Sources:
BRICS Joint Statistical Report: Economic and Social Indicators Comparison of BRICS Countries
International News, The: World Bank Chief Backs BRICS Idea
Macau Daily Times: Rising Powers Mull Bank for Developing Nations
Telegraph, The: Robert Zoellick Calls for BRICS Bank
Brazil, Russia, India, China, and South Africa, collectively known as the “BRICS,” are five of the most important emerging economies. At their joint financial summit in New Delhi during the week of March 27, 2012, the BRICS officially proposed a new developmental bank, which would serve as an alternative to other development banks such as the World Bank. The outgoing World Bank president, Robert Zoellick, said that he would support a World Bank program to work with the BRICS to make their plan for a new bank a reality. Such a move would not be unprecedented, as the World Bank has previously assisted in the creation of the Islamic Development Bank and the OPEC Fund.
Zoellick does not believe that ignoring the BRICS is a good economic decision, as the countries are already serious players in the world economy. Collectively they account for 18% of the world’s GDP, 40% of the world’s population, 15% of global trade, and 40% of global currency reserves. Many financial experts expect the BRICS’s economies and political influence to continue growing in the future.
Some political experts view President Obama’s nomination of an American to lead the World Bank (instead of a person from the BRICS or another emerging economy) as adding momentum to a BRICS bank. The BRICS believe that the World Bank does not effectively address the unique needs of developing countries. They believe that a World Bank president from an emerging market economy could help address this issues. However, Obama’s nomination of an American is in line with past practice, as an American has always been the leader of the World Bank. The BRICS bank would focus on middle-income countries and be largely free from the political influences of advanced economies.
However, political experts are concerned that because the BRICS do not have one coherent foreign policy, it will be difficult for the countries to pool their economic resources and settle on an aid strategy. The lack of agreement was recently demonstrated when the BRICS failed to unite behind one nominee for World Bank president. Political experts are also concerned about the vast difference in economic power between the BRICS. For example, Brazil’s GDP was $2,090 billion in 2010, while China’s was $5,879 billion, India’s was $1,293 billion, Russia’s was $1,465 billion, and South Africa’s was $363 billion. China also has $3.2 billion in foreign currency reserves, an amount much higher than any of the other BRICS. Because China has the largest economy and currency reserves, it will likely want to permanently lead the bank—a proposal that India and Russia would likely reject. Additionally, unlike the World Bank, where the leadership generally consists of democracies, the BRICS bank would represent an authoritarian government (China), a quasi-democratic government (Russia), and several democracies (India, Brazil, and South Africa).
With the fast-growing economies of the BRICS, the countries have the funds and political will necessary to create their own development bank. However, the exact structure of that bank and the World Bank’s potential role in its creation remain unclear. While the BRICS have numerous differences, both political and economic, a developmental bank backed by the five countries’ immense economic power would have the ability do much good in the world.
Showing posts with label World Bank. Show all posts
Showing posts with label World Bank. Show all posts
Wednesday, April 11, 2012
Wednesday, April 04, 2012
Germany Supports Increase in Funds to Combat the Debt Crisis Contagion
Sources:
Chicago Tribune: Merkel Signals Readiness to Compromise on Firewall
Nine News Australia: Merkel Gives Ground on Higher Firewall
San Fransisco Chronicle: Merkel Backs Firewall Increase for First Time Amid Spanish Concerns
WSJ: Euro Zone Raises Ceiling on its 'Firewall'
To limit the spread of the negative effects of a potential default in Greece, Portugal, or Ireland, European leadership has created a permanent rescue fund named the European Stability Mechanism (“ESM”) with a maximum value of €500 billion that will come into effect in July 2012. A current temporary fund with the same goal, the European Financial Stability Facility (“ESFS”), has already disbursed €200 billion and has €240 billion in unused capacity.
Having the necessary funds to combat default is vitally important because one country’s default can create a domino effect that causes enormous problems in other countries. This spread of economic harm based on one country’s default is called “contagion.” A simplified example of this problem is as follows. Suppose that country A (“A”), which is barely able to make its debt payments, holds €100 billion in debt from country B (“B”) and receives annual interest payments of €6 billion on that debt from B. A also owes €5 billion in interest payments each year to a number of other countries. If B defaults, A will no longer receive its €6 billion in interest payments that it counts on to be able to meet its own obligations. In this simplified example, the default of B could force A to default. Additionally, a default in one country could cause panic throughout Europe, leading banks to greatly reduce the amount of money they are willing to lend. Both of these problems could be devastating to the world economy.
Germany, one of the most economically powerful countries in the EU, previously believed that funds to combat the debt crisis contagion should be limited to the €500 billion maximum of the ESM. However, on March 26, in response to concerns that the economies of Spain and Portugal are in serious economic danger and pressure from the IMF and the governments of top global economies, Germany agreed that €500 billion may not be sufficient to combat the debt crisis contagion. Germany then agreed with other Eurozone members that the ESM and ESFS could run in parallel. Germany’s new position is that the permanent ESM will remain capped at €500 billion, but the €200 billion already distributed by the ESFS will not be included in that total, giving the Eurozone a total of €700 billion to combat the debt crisis. The increased availability of funds will allow countries nearing default to meet their current debt obligations, which will give these countries the additional time needed to implement economic changes that will allow them to meet future debt obligations.
On Friday, March 30, 2012, Eurozone finance ministers agreed to increase the bailout limit to €700 billion, but many in the euro-zone are concerned that it will not be enough. For example, the European Commission (the EU’s executive arm) argued that the ESM needs €940 billion to adequately contain the crisis. Germany however, believes that €700 billion is sufficient and was successful in defeating those lobbying for an even higher debt ceiling. The option chosen by the finance ministers still must be ratified by the 17 euro-zone member parliaments.
Chicago Tribune: Merkel Signals Readiness to Compromise on Firewall
Nine News Australia: Merkel Gives Ground on Higher Firewall
San Fransisco Chronicle: Merkel Backs Firewall Increase for First Time Amid Spanish Concerns
WSJ: Euro Zone Raises Ceiling on its 'Firewall'
To limit the spread of the negative effects of a potential default in Greece, Portugal, or Ireland, European leadership has created a permanent rescue fund named the European Stability Mechanism (“ESM”) with a maximum value of €500 billion that will come into effect in July 2012. A current temporary fund with the same goal, the European Financial Stability Facility (“ESFS”), has already disbursed €200 billion and has €240 billion in unused capacity.
Having the necessary funds to combat default is vitally important because one country’s default can create a domino effect that causes enormous problems in other countries. This spread of economic harm based on one country’s default is called “contagion.” A simplified example of this problem is as follows. Suppose that country A (“A”), which is barely able to make its debt payments, holds €100 billion in debt from country B (“B”) and receives annual interest payments of €6 billion on that debt from B. A also owes €5 billion in interest payments each year to a number of other countries. If B defaults, A will no longer receive its €6 billion in interest payments that it counts on to be able to meet its own obligations. In this simplified example, the default of B could force A to default. Additionally, a default in one country could cause panic throughout Europe, leading banks to greatly reduce the amount of money they are willing to lend. Both of these problems could be devastating to the world economy.
Germany, one of the most economically powerful countries in the EU, previously believed that funds to combat the debt crisis contagion should be limited to the €500 billion maximum of the ESM. However, on March 26, in response to concerns that the economies of Spain and Portugal are in serious economic danger and pressure from the IMF and the governments of top global economies, Germany agreed that €500 billion may not be sufficient to combat the debt crisis contagion. Germany then agreed with other Eurozone members that the ESM and ESFS could run in parallel. Germany’s new position is that the permanent ESM will remain capped at €500 billion, but the €200 billion already distributed by the ESFS will not be included in that total, giving the Eurozone a total of €700 billion to combat the debt crisis. The increased availability of funds will allow countries nearing default to meet their current debt obligations, which will give these countries the additional time needed to implement economic changes that will allow them to meet future debt obligations.
On Friday, March 30, 2012, Eurozone finance ministers agreed to increase the bailout limit to €700 billion, but many in the euro-zone are concerned that it will not be enough. For example, the European Commission (the EU’s executive arm) argued that the ESM needs €940 billion to adequately contain the crisis. Germany however, believes that €700 billion is sufficient and was successful in defeating those lobbying for an even higher debt ceiling. The option chosen by the finance ministers still must be ratified by the 17 euro-zone member parliaments.
Tuesday, March 13, 2012
Extreme Poverty Falls, Even Amid Economic Recession
Sources:
Boston Globe: Economic Downturn did not Harm Efforts at Reducing Extreme Poverty in Developing World
Business Standard: Extreme Poverty Drops Worldwide
World Bank: World Bank Sees Progress Against Extreme Poverty, But Flags Vulnerabilities
A new World Bank report finds that the number of people living in extreme poverty—defined as living on less than $1.25 a day—in the developing world has fallen every year between 2005 and 2008, the most recent year where complete data is available. Additionally, according to preliminary data from 2010, the recent global economic recession, which many experts thought would lead to an increase in extreme poverty, instead has only slowed the rate of reduction.
Global attempts at reducing extreme poverty have been notable. In 1981, 1.94 billion people in the developing world lived below $1.25 per day. However, by 2008 that number dropped to 1.29 billion, a reduction of over 600 million people. Poverty reduction has been so rapid that the United Nations Millennium Development Goal of cutting extreme poverty in half from its 1990 level has already been achieved, well before the 2015 deadline.
