richard newfarmer special representative to the wto and un world bank geneva, switzerland
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The Changing Nature of Multilateralism: the Role of the World Bank. Richard Newfarmer Special Representative to the WTO and UN World Bank Geneva, Switzerland. December 10, 2008. Multilateral system is changing rapidly…. - PowerPoint PPT PresentationTRANSCRIPT
Richard NewfarmerRichard Newfarmer
Special Representative to the WTO and UN Special Representative to the WTO and UN
World BankWorld Bank
Geneva, SwitzerlandGeneva, Switzerland
The Changing Nature of Multilateralism:The Changing Nature of Multilateralism:
the Role of the World Bankthe Role of the World Bank
December 10, 2008December 10, 2008
Multilateral system is changing rapidly… Multilateral system is changing rapidly…
……and the challenges of globalization require collective multilateral response… and the and the challenges of globalization require collective multilateral response… and the problems of today’s world cannot be solved without their participationproblems of today’s world cannot be solved without their participation
One example: the near term financial crisis can only be met with a multilateral responseOne example: the near term financial crisis can only be met with a multilateral response
Inexorable long term trends are increasing the economic power Inexorable long term trends are increasing the economic power of developing countries…of developing countries…
The World Bank is responding… and changing in the processThe World Bank is responding… and changing in the process
Globalization and growth are increasing the role of Globalization and growth are increasing the role of developing countries, especially the BRIICS…developing countries, especially the BRIICS…
0
5
10
15
20
25
1980 2005 2015 2030
US$ billion
Source: World Bank simulations with Linkage model.Source: World Bank simulations with Linkage model.
Exports from developing and developed countries, 1980-2030Exports from developing and developed countries, 1980-2030
Other Developing countries
High-income countries
$23 trln
61%
20%
23% BRIICs
13%
67%
21%
22%
55%
18%
76%19%5%
GDP at PPP exchange rates
0
5
10
15
20
25
30
35
40
45
2001 2005 2010 2015 2020 2025 2030
US$ trillion
USAEU
Other developing countries
China
India
China, India, and other developing countries will become China, India, and other developing countries will become centers of global demand over the next quarter centurycenters of global demand over the next quarter century
RussiaBrazil
South Africa
Indonesia
Source: World Bank simulations with Linkage model.Source: World Bank simulations with Linkage model.
Source: World Bank simulations with Linkage model.Source: World Bank simulations with Linkage model.
……and the share of developing countries in global output and the share of developing countries in global output will rise…will rise…
0
20
40
60
80
100
120
140
160
2005 2030 2005 2030
US$ trln
Other Developing Other Developing countriescountries
High-income High-income countriescountries
$66 tn.
22%
10%
48%
BRICsBRICs
13%
23%
18%
---GDP at Market Prices-------GDP at Market Prices---- -----GDP in PPP-----------GDP in PPP------
52%
20%
30%
27%
Millions of internet users
High income
Other Low & middle income0
100
200
300
400
500
600
700
1991
1993
1995
1997
1999
2001
2003
2005
A key driver is rapid diffusion of technology and A key driver is rapid diffusion of technology and knowledge…knowledge…
Source: World Bank, Global Economic Prospects (2008)Source: World Bank, Global Economic Prospects (2008)
BRIICS
Globalization will portend huge stresses as economies Globalization will portend huge stresses as economies integrate into the world economy…requiring multilateral integrate into the world economy…requiring multilateral solutions solutions
Distribution of benefits will be uneven…hence need for Distribution of benefits will be uneven…hence need for development assistancedevelopment assistance
Increased trade and financial flows increases policy spillovers with potential Increased trade and financial flows increases policy spillovers with potential beggar thy neighbor effects – hence the need for beggar thy neighbor effects – hence the need for new disciplinesnew disciplines and and learninglearning about policies that work (policy convergence)about policies that work (policy convergence)
Disruptions in some globalized markets could become more common -- labor Disruptions in some globalized markets could become more common -- labor markets, food and energy, and financial – hence needs for markets, food and energy, and financial – hence needs for collective responsescollective responses
