A Perfect Fit?
- Robert Zoellick, President, World Bank
Our cover story this month attempts to highlight the role of the World Bank and the IMF in assisting South Asia
achieve its development goals.
World Bank President, Robert Zoellick, during a visit to Sydney recently, predicted a new but dangerous phase for the global economy. Here are a few excerpts from his speech:
The loss of market confidence in economic leadership in key countries like the United States and Europe coupled with a fragile economic recovery have pushed markets into a new danger zone.
I think there has been a convergence of some events in Europe and the U.S. that have led many market participants to lose confidence in the economic leadership of some of the key countries.
The Eurozone’s sovereign debt issues are more troubling than the medium and long-term problems which saw the United States downgraded by Standard and Poor’s, sending global markets into panic.
We are in the early moments of a new and different storm; it’s not the same as 2008 global financial crisis. People were in less debt than during the credit crunch and current events did not have the same sudden shock factor, but there is less room to maneuver this time around.
The lesson of 2008 is that the later you act, the more you have to do. Can the troubled European nations ever get ahead of the problems that have plagued them? European Union to date falls short of what is needed. The Eurozone’s structure can turn out to be the most important challenge currently facing the world economy.
Confidence is a fragile element of how any market economy works and I think those events combined with some of the other fragilities in the nature of the recovery push us into another danger zone and I don’t say those words lightly.
In the past couple of weeks the world has moved from a troubled multi-speed recovery to a new and more dangerous phase. It has been unusual in recoveries over the post World War II period; in that it’s a multi-speed recovery which you see as in emerging markets the recov- ery has been quite strong... while the major developed markets have obviously been struggling and have problems with the sovereign debt, unemployment, job creation.
Power, influence and weight are shifting very fast by historical standards to developing economies led by China, but the Asian superpower is a reluctant stakeholder in the global system.
Beijing faces a number of big domestic policy questions — keeping its industrialization green, financial system reform, and the balance of state-owned firms with private enterprise.
Allowing the Yuan to increase in value would help curb inflation but also make foreign goods cheaper in China, a potentially sensitive issue.
Beijing also wants to increase social protections for its population but didn’t want a European welfare state model. They say to me ... ‘it’s too expensive.’