Progress has been especially dramatic in East Asia. In 1981, the region was the poorest in the world, with approximately 77% of the population living in extreme poverty. By 2008, the percentage had dropped to only 14%. In South Asia, the percentage of people living in extreme poverty dropped from 61% to 36% between 1981 and 2008. In Latin American and the Caribbean, the population living in extreme poverty remained relatively constant at 12% between 1981 and 2002. However, since 2002, extreme poverty has been declining rapidly. In 2005 extreme poverty fell to 9% and by 2008 the number had fallen further to 6%.
Sub-Saharan Africa is the region of the world that has made the least progress since data collection began in 1981. In 1981, 51% of Sub-Saharan Africa lived in extreme poverty, but that percentage rose to 59% in 1993. Some progress has since been made, as the percentage of people in extreme poverty fell from 56% to 52% between 2002 and 2005. In 2008, the population living in extreme poverty was 48%—the first time in the region’s history that less than half of the population was not living in extreme poverty.
Despite the significant reduction in poverty, the World Bank believes additional progress needs to be made. At the current rate of progress, over one billion people will still live in extreme poverty by 2015. Additionally, while many people have escaped extreme poverty, these people remain extremely poor by middle- and high-income country standards. For example, many of those who have escaped extreme poverty now live on less than $2 a day, as evidenced by another recent study showing there has been only a 5% reduction in the number of people living on less than $2 a day between 1981 and 2008 (from 2.59 to 2.47 billion in 1981 and 2008 respectively). This data suggests that while 600 million people have escaped extreme poverty between 1981 and 2008, many of those people remain in dire financial positions. In total, 22% of the developing world still lives in extreme poverty and 43% lives on less than $2 a day. The World Bank hopes that the current trends will continue and world poverty will continue to decline.
Boston Globe: Economic Downturn did not Harm Efforts at Reducing Extreme Poverty in Developing World
Business Standard: Extreme Poverty Drops Worldwide
World Bank: World Bank Sees Progress Against Extreme Poverty, But Flags Vulnerabilities
A new World Bank report finds that the number of people living in extreme poverty—defined as living on less than $1.25 a day—in the developing world has fallen every year between 2005 and 2008, the most recent year where complete data is available. Additionally, according to preliminary data from 2010, the recent global economic recession, which many experts thought would lead to an increase in extreme poverty, instead has only slowed the rate of reduction.
Global attempts at reducing extreme poverty have been notable. In 1981, 1.94 billion people in the developing world lived below $1.25 per day. However, by 2008 that number dropped to 1.29 billion, a reduction of over 600 million people. Poverty reduction has been so rapid that the United Nations Millennium Development Goal of cutting extreme poverty in half from its 1990 level has already been achieved, well before the 2015 deadline.
Progress has been especially dramatic in East Asia. In 1981, the region was the poorest in the world, with approximately 77% of the population living in extreme poverty. By 2008, the percentage had dropped to only 14%. In South Asia, the percentage of people living in extreme poverty dropped from 61% to 36% between 1981 and 2008. In Latin American and the Caribbean, the population living in extreme poverty remained relatively constant at 12% between 1981 and 2002. However, since 2002, extreme poverty has been declining rapidly. In 2005 extreme poverty fell to 9% and by 2008 the number had fallen further to 6%.
Sub-Saharan Africa is the region of the world that has made the least progress since data collection began in 1981. In 1981, 51% of Sub-Saharan Africa lived in extreme poverty, but that percentage rose to 59% in 1993. Some progress has since been made, as the percentage of people in extreme poverty fell from 56% to 52% between 2002 and 2005. In 2008, the population living in extreme poverty was 48%—the first time in the region’s history that less than half of the population was not living in extreme poverty.
Despite the significant reduction in poverty, the World Bank believes additional progress needs to be made. At the current rate of progress, over one billion people will still live in extreme poverty by 2015. Additionally, while many people have escaped extreme poverty, these people remain extremely poor by middle- and high-income country standards. For example, many of those who have escaped extreme poverty now live on less than $2 a day, as evidenced by another recent study showing there has been only a 5% reduction in the number of people living on less than $2 a day between 1981 and 2008 (from 2.59 to 2.47 billion in 1981 and 2008 respectively). This data suggests that while 600 million people have escaped extreme poverty between 1981 and 2008, many of those people remain in dire financial positions. In total, 22% of the developing world still lives in extreme poverty and 43% lives on less than $2 a day. The World Bank hopes that the current trends will continue and world poverty will continue to decline.
Tuesday, February 28, 2012
World Bank May Start Lending to Myanmar
Sources:
AFP: World Bank Encouraged on Myanmar
Reuters: World Bank Says Reengaging with Myanmar After 25 Years
Wall Street Journal: World Bank Supports Reforms in Myanmar
World Bank: Myanmar and the World Bank
The World Bank stopped lending to Myanmar, formerly known as Burma, in 1987 due to the country’s lack of economic and social reform, as well as failing to make payments owed on World Bank loans. The former military government recently handed power to a new civilian government that is reopening communication with the international community. The World Bank, based on Myanmar’s recent openness, has begun discussions with the country about potentially initiating developmental programs in the near future.
Myanmar, once known as the “rice bowl of Asia” due to its strong agricultural sector, had a strong economy before economic mismanagement and civil war transformed the country into one that is now deeply impoverished. For example, the World Health Organization ranks Myanmar’s health system as the worst in the world. The military government gave up power in an attempt to reverse the country’s negative economic and social trends. This new government has initiated dialog with outside countries and organizations, began speaking with the political opposition and ethnic minorities, and released some political prisoners. Additionally, to boost economic development, Myanmar is planning to offer eight-year tax-exempt status to all foreign investors.
The World Bank is satisfied with the country’s recent political and economic decisions, and is now considering new lending programs to Myanmar. However, World Bank regulations do not allow it to provide funding to any country that is behind on debt payments. Therefore, before Myanmar will be able to receive new World Bank loans, the country must first make arrangements to pay its past due debts to the World Bank. While the World Bank has not released exact numbers, financial experts estimate that Myanmar owes $700 million in arrears to the World Bank.
If Myanmar and the World Bank solve the issues surrounding Myanmar’s past debts, new World Bank projects would likely focus on improving public services (such as education and sanitation), upgrading the antiquated banking and finance sectors, and facilitating private sector job creation (for example, by promoting open communications throughout the country). World Bank programs will also support sustained peace, especially in regions where ethnic fighting has torn communities apart since the country gained independence from Britain in 1948, by developing jobs for past combatants. If the World Bank and Myanmar can agree on financial action that will improve the lives of Myanmar’s citizens, it will provide hope to the citizens of other oppressive governments that the international community is willing to help if a peaceful government can be installed.
AFP: World Bank Encouraged on Myanmar
Reuters: World Bank Says Reengaging with Myanmar After 25 Years
Wall Street Journal: World Bank Supports Reforms in Myanmar
World Bank: Myanmar and the World Bank
The World Bank stopped lending to Myanmar, formerly known as Burma, in 1987 due to the country’s lack of economic and social reform, as well as failing to make payments owed on World Bank loans. The former military government recently handed power to a new civilian government that is reopening communication with the international community. The World Bank, based on Myanmar’s recent openness, has begun discussions with the country about potentially initiating developmental programs in the near future.
Myanmar, once known as the “rice bowl of Asia” due to its strong agricultural sector, had a strong economy before economic mismanagement and civil war transformed the country into one that is now deeply impoverished. For example, the World Health Organization ranks Myanmar’s health system as the worst in the world. The military government gave up power in an attempt to reverse the country’s negative economic and social trends. This new government has initiated dialog with outside countries and organizations, began speaking with the political opposition and ethnic minorities, and released some political prisoners. Additionally, to boost economic development, Myanmar is planning to offer eight-year tax-exempt status to all foreign investors.
The World Bank is satisfied with the country’s recent political and economic decisions, and is now considering new lending programs to Myanmar. However, World Bank regulations do not allow it to provide funding to any country that is behind on debt payments. Therefore, before Myanmar will be able to receive new World Bank loans, the country must first make arrangements to pay its past due debts to the World Bank. While the World Bank has not released exact numbers, financial experts estimate that Myanmar owes $700 million in arrears to the World Bank.
If Myanmar and the World Bank solve the issues surrounding Myanmar’s past debts, new World Bank projects would likely focus on improving public services (such as education and sanitation), upgrading the antiquated banking and finance sectors, and facilitating private sector job creation (for example, by promoting open communications throughout the country). World Bank programs will also support sustained peace, especially in regions where ethnic fighting has torn communities apart since the country gained independence from Britain in 1948, by developing jobs for past combatants. If the World Bank and Myanmar can agree on financial action that will improve the lives of Myanmar’s citizens, it will provide hope to the citizens of other oppressive governments that the international community is willing to help if a peaceful government can be installed.
Friday, February 17, 2012
Africa Losing Billions in Potential Trade Earnings
Sources:
Economic Times: Africa Losing Out Billions in Trade: World Bank
Herald Sun: Africa Losing Out Billions in Trade
World Bank: Africa Loses Billions in Potential Trade Earnings, Falls Short of Vast Promise in Cross-Border Business―New World Bank Report
A new World Bank report explains how African countries are losing out on billions of dollars in potential trade earnings due to high trading barriers between African countries. Currently, it is easier for African countries to trade with the rest of the world than within the continent. To remedy this situation, many African leaders are calling for an African free trade agreement by 2017.
