Transcript of the speech by Jorge Quiroga, Former President of Bolivia, member of Club de Madrid at the Plenary Session of the IV Astana Economic Forum

Transcript of the speech by Jorge Quiroga, Former President of Bolivia, member of Club de Madrid at the Plenary Session of

the IV Astana Economic Forum

Thank you, John, thank you, Mr. Prime Minister, fellow panelists, ladies and gentlemen! It’s a true pleasure to be here at this IV Astana Economic Summit in your beautiful city. I belong to the Club of Madrid, to my son’s disappointment, it is not a soccer team, he would have preferred Barcelona, but is a gathering – the Club of Madrid of former heads of government and state from over 50 countries, there are more than 80 of us, and it’s a very diverse body with a wealth of experience in public policy with a combination of people that come from developing countries, developed countries, and we work on several initiatives, one of them – very pertinent to this Forum here - working with the South Korean President of last year’s G20 forum. We collaborated with him through several workshops and made recommendations vis-à-vis what that forum should entail and recommendations for the G20. In that regard, let me divide my comments in three areas: 1) changed economic context that we live in; 2) is the G20 the appropriate venue for global governance? 3) some of the challenges for that global governance that we face.

1) The changed context – you might think from Latin America where I come from – what relationship do we have to the Asian part of the world? Well, in the late 90s the Thailand-Indonesia-South Korea currency crisis was felt in Latin America to the degree that we experienced what we call “the lost half-decade” between 1998 to 2003. If back then, had you predicted that in this first decade of the new century we could have gathered in the place that created or at least was a part of financial and economic difficulties – South Korea with a new global governance, not the G8, but the G20 and had you predicted that at that table Latin America would have 3 of the 20 seats, and Latin America could have said: “We have quadrupled exports, we have tripled remittances, we have doubled the flows of credit and tourism, we have reduced poverty and inequality, and we are concerned about the European crisis, about the U. S. quantitative easing, or the Chinese surplus, people would have thought you were berserk. It was a bizarre thing to have said a few years ago, but that’s how much the world has changed. And it has changed because the developing countries like Kazakhstan or Latin America have done our homework on the fiscal side, on the monetary side, on the exchange rate and financial regulation, perhaps, much better than some of the developed countries have done. And clearly, the growth of Asia and incorporation of hundreds of millions of people into middle class consuming commodities has dramatically transformed several developing countries. South America where I come from is like Kazakhstan: lots of energy, lots of food, lots of minerals, you’re closer to China – the big buyer, we all feel the effect and the impact of that dramatic transformation. That’s how much the world has changed.

2) Now, in that regard, the second point: is the G20 the appropriate venue, what is the ideal setting? If you ask any particular country, they would tell you: “Show me the table of rankings, show me where my country’s ranked, if I’m number 10, then I want G10, if I’m number 25, then I want G25, or if I’m number 48, then I want G48”. You want a large enough a gathering to be able to include you. But all things being equal, the G20 is a big step forward from the G8. The original gathering of the G20 was of course 22 countries, it was G20 plus South Africa Soccer World Cup finalists, Spain and Netherlands. So if you do well in soccer, you can join these meetings. And the gathering, I think, is important, insofar as in the future it takes into account three elements: 1) civil society deliberations and suggestions like the ones we are about to generate in this Forum; 2) that the countries that participate do so representing the regions they come from and not just say: “I’m Mexico, I’m Brazil, I’m happy to be here, and I will not discuss Latin America, what G20 has to do or not in the future”. Same thing applies to Africa and Asia countries. And, 3) coordination with the UN, World Banks, IMFs of the world.

