10:15 A.M. EDT

Real Audio of Briefing

MR. DENIG: Good morning, ladies and gentlemen, and welcome to the Washington Foreign Press Center. We are delighted to be able welcome back Under Secretary of State for Economic, Business and Agricultural Affairs, Alan Larson.

He has just returned from Brussels, where he was involved in talks relating to preparations for an Iraq donors conference in October, so we are delighted that he is able to come here so quickly after these talks to brief us on how they went and how things look for the upcoming conference.

And with that, I'll give it to Under Secretary Larson.

UNDER SECRETARY LARSON: Good morning. What I'm going to do is just give you a little bit of a sense of the mechanics of how these preparations are going, describe the meeting that was held in Brussels, and then take any questions that you have.

In June, some of you will remember that there was a meeting in New York at the headquarters of the United Nations, and this was an initial, preparatory meeting that included international organizations like the UN, the World Bank, IMF, as well as a number of countries that had an interest in assisting the Iraqi people in reclaiming their country and building a better future.

One of the results of that meeting was that there would be a core group that would include the United States, Japan, the European Union, the United Arab Emirates, the CPA in Baghdad, as well as the World Bank, UN and IMF; and that this core group would, on behalf of the larger group, work hard on the preparations for a successful donors conference this fall.

Now, over the course of the summer, we have been coordinating with that group through conference calls and we reached a number of decisions. One of the decisions was that the World Bank should work very hard on developing ideas for a multi-donor trust fund into which donors could make contributions. A technical meeting on the multi-donor trust fund was held in Washington in late August, and that work is moving forward.

A second decision that was made was to welcome the willingness of the Government of Spain to actually host this conference and to set a date, the 23rd and the 24th of October, in Madrid.

A third decision was to make sure that there would be very active work underway with respect to needs assessments. The needs assessments were actually tasked out of the meeting in New York that was hosted by the United Nations, and they were undertaken by international organizations. The World Bank led several of them. A number of these are sectoral studies like health, agriculture, transportation, telecommunications, things of that sort. The International Monetary Fund led one of them that was really focused on the macroeconomic situation and the overall budget requirements that would be faced. And the United Nations led a number of the task forces.

Each of these task forces, though, included representatives of a number of different international organizations, and in some cases, bilateral donors such as Japan and the European Union.

At the meeting that we had in Brussels this week, which was chaired by the Commission of the European Union, we were able, first of all, to take stock of the work that has been completed on the needs assessments. It was very encouraging to see that we had written reports on 11 or 12 out of the 14, and that this work has proceeded very well over the course of the summer.

Secondly, we were able to get a report on the state of play on the trust fund. And we were able to offer some initial observations to the World Bank on the options and issues that they had identified as they studied what type of trust fund might be a good mechanism for channeling donor resources into Iraq.

The third thing we talked about and agreed upon was a timetable of further preparatory work that would need to take place during the months of September and October, to ensure success at the donors conference in October -- October 23rd and 24th. Those steps include refining the needs assessments that have been taken on by the international organizations, synthesizing them so that they are coherent, that they fit together, deriving the financial implications of them: How much money would it take to pursue the high priority needs that have been identified, and to synthesize those and make sure that they are integrated with the budget planning that's going on in Baghdad.

Because in Baghdad, the Coalition, working with the interim Iraqi cabinet and the Iraqi ministries, is in the midst of preparing a 2004 budget. And both the international organizations, as well as the authorities in Baghdad, agree that that budget should be the coherent planning tool that guides not only how operating funds are spent, but also what reconstruction priorities should be.

So we are aiming to get a fusion, an integration and a synthesis of what reconstruction needs are between the budget in Baghdad, on the one hand, and the results of the needs assessments being done by the international organizations, on the other.

There will be further work during the month of September on the multi-donor trust fund. That will continue to be led by the World Bank. We expect to have another face-to-face meeting of the core group in early October in Madrid. The schedule is on track. We all reaffirmed our commitment to the timetable for holding the meeting in Madrid on the 23rd and 24th of October.