The African free trade agreement is particularly important because of the global economic slowdown, especially the European sovereign debt crisis. The European debt crisis alone is projected to reduce Africa’s growth rate by 1.3% in 2012 due to the decreased demand for African goods within Europe. Despite Europe’s pessimistic outlook, the World Bank report finds room for significant economic growth in the trade of food, basic manufactured items (leather, wood, paper, etc.), and services between African countries. Only 10% of African economic revenues come from regional trade, as compared to North America where 40% of trade occurs with regional partners, and 63% for Western Europe. The report finds that an African free trade agreement would create larger markets for African goods, increase economic diversification (a larger market to sell goods will allow producers to diversify into many different types of goods, including goods that were not economically possible in a smaller region due to a lack of available consumers), reduced production costs (increased opportunities to take advantage of a specific region’s ability to produce a good at a lower cost than other regions, and then export that good throughout Africa), improve productivity (when specific goods can be produced in very large amounts and exported throughout Africa, producers are able to specialize in that item and increase the efficiency of its production), and reduce poverty (reduced unemployment and increased growth are associated with increased trade).
Current trade restrictions are especially difficult on poor traders, many of whom are women. Many women whom engage in cross-border trade deal with violence, threats, corruption, and sexual harassment. For example, one female egg trader who lives in the Congo but buys her eggs in Rawanda has to bribe custom officials with eggs, often forcing her to give away thirty eggs on each trip. Because an African free trade agreement would focus on reducing governmental corruption, it could reduce or eliminate the need for such cross-border bribes along with reducing other costs.
To unlock the advantages of free trade, the World Bank has recognized the need for African countries to pursue changes in three areas. First, countries need to improve cross-border trade by limiting the number of border agents, reducing corruption among the remaining border agents, and increasing cross-border technologies (such as cross-border mobile banking). Second, countries should remove non-tariff barriers to trade, which would include lifting restrictions on goods based on where they come from, removing import and export bans, and ending costly import and licensing procedures. For example, one African grocery chain spends approximately $20,000 per week on permits required to distribute meat, milk, fruits, and vegetables purchased in other countries. Finally, countries need to reform immigration policies that significantly limit the ability to travel and work throughout Africa, harming the flow of information and reducing investment in the service industry due to the lack of skilled workers to fill a specific service oriented position in certain regions.
To support regional integration the World Bank has increased its investment specifically pertaining to economic integration within Africa from a total of $2.1 billion in 2008 to $4.2 billion in July 2011, and expects total investment to increase to $5.7 billion by July 2012. Such investments have focused on increasing trade by improving infrastructure, implementing new immigration procedures, and eliminating the trade barriers listed in above. The World Bank believes increased continent-wide economic integration will ultimately reduce unemployment and poverty, and increase most African’s standard of living.
Economic Times: Africa Losing Out Billions in Trade: World Bank
Herald Sun: Africa Losing Out Billions in Trade
World Bank: Africa Loses Billions in Potential Trade Earnings, Falls Short of Vast Promise in Cross-Border Business―New World Bank Report
A new World Bank report explains how African countries are losing out on billions of dollars in potential trade earnings due to high trading barriers between African countries. Currently, it is easier for African countries to trade with the rest of the world than within the continent. To remedy this situation, many African leaders are calling for an African free trade agreement by 2017.
The African free trade agreement is particularly important because of the global economic slowdown, especially the European sovereign debt crisis. The European debt crisis alone is projected to reduce Africa’s growth rate by 1.3% in 2012 due to the decreased demand for African goods within Europe. Despite Europe’s pessimistic outlook, the World Bank report finds room for significant economic growth in the trade of food, basic manufactured items (leather, wood, paper, etc.), and services between African countries. Only 10% of African economic revenues come from regional trade, as compared to North America where 40% of trade occurs with regional partners, and 63% for Western Europe. The report finds that an African free trade agreement would create larger markets for African goods, increase economic diversification (a larger market to sell goods will allow producers to diversify into many different types of goods, including goods that were not economically possible in a smaller region due to a lack of available consumers), reduced production costs (increased opportunities to take advantage of a specific region’s ability to produce a good at a lower cost than other regions, and then export that good throughout Africa), improve productivity (when specific goods can be produced in very large amounts and exported throughout Africa, producers are able to specialize in that item and increase the efficiency of its production), and reduce poverty (reduced unemployment and increased growth are associated with increased trade).
Current trade restrictions are especially difficult on poor traders, many of whom are women. Many women whom engage in cross-border trade deal with violence, threats, corruption, and sexual harassment. For example, one female egg trader who lives in the Congo but buys her eggs in Rawanda has to bribe custom officials with eggs, often forcing her to give away thirty eggs on each trip. Because an African free trade agreement would focus on reducing governmental corruption, it could reduce or eliminate the need for such cross-border bribes along with reducing other costs.
To unlock the advantages of free trade, the World Bank has recognized the need for African countries to pursue changes in three areas. First, countries need to improve cross-border trade by limiting the number of border agents, reducing corruption among the remaining border agents, and increasing cross-border technologies (such as cross-border mobile banking). Second, countries should remove non-tariff barriers to trade, which would include lifting restrictions on goods based on where they come from, removing import and export bans, and ending costly import and licensing procedures. For example, one African grocery chain spends approximately $20,000 per week on permits required to distribute meat, milk, fruits, and vegetables purchased in other countries. Finally, countries need to reform immigration policies that significantly limit the ability to travel and work throughout Africa, harming the flow of information and reducing investment in the service industry due to the lack of skilled workers to fill a specific service oriented position in certain regions.
To support regional integration the World Bank has increased its investment specifically pertaining to economic integration within Africa from a total of $2.1 billion in 2008 to $4.2 billion in July 2011, and expects total investment to increase to $5.7 billion by July 2012. Such investments have focused on increasing trade by improving infrastructure, implementing new immigration procedures, and eliminating the trade barriers listed in above. The World Bank believes increased continent-wide economic integration will ultimately reduce unemployment and poverty, and increase most African’s standard of living.
Sunday, February 05, 2012
World Bank Approves New Financing Instrument
Sources:
Economic Times: World Bank Approves New Financing Instrument
The Financial: World Bank Approves Program-For-Result - New Financing Instrument
World Bank: Putting Results First: PforR to Link Disbursements to Development Outcomes
On January 5, 2012, the World Bank Board of Executives approved a new financing instrument named “Program-for-Results” (PforR). This new instrument will link the disbursement of funds directly to the achievement and verification of defined and specific results. The World Bank believes PforR financing will result in greater accountability and compliance in the countries receiving aid, which in turn will deliver improved and sustained results to further the Bank’s goal of accelerating development globally. PforR lending was not created to replace the World Bank’s other lending instruments (Investment Lending and Development Policy Lending), but instead was designed to give another funding option to developing countries.
PforR was developed to fight problems that have sometimes occurred under previous World Bank programs. For example, under other development models an initiative might acquire funding to build a school, but fail to address the problem of finding qualified teachers for the new building. Another example is providing financing for a brand new health clinic, but taking no provision for how to ensure the clinic has the needed medications or supplies. The World Bank believes that providing specific and defined incentives tied to the disbursement of funds will push a country towards those specific results and help mitigate the types of problems described above. For example, PforR, instead of only providing financing for the new school, would instead fund the new school building and tie additional funds disbursements to a specific result, such as improving literacy.
Considering how important development information is to PforR, a main challenge will be compiling accurate information. The World Bank will handle this problem with a country-by-country approach. In each country the World Bank will create a network of government agencies, statistical or audit entities, and third-party groups such as nongovernmental organizations (NGOs) to gather information and track each program’s progress. The World Bank believes these measures will allow it to quickly and accurately compile the information needed to determine if the project is achieving the required results.
PforR will also include new anti-fraud guidelines to decrease corruption in the disbursement of funds. These new guidelines give the World Bank the ability to investigate any allegations of fraud in a program, not just those instances related to bank financing, as is the case under current rules. The new anti-fraud guidelines will also create provisions on how cases of fraud and corruption should be handled. In certain instances, combating corruption will be one of the conditions that must be met to trigger future disbursement of funds.
Under PforR the World Bank will also engage in an assessment to ensure that a program will not have a large adverse environmental or social impact. For this reason, PforR will not be available to finance projects that pose the risk of significant and irreversible impact on the environment or people, such as large dams, ports, or power plants. Programs that do not fall into this category must still pass a social and environmental assessment, including consultations with the groups that will be most affected by the project before approval. Once the assessment is complete it will be available to the public.
While not available for all types of projects, PforR is a flexible financing instrument with many potential uses. For example, PforR could be used to provide the funding necessary to increase post-birth care for mothers and newborns, provide clean sustainable water supplies, increase education, or reduce the number of households in poverty. A key factor of PforR is that is allows the World Bank to provide only a fraction of a large development project’s funding, with additional funds provided by governments, private investors, and many other sources, while still allowing the World Bank to apply its technical and environmental expertise to the entire project.
