World Bank President Jim Yong Kim stopped by The Washington Post on Thursday to chat about some of the changes under way as the bank moves to eradicate extreme poverty by 2030.
Throughout discussions about energy projects in the Democratic Republic of 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?
Kim has been an outspoken critic of institutional discrimination and its impact on the economies of developing countries, especially in light of the recent spate of anti-gay laws around the world (check out his recent op-ed in The Post). But the World Bank is in the business of apolitical development — meaning its loans and grants aren't supposed to come with a political agenda.
Check out what the leader of the global lender has to say on this and more. (We'll have more from Kim next week in a sit-down video interview on the structural changes he is making within the World Bank.)
You say that you try not to meddle in politics, but aren't you concerned that by lending to some governments you're legitimizing the regime?
Some 85 countries in the world have anti-gay legislation. We were just about to sign an agreement for $90 million dollars for a health project in Uganda. And Uganda had just announced a very repressive law. What I did is say we're not going to stand up and start commenting on all 85 countries that have these laws, but what we can do is say this is about supporting health-care systems. How can we be sure that our commitment to non-discrimination is going to be upheld in the context of this particular project?
In that case, I took a careful look. I know that country and the health-care system in Africa. I just wasn’t convinced that we could ensure non-discrimination. So we pulled it back. Now there is a conversation that started in Uganda that never would have happened if we were not able to do that. I have very specific levers, very specific capacities to ask critically important questions. And that’s how it works. Engagement, but in the context of the loans and grants, we can ask very pointed and difficult questions.
What will your role in Uganda be going forward?
There are other things that we are much more focused on, specific infrastructure projects that we'll go forward on because there I can't imagine how they will be specifically related to this particular issue. But in the case of a health clinic, the question is, is there a responsibility for health workers to report activity of the men and women who come to the clinic? And if there is, we would be violating some very basic values and principles we have about anti-discrimination. So we're looking at it now. We're restarting the conversation with the Ugandan government. And we think this is an important conversation.
How do you handle something like what Russia is doing in Crimea?
Both the 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 the 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 percent. 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.
We can constantly preach for peace, work for peace. I’ve been traveling with the [United Nations] secretary general [Ban Ki Moon] quite regularly now to bring this notion that development, security and peace can go together. But we will maintain our engagement in Russia and maintain our engagement in the Ukraine, and try to do the best we can to protect the poor and to protect growth. A contracting Russian economy will have a huge impact on the poorest, especially in the outer oblast. We will continue to maintain this argument of focusing on the well being of individuals and avoid as much as we can commenting directly on the politics of the situation.
Was there any consideration like you did in Uganda of withdrawing support for Russian projects, or any other consequences?
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. It puts us in very complicated situations sometimes, but if North Korea opens up, who would go in there? Who would be the first people to go in and build up their roads, their energy system, their educational system? It would most likely be the World Bank. Because we are multilateral that would make it easier for us to go there. The world has invented this system, and I think the world did a very smart thing in inventing this system, but it is complicated. You have to be very careful about maintaining intact relationships with all of your member countries. This is the complexity of it, but its also the great strength of it.
What does the evidence show about the connection between democracy and the kind of inclusive growth you want to promote? And how does that influence where you lend money?
We don't do political litmus tests, but we have a very extensive mechanism in place to make sure that whatever money we give is being used for the things it’s supposed to be used for. To take a step back, I would say there is not a country in the world that couldn’t get better at governance, even the richest ones. We offer our services to every government around things like public expenditures. We have a whole crew of people who would go into a country and see to it that your public expenditures has its basic pieces in place. So we help them with that. We help them to build rule of law in the sense that we invest in things like helping to create a better way of assessing judges or nominating and appointing judges.
Several of the emerging markets have complained about the way the Federal Reserve is handling the withdrawal of its stimulus program in the U.S. 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 U.S?
It all depends on the speed and the pace. Right now capital flow make up about 4.6 percent 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. And Janet Yellen said in that meeting that she thinks about emerging market countries every day. And it was really a nice touch; it was a personal touch that I think the emerging market countries appreciated.
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 percent to around 4 percent. Even with that decrease, which is significant, because it will be done over a period of time the growth in the U.S. economy will be enough to offset whatever decrease in capital flow happens. In other words, a growing U.S. economy means more exports, means a growing economy globally. The positive impact of the growing U.S. 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. If you look at countries like Indonesia current account deficits are more in control and they’ve reduced quite significantly. And you can imagine how that happens. As exchange rates go down, the desire or the ability in a particular country to purchase imported goods goes down and so their current account deficits get better. There has been a lot of rebalancing and the emerging markets, even today 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.