And again, just to put this into context, these are the mechanics of how the economic side of the international community organizes itself to support the political goal of reconstruction in Iraq. It is related, of course, to important work going on in the political side, the work in New York on the Security Council resolutions, and the work in Baghdad on furthering the process of turning over more and more decision-making authority to Iraqis.

With that opening set of observations, I'd be happy to try to answer any questions you have.

MR. DENIG: If I could remind you to please use the microphone, identify yourself and your news organization.

QUESTION: Good morning, Frank Kollar from the Canadian Broadcasting Corporation. To what extent are the Fund and the Bank still limited about what they can actually do on the ground in Iraq because of the lack of a UN mandate? And to what extent would that change if a resolution, a new resolution of some form, passes over the next month or so?

UNDER SECRETARY LARSON: The existing UN resolutions have been a perfectly acceptable basis for the Bank and Fund to do the needs assessments that they have been doing. And, we got very good reports, both from the Bank and Fund. They had a number of written reports on specific sectors. They supplemented those with observations about the budget and about the state of play. Those reports are, as I said, going to be refined.

So the Bank and the Fund have been very active already, all through the course of the summer. And I think that the value of the resolution that is being discussed at this stage, informally, is not particularly focused on the requirements of the Bank or Fund. It is something that is really designed to help broaden the base for international participation on the security side, on the political side, which may make some donors more comfortable in getting involved financially with reconstruction. But it's not directly related to any requirements or requests from the Bank or Fund.

QUESTION: I'm Emad Mekay, with Inter Press News. I'm not very clear of what, exactly, you expect to happen at the donors meeting. My understanding is that Iraq still owes lots of money to different countries. Do you hope to see part of Iraq's debt forgiven at the donors meeting? And also, my understanding is that the World Bank and the IMF lend money, which means that the Iraqi interim government and the U.S. Government are sort of sending Iraq into more debt. So how does that coincide with the fact that you want more debt forgiven, and the same time trying to get Iraq into further debt from the Bank and the Fund? Thank you.

UNDER SECRETARY LARSON: Well, thank you for the question. I think I can shed some light on all those questions.

First of all, the major focus of the conference is going to be on raising new resources to support reconstruction in Iraq. In the short run, the major type of resources that are going to be sought will be new government grant resources, which do not increase debt.

Over time, it will be very important for Iraq also to be able to borrow, because it's a country that has a capacity to borrow responsibly. It has many assets including, notably, oil assets. And so, over time, in the future, it may be able to borrow. But the focus of the conference in October is going to be on attracting new government grant assistance.

We will be planning to have some type of event associated with the Madrid Conference that would focus on foreign investment, because we do believe that when one looks at issues like telecommunications or transportation, that Iraq is a country that has the capacity to attract foreign investment. And foreign investment typically does not create debt obligations; it's a form of equity. Companies invest because they hope their operations will produce profit that can be shared between the host government and the company. And so that's another type of resource that one can look to in the future.

Specifically on the point of debt, the G-8 countries have stated on several occasions that they believe it is unrealistic to expect Iraq to pay any international debt payments, at least until the end of 2004. So no one is expecting Iraq to be servicing its international debt obligations during that period.

Over the next year or so, it will be necessary for Iraq's creditors to reach a formal agreement that would resolve the outstanding debt issues. That is something that is very customary in post-conflict situations, and one of the results of having that type of resolution of outstanding debts is to open the door to responsible new lending. And that would be the scenario I would encourage you to consider as you think about future debt obligations.

QUESTION: Mohammed Elsetanhi, Nile News Channel, Egyptian Television.

Paul Bremer was talking about tens of billions of dollars next year only. Is this something you expect from the donors in the conference? And some of them was talking about sharing the authority. Others are talking about sharing the profits, or in other words, to be included in the Iraqi profitable oil projects. How do you address these problems?

UNDER SECRETARY LARSON: On the issue of the price tag, the work that is underway this month is designed, in part, to refine the estimate of how much money will be needed to support reconstruction in 2004 and, to some extent, the years that follow.

