JAMES WOLFENSOHN

October 8, 1998
	Amidst the backdrop of a worsening global economic crisis, the annual meetings of the World Bank and IMF concluded today in Washington. James Wolfensohn, the president of the World Bank, discusses the international community's plan to stave off a worldwide financial meltdown.

Oct. 6, 1998: The IMF and World Bank begin their annual meeting. Sept. 16, 1998: Treasury Secretary Rubin assesses the global markets Sept. 7, 1998: Economic strife in South Korea creates "IMF orphans." Aug. 26, 1998: Why is the Russian market collapsing? Aug. 11, 1998: One World, One Market: Is globalization working? Jan. 1, 1998: The connection between the IMF and world economies. June 11, 1996: James Wolfensohn responds to criticism from conservatives and liberals over the Bank's practices. Browse the NewsHour's coverage of economic issues, Asia, Russia, and South America.   The World Bank	JIM LEHRER: Now the other major story of the day, the economic crisis. Today, the financial leaders of 182 nations ended the annual Washington meeting of the International Monetary Fund and the World Bank. The conclusion was marked by continued sharp drops in world markets. A 6 percent plummet in Tokyo obliterated a big gain Wednesday and dragged down major indexes in London, Paris, and Frankfurt. On Wall Street, the Dow Jones Industrial Average was down 275 points at one time but rallied to close down only 10 points at 7731.91. The technology heavy NASDAQ index took a real beating, losing 43 points, to close at 1419.12. We get the perspective now of World Bank President James Wolfensohn, who's with us for a Newsmaker interview. Mr. Wolfensohn, welcome. JAMES WOLFENSOHN, President, World Bank: Good evening. JIM LEHRER: What was accomplished at this Washington meeting?
	The Washington meetings.
	JAMES WOLFENSOHN: Well, I think the first thing that was accomplished was to bring together a common sense on behalf of the nations of the world that we're in the middle of a crisis. And the recognition was very important and the recognition that it's not something that will be solved by money alone, it has to be solved by good programs that we can introduce both in the countries and in the world financial system. I think the most important thing was getting the focus on the recognition that if we don't do something, we'll have a real and continuing crisis. JIM LEHRER: Help us understand how serious this crisis is. The president said it's the most serious one in 50 years. Paul Samuelson, Bill Greider, others have talked about the potential for a worldwide depression. What do you think it is? JAMES WOLFENSOHN: Well, I think in my working lifetime and certainly since World War, it's the most serious challenge to world stability. It's very clear that you've got a crisis in Asia. It's clear that you have a crisis in Russia. More than that, if you read Alan Greenspan this morning, you'd see that the impact is now coming back on our country. And I think the thing that we all need to consider is that we are part of a global universe at the moment, that we used to think of the developing world as something separate. Today we don't, and I think the assessment that we have to make is the extent to which what's happening in these countries is going to affect us. And I would conclude that it is going to affect us unless we do something about it. JIM LEHRER: Do you think the leaders who were here left now understanding, for instance, this whole thing started in Thailand - JAMES WOLFENSOHN: Right. JIM LEHRER: And it wasn't very long before Mexico had problems because of what had happened in Thailand. Do you think now all the countries of the world realize that what happens in Thailand is important to them? JAMES WOLFENSOHN: I would be amazed if anyone doesn't. It's my hope that they do. It's very clear that all these markets are now interconnected. And I think what came through to me, Jim, in these meetings was that there are a lot of countries who are not on the top list, who are good countries but are now being starved for credit and are trying to stop getting into the period of crisis. And that is perhaps the hidden crisis. That's what we're trying to avoid. It's to try and restore confidence, so that liquidity turns to the market and we can support those countries. JIM LEHRER: Well, let's talk specifically. One of the major problems has been - the realities has been with the new high-tech world that we live in - somebody's got a lot of money - a huge investor - JAMES WOLFENSOHN: Right. JIM LEHRER: -- has a lot of money in Thailand -- JAMES WOLFENSOHN: Right. JIM LEHRER: -- or in Malaysia, or in Russia, or wherever. Suddenly things go sour, with a flip of a wrist, it's gone to another country and leaving chaos behind. Did those 182 leaders figure out a way to stop that? JAMES WOLFENSOHN: Well, I think they did, and I think Michel Camdessus of the fund was talking about transparency - JIM LEHRER: The IMF, head of the IMF. JAMES WOLFENSOHN: The head of the International Monetary Fund - was talking about transparency. He was talking about the need for understanding, for controls of the supervision, not controls of the flow of funds but supervising these things, and what you see has happened is that in many cases these countries were built up because of the flows of funds coming in. Two years ago $350 billion went to developing countries. JIM LEHRER: $350 billion. JAMES WOLFENSOHN: $350 billion. JIM LEHRER: Came from other countries into those - JAMES WOLFENSOHN: Into those developing countries. JIM LEHRER: Okay. JAMES WOLFENSOHN: $100 billion of it into direct investment, but the rest bank loans and purchases of bonds. This year it's down by about nearly $200 billion. So that money has gone out, and the countries find themselves in serious shape. It's like you have a mortgage and your mortgage is called and you got to repay it and you got to refinance it, it's pretty tough, and you do it on a national scale, when everybody's lost confidence in the developing world, you have a problem.
