a negative value of $570M at a gold price of $325 per ounce, thus causing their banks to request $270M as margin on the derivative contracts. As a result, the Ghanaian stock market which trades about 64% of the rest of the value of Ashanti Gold, took a steep drop from its high of 1200 in February to less than 800 in mid-October as the gold stock was the backbone of the market.
As of October 20, the Financial Times reported that Saudi prince al-Waleed bin Talal Bin Abdulaziz Al Saud, a nephew of King Fahd, was looking to invest in Ashanti "in co- ordination with the Ghanaian authorities."
Other gold mining companies which have the same problem as Ashanti include the Canadian company Cambior and the Fijian gold company Emperor.
Are you thinking the same thing I am? In order to "interest" all of the poor third world countries in another program which will require them to purchase "insurance" to protect them against the fluctuations caused by the international and central bankers in the first place, third world countries, especially the individual "mom and pop" producers will be required to buy insurance. Does this sound like the mafia who has a long history of requiring poor Italian immigrants to buy insurance to protect themselves or what?
4. Debt Relief
At the Group of Eight presidents and prime ministers meeting in June, there was talk and agreements for the G8 to find a way to reduce the indebtedness of the most highly indebted countries (called "highly indebted poor countries" or HIPCs). Interestingly enough, in 1998 in Birmingham, the G8 announced the need to forgive some of the debts of the poor countries. In a press briefing with Prime Minister Tony Blair, I asked him what kind of strings would be attached and what types of hoops would the poor countries have to jump through. He replied that (1) there would have to be the process of economic reform and (2) that the quality of life of the people be improved. He then went on to say, "Those are our conditions and it would be wrong to describe them as hoops---in some unreasonable way that they have to jump through. All we simply want to do is ensure that the money is used for [those] purposes."
At this meeting the G7 Central Bank Governors and the Finance Ministers (who have been meeting jointly for the past two years which I believe signals a merger between the central banks who control the monetary system of a country and the finance ministers who represent the treasury of a country) announced the framework to provide faster, deeper and broader debt relief by the HIPC initiative which will require a new and coordinated approach by the world Bank and IMF together. They said that the new integrated strategy (holistic) to promote good governance would be based on five pillars:
It should be noted that all of these have deep agendas behind them which are currently not known either publically or to me, the writer.
- Increased and more effective fiscal expenditures for poverty reduction with better targeting of resources in education, health, the prevention and treatment of AIDS and measures to improve child survival.
- Enhanced transparency, including monitoring and quality control over fiscal expenses.
- Stronger country ownership of the reform and poverty reduction, involving public participation.
- Stronger monitor-able performance and follow-through on poverty reduction.
- Ensuring macroeconomic stability and sustain-ability.
In a keynote speech by Bill Clinton, he promised to seek $1B in funding to reduce the debts of the world's poor which he said would " pay for its part, and put pressure on the other G7 nations to do the same." As part of his budget, Clinton would seek an extra $250M this year and a further $600M for future years. These taxpayer funds would be put in a trust fund. In addition a further $50M would finance debt-for-nature swaps in which debt would be canceled in return for an agreement by a borrowing government to set aside some tropical rainforest for preservation (this usually means it would be re-titled in the name of a public-private partnership and transfer out of the ownership of the country).
- Enhanced transparency, including monitoring and quality control.
In a Financial Times article dated 9/22, it stated that "the IMF for its part of debt reduction will revalue its gold reserves without selling them on the open market. It now plans to revalue some 14 million ounces and would involve an accounting trick. Two large borrowers--Brazil and Mexico--would in effect buy gold from the IMF one day and use it on the next day to repay their loans. The money freed by the revaluation would be placed in a fund and used to service the loans."
As you can see, everyone, except the U.S. taxpayer, gets to play games with money that is not their own.