The World Bank developed the exact methods for the implementation of PforR over a twelve-month trial period with input from thirty-four client countries and seven donor countries. Included in the trial were government officials, development partners (other international institutions with similar goals such as the Global Alliance for Vaccines and Immunizations), civil society organizations (such as the Center for International Environmental Law and the World Resources Institute), private sector actors, and academics. With this extensive trial, the World Bank is confidant PforR is ready for use and will further the World Bank’s goal of global development.
Economic Times: World Bank Approves New Financing Instrument
The Financial: World Bank Approves Program-For-Result - New Financing Instrument
World Bank: Putting Results First: PforR to Link Disbursements to Development Outcomes
On January 5, 2012, the World Bank Board of Executives approved a new financing instrument named “Program-for-Results” (PforR). This new instrument will link the disbursement of funds directly to the achievement and verification of defined and specific results. The World Bank believes PforR financing will result in greater accountability and compliance in the countries receiving aid, which in turn will deliver improved and sustained results to further the Bank’s goal of accelerating development globally. PforR lending was not created to replace the World Bank’s other lending instruments (Investment Lending and Development Policy Lending), but instead was designed to give another funding option to developing countries.
PforR was developed to fight problems that have sometimes occurred under previous World Bank programs. For example, under other development models an initiative might acquire funding to build a school, but fail to address the problem of finding qualified teachers for the new building. Another example is providing financing for a brand new health clinic, but taking no provision for how to ensure the clinic has the needed medications or supplies. The World Bank believes that providing specific and defined incentives tied to the disbursement of funds will push a country towards those specific results and help mitigate the types of problems described above. For example, PforR, instead of only providing financing for the new school, would instead fund the new school building and tie additional funds disbursements to a specific result, such as improving literacy.
Considering how important development information is to PforR, a main challenge will be compiling accurate information. The World Bank will handle this problem with a country-by-country approach. In each country the World Bank will create a network of government agencies, statistical or audit entities, and third-party groups such as nongovernmental organizations (NGOs) to gather information and track each program’s progress. The World Bank believes these measures will allow it to quickly and accurately compile the information needed to determine if the project is achieving the required results.
PforR will also include new anti-fraud guidelines to decrease corruption in the disbursement of funds. These new guidelines give the World Bank the ability to investigate any allegations of fraud in a program, not just those instances related to bank financing, as is the case under current rules. The new anti-fraud guidelines will also create provisions on how cases of fraud and corruption should be handled. In certain instances, combating corruption will be one of the conditions that must be met to trigger future disbursement of funds.
Under PforR the World Bank will also engage in an assessment to ensure that a program will not have a large adverse environmental or social impact. For this reason, PforR will not be available to finance projects that pose the risk of significant and irreversible impact on the environment or people, such as large dams, ports, or power plants. Programs that do not fall into this category must still pass a social and environmental assessment, including consultations with the groups that will be most affected by the project before approval. Once the assessment is complete it will be available to the public.
While not available for all types of projects, PforR is a flexible financing instrument with many potential uses. For example, PforR could be used to provide the funding necessary to increase post-birth care for mothers and newborns, provide clean sustainable water supplies, increase education, or reduce the number of households in poverty. A key factor of PforR is that is allows the World Bank to provide only a fraction of a large development project’s funding, with additional funds provided by governments, private investors, and many other sources, while still allowing the World Bank to apply its technical and environmental expertise to the entire project.
The World Bank developed the exact methods for the implementation of PforR over a twelve-month trial period with input from thirty-four client countries and seven donor countries. Included in the trial were government officials, development partners (other international institutions with similar goals such as the Global Alliance for Vaccines and Immunizations), civil society organizations (such as the Center for International Environmental Law and the World Resources Institute), private sector actors, and academics. With this extensive trial, the World Bank is confidant PforR is ready for use and will further the World Bank’s goal of global development.
Monday, October 24, 2011
The World Bank Increases Short and Long-Term Aid to the Horn of Africa to Fight Drought and Famine
Sources:
Reuters: UPDATE 2-World Bank Boosts Horn of Africa Aid to $1.88bln
WSJ: World Bank Boosts Aid to Horn of Africa
All Africa: UN Increases Funding for Drought-Hit Africa
Al-Jazeera: Africa's Drought: Is Weather or War to Blame?
The World Bank is increasing funding from $500 million to $1.88 billion to help the more than thirteen million people suffering from the worst drought to hit the Horn of Africa in fifty years. United Nations (UN) officials have called the situation the worst current humanitarian crisis in the world. Most of the aid will go to individuals in Somalia, Kenya, Ethiopia, Eritrea, Djibouti, and Uganda. The stated goal of the aid is to alleviate current pain while putting the region on a path towards sustainable living.
The main reasons for the severe famine are twofold: weather and war. Regarding weather, the region has had two consecutive growing seasons without any rain, which has lead to a devastating decrease in crop production and the death of livestock. In addition to the severe weather, the region is subject to violent militant groups that often destroy crops or do not allow international food aid into the parts of some countries, exasperating the problem.
The World Bank will begin distributing the $1.88 billion by handing out $288 million in 2012 and $384 million in 2013-14 based on needs assessments completed by World Bank experts. The remaining $1.2 billion will be distributed after 2014 to bolster the region’s future drought resistance. The long-term aid will be used to create a system to communicate the early warning signs of future droughts to those who may be affected. The aid will also provide additional support to local farmers with the aim of increasing the geographic diversity of crops and education about new farming techniques that are more resistant to drought. The long-term aid will also help countries increase their emergency food reserves.
While the World Bank’s aid will help, the UN has stated that the countries need an additional $700 million for the last three months of the current year alone. The UN estimates that the countries will need $2.4 billion to meet the needs of the 13 million people the drought is affecting. International donations have totaled $1.4 billion, which leaves a $1 billion remaining funding gap.
Reuters: UPDATE 2-World Bank Boosts Horn of Africa Aid to $1.88bln
WSJ: World Bank Boosts Aid to Horn of Africa
All Africa: UN Increases Funding for Drought-Hit Africa
Al-Jazeera: Africa's Drought: Is Weather or War to Blame?
The World Bank is increasing funding from $500 million to $1.88 billion to help the more than thirteen million people suffering from the worst drought to hit the Horn of Africa in fifty years. United Nations (UN) officials have called the situation the worst current humanitarian crisis in the world. Most of the aid will go to individuals in Somalia, Kenya, Ethiopia, Eritrea, Djibouti, and Uganda. The stated goal of the aid is to alleviate current pain while putting the region on a path towards sustainable living.
The main reasons for the severe famine are twofold: weather and war. Regarding weather, the region has had two consecutive growing seasons without any rain, which has lead to a devastating decrease in crop production and the death of livestock. In addition to the severe weather, the region is subject to violent militant groups that often destroy crops or do not allow international food aid into the parts of some countries, exasperating the problem.
The World Bank will begin distributing the $1.88 billion by handing out $288 million in 2012 and $384 million in 2013-14 based on needs assessments completed by World Bank experts. The remaining $1.2 billion will be distributed after 2014 to bolster the region’s future drought resistance. The long-term aid will be used to create a system to communicate the early warning signs of future droughts to those who may be affected. The aid will also provide additional support to local farmers with the aim of increasing the geographic diversity of crops and education about new farming techniques that are more resistant to drought. The long-term aid will also help countries increase their emergency food reserves.
While the World Bank’s aid will help, the UN has stated that the countries need an additional $700 million for the last three months of the current year alone. The UN estimates that the countries will need $2.4 billion to meet the needs of the 13 million people the drought is affecting. International donations have totaled $1.4 billion, which leaves a $1 billion remaining funding gap.
Thursday, July 07, 2011
Uruguay’s Economic Recovery through Innovative Policies
Sources:
World Bank - Country Partnership Strategy for the Republic of Uruguay
World Bank - Uruguay: From Crisis to Opportunity
U.S. Dept of State - Uruguay's Economy
Uruguay has come a long way since 2002, when it faced one of the steepest economic and financial crises to hit the country in a decade. The Argentine withdrawals from Uruguayan banks and the devaluation of Brazil’s currency caused Uruguayan goods to become less competitive. All these factors, along with the outbreak of foot and mouth disease, led to massive amounts of borrowing from international institutions and financial instability in the country. However, despite the severity of the crisis, Uruguay’s economy has bounced back, in large part due to the aid of the World Bank.
According to a recent World Bank report, Uruguay has proven very successful in its implementation of the Bank’s initiatives to bolster economic and social recovery. Poverty rates have decreased, the national debt reduced, and the health care system underwent significant reforms. In addition, the Bank also helped Uruguay to eliminate foot and mouth disease, boosting the country’s image as a reliable beef exporter.
The reforms proposed by the World Bank included structural changes and short-term stabilization policies as a way to shield the country from external economic shocks. These policies included strengthening the financial sector through a flexible menu of lending and non-lending services, developing local capital markets through innovation and infrastructure, and finally, cutting the external debt and reducing the role of the US dollar in the local economy. The Bank also sought to provide financial and technical support to Uruguay by providing loans in local currency and lowering the cost of financing.
Supported by the Bank’s program, Uruguay’s economy achieved a 6.6 percent growth on average from 2004 to 2008 and poverty declined by nearly 39 percent over the last 8 years. Public debt had decreased from 79.3 percent of Gross Domestic Product in 2005 to 60 percent in 2009. Also, with the aid of the Bank-financed Non-Transmittable Diseases Project, Uruguay was able to restructure its health system in order to include more accessible primary care services to the population.