Environmental pressures will become severe – hence needs for concerted Environmental pressures will become severe – hence needs for concerted multilateral action to multilateral action to protect the global commonsprotect the global commons
Migration and cross-border movement of people spread infectious diseases – Migration and cross-border movement of people spread infectious diseases – hence need for hence need for coordinated health responsecoordinated health response
Because of global integration and because of Because of global integration and because of their increasing importance in the world their increasing importance in the world economy, developing countries have to be economy, developing countries have to be central participants in multilateral policy actions central participants in multilateral policy actions for these policies to be successful for these policies to be successful
Excessively easy money after 2001Excessively easy money after 2001 Fiscal stimulus as US budget swung from surplus to large deficitFiscal stimulus as US budget swung from surplus to large deficit Expansion of opaque financial innovationExpansion of opaque financial innovation
Subprime mortgagesSubprime mortgages Home equity lendingHome equity lending Consolidated Debt ObligationsConsolidated Debt Obligations Credit Default SwapsCredit Default Swaps
Emergence of unregulated borrowing in the Emergence of unregulated borrowing in the shadow banking systemshadow banking system Mortgage companiesMortgage companies Investment banksInvestment banks Hedge fundsHedge funds
……leading to excessive leverage of consumers, corporates, and public sectorsleading to excessive leverage of consumers, corporates, and public sectors ……financed by China and other countries accumulating large reservesfinanced by China and other countries accumulating large reserves
Financial crisis: Macroeconomic policy and changes in the Financial crisis: Macroeconomic policy and changes in the US financial system create conditions for the perfect US financial system create conditions for the perfect financial storm…with profound multilateral consequencesfinancial storm…with profound multilateral consequences
50
100
150
200
250Emerging markets
USA
Euro Area
Oct-2007
MSCI equity price indexes, January 2005=100
The bubble bursts..and financial panic sweeps The bubble bursts..and financial panic sweeps through global marketsthrough global markets
Source: World Bank, Source: World Bank, Global Economic Prospects,Global Economic Prospects, 2009 2009
Equity markets plummet... weakening exchange rates as Equity markets plummet... weakening exchange rates as funds seek safety in foreign assets funds seek safety in foreign assets
45
60
75
90
105
120
135
150
01/01/200706/01/200711/01/200704/01/200809/01/2008
MSCI Equity market index ($), Jan-1 2007=100
80
90
100
110
120
130
140
01/01/08 04/01/08 07/01/08 10/01/08
Exchange rates, LCU/USD index Jan-01-2008 =100*
* increase implies weaker local currency
Brazilian real
Source: Morgan-Stanley, Thomson/Datastream.Source: Morgan-Stanley, Thomson/Datastream.
For emerging markets, bond spreads increased For emerging markets, bond spreads increased dramatically.. notably for firms dramatically.. notably for firms
100
200
300
400
500
600
700
800
900
1,000
1,100
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08
Basis pointsBasis points Emerging-market bond spreadsJan 2007 – Dec 1, 2008
Corporate bonds (CEMBI)
Sovereign bonds (EMBI Global)
Source: JPMorgan Chase.Source: JPMorgan Chase.
0
100
200
300
400Bank loan commitments
Bond issuance
Equity issuance
billions U.S. dollars
……and lending freezes as banks and financial and lending freezes as banks and financial companies retrenchcompanies retrench
Source: World Bank, Source: World Bank, Global Economic Prospects,Global Economic Prospects, 2009 2009
High-income countries in recessionHigh-income countries in recession
-4
-2
0
2
4
United States Euro Area Japan
Source: World Bank and National Agencies.
Growth of real GDP, percent change annualized
Q1 Q2 Q3
DemandDemand is dropping out of the world market…and trade will is dropping out of the world market…and trade will likely contract, for the first time since 1982likely contract, for the first time since 1982
-3
0
3
6
9
12
15
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Percentage changeAnnual growth of global trade volumes
Source: World Bank, Source: World Bank, Global Economic Prospects,Global Economic Prospects, 2009 2009
Decline in import growth affecting exports from Decline in import growth affecting exports from developing countries...developing countries...