In a keynote speech by Federal Reserve Chairman Alan Greenspan (the same one who makes markets shake), he said, "Full convergence across countries of domestic financial infrastructure or even of the international components of financial infrastructure is a very difficult task. Nonetheless, the competitive pressures toward convergence will be a formidable force in the future."
- Full Convergence of Domestic Financial Infrastructures
What is Greenspan talking about when he says "[F]ull convergence across countries of domestic financial infrastructure..."? He basically is alluding to the fact that in a world in which we all have the same policies politically, we will have the same economic policies as well. It is market competition which will drive us in that direction. You can see this if you go back to Jim Wolfensohn's speech about development and a holistic approach whereby countries have to have the same laws--property, bankruptcy, etc. in order to have good governance.
At the annual meetings, the IMF/World Bank sponsor about 50 workshops during the week for CEOs, Finance Ministers, and other interested parties to attend. What they are doing in these workshops is unveiling the "next step" in world government. I do not have the room to explain the nature of every workshop. Let me say that the themes centered around market volatility, public-private partnerships, the commodities, and vaccinations for AIDS and Malaria.
I have written on: public-private partnerships and the fact that they are global corporate fascism, the empowerment of the IMF/World Bank and the loss of national economic sovereignty, and other plans of those in power over us to control the assets and resources of the world. The panelists in each of the workshops come from the highest levels of power and organizations--the Bank for International Settlements, the International Chamber of Commerce, multinational/transnational corporations, and other experts.
JOAN VEON'S QUESTIONS AT 1999 IMF/WORLD BANK MEETING
Workshop: BEYOND THE CRISIS: THE OUTLOOK FOR PRIVATE CAPITAL FLOWS TO EMERGING MARKETS
Note: As a financial adviser, I have used the Templeton Mutual Funds, specifically those managed by J. Mark Mobius. I was very interested in asking Dr. Mobius my question because of the changes occurring in the investment market place. The world is changing and the nature of you, the investor, is changing-- whether you know it or not.
Discussion: Andrew Crockett, General Manager, BIS; Stanley Fischer, First Deputy Managing Director, IMF; J. Mark Mobius, President, Templeton Emerging Markets Fund, Singapore; Anthony Francis Neoh, Professor, Peking University, China; Arminio Fraga Neto, President, Central Bank of Brazil; Moderator: Joyce Change, Managing Director, Global Emerging Markets, Chase Securities, Inc.
JV: Dr. Mobius, Would you say, in light of your investors, that your job has emphatically changed in the last ten years to the point where you are taking a pro-active political stand in a country on behalf of your investors, and is it possible, given the Basle Committee and the Financial Stability Forum, that in the future, given their desires in that same country, you might be put at odds with them and what are your feelings given the things that are going on from a political standpoint and an investor standpoint?
Mobius: There is no doubt from when we started in 1987, in those days we had $100 million and five countries and all of the other countries--this is one of the tributes to the World Bank/IMF--their policies have opened up these markets. We now have 40 markets around the world who have foreign exchange policies which allow us to come in and go out and this, of course, has benefitted these countries enormously because of the flows which have gone in and of course, the assets under management, in our particular company for emerging markets alone has gone from $100 million to $12B and that is only one small part of the universe of money available. So things have really changed and we have had to change as well. As part of the crisis, we have had to become much more pro-active. We have had to narrow the number of companies in which we invest. One of the criteria we are now using is that any company now with a market turnover of less than $1 million, we will not touch because we realize we must have a ready exit in these times of high volatility. In regards to political stance in each country, we of course will not try to get involved in a single political agenda for any particular country, but what we will do is align ourselves with the other minority investors within that country. You must remember that for the most part, for most of our funds, we are not allowed to take a majority control or position, so what we do is try to align ourselves with the domestic minority investors. We have done this in Korea. There is a group in Korea who have gotten together to fight for minority rights and we have aligned ourselves with them so we are alighted with a political agenda within the domestic country and are no way opposed to that.