We know that it's going to be a large amount, but what we want to do is use the analysis of the World Bank, UN and IMF, together with the analysis that's being done by Iraqis and the CPA in Iraq, to come up with the best and most well-documented assessment of how much money will be needed in 2004, and that that will be one of the main points of focus for this donors conference on Iraq.

I think that's about all that can be said on that issue at this time.

You know, on the issue of company involvement, I would hope that we would all focus on the primary goal of helping the Iraqi people recover their future. That certainly is the primary focus of the United States Government.

We do want to have clarity about the rules that will govern awarding of contracts, for example. When one talks about having a multi-donor trust fund, housed, perhaps, in the World Bank, part and parcel of that is that the contracting rules for the multi-donor trust fund would be World Bank international standards of contracting.

So the door is going to be open for well-qualified companies to participate in projects that are funded by the trust fund. Similarly, the Development Fund for Iraq, this is the fund that's set up under the existing Security Council resolutions and into which oil revenues flow, there, too, will be international contracting procedures.

So far, the development fund for Iraq has been doing more mundane things. It has been doing things like funding wheat purchases. But there will be contracting rules that will come out that will set, again, an international competitive bidding process for any projects that might be funded out of the DFI.

QUESTION: Yes, Andrea Hopkins from Reuters. One of the concerns of donors is the authority and control in Iraq. How are you going to address that in trying to attract donors, and would you be willing to, sort of, consider, you know, if donors want to earmark individual -- money for individual projects, is that something that will be considered?

UNDER SECRETARY LARSON: There are very strong reasons to avoid earmarking. The World Bank, at the meeting that we had in Brussels this week, pointed out that World Bank rules do not allow earmarking of contributions that go in to World Bank trust funds. And the reason for that is very simple.

The whole point of a trust fund is to say, "Okay, we have agreed, broadly, on what the priorities are in this country. And we delegate to the trust fund administrator and to the board that guides the administrator to make the judgments about which projects or activities among those priorities are the most important.”

So if you have a situation where a country says, "Well, we know that the priorities are A, B, and C, but we really would like to work on X, and, you know, here is some money, and we'll give it to you provided that you use it to finance project X," which is not a priority, then the idea of a trust fund falls apart.

What I think donors are looking for, and what we heard in Brussels is that some donors certainly want to make sure that they have an opportunity to express a preference, even though at the end of the day it would be up to the trust fund to spend their money for the highest priority items among, again, an agreed list. And secondly they want to have clarity about what the governance procedures are for the trust fund. And I think those are both very manageable concerns and ones that the World Bank will be able to deal with as they refine the concept of a trust fund.

QUESTION: And how are you addressing any concerns about provision authority?

UNDER SECRETARY LARSON: I'm sorry. Provisional authority of what?

QUESTION: Of Iraq -- the fact that the donors may be concerned that without a UN mandate, you know, they would be more comfortable with a UN mandate before, you know, donating funds.

UNDER SECRETARY LARSON: Well, again, we have got some resolutions that are already out there that define a process. There is consideration being given to a new resolution that would amplify on that, and we're very actively involved in consultations on it.

At the meeting we had in Brussels, no one was saying, "We need to have these three changes in the UN mandate in order to have us be active participants in this program."

What, instead, they were focusing on was, "What is going to be the governance structure? Let's talk in a little more detail about the governance structure of any World Bank or UN trust fund so we have a very clear understanding about how decisions would be made."

And, you know, recently in the press, Commissioner Chris Patten of the European Union, I think expressed very, very succinctly what most people feel should be the principle of the governance structure: it is that the trust fund should be separate but coordinated with the budget decisions that are taken by the authorities in Baghdad. So that's the general orientation that we're all working on.

QUESTION: Thank you. Andrey Surzhanskiy, ITAR-TASS News Agency of Russia. Obviously, my question on U.S.-Russian relations.