-5
0
5
10
15
1999.1m 2000.07m 2002.1m 2003.07m 2005.01m 2006.07m 2008.1m
U.S. imports
Latin American exports
Annual growth of import volumesPercentage change
(12m/12m)
Source: World Bank
$ billions$ billions
0
200
400
600
800
1000
1990 1993 1996 1999 2002 2005 2008P
0
2
4
6
8
Net private debt and equity flows PercenPercentt
Percent of GDP(right axis)
Private capital flows set to decline sharply in 2009Private capital flows set to decline sharply in 2009
Source: World Bank.
Financial crisis rapidly spreading Financial crisis rapidly spreading to real economyto real economy
-10
0
10
20
30
2006M1 2006M5 2006M9 2007M1 2007M5 2007M9 2008M1 2008M5 2008M9
annualized growth of industrial production in Chinaannualized growth of industrial production in China
Source: World Bank.Source: World Bank.
-10
0
10
20
30
40
Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08
Developing country investment growth is slowingDeveloping country investment growth is slowing
Source: Haver Analytics.Source: Haver Analytics.
Indonesia
Thailand
Russia
Venezuela
Growth of real fixed investment, percent yr on yr
-5
0
5
10
15
20
2006M1 2006M5 2006M9 2007M1 2007M5 2007M9 2008M1 2008M5
Developing Countries
High Income OECD
industrial production, ch% saar
……and is dragging industrial production sharply downand is dragging industrial production sharply down
Multilateral response: Effort at macroeconomic Multilateral response: Effort at macroeconomic coordination….coordination….
October communication among G-7October communication among G-7 Central bank swap arrangementsCentral bank swap arrangements IMF moves into action – Iceland, Hungary, PakistanIMF moves into action – Iceland, Hungary, Pakistan
November G-20 meetingNovember G-20 meeting Agreement to coordinate fiscal stiumulusAgreement to coordinate fiscal stiumulus Pledge to avoid increases in protectionPledge to avoid increases in protection Agreement on long term work program and subsequent Agreement on long term work program and subsequent
meetingsmeetings DecemberDecember
Efforts to conclude Doha round…Efforts to conclude Doha round…
(The G-20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, (The G-20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, South Korea, United Kingdom, and Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, South Korea, United Kingdom, and the United States, with the participation of the IMF, World Bank, the EU Presidency (France), and the United States, with the participation of the IMF, World Bank, the EU Presidency (France), and the Chairs of the International Monetary and Financial Committee (IMFC) and the Development the Chairs of the International Monetary and Financial Committee (IMFC) and the Development Committee (DC) )Committee (DC) )
Policy Directions as illustrated by G-20 Policy Directions as illustrated by G-20
Fighting this CrisisFighting this Crisis1. Global Fiscal Stimulus1. Global Fiscal Stimulus2. Restraining Protectionism2. Restraining Protectionism3. Enhanced IMF Resources3. Enhanced IMF Resources
Preventing the Next OnePreventing the Next One1. College of supervisors1. College of supervisors2. Managing systemic risk2. Managing systemic risk3. Oversight of Credit Rating Agencies3. Oversight of Credit Rating Agencies4. Enhanced disclosure/common accounting4. Enhanced disclosure/common accounting
Reflecting New Realities/Enhancing LegitimacyReflecting New Realities/Enhancing Legitimacy1. G-20 or G-8?1. G-20 or G-8?2. Developing countries in Global Stability Forum, IMF , WB2. Developing countries in Global Stability Forum, IMF , WB
World Bank’s role…World Bank’s role…
Distribution of benefits will be uneven…hence need for Distribution of benefits will be uneven…hence need for development assistancedevelopment assistance
Increased trade and financial flows increases policy spillovers with potential Increased trade and financial flows increases policy spillovers with potential beggar thy neighbor effects – hence the need for beggar thy neighbor effects – hence the need for new disciplinesnew disciplines and and learninglearning about policies that work (policy convergence)about policies that work (policy convergence)
Disruptions in some globalized markets could become more common -- labor Disruptions in some globalized markets could become more common -- labor markets, food and energy, and financial – hence needs for markets, food and energy, and financial – hence needs for collective responsescollective responses
Environmental pressures will become severe – hence needs for concerted Environmental pressures will become severe – hence needs for concerted multilateral action to multilateral action to protect the global commonsprotect the global commons
Migration and cross-border movement of people spread infectious diseases – Migration and cross-border movement of people spread infectious diseases – hence need for hence need for coordinated health responsecoordinated health response
The World Bank’s role…The World Bank’s role…
Provide financial resources for investmentProvide financial resources for investment directly through loans -- $25 b. in 300 loans in 100 countriesdirectly through loans -- $25 b. in 300 loans in 100 countries Indirectly – guarantees and insurance Indirectly – guarantees and insurance Co-financing – 130 projects for $6.3 b. Co-financing – 130 projects for $6.3 b. Manage trust funds – 900+ for $5.0 b.Manage trust funds – 900+ for $5.0 b.