The problem of course, as Anthony Neoh has outlined, is the policies, the laws, the regulations are not in place and if they are, they are not readily enforceable. We have learned the hard way, by the way, that taking a legal approach does not work. In Hungry, we tried to take the majority shareholder of a company to court and the issue was dilution of shareholding. This company issued convertible bonds and the way they defined people who would be eligible resulted in only the majority shareholder to be eligible and therefore diluting the rest of the shareholders. We went go and in Budapest you have to decide if it will be in the Budapest court or the Pest Court--that took a half a year. When that was decided we had to explain to the judge what shareholding is and what diluting is--we had a case in Brazil--but we won't talk about that now--laughter. We found that taking it to court does not work so what we are trying to do is gather together minority shareholders--both foreign and domestic and voting and changing through voting power in these companies and are beginning to make some progress. There is no question that we are becoming much more pro-active. I am not speaking for my colleagues, not all of them want to become pro-active. Its a hard job---I am trying to convince them but most people don't want to be in the foreground, they want to be in the background.
Andrew Crockett: You asked if the pro-active stance Mark might take might set him at odds with the Financial Stability Forum. I think it's entirely his right and duty to say what he thinks about the actions taken by any government of the country in which he is an investor. That's not inconsistent with the role of the FSF. We have a working group on capital flows, there is actually a Malaysian member of that working group and there is an understanding of the motivation and the reasons which the Malaysians to do what they did but I don't think as a result of listening to that, I don't believe the members of the working Group were persuaded that that was the right policy for other countries to follow. In practice, there are significant question markets about whether that would be a realizable policy option.
Anthony Neoh: As a former financial supervisor, I never thought it was wrong for institution investors to take active stances even to the extent of trying to change their policies because I believe that is what a market is all about and at the end of the day, you have to look at all of the competing interests and therefore, and the investing community is one of those stakeholders which you must listen to. Through this interaction, your market improves but I think one of the minority shareholder protection issues which Mark has been talking about, many emerging markets do not have the legal academia or the legal community including the judiciary to be fully equipped to deal with the very difficult issues. To start with, these are issues which started in common law jurisdictions, however, therefore, most jurisdictions would look at this from the front end--in other words to build into their regulatory systems through supervision by the security supervisors as well as by their exchanges the need to ensure that minority shareholders have a right to vote in the transactions--where there are issues of large dissolution and so on---that they would have an opportunity to voice their concerns and in some cases, in fact, minority shareholders would be the lone voice where there is a connect transaction between the majority shareholder and the company. So these are corporate governance features which are now being built into emerging markets and I know my colleagues from around the world in emerging markets are hard at work in dealing with this from the front end.
Neto: I would say to Mark that we welcome pro-active investors and we feel that it is our duty to provide you with a proper channel to your ideas and your questions, in particular and I think it is important that we hear from you and other investors on that and we mean it.
Workshop: The Road Less Traveled: Public/Private Partnerships for Development
Note: As a result of my interest in the true nature of public- private partnerships, I aksed a very pointed question. As a result, I had several people come up to me the next day to comment on my question.
Discussion: Nick Butler, Group Policy Advisor, BP Amoco, UK; Achim Steiner, Secretary General, World Commission on Dams, South Africa; Maria Livanos Cattaui, S-G, International Chamber of Commerce; Peter Eigen, Chairman of Transparency International, Germany
JV: I agree that we are living in a very, very complex world. I agree that there are a lot of borders if you will that are breaking down between who has responsibility for what. My question, as I have studied public-private partnership really has to do with the pushing of the boundaries. My question is addressed to Miss Cattaui and perhaps Mr. Butler.