World Bank - Country Partnership Strategy for the Republic of Uruguay
World Bank - Uruguay: From Crisis to Opportunity
U.S. Dept of State - Uruguay's Economy
Uruguay has come a long way since 2002, when it faced one of the steepest economic and financial crises to hit the country in a decade. The Argentine withdrawals from Uruguayan banks and the devaluation of Brazil’s currency caused Uruguayan goods to become less competitive. All these factors, along with the outbreak of foot and mouth disease, led to massive amounts of borrowing from international institutions and financial instability in the country. However, despite the severity of the crisis, Uruguay’s economy has bounced back, in large part due to the aid of the World Bank.
According to a recent World Bank report, Uruguay has proven very successful in its implementation of the Bank’s initiatives to bolster economic and social recovery. Poverty rates have decreased, the national debt reduced, and the health care system underwent significant reforms. In addition, the Bank also helped Uruguay to eliminate foot and mouth disease, boosting the country’s image as a reliable beef exporter.
The reforms proposed by the World Bank included structural changes and short-term stabilization policies as a way to shield the country from external economic shocks. These policies included strengthening the financial sector through a flexible menu of lending and non-lending services, developing local capital markets through innovation and infrastructure, and finally, cutting the external debt and reducing the role of the US dollar in the local economy. The Bank also sought to provide financial and technical support to Uruguay by providing loans in local currency and lowering the cost of financing.
Supported by the Bank’s program, Uruguay’s economy achieved a 6.6 percent growth on average from 2004 to 2008 and poverty declined by nearly 39 percent over the last 8 years. Public debt had decreased from 79.3 percent of Gross Domestic Product in 2005 to 60 percent in 2009. Also, with the aid of the Bank-financed Non-Transmittable Diseases Project, Uruguay was able to restructure its health system in order to include more accessible primary care services to the population.
Sunday, May 29, 2011
US Dollar Will No Longer Be A Dominant International Currency By 2025
Sources:
FT: World Bank Sees End to Dollar’s Hegemony;
World Bank: Emerging Market Growth Poles are Redefining Global Economic Structure, Says World Bank Report
According to a recent World Bank report, the US dollar will no longer be a single, dominant international currency by 2025 as the economic power shifts to emerging market economies. Instead, the euro and the renminbi will likely emerge as the international currencies along with the US dollar in a “multi-currency” system. The report, “Global Development Horizons 2011-Multipolarity: The New Global Economy,” expects that by 2025, six emerging market economies (Brazil, China, India, Indonesia, South Korea, and Russia) will account for over half of overall global growth. The report also expects that the average GDP growth rate of emerging market economies will be 4.7 percent between 2011 and 2025 while the average GDP growth rate in advanced countries will be 2.3 percent in the same time frame.
As the power of global growth shifts to the emerging market economies, this will bring several changes. For example, robust economic growth and strong domestic demand in emerging market countries will benefit low income countries through increased foreign investments and trade. There will be much more cross-border merger and acquisition deals and “South-South FDI,” said Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank. Also, the multipolar world economy will no longer be dominated by “established multinationals,” and emerging market corporations will become more active and influential as well, having better access to global bond and equity markets. Justin Yifu, the World Bank’s chief economist, emphasized that to keep up with these changes, international financial institutions would have to change fast.
The report also pointed out several challenges emerging market economies would face to sustain high growth rate. Emerging market economies need to grow by enhancing productivity and strengthening domestic demand rather than depending on exports and technological transfers. Also, emerging market economies, especially, China, Indonesia, India and Russia, need to reform their domestic institutions while Brazil, India, and Indonesia face challenges of developing human capital and providing quality education.
Lastly, the report emphasizes that multilateral institutions need to provide assistance to developing countries and low income countries as the international monetary system moves to a multi-currency system. Multilateral institutions can provide technological assistance, aid, and policy advice so that those countries can adequately respond to new challenges and opportunities.
FT: World Bank Sees End to Dollar’s Hegemony;
World Bank: Emerging Market Growth Poles are Redefining Global Economic Structure, Says World Bank Report
According to a recent World Bank report, the US dollar will no longer be a single, dominant international currency by 2025 as the economic power shifts to emerging market economies. Instead, the euro and the renminbi will likely emerge as the international currencies along with the US dollar in a “multi-currency” system. The report, “Global Development Horizons 2011-Multipolarity: The New Global Economy,” expects that by 2025, six emerging market economies (Brazil, China, India, Indonesia, South Korea, and Russia) will account for over half of overall global growth. The report also expects that the average GDP growth rate of emerging market economies will be 4.7 percent between 2011 and 2025 while the average GDP growth rate in advanced countries will be 2.3 percent in the same time frame.
As the power of global growth shifts to the emerging market economies, this will bring several changes. For example, robust economic growth and strong domestic demand in emerging market countries will benefit low income countries through increased foreign investments and trade. There will be much more cross-border merger and acquisition deals and “South-South FDI,” said Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank. Also, the multipolar world economy will no longer be dominated by “established multinationals,” and emerging market corporations will become more active and influential as well, having better access to global bond and equity markets. Justin Yifu, the World Bank’s chief economist, emphasized that to keep up with these changes, international financial institutions would have to change fast.
The report also pointed out several challenges emerging market economies would face to sustain high growth rate. Emerging market economies need to grow by enhancing productivity and strengthening domestic demand rather than depending on exports and technological transfers. Also, emerging market economies, especially, China, Indonesia, India and Russia, need to reform their domestic institutions while Brazil, India, and Indonesia face challenges of developing human capital and providing quality education.
Lastly, the report emphasizes that multilateral institutions need to provide assistance to developing countries and low income countries as the international monetary system moves to a multi-currency system. Multilateral institutions can provide technological assistance, aid, and policy advice so that those countries can adequately respond to new challenges and opportunities.
Sunday, April 24, 2011
World Bank Chief Warns on High Food Prices
Sources:
Guardian: Food Price Rises Pushing Millions Into Extreme Poverty, World Bank Warns
FT: World Bank Chief Warns on Food Threat
WSJ: World Bank: Rising Food Prices Pose Imminent Threat
Over the past year, the world has seen a rapid increase in food prices. The head of the World Bank, Robert Zoellick, recently warned that if this food inflation continues, it could have tragic consequences for much of the developing world and could lead to the impoverishment of millions of people.
The cost of food, as measured by the World Bank’s global food price index, has increased by 36% over the past year, which is one of the largest year-over-year increases in food costs in recent history. Bad weather has been the primary cause for the price increases, as it has caused supply shortages in staples such as corn, wheat, and soybeans. Exacerbating the increase in food prices has been rising energy costs, especially increasing oil costs, which make it more expensive to transport food products.
The effect of these increased food prices has been harsh, especially for people living in poorer countries, where an increasing portion of their small income must now be used to purchase food, leaving little money to pay for other necessities. According to Zoellick, an estimated 44 million were driven into poverty in the last year because of higher food prices. Zoellick warned that if the food prices continue to increase, it could be disastrous for the world’s poor. According to World Bank estimates, if food prices increase another 30%, 34 million more people will be driven into poverty. Indeed, Zoellick went so far as to cite the hardship caused by food inflation as one of the main reasons for the political unrest in North Africa and the Middle East.
To combat the threat of food inflation, Zoellick is hopeful food-producing nations around the world will take steps to mitigate price increases. Specifically, Zoellick encouraged nations to stop using export controls on agricultural products. Countries, such as Russia and the Ukraine, have recently imposed exports bans on wheat to keep their domestic supplies high, thereby relieving upward pressure on wheat prices. By imposing such bans, however, countries deprive the rest of the world of much needed food supplies, which leads those other countries to confront higher food prices.
Guardian: Food Price Rises Pushing Millions Into Extreme Poverty, World Bank Warns
FT: World Bank Chief Warns on Food Threat
WSJ: World Bank: Rising Food Prices Pose Imminent Threat
Over the past year, the world has seen a rapid increase in food prices. The head of the World Bank, Robert Zoellick, recently warned that if this food inflation continues, it could have tragic consequences for much of the developing world and could lead to the impoverishment of millions of people.
The cost of food, as measured by the World Bank’s global food price index, has increased by 36% over the past year, which is one of the largest year-over-year increases in food costs in recent history. Bad weather has been the primary cause for the price increases, as it has caused supply shortages in staples such as corn, wheat, and soybeans. Exacerbating the increase in food prices has been rising energy costs, especially increasing oil costs, which make it more expensive to transport food products.
The effect of these increased food prices has been harsh, especially for people living in poorer countries, where an increasing portion of their small income must now be used to purchase food, leaving little money to pay for other necessities. According to Zoellick, an estimated 44 million were driven into poverty in the last year because of higher food prices. Zoellick warned that if the food prices continue to increase, it could be disastrous for the world’s poor. According to World Bank estimates, if food prices increase another 30%, 34 million more people will be driven into poverty. Indeed, Zoellick went so far as to cite the hardship caused by food inflation as one of the main reasons for the political unrest in North Africa and the Middle East.
