Q & A with Robert Zoellick, president of the World Bank

from the International Herald Tribune

This week we return with Robert Zoellick’s answers to your questions. I think you’ll see that he has taken them very seriously - he’s even provided a visual aid for one answer! Without further ado, here they are:

Q. The short term benefits of writing off the African debt having been fizzled out by ever-higher energy prices, what cards does Mr. Zoellick have on the table on capacity-building in Africa?

Richard Mufumbya
Tanzania

A. As you know, African development involves enormous diversity. However, I roughly group the countries into three categories, each requiring a different approach: (i) countries moving toward sustained growth at higher levels; (ii) those that are growing but based heavily on natural resource development; and (iii) countries in fragile or post-conflict situations.

The first group includes some 18 countries, home to roughly one-third of Africa’s population. They achieved on average 5.5 percent growth a year over the past 10 years. This set includes Tanzania, Uganda, and Ghana, but also, Mozambique and Rwanda, which a decade ago appeared to have grim prospects. These countries have fairly well managed economies. Their economic teams are working on achieving the Millennium Development Goals (MDGs) for social development, but they also stress the need for infrastructure, energy and regional integration, so they can strengthen the foundation for sustained, broad-based growth. They need scaled-up assistance along with support for improving the climate for private investment. They need to access development financing from various sources and do so in a manner that doesn’t create unsustainable liabilities in the future.

The second group of African countries are rich in natural resources; they face challenges in managing and transforming their resource wealth into real sustainable benefits for their people. There are seven such countries, with an average growth of about 9 percent a year over the past 10 years. They are also home to roughly one-third of Africa’s population. For these countries, what is needed most is good governance and anti-corruption policies to support extracting and managing resource wealth efficiently and transparently, managing savings from natural resource revenues and transforming these savings into productive investments. This work often involves building local capacity throughout the country to use the gains to support successful development, a broader economic base and creation of opportunities and jobs in the private sector.

The third group has been devastated by conflicts. There are 20 such countries, with an estimated average growth rate of only 2.1 percent a year over the past 10 years. They are also home to about a third of Africa’s population. Poverty in many of these countries has increased; problems spill over to neighbors. They need international aid and the building of private sector opportunities. But their challenges are a mixture of security, political, legal, economic and developmental. Aid may well be wasted or stolen unless these states first get help to build basic governmental capacity. But then we need to move more quickly to help them. I’ll be visiting Liberia soon to get a better sense of what we can do to help a country facing exactly this problem.

The resources to help all African countries can come from local savings, international aid and private investors, both domestic and foreign.

The World Bank Group recently wrapped up the 15th replenishment of our fund for the poorest countries, the International Development Association (IDA). With a big effort and support from 45 donor countries, we have been able to mobilize $41.6 billion for the next three years (that is a record and a 30 percent increase over the previous replenishment). About half of the IDA countries are in Africa; our allocations to them are based on a formula donors have developed to blend assessments of both need and effectiveness.

In particular, the IDA 15 replenishment gives the World Bank Group more leverage to respond more quickly and more decisively to fragile situations. In addition, the International Finance Corporation (IFC), the private sector arm of the World Bank Group, is increasing its work in Africa and the poorest countries, including with innovative efforts for infrastructure, energy, agribusiness, health care, and trade finance.

Additional resources alone are not enough. We need to customize our work with each country, based on its particular needs. It is also vital that the government has “ownership” of the effort. Working with government partners, we bring expertise and help develop local capacity. For example, we want to support countries to develop capacity to expand the productivity of agriculture and food production. We can help share experience of good natural resource management. We work with countries to put in place sound debt management capacities.

In sum, Africa faces some good prospects and certainly deserves the effort and assistance of its partners around the world. Each country faces unique challenges. And too many are suffering from strife and dangers of weak governance. To help most effectively, we need to encourage the building of local capacity, solutions, responsibility and accountability.

