A Per­fect Fit?

- Robert Zoel­lick, Pres­i­dent, World Bank

Southasia - - Contents - Source: world­bank.org

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.’

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