To combat the threat of food inflation, Zoellick is hopeful food-producing nations around the world will take steps to mitigate price increases. Specifically, Zoellick encouraged nations to stop using export controls on agricultural products. Countries, such as Russia and the Ukraine, have recently imposed exports bans on wheat to keep their domestic supplies high, thereby relieving upward pressure on wheat prices. By imposing such bans, however, countries deprive the rest of the world of much needed food supplies, which leads those other countries to confront higher food prices.
World Bank Report Suggests New Approach to Development in Conflict-Torn Nations
Sources:
NYT: How to Rebuild a War-Torn Nation
BBC: Aid Spending Should Target Conflict, World Bank Urges
WSJ: World Bank Shifts Focus to Security in Poor Nations
According to the World Bank’s annual World Development Report, the best way to foster development in conflict-prone nations is to direct aid towards improving security. The report, which the World Bank released last week, represents a significant departure from the World Bank’s traditional approach to development. In the past, the World Bank has shied away from security issues and has focused more on the economic and social aspects of development.
The World Bank is the leading international institution for fostering economic development around the world. However, its efforts to promote development in developing countries have been frustrated by frequent outbreaks of violence. According to the report, 1.5 billion people live in countries affected by repeated outbreaks of violence. The report stated that 90% of recent civil wars have occurred in countries that had already experienced civil wars within the prior 30 years.
The cyclical nature of these outbreaks has made sustainable economic and social development virtually impossible in those countries in which they occur. When violence does erupt in a country, the effects can be even more devastating on development than natural disasters. For example, the report estimated that, in 2005, violence in Guatemala affected economic development in that country twice as much as the effects of Hurricane Stan. In addition, the report indicated that in conflict-torn nations, children are twice as likely to be undernourished, three times less likely to be able to attend school, and twice as likely to die before the age of five.
Recognizing the fact that frequent violence restricts development, the World Bank’s report takes a new approach to development that focuses on security and stability before other developmental reforms. To this end, the report proposes that developmental efforts should be focused on strengthening the institutions that support the rule of law, such as police forces, the justice system, and effective governmental institutions that are free of corruption.
NYT: How to Rebuild a War-Torn Nation
BBC: Aid Spending Should Target Conflict, World Bank Urges
WSJ: World Bank Shifts Focus to Security in Poor Nations
According to the World Bank’s annual World Development Report, the best way to foster development in conflict-prone nations is to direct aid towards improving security. The report, which the World Bank released last week, represents a significant departure from the World Bank’s traditional approach to development. In the past, the World Bank has shied away from security issues and has focused more on the economic and social aspects of development.
The World Bank is the leading international institution for fostering economic development around the world. However, its efforts to promote development in developing countries have been frustrated by frequent outbreaks of violence. According to the report, 1.5 billion people live in countries affected by repeated outbreaks of violence. The report stated that 90% of recent civil wars have occurred in countries that had already experienced civil wars within the prior 30 years.
The cyclical nature of these outbreaks has made sustainable economic and social development virtually impossible in those countries in which they occur. When violence does erupt in a country, the effects can be even more devastating on development than natural disasters. For example, the report estimated that, in 2005, violence in Guatemala affected economic development in that country twice as much as the effects of Hurricane Stan. In addition, the report indicated that in conflict-torn nations, children are twice as likely to be undernourished, three times less likely to be able to attend school, and twice as likely to die before the age of five.
Recognizing the fact that frequent violence restricts development, the World Bank’s report takes a new approach to development that focuses on security and stability before other developmental reforms. To this end, the report proposes that developmental efforts should be focused on strengthening the institutions that support the rule of law, such as police forces, the justice system, and effective governmental institutions that are free of corruption.
Tuesday, April 12, 2011
World Bank Helps Establish Fund for Middle East Infrastructure Projects
Sources: WSJ: World Bank: New Arab Fund To Leverage Infrastructure Investment
Reuters: World Bank to Set Up Arab infrastructure Fund
ABC Live: World Bank Supports AFFI Infrastructure Development for Arab Region
With violence, unrest, and political uncertainty continuing to grip the Middle East, foreign investors have become increasingly reluctant to invest funds in the region. In an effort to fill this investment void, the World Bank, in conjunction with the Arab Development Bank, recently announced that it would seek to create a $1 billion fund to foster development in the region.
The goal of the fund, which is called the Arab Financing Facility for Infrastructure (AFFI), will be to invest in projects aimed at developing basic infrastructure, such as improving access to water and electricity. The fund will support both traditional financing and Sharia-compliant financing. Sharia (the name for Islamic law) places certain restrictions on the terms of financing.
The funding comes at a critical time for the region, where infrastructure has been long neglected by some countries in the regions, especially those countries governed by the leaders that have been, or are currently, the target of protests. To illustrate the extent of the neglect, it is estimated that half of the population in the region do not have ready access to water. However, the fund will provide only a small portion of funding to cover the estimated $75-100 billion annual funding requirement needed to meet the infrastructure needs of region. For example, because of its rapidly growing population, the region is expected to need approximately $30 billion a year to meet the corresponding increase in demand for electricity.
Reuters: World Bank to Set Up Arab infrastructure Fund
ABC Live: World Bank Supports AFFI Infrastructure Development for Arab Region
With violence, unrest, and political uncertainty continuing to grip the Middle East, foreign investors have become increasingly reluctant to invest funds in the region. In an effort to fill this investment void, the World Bank, in conjunction with the Arab Development Bank, recently announced that it would seek to create a $1 billion fund to foster development in the region.
The goal of the fund, which is called the Arab Financing Facility for Infrastructure (AFFI), will be to invest in projects aimed at developing basic infrastructure, such as improving access to water and electricity. The fund will support both traditional financing and Sharia-compliant financing. Sharia (the name for Islamic law) places certain restrictions on the terms of financing.
The funding comes at a critical time for the region, where infrastructure has been long neglected by some countries in the regions, especially those countries governed by the leaders that have been, or are currently, the target of protests. To illustrate the extent of the neglect, it is estimated that half of the population in the region do not have ready access to water. However, the fund will provide only a small portion of funding to cover the estimated $75-100 billion annual funding requirement needed to meet the infrastructure needs of region. For example, because of its rapidly growing population, the region is expected to need approximately $30 billion a year to meet the corresponding increase in demand for electricity.
Monday, January 24, 2011
One Year After Earthquake Reconstruction for Haiti Looks Slow
Sources:
BBC.com: Haiti PM Criticises Post-Earthquake Rebuilding Efforts
TheWashingtonPost.com: Foreign Aid Keeps the Country from Shaping Its Own Future
CIRH.ht: Interim Haiti Recovery Commission, Mission Statement
CNN.com: Charges Filed Against ‘Baby Doc’ Duvalier in Haiti
Economist.com: The Year of Surviving in Squalor
Ten days ago marked the one-year anniversary of the 7.0 earthquake that rocked Haiti, killed an estimated 250,000 thousand Haitians, and left over a million homeless. The international community responded by pledging $5.8 billion toward the reconstruction of Haiti. However, one year after the earthquake, not much has changed since that devastating day. Nearly one million Haitians remain homeless and are living in tents sprawled across the nation’s capital, Port-au-Prince. If anything, the situation has worsened given the cholera outbreak that claimed the lives of more than 3,000 Haitians and infected more than 150,000 others. The nationwide rioting following the failed December 2010 elections and the recent return of former Haitian dictator, “Baby Doc” Duvalier, only highlight the Haitian government’s inability to cure current problems and free itself from past problems.
Haiti’s unstable government has deterred investors and donors from investing in the country because they dont know if the funds will be properly managed and allocated to areas that need it most. The unstable government has earned it the moniker “Republic of NGOs,” connoting how investments into Haiti bypass the government and go directly to support NGOs in the country.
Many blame the unstable government for why over half the pledged aid has not been delivered to the country. Thus far, the majority of outside funding has gone to pay the country’s debt and not for reconstruction efforts. In an effort to speed reconstruction and build investor confidence, the Haitian Government created the Interim Haiti Recovery Commission (“IHRC”) by presidential decree on April 21, 2010. Co-chaired by Haitian Prime Minister Jean-Max Bellerive and former U.S. President Bill Clinton, the goal of the IHRC is to develop a reconstruction plan for Haiti by assessing the needs and investment priorities of the country, coordinating reconstruction efforts, and allocating donor investments accordingly.
Unfortunately many criticize the IRHC’s action plan as “more of the same” old policies focused on making Haiti a source of cheap labor in the region and reducing protective tariffs on imported goods—policies Haitians claim failed to work for the country in the past. Critics further allege that although the IHRC is comprised equally of both foreigners and Haitian members, Haitians are largely left out of planning reconstruction policies. Without incorporating Haitian people into the creation of a plan for reconstruction, many believe foreigners will encourage policies that continue to fail. However, some see signs of hope. Pamela Cox, a World Bank official who sits on the IHRC, claims that although IHRC efforts toward reconstruction should have started earlier, reconstruction is indeed happening and the economy has “held up.”
Discussion:
1) IHRC member and World Bank official, Pamela Cox claims that the commission has made progress toward reconstruction. Given that nearly 1 million people are homeless and living in tent shanty towns, should Haitians continue to trust the commission to provide actual and substantial reconstruction for the country?2) There has been rioting in the country over the December elections. Should funding and aid continue to bypass the Haitian government and go directly to NGOs while the state of the government is so precarious?
