World Bank to Launch Stimulus for Developing Nations

By Anthony Faiola
Washington Post Staff Writer
Thursday, April 23, 2009

Moving to combat the spiraling economic downturn in developing countries, the World Bank will unveil a major initiative today to almost double financing for road, bridge and other infrastructure projects from Latin America to Eastern Europe, allowing poorer nations to create jobs in a manner similar to the stimulus programs underway in the United States and other wealthy countries.

That $55 billion effort, spelled out by World Bank President Robert B. Zoellick in an interview yesterday, comes as both the bank and the International Monetary Fund seek to address the fast-sinking fortunes of developing nations through a series of high-level meetings in Washington this week.

Following the $1.1 trillion plan for the global recovery hatched by world leaders in London this month, finance ministers and central bankers from major nations will converge for meetings of the Group of Seven and Group of 20 at the Treasury Department tomorrow. Those will be followed by further closed-door meetings at the biannual assembly of the IMF and World Bank this weekend, in part to hash out just where those vast sums of promised funds will come from and how they will be spent.

Although the focus to date has shined on the IMF and its vastly expanded role as global banker to nations facing immediate crisis, the World Bank, its sister organization engaged in longer-term development assistance, also faces an amplified mission. Concern is mounting that the worst financial crisis since the Great Depression is reversing historic gains against global poverty made in recent years -- gains made partly with help from the World Bank, which is based in the District.

Those fears were underscored yesterday by an IMF report indicating the global economy is faring worse than IMF economists had predicted only a few months ago. As recently as January, for instance, the IMF thought Brazil would post moderate growth in 2009. But it now projects Latin America's largest economy -- stung by the credit crunch and a sharp downturn in exports -- will suffer a painful recession along with much of the rest of the region. Mexico had been expected to suffer only a mild economic contraction, but the IMF now says its downturn this year will be even harsher than the one in the United States.

"Decreases in demand are leading to decreases in production, decreases in exports and increases in unemployment that are still shaping current evolutions," said Olivier Blanchard, the IMF's chief economist.

That said, the fund noted that some of the steepest contractions include wealthy countries such as Japan, at 6.2 percent; Germany, at 5.6 percent; and Britain, at 4.1 percent, compared with 2.8 percent contraction in the United States. Stimulus packages, however, are cushioning declines in Europe, Japan and the United States, aiding recovery efforts.

Yet such cushions, Zoellick said, have been far harder for others to establish. A dramatic pullback of private financing from the developing world has been forcing poor and middle-income nations from Africa to Latin America to abandon half-finished construction projects, fueling spikes in unemployment. The bank will step in to fill the gaps left by panicked private investors, nearly doubling to $55 billion its available infrastructure financing to poor and middle-income countries.

Those funds would help jump-start projects that have stalled in recent months, including the installation of power grids in Cameroon and new port facilities in Vietnam and Indonesia, World Bank officials said.

Zoellick estimated that each billion spent would generate 200,000 to 500,000 jobs. "You have projects that are half built, but where jobs can't continue because the financing isn't there," Zoellick said. "You finance these projects, you keep people working."

In addition, the bank is moving this week to unveil billions of dollars more in financing for social safety nets in the developing world. The bank will more than double to $28 billion the amount available for hard-hit Latin America, including a recapitalization plan for banks. That amount would be pooled with resources from agencies including the Inter-American Development Bank for a total of $90 billion.

Concerns remain that world leaders talk about vast sums without specifics regarding where the money will come from or when. A portion of the $1.1 trillion pledged by world leaders this year was earmarked, and in some cases, already spent, to combat the crisis.

Clarity, however, is emerging. The IMF, which had about $250 billion on hand, is set to expand its arsenal to about $1 trillion. About $250 billion of that will come from the IMF effectively printing money, called Special Drawing Rights.

The United States, Japan and the European Union have pledged up to $300 billion; Canada and Switzerland, $10 billion each; and Norway, $4.5 billion. China is expected to give at least $40 billion, while Saudi Arabia and other countries are counted on for much of the balance. But many of those pledges require approval from legislators at home, and it is uncertain how quickly the money would be made available. The IMF is saying that it immediately needs half of the $500 billion it will seek from governments to deal with the crisis.

In the World Bank's case, armed with about $200 billion, much of the funds needed to cope with the crisis are in hand or will be raised privately through bond issues or other commercial transactions. However, a few targeted donations from governments are set to come for the infrastructure fund, including from Germany and France.

Every three years, the bank holds a drive to replenish its fund for the poorest of nations, with a record $42 billion collected in 2007. The bank is facing pressure from some nations to kick off the next drive early, moving up efforts now set for 2010. Zoellick said he would seek to balance the fresh need in the developing world with his desire not to thrust the offering plate too quickly in front of rich countries, now suffering severe downturns themselves.

"I want to build a track record of credibility," Zoellick said, "by not crying wolf early."

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