Q. Citizens in developing countries are most vulnerable to the impacts of climate changes now in progress on a global scale. The changes in the weather patterns, from droughts to flooding, will affect the poorest in those countries. How is the World Bank dealing with the phenomenon of unprecedented climate change in its poverty reduction strategy, if at all?

Rita Chang
Hong Kong

A. Rita, you are correct. As you can see in the attached map, poor countries are much more likely to be affected by droughts, poor crop yields, floods, hurricanes and wind storms – likely consequences of climate change. Since 2000, poor countries have experienced three times more floods and twice as many wind storms than they did 20 years ago. And the poor people in these countries – people who live on less than $2 a day –are the most affected and least able to adjust. Climate change is not only an immense environmental threat; it is a core development and economic challenge.

This is why at the recent Bali conference on climate change, I outlined how the World Bank Group can support developing countries as they combine growth and development with protection of the environment.

How can the World Bank Group help?

• First, by integrating climate change adaptation and mitigation into core development work. Climate change policies cannot be the frosting on the cake of development. They must be baked into the recipe of growth and social development. We can help countries incorporate climate change and low-carbon plans into agriculture and land use policies, urban development strategies, water policies, transport plans and so forth.

• Second, we can help by providing innovative and below-market rate financing to promote investments both in low-carbon and adaptation projects. We already do this through the Global Environment Facility and Carbon Finance. We will do more thanks to donor governments contributing record sums to the latest replenishment of the International Development Association (IDA), the World Bank’s fund for the poorest countries. We will also work with donors to develop new funding innovations.

• Third, we will pioneer and advance new market and trading mechanisms, such as for carbon trading.

• Fourth, recognizing the vital importance of new technologies that can generate energy while limiting the impact on climate, we are working with partners on new financing and incentives schemes to facilitate technology deployment and transfer to developing countries. Some will involve alternative energy. But given the high use of coal in developing countries, it would help enormously if we could help develop and disseminate, for example, carbon sequestration technologies.

• Fifth, the sums involved are too large to handle with public funds, so we need to encourage policy changes to help create an enabling environment to tap resources from the private sector. IFC, the private sector arm of the World Bank Group, can help spur these investments.

• Sixth, we will work with developing countries to support policy research on climate change and development to help share information and tools for analyzing the impacts and developing cost-effective strategies. We are now working with six large countries on customized assessments of pathways to low-carbon growth.

• Finally, if we are able to advance these six activities, we should have the experience and knowledge to play a supportive role to the UN and the negotiating partners as they develop a new climate change agreement.

Let me give you a concrete example of how we are helping negotiators develop a post-Kyoto Protocol.

Deforestation and change in land use accounts for about 20 percent of global greenhouse gas emissions, and over a third of emissions from developing countries. In many developing countries, deforestation and forest degradation account for a majority of the carbon emissions. However, the Kyoto Protocol does not include a mechanism for rewarding reduced emissions from deforestation and degradation in developing countries: It rewards countries for planting trees, but does not encourage them to keep trees standing. So with the support of 10 donors, the World Bank has launched a Carbon Forest Partnership Facility. It will pilot incentives to communities for reducing emissions from deforestation while improving their livelihoods and safeguarding indigenous peoples. By highlighting this concept and showing a way to address it financially, the World Bank helped advance its inclusion in the framework that was agreed among negotiators at the Bali Conference.

I cannot end this entry without mentioning that the World Bank Group is carbon-neutral!

Q. I live in a country with dire discrepancies across its territory in terms of infrastructure, access to water, energy and health care. Can you elaborate on the World Bank experience in assisting governments and leaders that you think display a blatant lack of strategy, let alone vision? And if it is the policy of the World Bank to deal only with government and not criticize them, can you say it is a viable credible institution in a networked economy?

El Aid El Othmani Nabil
Morocco

A. Nabil, this is an excellent question. It highlights both the possibilities and limits facing the World Bank Group. Under our international legal charter, the WBG works with governments and is owned by governments. Unless governments have ownership of reforms and projects supported by the Bank, they will not implement them effectively.