As I have analyzed public-private partnerships on every level, when you bring together the local government, state and federal government, all those levels of government, for the most part, are bankrupt. They really don't have the funds so when you bring together civil society which is the voice of the people and their needs with a government that has no money and you partner with a company like BP Amoco, you then have a very strong force with deep pockets. This is a question which I have had for a number of years, so I thank you for allowing me to ask it here today. What kind of checks are being put in place so that there is some kind of governance by the government versus governance by the corporation. When I look at the "isms", the classic definition of fascism is where you marry government and business. I guess I am trying to understand what kind of animal we have and what kind of guards are being put in place so that government has some level of governance and the corporation still has the ability to make money and create capital?
Mr. Butler: In response to the last question, we recognize the issue and there is a real danger that PPP are seen as being private sector takeovers and that democracy is seen as the loser, which is not the intent and if that were to be tried, I think that it would fail very quickly. What I would hope is that it isn't used as an argument from stopping the public-private partnerships from happening and I would see our responsibility being greater and greater and greater transparency so that we don't just report our financial results and our environmental performance but we begin to report and to have a degree of auditing on our relationships so that it is very clear what we are doing, with who and how and I think that this is the only way to avoid people's worries about this swamping the great potential which I see, if we can get these relationships right.
Miss Cattaui: That is a partnership between NGO and with private. It is not a partnership with government which is an interesting other area of work and that is precisely what we are working on is the training--it is the end of training people to take over and be independent economically, contribution rather than dependent. That is another kind of partnership which we didn't mention today but which I see working more and more together and that is the NGO field or the non-profit field. The field of semi-civil society--I don't know what you want to call that kind group with the private sector to try and build up the local abilities to train young people where neither government nor big business are taking over the reign. We are working in Columbia, Ecuador, and South America, areas like that, supporting local organizations, ratcheting up their abilities--management and financial--to handle this kind of training.
Speaker: A lot of structural reforms are focused in opening a wide space for demand driven subsidies both in health and education so obviously, the scope for public-private partnership is obvious and that is working pretty well.
Mr. Steiner: One last remark which I was not able to make early on which is one of the reasons why I wanted to come to this meeting and that is from our point of view and experience, the financing axis is actually emerged as one of the critical mediums around which people can conduct those negotiations. This is why I believe the World Bank has such a credible role to play not any longer as the defining authority but in its convening function and that is a very different role from what it has played int he past. Civil Society in its adequacy mode can use its debate with the World Bank, can use and express its views and bring on board. The developing countries governments are effectively at the moment being kept away from certain development options because of non-access to finance. Even countries like India and Brazil cannot pursue their energy resources development programs without access to international capital in the range of 70 to 80%. And finally I also believe for the private sector again, a process whereby financing can become a negotiation tool, provides the goal posts which they have been looking for. It is the difficulty of trying to respond to the permanently shifting goal posts that has for many countries made it impossible to access financing capital. And I again have to say that the World Bank mentions the enormous increase in its Report of private capital flows in developing flow and does not mention that the flow, which is enormous in the last 8 years from around $20B to $160B, still only goes to 10 or 12 countries in large proportion. So 90% of developing countries will effectively not be able to undertake development without an intelligent dialogue around access to financing and that is exactly where the 3 have to come to some discourse.
Mr. Eigen: We went in a race through a very complicated subject which was not comprehensive and we touched on a number of very important issues and confirmed through comments from the audience that there is a tremendous potential for making a great contribution to development in a true sense by improving and strengthening public-private partnership but mainly also by improving, strengthening and opening up to civil society organizations as a third member of this magic triangle of international governance which will make sure that the values mentioned here, the targets and the beneficiaries of this intervention will be chosen properly and interests will be balanced and we do all this for the people of this world, by mobilizing their input into this process.
DEALING WITH VOLATILITY: THE ROLE OF RISK MANAGEMENT
Note: My question is self-evident. I believe there is a problem with liquidity on a global basis as a result of the great amount of debt which has been floated in the last twenty years.