Provide knowledge about what works in poverty reduction and Provide knowledge about what works in poverty reduction and what doesn’twhat doesn’t through policy advice – 500 studiesthrough policy advice – 500 studies technical assistance – 450 TA activitiestechnical assistance – 450 TA activities bringing people together - learningbringing people together - learning
Provide “public goods”Provide “public goods” Data and comparative indicators of policy (trade, finance, Data and comparative indicators of policy (trade, finance,
doing business, debt) doing business, debt) Research into what works and what doesn’tResearch into what works and what doesn’t Advocacy of global policies that affect poor Advocacy of global policies that affect poor Global environmental work and infectious diseases Global environmental work and infectious diseases
The World Bank’s strategy at the country level…The World Bank’s strategy at the country level…
Invest in people to empower the poorInvest in people to empower the poor Basic social services and program that target the rural poor and womenBasic social services and program that target the rural poor and women Bank lent $40 billion for more than 500 projects for human development in 100 countries.Bank lent $40 billion for more than 500 projects for human development in 100 countries.
Promote pro-poor growth to raise living standards and reduce povertyPromote pro-poor growth to raise living standards and reduce poverty Create an investment climate conducive to private sector expansionCreate an investment climate conducive to private sector expansion
• Macro stabilityMacro stability• Property rightsProperty rights• Efficient business regulationEfficient business regulation
Improve governanceImprove governance Invest in infrastructureInvest in infrastructure
Protect the environment so that growth is sustainableProtect the environment so that growth is sustainable Invest $1.5 b. annually in environmental projectsInvest $1.5 b. annually in environmental projects Invest $6 b. in energy and clean infrastructureInvest $6 b. in energy and clean infrastructure Manage Global Environmental Facility and Montreal ProtocolManage Global Environmental Facility and Montreal Protocol ……Larger financier of environmental projects in worldLarger financier of environmental projects in world
As an International Organization• born after World War II as the born after World War II as the International Bank forInternational Bank for Reconstruction and Reconstruction and Development Development
• to help countries reconstructto help countries reconstruct after the war -- focus on after the war -- focus on infrastructure and industry infrastructure and industry
• part of the extended UN family, but part of the extended UN family, but separate governance structureseparate governance structure
• owned by 185 countries with votes owned by 185 countries with votes according to paid in according to paid in capitalcapital
• US largest shareholder (16%)US largest shareholder (16%)
• Japan now second largest (15%)Japan now second largest (15%)
• 24 Executive Directors24 Executive Directors
What are the Origins of the World Bank?What are the Origins of the World Bank?