3) I think of the specific challenges for the G20 (and I will close with this): 1) progress has been made but not quite finished – the governance structure of the international organizations. There is no logic in the XXI century that can justify the current shareholding structure of the IMF or the World Bank. Some European countries per unit of GDP vote 4, 5, 6, 7 times more than emerging economies like the ones that are represented here. There is no logic today for the organizations where the U. S. retains the veto power over the IMF. There is no logic to have wisdom to be cornered by the Europeans and Americans whereby they each run the World Bank or the IMF with their own national citizens. It will be interesting to see if the impetus behind change of the shareholding, change of the structure will also get to the top of the organizations where the most qualified citizens, he or she, wherever they come from, can lead or chair some of these organizations. And in regards to development, I think South Korea was a good step forward, we are not looking only at financial issues, but development, aid, trade, infrastructure and the concerns that we mention here. China is very good driving up the prices of food and fuel, if you are Kazakhstan, or Peru, or Columbia, Argentina, perhaps, you like that, but all the countries that have to import food and fuel, that creates a big problem for them not having stable prices, and it brings about huge political problems. The final point on this new G20 world-wide arrangement that is beyond my purview and we’ll be hearing very bright smart people talk about that, we’ve just heard Professor Mundell talk about this: the world needs a stable economy, what should be the reserve currency for the world? From what I see there is almost a reserve currency today, that is the “dollaruan”, the dollar mixed with the yuan, and it is subject to forces that really affect the economic happenings in the planet: 1) the U. S. doing the quantitative easing, when they ask me for a translation of the term in Spanish, I tell them it is called “emission inorganica”, an inorganic emission or printing press. Just to have an idea of the scale, the Federal Reserve between the QE2 plus the rollovers is printing five Kazakhstans in six months or almost a Brazil per year. That’s a lot of printing. And when you take into account the fact that China pegs its currency with the dollar, then you have a situation of devalued dollar, hot capital inflows, with appreciating currencies in Brazil, India, South Africa and other countries, and the manufacturing powerhouse which is China staying competitive, that will bring about a lot of different complexities and issues if that is not discussed and addressed in a Forum like the G20. I think it will be important to see a movement where the reserve currency country - the U. S. – and its overwhelming might comes from that, not so much from military or its economy, the fact that the U. S. has close to 85 per cent of the world’s foreign exchange transactions conducted in its currency and close to 2/3 of the world-wide reserves is what gives it a lot of leverage and clout, but when they print like mad, and the major manufacturer ties its currency to it, it creates the problems in all the countries. The printing press should be stopped or slowed down, the yuan should be made convertible slowly but surely, and I hope that Europe is able to address these problems with what an inevitably be debt restructuring of some minor countries to have the euro be an anchor that can participate in the formation of the world-wide currency. And also that in other countries we work on regional arrangements. There is no reason why my country has to be paid in dollars when we ship gas to Brazil, we’d rather be paid in Brazilian currency anyway, but I think we all have our partner share to do to move to the world that is more stable and predictable on the economic side. And, in that regard, I think forums like this are very important, the G20 is open for this types of gatherings, we saw this when we worked with Club de Madrid, so I hope that deliberations here are rich, productive, taken to the G20, and I think the world would be a better place when the voices of people from Kazakhstan or from Bolivia in forums like this can be heard and taken to the G20 events. Thank you.

John Defterios: Mr. President, what we have here with your comments fresh in our minds, there was a great hope, there was a rapid transition from the architecture of G7, G8 if you will, into the G20. Do you think the G20 has found its footing? I talked to a number of different political and economic leaders in the last six months that were hoping we would see a greater cooperation and not economies operating in silos. We don’t seem to have that spirit of the plaza court in the mid-1990 in this larger architecture. Should we be more effective in your view?

Jorge Quiroga: Yes, John, I think you can always be more effective. I would say that the G20 as a response to the economic crisis, the Lehman happenings of 2008, was effective in putting out the fire, shall we say, stage 1, and put forth some financial sector reforms, things that we always took for granted, 8% of capital in banks for real and not the hanky-pankies of derivatives of Fannie Maes or Freddie Macs overleveraged to the hilt putting in jeopardy the financial sector, so it was a firefighter stage one, it was fine, then on the second stage and further stages it remains to be seen whether it will remain effective in terms of policy coordination. I think there is a lot of talk about the G20 or the G2, I think there is a G2 in the world, quite frankly, two unelected autocracies that are very influential in economic happenings. The Federal Reserve Board in the United States and SAFE - Administrator of foreign currency - in China, and I think if what they do in terms of QE2 and printing out dollars and pegged currencies is not put on the G20 table, is not addressed, then the rest of the countries will start paying the price of the lack of addressing that, whether it is Brazil, Mexico and Latin America, whether it is South Africa, whether it is Kazakhstan, you’ll start paying the price of the cheaply devalued U. S. dollar with the Chinese yuan pegged to it with hot money flows with very competitive manufacturing from China – that will create all kinds of issues, so I think the challenge that is still on the table is whether the G20 will be able to move from good firefighting to good building and harmonizing the challenges of the XXI century when it comes to these new issues.

John Defterios: Great, one quick follow-up. We’ve seen a 30 per cent rise in oil prices which puts an incredible amount of pressure on Latin American countries and other developing countries around the world. With removal of one security threat can we move to lower prices and see the dollar recover with this removal of the security threat, in your view?

Jorge Quiroga: I don’t know if I could predict oil prices, I’d be rich in Chicago instead of here. I think it remains to be seen where it goes. I would tell you that high oil prices and high food prices are a blessing in Latin America south of the Panama Canal because the Beijing Wall and Latin America have moved to the Panama Canal. South of the Panama Canal we all export some type of energy or food so high prices are okay in South America. The Central America and the Caribbean are a different story, they import energy, they import food, and I think you can make that case here vis-à-vis the benefits of Kazakhstan versus the neighborhood. So China means different things depending on what country you are. I think what is critical is to look at regional arrangements where you can move towards more stable food and fuel prices. I don’t know if the regional hedging mechanisms, regional development banks that guarantee you more stable prices but to me that is essential to put on the integration table because if you do not, you find that spikes in fuel and food bring about a lot of political instability, political unrest, and it would be a huge paradox that the political transformations in the Arab world could as a side effect bring political unrest in fairly stable democracies in Latin America or the parts of the world because of the skyrocketing fuel and food prices. I think the best way to address that is through regional means, I’ve heard a lot about what’s been done in Kazakhstan with the neighborhood to have basic prices because everybody is better off if the neighborhood is stable in terms of fuel and food prices, and that’s subject to the spikes that can bring about unrest that we see on CNN transmitted to the rest of the world.

John Defterios: Great, thank you for taking the questions. I appreciate it.