Discussion: Howard Davies, Chairman, Financial Services Authority, Director of Bank of England, UK; David Folkerts- Landau, Managing Director, Global Head, Deutsche Bank, AG, UK; Philippe Jorion, Professor, University of California; Pedro Pou, President, Banco Central de la Republica, Argentina; Moderator: Daniele Nouy, Secretary General, Basel Committee on Banking Supervision, Switzerland
JV: My questions have to do with liquidity. Mr. Pou, you mentioned that Argentina has developed a Repo line secured by mortgages. Is that home mortgages? Are there legal clauses in the mortgage documentation that the homeowner understands that they will be a "lender of last resort"? Mr. Davies, I have read and it is well known your central bank is selling gold and that the reason was to invest in dollar, yen and euros. Is that because there is a lack of liquidity in the system?
Mr. Pou: With respect to the mortgage program, of course the person who gets the mortgage, knows exactly and fills out standard document and knows what the use of the mortgage could be. Now he will not be the lender of last resort for the bank. He will have an obligation with the bank and the bank will get some liquidity by placing this mortgage as collateral, so it is not that the homeowner is in some way being a lender of last resort of the bank. It is just that the bank is using its own assets to get international reserves at the time in which there is some liquidity shortage.
Mr. Davies: I am still a director of the Bank of England and I don't believe this was a liquidity issue at all. By international standards, the portion of our reserves represented by gold were relatively high, perhaps not by French standards where Daniele's bank includes an ingot or two since most French people like to keep most of their assets in gold. But by most global standards our proportion of gold has been relatively low and its has been a relatively low yielding asset. It was a decision by the Government to re-balance the portfolio in search of higher running yields and there was not a liquidity issue behind it.
Commodity Risk Management in Developing Countries - Bridging the Gap with Market-Based Approaches
Note: Please see my comments under #3, Commodities.
Discussion: Clifford Lewis - Senior VP of Strategic Planning, Chicago Board of Trade (CBOT); Richard Kwame Pepah, Minister of Finance, Ghana, also on Board of Directors for Ashanti Gold Corporation; Roberto Rodriguez, President of International Cooperative Alliance; Moderator: Markus Fedder, Treasurer of the EBRD (World Bank in Europe)
Moderator: (British) This will focus on commodity risk management in developing countries bridging the gap with market based approaches. We have some very interesting speakers with us. I am Markus Fedder, I am Treasurer of the EBRD - this deal with central and eastern Europe and the former Soviet Union. At the same time I was on the panel of this international task force looking at these issues of commodity risk management.
I am joined on the panel with the finance minister of Ghana, Richard Kwame Pepah, who has been in this post since 1995 and previous to that he was minister of mines and energy from 1993 to 1995. At the same time he is chairman of Ashanti Goldfield Corporation and will speak from that of finance minister and producer. Then we have Clifford Lewis who is with the Chicago Board of Trade where he is the Senior Vice President for Strategic Planning and International Relations. He is responsible for joint ventures with other exchanges and clearing houses worldwide. Before he joined CBOT he was an official with the World Bank and was with the U.S. Government with USAID. Then we have Mr. Roberto Rodrigues who is President of the International Cooperative Alliance which is an international NGO which unites and represents co-operatives worldwide. He probably represents more people in all of this room with 760 million people worldwide, representing nearly 100 countries. He also is a farmer and is the first farmer representative and holds many other distinguished positions in Brazil.
We want to present to you today, as the public, an issue which we have discussed among ourselves, the academics, and give credit to the World Bank and in particular to Nawal Kamel who chaired the international task force, for kicking off this debate and for bringing the parties around a table in order to focus our discussions on what can be done. We have had a number of meetings where we got togetherwe do not have the same viewsbut we had good debates. We have produced a paper which all of you have got a copy of. This paper is not a final product but to take the discussion one step further to further refine it.
I personally joined this task force after my first meeting with Nawal where I told her to get lost, but she convinced me that she is serious and wants to do it. She wants to set up pilot projectsso I joined.
