Speech by World Bank Managing Director and COO Sri Mulyani Indrawati: Promoting Economic Development in a Volatile World
World Bank Managing Director and Chief Operating Officer Sri Mulyani IndrawatiNational Association of Business Economics (NABE) ConferenceWashington, DC, United States March 7, 2016
Thank you Emily for this very kind introduction. It is a great pleasure and honor to be here today.
The World Bank Group has two goals: ending extreme poverty by 2030 and ensuring that prosperity is shared with all parts of society. We are owned by 188 member states of which the US is the largest shareholder. Many of our members are borrowers, others are donors, and some are both. But they are all working together to achieve our goals.
We ended 2015 with a string of good news:
For the first time in history, the number of extremely poor people dropped below 10 percent of the world’s population. The world also adopted 17 new Sustainable Development Goals ranging from ending poverty, reducing inequality to building peace, justice and strong institution.
And in Paris more than 180 countries reached a climate deal and agreed to curb carbon emissions.
What gives us hope is that hardly ever before have so many governments, businesses, international organizations and civil society groups agreed on such ambitious targets and put global public goods before national interests. Now it is up to politicians, but also institutions like ours – together with the private sector – to turn words into action.
Challenges and Volatility:
Sustaining this new momentum won't be easy.
First, the global economic environment is weak and fragile and getting more volatile. The only engine of growth is the US economy, while Europe is still struggling to recover and is now facing additional downside risks from a looming Brexit and an ongoing refugee crisis. Japan is responding to continued weak growth by loosening their monetary policy and adopting negative rates.
Emerging economies and developing countries – the engines of growth during the last decade – are also underperforming. Brazil and Russia are in recession and China is slowing down. Global trade is not picking up and productivity growth remains weak.
Second, commodity prices will likely stay low. Oil supplies are high and demand is not expected to pick up soon. As a consequence, exporters are feeling the pinch and their budgets are showing gaping holes. Low oil prices are of course good for importers; and they can open space for critical energy-policy reforms, like removing harmful subsidies. But 30 percent of the poor live in oil-exporting countries and budget shortfalls in these countries cut into social-welfare spending and other pro-poor measures.
Third, climate change is an additional threat that could potentially create 100 million new poor people. In addition, this year we are experiencing the worst El Niño since the late 1990s, which will expose over 10 million people in East and Southern Africa, Central America, and the Caribbean to acute food insecurity.
Finally, the tense geopolitical situation and growing number of conflicts create additional volatility. As a result, 60 million people – the highest number since WWII - are now forcibly displaced within their own countries or live as refugees abroad. Conflict and persecution continue to erode social cohesion in whole societies, accompanied by economic standstill.
At a minimum these risks present a complex set of challenges. In a worst case scenario, they could result in a setback in which the poor and vulnerable will be affected most.
Global Public Bads:
These risks are global in nature and often reinforce each other. No country can deal with them alone and they have the potential to spill over. They are what we call ‘global public bads’ and therefore need global, coordinated responses.
These ‘bads’ often originate in a single country. But they turn into global challenges because governments are too weak, their institutions too ineffective, there is too much corruption, and the leadership style excludes large parts of the population from accessing basic services or opportunities. As a result, global public bads cause substantial economic, social and political costs.
Take the Ebola crisis. It started with a single case in Guinea. In the end more than 11,000 people died, the majority in neighboring Liberia and Sierra Leone. Ebola caused immense human suffering and resulted in about $2.2 billion loss to the affected countries’ economies. The reason a single case could turn into a pandemic was the absence of a functioning basic healthcare system and limited trust in institutions.
Similarly, climate change is not a single country issue but it affects developing countries more and hits the poorest hardest. It causes food crises, and makes natural disasters stronger which in turn require coordinated adaptation and mitigation.
Another set of public bads are growing fragility, wars and conflicts in the Middle East, Africa, Asia, and Latin America creating large flows of refugees and displaced people, causing social, economic and political tensions in transition and receiving countries.
How to Build Resilience:
To address these challenges, countries need to build stronger foundations to be able to withstand shocks and volatilities like economic downturns, health risks or natural disasters.
The conventional wisdom used to be that economic growth was all it took to lift countries out of poverty.
But the lessons we learned from crises like Ebola, the Arab Spring, or even the Asian financial crisis is that we should not just care about the level of growth, but also the quality and inclusiveness of the growth process.
You are all aware of the debate about income inequality. We believe income disparity is an outcome of inequality of opportunity. This is why access to basic and good quality services is a core task for us, because it helps leveling the playing field and breaking the poverty cycle.
Sound macroeconomic policies are of course necessary conditions for economic development but they are not sufficient. Countries are realizing more and more that on making their economies more competitive, increasing productivity, and building strong and effective institutions.
Growth without good governance and accountability is unsustainable. From our work at the World Bank Group, we know there is a strong and positive correlation between the quality of institutions and a country's prosperity.
The Role of the World Bank Group:
Our clients not only borrow from us at low rates or qualify for grants and technical assistance to achieve their development goals.
We support many countries in reforming their economy to build strong and sustainable foundation for economic development. Reformers often face resistance from elites who have no interest in change. Our role often makes us the reformer’s best friend.
We do this in countries like Ukraine and Myanmar who are managing a fundamental transition. And we do this with our clients in the Sahel, South Sudan, and Tunisia who face fragility, conflict and instability. We do this in the many countries that are now suffering the consequences of a commodity shock.
We also support countries in building infrastructure to improve access to basic services and connect them to markets. And we work with them to improve productivity through better education and training.
With countries becoming richer and their needs more diverse, we have adapted our ‘menu’ to include a range of innovating financing instruments.
For example: we offer deferred draw down options for countries who experience frequent natural disasters. We did this in the Philippines and also in El Salvador. This type of financial instrument provides immediate liquidity in case of a catastrophic event. The increase of violent weather events and floods due to climate change, increases the demand for products like this.
Often we only provide ‘seed money’ to influence major reforms with technical expertise. For example in India, we just approved $1.5 billion to bring latrines to 500 million people in rural areas and end open defecation. The government has set aside more than 20 billion for this. This is a major development project with transformational outcomes. It will reduce the number of children suffering from stunting due to lack of hygiene. It will prevent harassment of women. It will reduce economic losses.
We have new and innovative instruments to promote more institutional investment into desperately needed infrastructure, climate change adaption and mitigation, and insurance mechanisms in case of pandemics. We enhance credits by providing guarantees in areas that investors deem too risky, thereby pulling the private sector into countries that need investments and jobs.
Partnerships
We often get asked why our work matters. The answer is simple: in this interconnected world global goods and global bads matter to everyone.
The World Bank is not doing this alone. Ending poverty and ensuring that the benefits of growth are shared widely are challenging tasks that require international cooperation and close partnerships. We work with the UN, other development banks, the IMF, and the private sector to turn these tasks into opportunities.
And I want to highlight that the US is not only our largest shareholder, it is also one of the most committed partners in the international development agenda.
Thank you.
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