BBC.com: Haiti PM Criticises Post-Earthquake Rebuilding Efforts
TheWashingtonPost.com: Foreign Aid Keeps the Country from Shaping Its Own Future
CIRH.ht: Interim Haiti Recovery Commission, Mission Statement
CNN.com: Charges Filed Against ‘Baby Doc’ Duvalier in Haiti
Economist.com: The Year of Surviving in Squalor
Ten days ago marked the one-year anniversary of the 7.0 earthquake that rocked Haiti, killed an estimated 250,000 thousand Haitians, and left over a million homeless. The international community responded by pledging $5.8 billion toward the reconstruction of Haiti. However, one year after the earthquake, not much has changed since that devastating day. Nearly one million Haitians remain homeless and are living in tents sprawled across the nation’s capital, Port-au-Prince. If anything, the situation has worsened given the cholera outbreak that claimed the lives of more than 3,000 Haitians and infected more than 150,000 others. The nationwide rioting following the failed December 2010 elections and the recent return of former Haitian dictator, “Baby Doc” Duvalier, only highlight the Haitian government’s inability to cure current problems and free itself from past problems.
Haiti’s unstable government has deterred investors and donors from investing in the country because they dont know if the funds will be properly managed and allocated to areas that need it most. The unstable government has earned it the moniker “Republic of NGOs,” connoting how investments into Haiti bypass the government and go directly to support NGOs in the country.
Many blame the unstable government for why over half the pledged aid has not been delivered to the country. Thus far, the majority of outside funding has gone to pay the country’s debt and not for reconstruction efforts. In an effort to speed reconstruction and build investor confidence, the Haitian Government created the Interim Haiti Recovery Commission (“IHRC”) by presidential decree on April 21, 2010. Co-chaired by Haitian Prime Minister Jean-Max Bellerive and former U.S. President Bill Clinton, the goal of the IHRC is to develop a reconstruction plan for Haiti by assessing the needs and investment priorities of the country, coordinating reconstruction efforts, and allocating donor investments accordingly.
Unfortunately many criticize the IRHC’s action plan as “more of the same” old policies focused on making Haiti a source of cheap labor in the region and reducing protective tariffs on imported goods—policies Haitians claim failed to work for the country in the past. Critics further allege that although the IHRC is comprised equally of both foreigners and Haitian members, Haitians are largely left out of planning reconstruction policies. Without incorporating Haitian people into the creation of a plan for reconstruction, many believe foreigners will encourage policies that continue to fail. However, some see signs of hope. Pamela Cox, a World Bank official who sits on the IHRC, claims that although IHRC efforts toward reconstruction should have started earlier, reconstruction is indeed happening and the economy has “held up.”
Discussion:
1) IHRC member and World Bank official, Pamela Cox claims that the commission has made progress toward reconstruction. Given that nearly 1 million people are homeless and living in tent shanty towns, should Haitians continue to trust the commission to provide actual and substantial reconstruction for the country?2) There has been rioting in the country over the December elections. Should funding and aid continue to bypass the Haitian government and go directly to NGOs while the state of the government is so precarious?
Saturday, January 15, 2011
Indian Infrastructure
Sources:
WSJ: World Bank Pledges Nearly $2 Billion to India
Business Standard: World Bank Grants $1.5 bn Loan to Build 24,000 km Rural Roads
The Economic Times: World Bank Approves $2 bn Loan for Road, Other Projects
The Hindu: Way Paved for India's Enhanced Partnership with World Bank
Arab News: World Bank Vows $1.73 bn Loan to India
The World Bank announced on Friday that it will lend $ 1.73 billion to fund several projects in India, with $1.5 billion going to building roads in rural areas and the rest to fund a cyclone warning system. The loans are part of a trend of increasing cooperating between India and the World Bank. India has the world’s second fastest growing major economy, so the World Bank, and the rest of the world, have an interest in India’s continued development. India is projected to overtake China’s growth rate in 2012 in purchaser power parity basis as China’s growth rate is projected to be 8.4% and India’s to be 8.7%. Purchasing power parity measurements looks at actual production between countries, imposing an equal exchange of goods, not money. This means inflation and pricing differences will not distract from measuring production.
Roughly 24,000km of new roads will be created using the World Bank funds, which compose the largest road loan in World Bank history. This new loan is part of India’s project to build new motorways. India is imposing a program to build 375,000 km of new roads and improve another 372,000 km. The total cost of the project is $40 billion, and that includes the World Bank loan.
This latest loan follows $45 million in technical assistance from the World Bank last month to boost India’s national highway infrastructure. The highways, which carry 40% of the country’s road traffic, are still underdeveloped as only 53% have more than one lane.
India’s poor roads are a threat to its economic growth. The immediate concern arising from poor roads is inflation in the cost of food. Most of the dilapidated roads are in a rural area, where most of India’s food is produced. Thus, the food rots on its way to market, decreasing the supply of food, and that causes the price of food to rise. Perishable food items pushed overall wholesale price inflation to 8.43 percent in December from 7.48 percent in November. In response to the growing threat of inflation, the Reserve Bank of India (India’s central bank) raised short term interest rates six times last year, and will likely do so again if inflation keeps rising.
Also included in the $1.73 billion loan is $225 million to strengthen an existing early response system for cyclones around India’s 7,000 km coastline. It is estimated that the damage from natural disasters equates to 2% of India’s gross domestic product. Additionally, 40% of India’s population lives within 100km of the coast, making cyclones a particularly dangerous threat.
Discussion:
1. India and China are the two major powers in Asia. Is the United States likely to befriend India to mitigate Chinese influence in the region and the world?
2. How confident can the rest of the world be that the Reserve Bank of India will control inflation?
WSJ: World Bank Pledges Nearly $2 Billion to India
Business Standard: World Bank Grants $1.5 bn Loan to Build 24,000 km Rural Roads
The Economic Times: World Bank Approves $2 bn Loan for Road, Other Projects
The Hindu: Way Paved for India's Enhanced Partnership with World Bank
Arab News: World Bank Vows $1.73 bn Loan to India
The World Bank announced on Friday that it will lend $ 1.73 billion to fund several projects in India, with $1.5 billion going to building roads in rural areas and the rest to fund a cyclone warning system. The loans are part of a trend of increasing cooperating between India and the World Bank. India has the world’s second fastest growing major economy, so the World Bank, and the rest of the world, have an interest in India’s continued development. India is projected to overtake China’s growth rate in 2012 in purchaser power parity basis as China’s growth rate is projected to be 8.4% and India’s to be 8.7%. Purchasing power parity measurements looks at actual production between countries, imposing an equal exchange of goods, not money. This means inflation and pricing differences will not distract from measuring production.
Roughly 24,000km of new roads will be created using the World Bank funds, which compose the largest road loan in World Bank history. This new loan is part of India’s project to build new motorways. India is imposing a program to build 375,000 km of new roads and improve another 372,000 km. The total cost of the project is $40 billion, and that includes the World Bank loan.
This latest loan follows $45 million in technical assistance from the World Bank last month to boost India’s national highway infrastructure. The highways, which carry 40% of the country’s road traffic, are still underdeveloped as only 53% have more than one lane.
India’s poor roads are a threat to its economic growth. The immediate concern arising from poor roads is inflation in the cost of food. Most of the dilapidated roads are in a rural area, where most of India’s food is produced. Thus, the food rots on its way to market, decreasing the supply of food, and that causes the price of food to rise. Perishable food items pushed overall wholesale price inflation to 8.43 percent in December from 7.48 percent in November. In response to the growing threat of inflation, the Reserve Bank of India (India’s central bank) raised short term interest rates six times last year, and will likely do so again if inflation keeps rising.
Also included in the $1.73 billion loan is $225 million to strengthen an existing early response system for cyclones around India’s 7,000 km coastline. It is estimated that the damage from natural disasters equates to 2% of India’s gross domestic product. Additionally, 40% of India’s population lives within 100km of the coast, making cyclones a particularly dangerous threat.
Discussion:
1. India and China are the two major powers in Asia. Is the United States likely to befriend India to mitigate Chinese influence in the region and the world?
2. How confident can the rest of the world be that the Reserve Bank of India will control inflation?
Tuesday, November 02, 2010
The World Bank in Africa
Sources:
Bloomberg: World Bank's IFC to Double Lending Commitments to East Africa in 2010-11
Bloomberg: World Bank Unit to Increase Investments in Sub-Saharan Africa, CEO Says
The East African: DTB to Disburse $26 in World Bank Funding to SME's in EA
Engineering News: Telecoms Towers Seen as Investment Opportunity in Africa - IFC
The World Bank’s International Finance Corporation (IFC), its private lending arm, plans to double its lending commitments to five East African nations in 2011. The aid will increase from $150 million to $300 million. The nations set to enjoy the increase are: Kenya, Burundi, Tanzania, Rwanda and Uganda. The loans will go through banks to small and medium sized enterprises (“SME”) that focus in energy and agriculture.
SMEs are viewed as an essential component to a developing nation and a strong economy. Many poor nations only have massive western corporations and rural farming. To promote domestic growth, there needs to be domestic corporations to stimulate economic growth and increase incomes. The main reason the World Bank is lending to firms involved in energy and agriculture is that East Asian and East Asian energy demands continue to rise as these economies develop. Also, as food demand rises globally, East Asian demand for food is growing the most.