Let me summarize in four words what this is aboutthe issue is the following: (1) more than 50 countries depend on 3 or fewer commodities for more than half of their export earnings; (2) commodity prices have been incredibly volatile so they produce a great risk for producers and consumers; (3) hedging tools exist for a lot of these products, they exist in the normal markets and are traded in Chicago, over the counter with houses and banks but the developing countries do not have access to these tools because (a) they do not have money to buy protection or (b) no one wants to take them because such tools imply credit risk when you are a counter party. That is the reason why we thought it was important to create an intermediary to help the producers in the field to deal with these issues so that they can create a better calculation basis so they are not at risk from factors which they have no control over. It is important that what we are working on is not meant to go against the market so that we are not dealing with a new fancy scheme or a new price stabilization scheme. What we are trying to do is provide a market based mechanism and allow those people who for credit reasons or because of poverty do not have access to these instruments or to gain access to instruments which they should have access to.
JV: Mr. Rodrigues, when the printing press was developed it left behind many people who were writing things out instead of those who were using the printing press. Globalization in the 21st century has had the same effect for the common people, the small person and therefore, let me comment to you that globalization has also had that same effect for the farmers in America. I know numerous farmers who got big thinking that they would always export to countries of the world. Now we have apples from China and wheat from India, so American farmers from a different view point are in your same position, therefore, in what you have said, how will you, even through you represent 760 million people, you are still are smaller in size from a cash flow standpoint and capitalization standpoint than many multi- national and transnational corporations--how will you protect yourselves--even though you have outlined it in your speech-- how will you build in protections that you still are not at a disadvantage?
Mr. Rodrigues: It is more or less the same for American farmers or Brazilian farmers with one small difference. Because of the dry climate you had and the lower prices on soybean, American treasury voted $7.4B of direct subsidies for corn and soybean producers. $7.4B of subsidies a different $7B is the total amount of credit for Brazilian farmers in one year--so this is a small difference. What I am saying is that I am not discussing this issue because I think that David won Golaith and I don't want the Brazilian fight against the U.S. Treasurer to be a disaster for the U.S. Treasurer.
We represent people we are not a trading organization. So what we want to do is to give our members opportunities to trade and arrive at better conditions of life. I would like to give you a big speech about what the cooperative movement is and what we are trying to do because during 150 years the cooperative movement has been intended as a third way for social economic development between capitalism and communism--like a flow of a river between two margins. But socialism--communism disappeared--we are now building another flow for the cooperative movement. One is market, cooperatives must be efficient, able organizations to give their members the second of the flow which is welfare and happiness. So our organization is very interested in these questions, because we have not only farmers but we have consumers, insurance, housing, energy, social cooperatives, lots of organizations and we think within this instrument with different sectors together through trade organizations. Then we are hoping for that but we are not a strong economic organization, just a political organization.
JV: Mr. Finance Minister, with the price of gold being down, and your country being dependent on gold to pay your debt, what are you doing to make it through this difficult time?
Mr. Finance Minister Peprah: So what are we doing when we suffer one of these shocks? Its very difficult. We cut our coat according to our cloth and then we also try to discuss with potential lenders and collaborators about assisting in the short- term what we may think to be a one time or short-time cash to us. As far as gold production and marketing is concerned, because we have liberalized that sector, over 80% of our gold is sold by Ashanti Gold Corporation and they are hedged so well at the price it is $260 this year, they are going to realize $370 an ounce for every production they make this year so we have not reached a point where the mines are closing. I will give you an example of how such a mechanism can work if we can discover a way of making work for the production done by smaller scale people. (I think he was cut off to get another question in).
Private Flows and Social Investments - Laying the Foundation for a New Financial Architecture
Note: UNDP works in partnership with the Prince of Wales Business Leaders Forum and in formulating public-private
partnerships worldwide. This was a rather pointed question which did not get the response I had hoped for but it caused two people in the audience to grab my hand and thank me for truth.
