PM: Thank you Bob. It's good to be back here at the World Bank. Today in Washington I've had a series of meetings with the Secretary of Defence, Bob Gates. Also with the Secretary of Energy. And also with the Senate Leadership, both the Majority Leader and Minority Leader. We also were just now with Senator McCain. So today, we've been involved in further legwork in the Australian-US relationship, the Australia-US alliance.
Also, I would like to indicate today I think the concerns of all Australians about the injuries which have been suffered by our troops in Afghanistan. This has been the subject of commentary and expressions of concern from many of the Senators that I've met this morning. And all expressing their concern and their support for our troops and all troops currently in the frontline of battle in Afghanistan.
Also, here at the World Bank what Bob Zoellick and I have been discussing of course, the challenges which confront the international community in the lead up to G20. And also the need for the international community to rise to the challenge and forge the political consensus necessary to deal with the global financial crisis and the global economic recession.
Part of that's challenge lies in what's occurring now in developing economies. What's occurring in emerging economies. This is a real concern to those economies in themselves and of course the wash over effect, to the global economy at large.
Much debate in recent times has legitimately focused on unfolding developments in Central and Eastern Europe. But more widely, across the developing world, real challenges are emerging.
Therefore, as we approach the summit in London, it is important for all G20 leaders to bear in mind equally the impact of this recession on those who have the least resources available to them, to deal with its consequences. Those who do not have levels of social security or support in their countries, that's where the work of the World Bank is so important. And I'd commend the work in which the World Bank is currently engaged, advancing the cause of concern of those countries and their citizens.
ZOELLICK: Well, we very much appreciate the partnership that we have with Australia and in particular, with my good friend Prime Minister Rudd.
A few weeks ago we worked together to put together a very important support package for Indonesia, which is the country that typifies those that are feeling the stress of this financial crisis through no fault of themselves.
They actually had a very good fiscal program, but when the President and Finance Minister approached us to see if we could offer some support, we at the bank working with Australia, Japan, and the Asian Development Bank were able to put up a package to help Indonesia be able to run a very modest budget deficit through safety net and infrastructure support.
Before the crisis, we were also working with Australia in some of its special challenges for the Pacific Island states. We have a special office in Australia where we've actually also engaged some Chinese officials so we can try to work cooperatively with China and Australia, on some of the particular development challenges in that region.
And over the past weeks, I've spent a number of hours talking with the Prime Minister, because as I talk to Prime Minister Brown and others in preparation for the G20 meeting, Prime Minister Rudd has been one of those leaders in trying to look at the full set of actions.
The fiscal stimulus program of which Australia had a very good package, the banking recapitalisation, Australia's banks are in better shape than others, but this issue is going to be critical globally. And also, some of the regulatory and supervisory challenges that one has to take on.
And, one that the Prime Minister and I share a particular interest, keeping open trade markets. Australia's been a very strong and vocal supporter to try to complete the Doha Round, and to resist protectionist actions and these are some of the points that the Prime Minister made personally at the last G20 meeting that we both attended.
So I'm really pleased he could take time in this, in his visit here so we can compare notes. We'll both be in London next week and I look forward to working with him there.
JOURNALIST: Mr Rudd, a domestic question. Joel Fitzgibbon is allegedly being investigated by his own department. What do you think about the behaviour if it's correct and what are you going to do about it?
PM: I've only just become aware of these reports as they've just emerged in, as I understand, the morning newspapers in Australia. I'm advised that neither the Secretary of the Defence Department nor the Chief of the Defence Force staff have received any such reports.
I'm further advised that the Secretary of the Defence Department is conducting a further investigation into this matter. And therefore, I will await the outcome of that investigation.
JOURNALIST: But is it proper for the Defence Department though, to be investigating in this instance?
PM: Well as I would simply repeat what I've just said, my advice is that neither the Secretary of the Department nor the CDF have received any such report. Therefore, I will wait to see the outcome of their investigation. Plainly there are always tensions, well there have been for quite some time, within or between Defence Ministers of the past and the Defence Department. There's nothing particularly unusual about that.
But on this particular matter I simply relay to you the advice I've just received from Canberra.
JOURNALIST: There seems to be a difference in standards between the people on the frontline and the (inaudible) in Canberra. Doesn't that concern you?
PM: The men and women in uniform are there with the full support of every citizen of the Commonwealth of Australia, and as I found here in Washington today, with the support of our friends, partners and allies around the world. Let's see what other facts emerge in the investigation which the Secretary of Defence has commissioned on this matter. And as I said before, the advice to me was that neither he nor the CDF have received any such report.