Yet we can also work with the private sector. The WBG’s private sector arm, the International Finance Corporation (IFC), provides equity and loan financing, as well as technical assistance to private investors in our client countries. The IFC is also working with the International Bank for Reconstruction and Development and the International Development Association (the public sector parts of the World Bank Group) to develop public private partnerships in areas ranging from infrastructure and energy to health care and microfinance.

Perhaps the best way to consider how the WBG can help is to see it as offering three complementary services: (i) providing learning and knowledge based on experience from around the globe (a “brain trust” of development experience); (ii) based on this learning, we help develop markets and support institutions so the benefits of the work will extend beyond individual projects; and (iii) providing finance to spur these activities. We customize the mix of these services according to countries’ individual situations and preferences.

We need a constructive two-way dialogue with our partners. We provide advice based on our global experience, testing and technical reviews. But we also need to listen to views from governments and citizens in client countries, so we learn their priorities, constraints and experiences.

We do speak up when we have concerns or perceive mistakes or things going wrong. Yet, to be effective, we need to try to work with countries as partners while being candid and sharing concerns, especially where we see problems of poor governance or corruption. At some point, we may need to revisit our engagement with a particular government or in some sectors of a particular country. We try, however, to consider ways to keep helping the poor and disadvantaged, or position ourselves to do so in the future, so as not to add to their sufferings.

Q. People in countries all over the world have started to reject the World Bank. Do you think that the credibility of the World Bank is under threat?

Mirza Sunny
Bangladesh

A. I tend to differ with your assumption. The World Bank Group works in more than a hundred countries. During our fiscal year 2007, the World Bank Group committed $34.3 billion in loans, grants, equity investments and guarantees to its members and to private business in its member countries – up $2.7 billion (7.8 percent) from fiscal year 2006. We not only provided financial resources but also shared our expertise to help countries overcome poverty and enhance growth – for example, by improving education and health services, promoting private sector development, building infrastructure, and strengthening governance and institutions.

However, development is no easy business. Neither we nor anyone else have answers to all development questions. Problems differ from one country to the other; there is no one-size-fits-all answer. The important thing is to evaluate our development programs with honesty and rigor and ask ourselves: did it work? Did it achieve the impact we were aiming for? Are the people better off? We make mistakes: some of our projects do fail and we need to learn from these failures. We need to be open about it so all of us can learn.

The international environment has also changed since the World Bank Group was created over 60 years ago. Its goal then was to help countries reconstruct after World War II – the full name of the original institution in the group is the International Bank for Reconstruction and Development. Today’s vision for the World Bank Group is to contribute to an inclusive and sustainable globalization - to overcome poverty, enhance growth with care for the environment and create individual opportunity and hope.

In more concrete terms, I have laid out six strategic themes for our work:

• Help to overcome poverty and spur sustainable growth in the poorest countries, especially in Africa;

• address the special challenges of states coming out of conflict;

• develop a competitive menu of “development solutions” for middle income countries, involving customized services as well as finance;

• play a more active role with regional and global “public goods” on issues crossing national borders, including climate change, HIV/Aids, malaria and aid for trade;

• support those advancing development and opportunity in the Arab world; and

• foster a “knowledge and learning” agenda across the World Bank Group to support its role as a “brain trust” of applied experience.

You are from Bangladesh, which I visited in November 2007. To give you an example of the credibility of the World Bank Group, today we are helping Bangladesh overcome the recent cyclone; we quickly delivered $100 million to help the government with emergency spending on food, medicine, and grants for affected poor people. We are now helping to prepare an assessment of the damages and needs, so Bangladesh can help restore livelihoods and build preventive infrastructure in coastal areas. We are also working to support the governance and anti-corruption agenda. For example, the government has asked us to help them recover stolen assets. As part of our Stolen Asset Recovery Initiative (StAR), we are sharing with the Government of Bangladesh experience from other countries such as Nigeria, Peru and the Philippines. The IFC, the private sector part of the World Bank Group, is also supporting the development of businesses, including a textile and apparel plant I visited. IFC also provided technical assistance to the government for the creation of the Regulatory Support Commission.