Congressman Weldon of Pennsylvania has recently asked President Bush to mount a last minute push to remove so-called Jackson-Vanik Amendment, which is related to the trade restrictions. And my question, do you think it's possible to graduate Russia from this amendment before both presidents meet each other at the Camp David? And, if not, could you give some timetables, and when do you expect this happen?

And, secondly, if I may, do you expect discussions on trade issues during this summit?

Thank you.

UNDER SECRETARY LARSON: The Administration supports Russia's graduation from Jackson-Vanik. Beyond that, this is a conference on Iraq reconstruction. And I'm not going to go into more detail on the upcoming summit. I didn't prepare for it, and I think we'd have to follow up separately on that.

QUESTION: Thank you. Samir Nadir with Radio Sawa. There were reports that you are having also a meeting in New York today to follow up on Brussels. And also, do I understand that while the French and the German have some complaints regarding the security and political aspect of the situation, they are cooperating with you regarding the Madrid Conference? I mean, is there any obstacles? Any --

UNDER SECRETARY LARSON: First of all, you're quite right. There is a meeting today in New York of something called the Liaison Committee. What this basically is is the larger group of countries that met in the first instance in New York in June. And the purpose of the meeting that's being held today in New York is to inform the larger group of countries about the nature of the discussions that took place in Brussels on Wednesday, to invite their input to the issues that were discussed including the governance structure of the trust fund, the process moving forward on the refinement of these World Bank, IMF, and UN assessments. And generally to make sure that everyone that is likely to participate in the donor's conference is having a voice in its organization.

Now, on the specific situation of the two governments you mentioned. In the conference -- in the meeting that took place on Wednesday -- this was hosted by the Commission of the European Union, and the European Union was also represented by Italy, which is currently the President of the European Union, and Spain, which is the host of the upcoming meeting.

So, to that extent, the participation of France and Germany at that meeting was through their membership in the European Union. They each are participants in this Liaison Committee as well, and so I expect that they will be attending the meeting in New York. So, my understanding was that when we heard comments from the Commission, or from the Presidency of the European Union, they were reflecting, at least in the broad sense, the perspective and views of all EU member-states.

QUESTION: Hello, I'm Kaziri Nagata, Japan's Yomiuri Shimbun. Sorry, I missed pretty much of your opening remarks, but I know yesterday you stressed the importance of the 14 end products of the needs assessment, in yesterday's briefing. So my question is, how it works? So are those, so I understand them, it's being pursued by donor countries, as well as international organization, but are those countries expected to take care of those projects automatically, or who?

UNDER SECRETARY LARSON: Thank you for the question. The 14 needs assessments that are being undertaken by different international organizations are designed to ensure that the best experts that are available internationally take a look at the situation in Iraq. And if it's a question, say, of transportation, that they come in, assess the situation, identify needs, begin to put a price tag, begin to establish priorities.

We do not envision a process of burden-sharing in which one says that one country will take care of transportation, another country will take care of health, another country will take care of education. That, I think, is a recipe for confusion and problems.

What we would like to do is get all countries to agree to the integrated strategy that will emerge from these needs assessments and then find a way to contribute where they think they best can that is consistent with those needs. And in most instances, we would hope that countries would be prepared to contribute money that could be used for agreed purposes under the auspices, for example, of a trust fund.

In some cases, it may be that a country wants to participate directly -- and that would be welcome – but we would wish that it would be in an area that's identified as a priority need. For example, if the needs assessment in transportation says it's absolutely vital to have rehabilitation of a road that runs from here to there, and a country said, "Well, under our procedures, it's much quicker and easier for us to actually come in and build that than it is for us to give money to the World Bank and have it contract to build the road," I expect we'll be able to accommodate that. But what we don't imagine is just saying, "Okay, here. The European Union's going to take care of telecommunications. Japan's going to take care of education," because that ends up not being a very well coordinated approach.

MR. DENIG: I'm very sorry, we're out of time. Thank you very much, Mr. Secretary.

UNDER SECRETARY LARSON: Okay, thank you. We'll try to keep you posted on this in the future.