Moderator: Mark Malloch Brown, Administration - UNDP (Mark was formerly Director of Media for the World Bank and is British. He replaced Clinton's appointee to UNDP, James Gustave Speth)
JV: Made some comments on education of the investors - "How much of a return on this investment" and then I went on: "I see some, as I have analyzed and covered a number of these meetings, there are a number of tensions. I see some of those tensions exacerbated in the areas of public-private partnership. In the UNDP, you are familiar with that area. Because, I think and maybe I am extremely wrong, and this may sound like an oxymoron coming from someone who was in the investment field is that multinational and transnational corporations basically have all the power. So when you put together a public-private partnership, while civil society ends up having some say, most of the NGO's receive grants from a number of the corporations which are part of this whole big thing of who has the power. Therefore, I guess I am gravely concerned about "Joe-Average" because I am Joe Average whether I am here in America or over in Mozambique and somehow I am not sure that all of the key areas are being addressed--who has the power, who controls the power. The consumer does have much power but they don't want to be educated, they just want a return and therefore I share some of your concerns but I also bring out the growing power of multi-national/transnational corporations as I think consolidated through PPP where governments are giving up, handing over, or transferring some of their responsibilities to other entities as a result of globalization or the very sophisticated time that we live in.
Response: I think that in a sense it is difficult to put some of these things into 24 seconds. I see a wave of education on consumer and finance in this country. In terms of return on investments (social investments) have 4 or 5 funds which are outperforming the market--so you are going to see this convergence between social capital and return on investment. In terms of who has the power, Mr. Vanderbilt said, "Damn the public, I work for the stockholder." The public is becoming Mr. Vanderbilt and we have begun to see NGO's use shareholder resolutions to file resolutions against companies to say, "As a shareholder, me, Friends of the Earth, me IUCN, me the Wildlife Federation, we have shares in your company and as a shareholder--we invest in mutual funds and pension funds and we think you have to act differently in regard to this issue or that issue. There is one that passed on MorganStanlyDeanWitter, a shareholder resolution got 5% of the shareholder which said, "We think this company should look at the social and environmental implications of some of its investments, particularly as it relates to Three Gorges Dam in China. As a result of that, China is now going out to the Bank of America and private banks which are raising money for Three Gorges Dam, "The money you give to China to the China Development Bank will not be used for the Three Gorges Dam because we know your investors are active." But you are beginning to see the public flex some of its muscles with respect to multinational and transnational corporations. The power of the shareholder resolution when shareholders become stakeholders that is going to be a major turning point in the economy and in this country.
Workshop: Strengthening Corporate Governance
Note: My two questions say it all and their response provides great "food for thought."
Discussion Leaders: Jonathan Charkham, Adviser to PIRC Ltd., UK, also Bank of England, has written extensively on Corporate Governance; Judith Hanratty, Company Secretary, BP Amoco plc, UK; Mr. Kikkon, Consultant in Poland; Moderator Joanna R. Shelton, Deputy Secretary General, OECD
JV: I first heard the term public-private partnership at the Habitat II Conference in Istanbul and when I read that document, it was basically plastered with the phrase, public-private partnership. Since then I have learned and heard the term "corporate governance" a great deal. Mr. Charkham, does corporate governance stand alone, a part from public private partnership or is it a part of it? Therefore when you bring a government and corporation together, it appears to be a transfer of power of some kind from governments who don't have the resources which corporations have and therefore is corporate governance filling a void which government has just transferred to the new pubic-private partnership?
JV second question: I understand that Prince Charles and his non-profit, the Prince of Wales Business Leaders Forum, is forming public-private partnerships, and I am assuming part of global corporate governance, and he has worked with BP Amoco and has worked in Poland as well. I was wondering if you could comment on what the Prince is doing worldwide in this area.