	Solving a global crisis.
	JIM LEHRER: How do you solve this globally, Mr. Wolfensohn? If you take an institution - an institution or a company or somebody who - a bank or somebody that invested $2 billion somewhere and they say, oh, my goodness, they got a problem in this country and are you saying that for the good of the global economy there must be a structure that forces those folks to keep their $2 billion in there and lose it? JAMES WOLFENSOHN: No. I'm not saying that for a minute. I'm saying that if they knew in advance, they may not make the investment. That's the first thing about transparency. In the case of Indonesia, for example, $60 billion was loaned by western banks to private companies in Indonesia without them knowing what was really going on in those companies. So you have to put some little blame on the investor because they're making imprudent investments. But what I'm suggesting is that for this to work, you really need to have as much information about investing overseas as you do about having investing in this market. That will help the problem of quick flows of money in and quick flows of money out. But beyond that, what you need to have probably in many of these countries is some barrier to the quick flow in and quick flow out money until those markets are developed, and that is something which I think was discussed extensively at the meetings this time. JIM LEHRER: But that used to considered a no-no, did it not, I mean, the free flow - free market, and take care of itself? JAMES WOLFENSOHN: I think all of us today think that the free flow of the markets is the point that we should go to. I don't think there's much doubt about that. But in fragile markets, it's really needs to be put in over time, and I believe that that issue of capital controls at the front end for the quick money in and the quick money out is something that the fund and many others are now prepared to accept. JIM LEHRER: And you believe that each country should have the right to do that, to regulate that. JAMES WOLFENSOHN: I think each country has the right to do whatever it wants to do. JIM LEHRER: Yes. Where does the World Bank fit into this, into the solution now?
	The World Bank's role.