International Bankfor Reconstruction
and Development (IBRD)
InternationalDevelopment
Association (IDA)
InternationalFinance
Corporation (IFC)
MultilateralInvestment
Guarantee Agency
International Centerfor the Settlement ofInvestment Disputes
THE WORLD BANK GROUP
• Supports middle-income countries
• Provides loans at AAA terms plus cost spread
• Funded through bonds, backed by shareholder capital
• Supports the world’s poorest countries
• Provides soft-loans and grants plus debt relief
• Replenished every 3 years by donors and through IBRD income
• Supports the private sector in developing countries
• Provides loans and equity investments
• Funded through bonds, backed by shareholder capital
• Supports investors in developing countries
• Provides political risk insurance
• Backed by shareholder capital
• Offers mediation and arbitration services for investors in developing countries
The World Bank Group comprises five organizations The World Bank Group comprises five organizations with differing instruments…with differing instruments…
The World Bank is deploying various instruments to The World Bank is deploying various instruments to respond to the crisisrespond to the crisis
IBRDIBRD: commitments of $100 billion over the next three years: commitments of $100 billion over the next three years
IDAIDA: Front load commitments from US$42 billion: Front load commitments from US$42 billion
IFC:IFC: about $30 billion over the next three years about $30 billion over the next three years
Expanded Expanded trade financetrade finance program from $1.5 billion to $3.0 billion over a program from $1.5 billion to $3.0 billion over a three years to benefit participating banks based in 66 countriesthree years to benefit participating banks based in 66 countries
Bank Recapitalization FundBank Recapitalization Fund to recapitalize distressed banks for US$1 to recapitalize distressed banks for US$1 billion over three years ; Japan has invested US$2 billion to the fund. billion over three years ; Japan has invested US$2 billion to the fund.
Infrastructure Crisis FacilityInfrastructure Crisis Facility is to provide roll-over financing and help is to provide roll-over financing and help recapitalize existing, viable, privately-funded infrastructure projects facing recapitalize existing, viable, privately-funded infrastructure projects facing financial distress with investments of US$300 million to mobilize between financial distress with investments of US$300 million to mobilize between US$1.5 billion and US$10 billion from other sources.US$1.5 billion and US$10 billion from other sources.
Multilateral Investment Guarantee AgencyMultilateral Investment Guarantee Agency planned support to projects in planned support to projects in Ukraine, Russia, and Eastern Europe, and Africa.Ukraine, Russia, and Eastern Europe, and Africa.
Conclusions: Strengthening the multilateral system Conclusions: Strengthening the multilateral system requires….requires….
Incorporating new powers into the multilateral systemIncorporating new powers into the multilateral system Designing fora like the G-20 to bring countries together around Designing fora like the G-20 to bring countries together around
cooperative collective actions to solve real problemscooperative collective actions to solve real problems Using the World Bank, among other multilateral institutions, in Using the World Bank, among other multilateral institutions, in
global cooperation to fight poverty, improve the environment, global cooperation to fight poverty, improve the environment, and raise living standardsand raise living standards
References and Further ReadingReferences and Further Reading
Roubini, Nouriel, Roubini Global Economics www.rgemonitor.comGlobal Sach, Jeffrey The Common Wealth: Economics for a
Crowded Planet, 2008 World Bank, Global Economic Prospects, 2007 Managing the Next
Wave of Globalization, Washington: World BankWorld Bank, Global Economic Prospects, 2009 Commodities at
the Crossroads, Washington: World BankWorld Bank, www.worldbank.org/prospectsZoellick, Robert “Modernizing Multilateralism and Markets”
Speech to the Peterson Institute, October 2008 http://intranet.worldbank.org/WBSITE/INTRANET/UNITS/INTPRESIDENT2007/0,,contentMDK:21927552~menuPK:64821535~pagePK:64821348~piPK:64821341~theSitePK:3915045,00.html
Richard NewfarmerRichard Newfarmer
Special Representative to the WTO and UN Special Representative to the WTO and UN
World BankWorld Bank
Geneva, SwitzerlandGeneva, Switzerland
The Changing Nature of Multilateralism:The Changing Nature of Multilateralism:
the Role of the World Bankthe Role of the World Bank
December 10, 2008December 10, 2008