World Bank faces challenges in Uganda, Russia, Jim Yong Kim says

Washington: World Bank President Jim Yong Kim stopped by The Washington Post on Thursday to discuss some of the changes under way as the bank moves to eradicate extreme poverty by 2030.

Throughout discussions about energy projects in Congo, deficits in Indonesia and private-sector growth in Burma, one key concern kept coming up: What role should the World Bank play when conflicts arise in member nations?

Here’s what the leader of the global lender has to say on this and more.

Q: How do you handle something like what Russia is doing in Crimea?

A: Both Ukraine and Russia are important members of our group. Right now, the Ukrainian government has committed itself to a really ambitious reform agenda, which includes things like removal of fuel subsidies, which is important as they need resources for other things. What we’re doing now in Ukraine is putting together a loan package to support the poorest [people] because the people who are going to be hit the hardest by the reforms and the potential increase in prices are going to be the poorest. So it’s basically social support programs that we are giving to Ukraine.

We continue to work with Russia on any number of projects, but we also have made some clear statements about what we think could happen to their economy. If the Ukrainian crisis is minimal and doesn’t have much of an impact, we think that their growth numbers are going to be around 1.1 percent or 1.2 percent next year, which cuts their growth in half. But if the impact is much more far-reaching, which it could be, then we see a potential contraction of the economy of up to 2 per cent. I can make that statement very clearly because that is what we do, we make projections and send very clear messages about what could happen. I urge on a personal basis that we work through a very peaceful solution that’s agreeable to as many parties as possible.

Q: Was there any consideration of withdrawing support for Russian projects, or any other consequences?

A: In the context of the projects that we’re actively doing in Russia, I can’t conceive of a way we would pull back on those because those projects are focused on helping Russia improve their infrastructure, improve their business environment and improve their services to poor people. We would continue that because those needs remain. This is the nature of multilateralism.

Q: Several of the emerging markets have complained about the way the Federal Reserve is handling the withdrawal of its stimulus programme in the United States. How prepared do you think those countries are for a potentially large and rapid outflow of capital as interest rates start to rise in the United States?

A: It all depends on the speed and the pace. Right now, capital flow makes up about 4.6 per cent of GDP in the emerging-market developing countries. This was a huge topic of conversation at the G-20 finance ministers meeting. I wasn’t there, but all of my team was there, and they said that this was constantly coming up.

We think that between now and the end of 2016, if the taper is smooth like everyone thinks it will be now, then capital flows as a percentage of GDP will go from 4.6 per cent to around 4 per cent. Even with that decrease, which is significant, because it will be done over a period of time, the growth in the US economy will be enough to offset whatever decrease in capital flow happens. In other words, a growing US economy means more exports, means a growing economy globally. The positive impact of the growing US economy, and we hope of other economies, will be enough to offset this decrease in capital inflows.

Now if something happens where inflation spikes or something happens where this is more abrupt, then it will be difficult. There is no question the emerging-market economies will have difficulty. Even if you look at what happened at the end of January, there was a drop in those flows, but a lot of it has recovered. There has been a lot of rebalancing and the emerging markets, even at the end of March, are in better shape than they were at the end of January. Although people talk about the fragile five and how much trouble there is, most of the emerging-market economies have shown pretty good results.

— Washington Post