Q. Economist and columnist Paul Krugman has recently opined that trade between rich nations has little malign effect on job displacement, but trade between rich and poor nations does result in malign effects. What do you think?

James Geiger
United States

A. My recollection of Paul Krugman’s point is somewhat different: I believe he said that reduced trade barriers (and subsidies) between developed and poor countries offer opportunities for the people of poor countries. Lots of studies and data support this finding, and many developing countries have used trade to grow and overcome poverty. Furthermore, there are rapidly increasing possibilities for mutual gains through “South-South” trade among developing countries.

In many cases, barriers to trade are designed to protect favored oligopolies and oligarchies. They increase costs for consumers and businesses seeking to compete.

I believe that openness to goods, investments, ideas and even people helps countries maintain a competitive edge, build economic strength, create opportunities and protect liberties.

You may be referring to Professor Krugman’s point that reducing trade barriers may require much better support for workers in developed countries who lose jobs, whether due to technology, trade or domestic competition. I agree that governments need to help people deal with change, anxiety and transition. This is why I’ve supported ideas to pilot “wage insurance” programs. I also think health care, pension, school and training systems need to be overhauled to help people adjust and support those who have difficulty doing so. Developing countries need to help their people adapt too.

Q. What factors should one look for in a developing or an emerging economy to determine if wealth is being broadly distributed and not concentration of wealth and power like we see in Russia and some of the South African countries?

Robert Lobo
India

A. The traditional indicator that economists have used to look at wealth distribution is the Gini coefficient. It contrasts the actual income distribution among the population with a perfectly equal distribution; its value ranges from 0 if income is distributed equally within the population, to 1 if one person has all the income and the rest has none (i.e., complete inequality). It offers a starting point for addressing your question, but I believe it is insufficient.

The 2006 World Development Report, a publication of the World Bank, looked at the issue of equity and development. It found that on average, inequality within countries – as measured by the Gini coefficient – has been stable for several decades: it increased in some and decreased in others. However, the distribution of wealth among the citizens of the world, that had become increasingly unequal until the 1980s, has begun to decline slightly.

Yet equity among groups also matters. For example, indigenous groups in many countries have been excluded not just for decades, but for centuries. When cut off from hope, people may threaten a country’s political stability and future. One can also look at disparities among regions of the same country. A recent IMF publication – the World Economic Outlook – and a recent World Bank publication – the Global Economic Prospect – warned against widening inequality among countries, focusing on those moving up the technology ladder and those falling behind. The same phenomenon is seen within countries, with globalization benefiting skilled individuals, while unskilled and often poorer people fall behind.

While the Gini coefficient is a helpful economic measure, it only offers a static snapshot. It is also important to examine indicators of mobility. I would hope societies can offer opportunity for people of diverse backgrounds, wealth and income to improve conditions for themselves and their families and to live up to their full potential. Countries may have higher inequality while still offering greater opportunity to improve, especially with good educational systems and actions to help the disadvantaged.

In addition, I suggest considering social dimensions of development; poor people tend to be less educated, die at a younger age, have little access to clean water and latrines, live in environments polluted by the smoke of their cooking stoves, may not have land titles and may have little to no access to banks. This is why the international community adopted the eight Millennium Development Goals at the United Nations Summit in 2000. These basic needs are also the foundation on which greater opportunities can be built.

The vision for the World Bank Group is to promote an inclusive and sustainable globalization. Globalization must be inclusive because all people – no matter their wealth, gender or ethnicity – need to have a fair chance to benefit; and globalization must be sustainable not just for the environment but also because societies that offer opportunity for more people are stronger, more dynamic and more likely to continue to advance cohesively.