JOURNALIST: Prime Minister, isn't this Defence investigating Defence?
PM: Well, let's get to any further facts on this matter. As I said at first pass, if I'm advised that neither the Secretary of the Department nor the Chief of the Defence Force have received such a report, then I think that speaks for itself. But the Secretary of the Defence has commissioned a further urgent investigation we will wait to see the outcome.
JOURNALIST: Prime Minister, have you spoken to Minister Fitzgibbon. Are you aware of his relationship with this Chinese businesswoman. Have you spoken to him about it, what investigations have you made, will you be speaking to him and seeking assurances from him?
PM: No, as I said earlier I've only just become aware of these reports, as they've just emerged in the morning newspapers in Australia. And no I haven't spoken to the Minister. Secondly, my advice is that this has been a family relationship with the Fitzgibbon family going back some 16 years.
JOURNALIST: Prime Minister on the matters, a question for both of you, you spoke of your concerns about developing nations and the position which they are put in through no fault of their own. Is there a concern that that would cause some political stability, security problems within those nations. And to what extent to Mr Zoellick is that in your mind?
PM: Well, one comment from me and then I'll turn it to Bob Zoellick. Bob Zoellick referred to comments I made at the first G20 Summit here in Washington in November last year. Very simply then that, the global financial crisis was becoming a global economic crisis, which is becoming a global employment crisis. And for some countries in around the world, in turn becoming a social crisis, and for some again a political crisis.
And that basically is, as how it unfolds. And my views since November last year haven't changed. And if you look at some countries around the world, we can already see the emergence particularly in the developing world, of social tensions rising.
That is why it's absolutely important that when we get to London, we are not just focused on the developed world, but the developing economies as well. None of us want to see social crisis, political instability in across those economies and across those countries. It is not good for them.
But furthermore, it is not good for the international community or the global economy as well. We are in a globalised world where what happens in emerging economies, what happens in developing economies washes back in through the financial system to the rest of the global economy as well.
So there is enlightened self-interest here, and there is the right thing to do which is to look after those who are least able to look after themselves.
ZOELLICK: I normally make the point about the financially, economic, unemployment, social, political crisis. But since I lifted it from the Prime Minister, it's only fair that he gets to use it first.
You know last year -
PM: (inaudible)
ZOELLICK: I get tired so I just adopted it myself though. Imitation is the highest form of flattery.
During the food crisis, what we saw was that there was over 30 countries that had serious social and political unrest. Some governments being toppled, people in the streets, and we're already seeing this now. You saw it in some of the Central and Eastern European countries. Haiti lost governance and had a hard time recovering. And that's where I can in a sense, illustrate this for you as Dominique Strauss-Kahn, the Head of the IMF and I had an informal session with the Senate Foreign Relations Committee in the US last week.
And as you start to go through some of the countries that people are concerned about, Pakistan and Afghanistan, you have to ask yourself well how does this financial crisis affect their overall stability. The Haiti, the Liberians, obviously some of the countries in the Pacific that are already vulnerable as you start to get economic slowdown, many of them have relied on remittances from workers. So some of those people are being sent home.
So, as this crisis lengthens and deepens, I think one of the great concerns will be the social and political aspects of it, and the wave effects. And that's one reason why the Prime Minister and I, are particularly focused on the protectionism issue because as unemployment increases, people will start to get pressured to do something. If they feel that they've used other tools, they might to start to take steps that become highly negative.
So as I said last week, I think 2009's a dangerous year, economically. The IMF just came out with its forecast for a decline in global growth of about one per cent. You haven't seen numbers like that since 1945. It really means the 30's.
And to put it in very human terms, we've worked with Australia and the other countries in the UN on these millennium development goals, and one of the ones that is most poignant is infant mortality. We estimate that with the slower growth another 200 to 400 thousand babies will die every year. So this is one of the reasons why the preparation for the G20 session which Australia has played a key role in is very, very important because while much of the focus has been on the developed world, it's a global crisis and we're going to need a global solution.
PM: Just before we go into that, just to add to what Bob's said, that's why we're a participant and a close supporter and co-funder of the World Bank's global food crisis response. This is all happening at the same time, often it doesn't make the front pages of our newspapers or those in many western countries but it's real, it's happening and that' why we've all got to play our part.
JOURNALIST: Prime Minister and Mr Zoellick, the President of the European Union has described the spending packages by Obama's Administration as the road to hell. I'd like you both to comment on that and I ask, when we come out of this crisis, given there's so much government money now washing around in the world, how do we not have hyper inflation, how does the United States begin to pay back the debt that's now building up?