Mr. Charkham: There are all sorts of reasons for me to refrain from commenting on what the Prince of Wales does (laughter). I don't know a lot about his enterprises. He does a lot of good in sponsoring a number of enterprises of this sort and the Prince of Wales and cannot give you a sensible answer. On the part of your question on de-nationalization, I am sure that my colleague will give you a more comprehensive answer than I can. Our own experience of the nationalized industries that we had was that with the best will in the world, governance was very difficult and the reason it was difficult was that although the nationalized industry was supposed to be managed at arms length from government, government could not refrain from intervening because in many cases they were consumers of public funds and our ministers quite naturally that if they were using public money they had to follow the money. In other cases they felt they had to interfere with policies like pricing because that got across some of the other policies ministers wanted to pursue.They interfere with investment--my colleague was talking about BP in its early days. We never really solved the problem at all. We had some good businesses and since privatization they have flourished enormously because after privatization you got rid of all of the ambiguities and in so far as you wanted the de-nationalized businesses to pursue, the non-commercial objectives, you dealt with it quite specifically. I am sure my colleague has much better information than I. (There was whispering as the second speaker from BP Amoco was beginning to talk which the tape picked up. Someone whispered something about "she got more than she would have hoped for...")
Mrs. Nikkon-Poland: We could have a seminar which would run for hours but from our experience I don't have any positive example of the government being an owner and creating a sound company and even from that perspective they have to be successful and they have to privatize as soon as possible and leave the government the role it is good to play but not as an owner.
Joanna R. Shelton: Could I also add that I did not hear you commenting on state owned enterprises as much as a transfer of power from the corporate sector through strengthened corporate governance and that somehow this is shifting balance of power and I have to say that I fundamentally disagree that this is what corporate governance is all about. To the contrary, you look at countries around the world and problems which many independent analysts have concluded were part of the problems like an inadequately developed regulatory infrastructure of capital markets and not have sufficiently good corporate governance and all of these were factors in the loss of investor confidence and what we are talking about in this forum at the WB and bringing in the private sector is to put in place the underpinning of a healthy economy in an international economy because if you don't have that infrastructure--whether it is bankruptcy laws, the institutions, bankruptcy judges or a good corporate governance framework, you are not going to have the foundation to allow that economy to withstand the stresses and strains which every economy is subject to. So this is not a transfer of power, I see it as a strengthening of a fabric of a modern economy in a world. I would paraphrase Foreign Minister Singh of India who took part in the OECD Ministerial, he said, "the debate over the role of government is over." The role of government is to put in place to allow the creative and entrepreneural spirit of our citizens to thrive and to flourish. The question is "Are the institutions capable of doing that?" and that is the question we are all trying to answer in cooperation with countries because there is no single model, there is no desire "thou shalt do x, y or z" . What we want to do is talk to countries and companies individual and as part of regional round table to say, "What are your needs and how can we help you put in place this infrastructure?" I think not only national economies will be stronger but the world economy is no more the collection of all the national economies which comprise it. So I see this as a very important way to strengthen government, and their capability of development and job creation for their people.
Mrs. Hanratty (BP): I would like to comment since you did say the name of my corporation in your question and to stress and re-emphasize that we are in effect 190 small businesses --we run it very much as 190 and if we succeed with our merger with AMOCO. (I think she meant Amoco), ....transfer of knowledge through the PWBLF and through the Trust system which we are very happy to support and the experience we have gained in the small entities which comprise our very large group and they operate much like small businesses and have dialogued with very small emerging businesses which the PWBL has supported to try and transfer some of that knowledge and good practice. That is an enormously part of brining the enterprise side of governance into the forum.
The last paragraph of World Bank President James Wolfensohn says it all,
"Will we have the courage and the leadership to reach out? Will we finally recognize that we live in one world? Look around. We are linked by financial systems, we are linked by communications, we are linked by environment, we are linked by trade. Migration knows no borders, crime knows no borders, drugs, war and peace know no borders. We need leadership to explain to our people that our national interests are international."