Q. An issue among critics of the World Bank is representation. Giving countries who lend the most money to the bank the highest number of votes seems slightly undemocratic. How is the bank really going to succeed in aiding foreign countries when their voices are being silenced, and Western countries, such as America, are gaining more power and capital?

Hilla Benzaken
United States

A. Perhaps I should start by briefly explaining the World Bank Group’s voting structure. The relative voting power of each executive director on our Board is based on the shares held by the countries that they represent.

To understand the logic, it is useful to consider past experiences with international organizations. The League of Nations, founded after World War I, gave each of its members one vote and required agreement of all members represented at meetings. This may sound much fairer in a system of nation-states, although countries with larger populations might differ (consider the compromise between votes in the Senate and the House in the United States Constitution). But it failed.

The founders of the post World War II international system believed that the “one country, one vote” structure at the League of Nations hobbled its ability to act decisively in the face of threats to the international system. The post-World War II voting structure of the United Nations, with five permanent members of the Security Council, was advanced by United States President Frankin D. Roosevelt to reflect the realities of power and influence in international security. The UN General Assembly recognizes the equality of states in the international system.

Likewise, the World Bank Group’s voting structure, created in 1944, recognizes that certain countries provide more resources to support our mission to overcome poverty. As a development cooperative with shareholders, it is reasonable to expect that the biggest shareholders would want more say in how their money is spent. We have to persuade them, for example, to ask their taxpayers to devote new funds for development, as we recently did with the 15th Replenishment of the International Development Association. Bigger contributors need to justify their “investment” in development. At the same time, we maintain that it is in the interest of developed countries to help overcome the problems in poorer nations.

Of course, much has changed since 1944. Part of today’s challenge is increasing the “voice and representation” of developing countries. Of course, developing countries are diverse. Some so-called middle income countries are not only clients of the World Bank Group but are also increasingly donors. Whether the issue is development, trade or climate change, one of the challenges of the era is to encourage these countries to be “responsible stakeholders” – with increased voice and representation but also willing to assume responsibilities to sustain and advance the international economy (and security) system.

We appreciated, for example, China’s first contribution to the International Development Association. Brazil, South Africa, Turkey, South Korea and other former beneficiaries also contributed.

As a practical matter, few decisions at the World Bank Group are dependent on voting shares. We try to bring our members together in a consensus. This of course needs to include our poorest members, too. We also want to continue to add to the diversity of our staff.

Q. The World Bank is a strange animal; it is a bank, with the aim to reduce poverty. That sounds like a misfit – a bank lends at a price and recuperates the money, or it goes out of business. The World Bank can maintain its rating only based on its preferred creditor status among receiving borrowers, i.e. state guarantees. Should these be eliminated from the World Bank’s statute so that much tougher discipline in lending – and therefore higher expected effectiveness – is introduced?

Markus Reichmuth
Switzerland

A. Your question opens the doors to a number of intriguing issues. Perhaps I should start by differentiating some of the World Bank Group’s units.

The World Bank Group is composed of several institutions that have different roles and tools, but a common mission of helping to overcome poverty and supporting inclusive and sustainable development. Our fund for the poorest countries, the International Development Association (IDA), relies on donors to replenish its resources every three years. IDA offers grants and credits without interest to the 80 poorest countries. IDA is the main provider of resources to many social programs in these poorest countries.

Our institution for middle-income countries, the International Bank for Reconstruction and Development (IBRD), uses its AAA credit rating to borrow money in the financial markets and to lend to our partner countries at very competitive rates. Some ask: “Why is the Bank working with these countries at all?” But about 70 percent of the people living under $2 a day are in China, India, and the other IBRD borrowers. So if you want to address the question of poverty, we need to deal with these countries.