	JAMES WOLFENSOHN: Well, we fit into the solution in a very important way. All the headlines are about the money flows, but the real problem is the social impact. Behind every one of these financial crises there are enormous human crises. You've got 17 more million people in Indonesia living under a dollar a day. You've got people out of jobs. You've got people without food. You've got people without hope. And the role of the bank is to try and deal with those social questions because unless you deal with the social issues and the issues of a judicial system, of a financial system of clean and transparent government, if you don't deal with those things, any amount of money is not going to solve your problem. So the bank comes in not only at the point of putting the package together of money but really in the work that follows in the next two, three, four years, because those problems are cultural problems; they're problems of longer-term, just social issues in our country are problems of longer-term. And that's what the bank does. JIM LEHRER: You made a speech during this time, which was widely interpreted as saying that you think the emphasis has been too much on fixing financial systems and not enough on the social systems, correct, is that right? JAMES WOLFENSOHN: Yes. I believe that. JIM LEHRER: Is it correct to read that, that you're a little bit cross-wise with the IMF on this particular point? JAMES WOLFENSOHN: No. I don't think so. I think the Fund, itself, is anxious to see social stability. But I represent the organization like the health ministry does here and the education ministry that are going to a budget and saying we need more money for the social purposes. What is very clear in this crisis is that we have to take into account the social issues. In Russia, if you have revolution on the streets and miners lying on the tracks, you're not going to have a return of confidence. JIM LEHRER: It doesn't matter what the banks are doing? JAMES WOLFENSOHN: It doesn't matter. And the same in Indonesia. If you have 60 million people living under $2 a day and you don't do something for them, you can throw all the money you like to balance your accounts and you're not going to have peace and stability. That is what it is that the bank is concerned with, and it's what the American people should be concerned with too, this issue of peace in the world, this issue of stability. And I think what has come home in these meetings and I hope will come home to the American people is that these are issues which relate to us. As Alan Greenspan said, you can see it in the financials. But for our kids, if we're going to live in a peaceful world, we really have to take that leadership and responsibility at the social and human level as well. JIM LEHRER: Now whose responsibility is it to go from here to there? Who is there - is there a group of people or is - three people - is it the President of the United States, is it the G-7, is it the head of the World Bank and the head of the I - who's in charge of getting this situation solved? JAMES WOLFENSOHN: The problem is there's no one leader. In the first instance it's the government of every country. As you can see, the government of Russia has its own ideas; the government of Korea has its own ideas. And the government of countries that are not on the list have their own ideas, so the first is that. The second is really those who could help those countries in terms of money, in terms of advice, in terms of counsel, and you point there to the G-7 first of all, because that - JIM LEHRER: They are the biggest industrialized - JAMES WOLFENSOHN: The biggest industrial countries. JIM LEHRER: Right. JAMES WOLFENSOHN: It's the United States, Germany, Japan, and so on. They're the countries with resources and they're the countries that provide the most trade with these developing countries. JIM LEHRER: But what is their job? What must they do that they're not now doing?
	What needs to be done?
	JAMES WOLFENSOHN: Well, they need to, first of all, focus their attention on these countries. In our country, the United States, we haven't put up the money yet for the International Monetary Fund. And it is the Monetary Fund that is concerned with the immediate crisis in terms of stabilizing the financial system, and so it's very difficult for our country to lead, when we've not made our contribution to the Fund. In fact, the United States has not put in additional funding for these countries in terms of paying anything out. They're dependent on the international institutions like the Fund and ourselves. So we turn to the G-7, and it's really the action of the G-7 in stimulating trade, in putting up resources, which is necessary to provide markets and provide support and confidence to these other countries. JIM LEHRER: But there is - it's impossible then to really work out a master plan that comes out of a meeting in Washington and says okay, we're going to go and solve this problem, there's just too many elements. JAMES WOLFENSOHN: There are many facets to the problem, but I think what emerged at this meeting is, as I said at the beginning, is a sense of a common goal, a sense of a common challenge, a sense that we're all inter-related, and I have a sense that under the Fund in terms of the financial overlay, with the support of the G-7, and assuming the governments do well, and with the support of the World Bank, we'll get through it. Now you can say, Jim, that's no single leader and it's difficult. Well, it is difficult. JIM LEHRER: Do you have any sense of optimism? I mean, where does psychology come into this? I mean, like today, you know you had the meeting and everything was supposed to be terrific when the world markets reacted negatively to this. JAMES WOLFENSOHN: That's right. Well, the major issue is one of confidence. These flows of funds that go to developing countries are made because people have a sense of confidence, and at the moment, there is a lack of confidence, and you will see a return of confidence when investors through the media recognize that the problem is contained and there are then growth opportunities. In all the problems in the past that we've had, both with savings and loans in this country and the oil crisis at Mexico, the moment of crisis is the most difficult moment. Everybody panics. But somehow a little time afterwards people return to invest in Mexico; they return to invest in Latin America; and it'll be my expectation that, like other crises, we'll get through this. But this clearly is a different crisis than Mexico, more global in scope, and I think we've got our work cut out in the months and years ahead. JIM LEHRER: All right. Mr. Wolfensohn, thank you very much. JAMES WOLFENSOHN: Thank you.

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