PM: I'll make, I haven't seen the text of those remarks and so let me make general point in response to the general proposition so I don't characterise the remarks of the Czech Presidency. Firstly the IMF, the International Monetary Fund has said that what we need in the global economy is fiscal stimulus of around about two per cent in calendar year 09, and about two per cent in calendar year 10.
My advice is that what you have from the US Administration is something in the vicinity of about two percent in calendar year 09. Therefore, it's consistent with considered international opinion from what has historically been a conservative institution in the International Monetary Fund. That's the first point.
Secondly is that the alternative of not acting, the tens of millions of people who would be out of work around the world were it not for this level of fiscal stimulus by those governments, members of the G20 and beyond, who are currently investing. That's the second point.
And thirdly, is that as we've said in Australia and you'll see this reflected also in the comments most recently by President Obama, that once you do see a return to trend growth in the global economy, that of course a medium term fiscal exit strategy is necessary. For us that means when growth returns to three percent plus, you take action to restore budgets to balance and to use those funds to pay back temporary borrowings.
President Obama in his remarks last night to, on national television in the United States was talking about the action he plans for reducing a budget deficit here in this country. Take these actions together, stimulus in the short to medium term, fiscal recovery strategy in the medium to longer term to deal with inflationary challenges down the track, that is a proper conservative approach to economic management under these extraordinary global economic circumstances.
ZOELLICK: I just add three brief points. One, you know with all the discussion about stimulus programs, people recognise this is a very uncertain environment, so there's questions about size, there's questions about composition of tax and spending, and it's one reason the Prime Minister has come up with an idea that I certainly will try to also push, which is that the G20 should build in some feedback loops. None of us know for sure how this is going to work, so there needs to be some mechanism, perhaps through the IMF to be able to review what's working to see what needs to happen over time.
Second point, as the Prime Minister said, you do have to build in an exit strategy on the fiscal side, otherwise you actually could start to create problems for currency values, trust in markets and so there is this fine line you need to be able to meet the needs for aggregate demand with the fiscal expansion program, but you also need to show you have a route back.
The third is on the monetary side. You need something similar. Both Chairman Bernanke at the Fed, and John-Claude Trichet of the European Central Bank have emphasised and talked about the tools they would use at the appropriate point to withdraw liquidity. But of course the devil is in the details and the timing of that. And that's one reason why this crisis is so multi-dimensional is that you have to act now, but you do have to be ready to withdraw at the appropriate point too.
JOURNALIST: To both of you, do you see the need for a super regulator coming out of these G20 deliberations for (inaudible) existing institutions like the FSF, and the International Monetary Fund. Do we leave an additional body do you think, a question for both of you?
PM: The future shape of the global regulatory regime, obviously the subject of discussion between governments now. I think the important guiding principle for all of this is that at a minimum, that regulatory regimes on systemically significant matters and in relation to systemically significant institutions is coordinated and consistent across jurisdictions.
There is a separate debate then, between whether you have complementary measures across jurisdictions, or coordinated or consistent measures across jurisdictions, or on the other hand a single regulator. I know the British Government for some time has suggested we put forward the idea of councils or conferences of regulators, which is almost a halfway house between those two.
I think it's important that we leave time for heads of government to work their way through these things but I say this in absolute clarity - there must be consistency and a coordinated approach to the future regulatory regime, otherwise you simply have capital fleeing from one regime to another, to move from tighter regulations to more slack regulations, and that in fact creates systemic problems for all of us given the significance which some of those economies may represent to the overall global economy into the future.
JOURNALIST: Do you support the British position by the way (inaudible).
PM: I think the British position is worthy of continued and close examination in the days ahead.
ZOELLICK: I'll just be very brief. I agree with what the Prime Minister said. I just mention that I think every country now is going to be considering how to deepen their regulation, but obviously they have very different systems.
The United States is a very complicated system, you know as a federal country and they've got some (inaudible) insurance and some different banks.
I think you're going to see every one of these countries, look to see how they cover all institutions and how to do so better, and one of the striking things is that some of the institutions that got in trouble were unregulated but some of the institutions that got into trouble were very well regulated so there's lessons to be learnt.
I think on the financial stability forum, that will also I think go through a change in London. That used to be for more small group of countries, it's now expanding and includes some of the developing countries, so some of the points that the Prime Minister mentioned about building coordination, I suspect might be done through efforts at that forum.
[ends]