Moreover, these countries have asked us to continue to help meet their diverse needs. For some middle income countries, our services will be increasingly in the areas of risk management and the application of global know-how to local needs. We can offer credit enhancements, hedging, and neutral expertise that will help build the capacity for asset management. We can encourage local securities markets by helping construct local currency bond funds and indices. We can finance in local currencies to help combine our lending with the management of currency risk. To encourage inclusive growth within countries, we can work with subnational authorities. We are now developing contingent financial instruments to assist with emergency liquidity needs during financial shocks, as well as insurance market facilities to broaden availability and lower the cost of coverage for natural catastrophes, such as hurricanes and earthquakes.

Our private sector arm, the International Finance Corporation (IFC), is expanding its business rapidly. IFC investments do not involve sovereign guarantees. Yet it plays a key role in development, with an increasing focus on Africa and poorer countries. IFC is also a source of innovation. Consider, for example, the Global Trade Finance Program, which IFC started two years ago. This program helps small- and medium-sized exporters in developing countries gain access to trade finance by partially underwriting guarantees for local banks. This year, we expect to provide $1.3 billion of finance, supporting about $1.9 billion of trade flows. Even more important, we are helping develop the capacity of these local financial institutions to support trade, whether or not we are involved in future transactions. In four years, we plan to almost double our volume to $2 billion of trade finance a year and to double the number of partner banks to 260.

We believe the strong capital bases of the IBRD and IFC, combined with sensible policies, will enable both to retain their AAA status while spurring development and additional investment in our clients. The IBRD and IFC offer capital at attractive rates combined with knowledge and experience, to be developed to build markets and institutions. IDA, in turn, offers concessionary support, which needs to be replenished every three years.

Q. Hi, I attend the George Washington University. Since moving to Washington, D.C. I have noticed the large presence of the World Bank and International Monetary Fund throughout the area. What first caught my attention, and still does whenever I pass by, is the discrepancy between the apparent wealth of the World Bank compared to the large population living at or below the poverty line, or even homeless. Many of the homeless actually live and sleep just outside of the World Bank buildings and in parks directly across the street.

Now my question is this: If the mission of the World Bank is to support economic growth around the globe by providing financial assistance, how can this be acceptable? In the country that serves as the homebase for such a powerful and influential organization, shouldn’t it be the duty of the World Bank to also support these people? The World Bank may in fact support such programs, but I would then wonder about the effectiveness of such, because every day I still see many homeless wandering the ‘affluent’ streets of Foggy Bottom and the Dupont area of northwest Washington.

Sam Blackman
United States

A. This is a good question and one that should involve everyone who is concerned about the people and city of Washington, D.C.

At an earlier point in my career, I worked to develop affordable housing programs and projects for the homeless. Often the problems of the homeless, especially those with longer term needs, extend far beyond shelter and income. They may involve mental health and drug problems.

The World Bank has a Community Outreach Program that works to improve the quality of life of the people in the Washington metropolitan community. We encourage World Bank staff to contribute to the community, even though many are from countries that are far poorer. Our staff is actively involved in supporting local charities through the Community Connections Campaign. Bank staff donated $900,000 to the campaign. They also provided more than 10,000 hours of community service to charities in the area last year.

The World Bank’s Community Outreach Grants Program awards about $1 million a year to non-profits in the Washington area, including to programs for renovating low-income housing and distributing meals to street residents. In concert with other corporations, foundations and government agencies, the World Bank Group has provided funding and assistance for organizations that supply social services or educational, employment and other opportunities for poor and homeless residents. Over the last 10 years, more than a hundred men and women living in homeless shelters have come to work at the World Bank Group. The grants program also supports D.C. public schools, HIV/AIDS prevention, skills training for unemployed workers, Latino youth support, and prenatal and well-baby care. Other activities by the outreach program include in-kind donations of recycled office furniture, supplies and computer equipment worth more than $150,000 last year; a three-year East of the River Initiative to engage poor and underserved youth in the poorest parts of DC; and the High School Internship Program to teach job skills to students from low-income communities.

Of course, the problem you identify is one facing all the institutions in the nation’s capital, including prestigious universities like the one you attend. This could be an important project for you and your fellow students at George Washington University, too, perhaps working with us at the World Bank Group!