One beneficiary of the increased lending is the Diamond Trust Bank (“DTB”), a bank that will receive $26 million from the World Bank. It, and similar banks, will be able to use the increased funds to increase the number of bank branches and lend companies more money, facilitating savings and increasing the strength of the regional economy. Some of the $26 million is consigned for use in trade facilitation to encourage trade and regional integration.
Also, the World Bank is willing to invest more heavily in the region because of its high growth rate and recent government implementation of more business-friendly policies. According to the IMF, the region’s economy is expected to grow by 5.5% in 2011. This is higher than the world’s expected growth-rate, which is 4.2% for 2011. Increasing commercial policies favoring the free market, and thus business, has also induced the World Bank to increase its loans. With more favorable policies, the loans are more likely to attract businesses. The loans will be more effective than they were under previous policies that entailed greater government regulation and market interference.
Other industries outside energy and agriculture have taken an interest in East Africa too. Information and technology companies view East Africa as underdeveloped in terms of broadband service and cell phone use for an emerging economy. Thus, companies view the area as a great opportunity for new customers, but also as an area that requires a lot of investment. The World Bank loaned $100 million last year to build telecommunications infrastructure, giving telecommunications companies a chance to find customers and remain profitable, and then pay back the World Bank loan when feasible. Because of its high growth and reformed commercial policies, East Africa is becoming an attraction for the world’s capital.
Discussion:
1. Is there any reason East Africa is faring so much better than the rest of the world, especially the West?
2. Is focusing on increasing agricultural production the best way to develop a nation, or should the World Bank encourage more services and manufacturing?
3. Are SME’s really the driving force of an economy? Couldn’t a large firm do the same work at a lower cost?
Bloomberg: World Bank's IFC to Double Lending Commitments to East Africa in 2010-11
Bloomberg: World Bank Unit to Increase Investments in Sub-Saharan Africa, CEO Says
The East African: DTB to Disburse $26 in World Bank Funding to SME's in EA
Engineering News: Telecoms Towers Seen as Investment Opportunity in Africa - IFC
The World Bank’s International Finance Corporation (IFC), its private lending arm, plans to double its lending commitments to five East African nations in 2011. The aid will increase from $150 million to $300 million. The nations set to enjoy the increase are: Kenya, Burundi, Tanzania, Rwanda and Uganda. The loans will go through banks to small and medium sized enterprises (“SME”) that focus in energy and agriculture.
SMEs are viewed as an essential component to a developing nation and a strong economy. Many poor nations only have massive western corporations and rural farming. To promote domestic growth, there needs to be domestic corporations to stimulate economic growth and increase incomes. The main reason the World Bank is lending to firms involved in energy and agriculture is that East Asian and East Asian energy demands continue to rise as these economies develop. Also, as food demand rises globally, East Asian demand for food is growing the most.
One beneficiary of the increased lending is the Diamond Trust Bank (“DTB”), a bank that will receive $26 million from the World Bank. It, and similar banks, will be able to use the increased funds to increase the number of bank branches and lend companies more money, facilitating savings and increasing the strength of the regional economy. Some of the $26 million is consigned for use in trade facilitation to encourage trade and regional integration.
Also, the World Bank is willing to invest more heavily in the region because of its high growth rate and recent government implementation of more business-friendly policies. According to the IMF, the region’s economy is expected to grow by 5.5% in 2011. This is higher than the world’s expected growth-rate, which is 4.2% for 2011. Increasing commercial policies favoring the free market, and thus business, has also induced the World Bank to increase its loans. With more favorable policies, the loans are more likely to attract businesses. The loans will be more effective than they were under previous policies that entailed greater government regulation and market interference.
Other industries outside energy and agriculture have taken an interest in East Africa too. Information and technology companies view East Africa as underdeveloped in terms of broadband service and cell phone use for an emerging economy. Thus, companies view the area as a great opportunity for new customers, but also as an area that requires a lot of investment. The World Bank loaned $100 million last year to build telecommunications infrastructure, giving telecommunications companies a chance to find customers and remain profitable, and then pay back the World Bank loan when feasible. Because of its high growth and reformed commercial policies, East Africa is becoming an attraction for the world’s capital.
Discussion:
1. Is there any reason East Africa is faring so much better than the rest of the world, especially the West?
2. Is focusing on increasing agricultural production the best way to develop a nation, or should the World Bank encourage more services and manufacturing?
3. Are SME’s really the driving force of an economy? Couldn’t a large firm do the same work at a lower cost?
Sunday, October 24, 2010
European Pipelines: Austria to Azerbaijan
Sources:
The Economist: The Abominable Gas Man
IFC News: EBRD, EIB and IFC Start Appraisal of Nabucco Pipeline
Trend: Managing Director: Nabucco Conducts Works to Attract International Financial Institutions’ Iinvestments
UPI: Europe Eyes Norwegian Gas Supplies
One of the main threats to European stability is Europe’s dependency on Russian natural gas. In January 2009 Europe experience an energy shortage when Russia turned off the gas on a pipeline that went through the Ukraine. Ukraine and Russia had a price dispute, and Russia responded by stopping the flow of gas to Ukraine. As Europe learned, having 80% of Russia’s gas flow through Ukraine leaves Europe vulnerable. Europe’s main solution to decrease dependence on Russian gas is the Nabucco pipeline, officially backed by the European Union.
Construction on the Nabucco pipeline is slated to begin in 2011 when the piping will be laid 2,000 kilometers from Turkey to Baumgarten, a province in Austria. In 2014−15, the second and final phase of construction will be completed when the pipeline is built through Turkey to Iraq, Azerbaijan, and Turkmenistan. About 75% of the Nabucco line will use existing piping, which considerably lessens the effort needed to connect with Turkmenistan. Gas should start flowing in 2015 with a target of 31 billion cubic meters (bcm) a year.
Building the Nabucco pipeline is a massive effort that will require both public and private funds. The European Investment Bank (EIB), the International Finance Corporation (IFC), a subsidiary of the World Bank, and the European Bank for Reconstruction and Development together gave the project $5 billion in loans. The five billion dollar commitment is less than the previously considered package of €4 billion by about half a billion dollars.
In addition to simply financing the endeavor, the $5 billion loan makes companies more comfortable in investing in the Nabucco pipeline. Six companies have the rights to the pipeline, each with a 1/6 stake. Although there is still hesitancy about investment in a slow growing economy, only two of the six have postponed their contributions in Nabuccountil next year when private-sector lenders will have made formal commitments.
Although the Nabuccu pipeline is the biggest pipeline in development, there are other projects to diversify Europe’s sources of natural gas. One of the projects is to develop the Tyrm natural gas fields in the Norwegian North Sea. The EIB is loaning DONG Energy, a large energy group in northern Europe, $210 million to develop the Tyrm oil fields. The money will be for drilling and expanding underwater pipelines. The rise in natural gas prices in recent years has made it profitable to develop the fields.
Discussion:
1. Iraq is going to be a major source of natural gas for the pipeline. Was this one of the goals of the American invasion of Iraq in 2003?
2. The pipeline must pass through all of Turkey to get to Azerbaijan and Austria. How will this increase Turkey’s bargaining position in its effort to enter the E.U.?
3. Is there any credibility to Russian (or Iranian) claims that the United States and Europe are conspiring to decrease their reliance on Russian natural resources by initiating wars in Iraq and Afghanistan?
The Economist: The Abominable Gas Man
IFC News: EBRD, EIB and IFC Start Appraisal of Nabucco Pipeline
Trend: Managing Director: Nabucco Conducts Works to Attract International Financial Institutions’ Iinvestments
UPI: Europe Eyes Norwegian Gas Supplies
One of the main threats to European stability is Europe’s dependency on Russian natural gas. In January 2009 Europe experience an energy shortage when Russia turned off the gas on a pipeline that went through the Ukraine. Ukraine and Russia had a price dispute, and Russia responded by stopping the flow of gas to Ukraine. As Europe learned, having 80% of Russia’s gas flow through Ukraine leaves Europe vulnerable. Europe’s main solution to decrease dependence on Russian gas is the Nabucco pipeline, officially backed by the European Union.
Construction on the Nabucco pipeline is slated to begin in 2011 when the piping will be laid 2,000 kilometers from Turkey to Baumgarten, a province in Austria. In 2014−15, the second and final phase of construction will be completed when the pipeline is built through Turkey to Iraq, Azerbaijan, and Turkmenistan. About 75% of the Nabucco line will use existing piping, which considerably lessens the effort needed to connect with Turkmenistan. Gas should start flowing in 2015 with a target of 31 billion cubic meters (bcm) a year.
Building the Nabucco pipeline is a massive effort that will require both public and private funds. The European Investment Bank (EIB), the International Finance Corporation (IFC), a subsidiary of the World Bank, and the European Bank for Reconstruction and Development together gave the project $5 billion in loans. The five billion dollar commitment is less than the previously considered package of €4 billion by about half a billion dollars.
In addition to simply financing the endeavor, the $5 billion loan makes companies more comfortable in investing in the Nabucco pipeline. Six companies have the rights to the pipeline, each with a 1/6 stake. Although there is still hesitancy about investment in a slow growing economy, only two of the six have postponed their contributions in Nabuccountil next year when private-sector lenders will have made formal commitments.
Although the Nabuccu pipeline is the biggest pipeline in development, there are other projects to diversify Europe’s sources of natural gas. One of the projects is to develop the Tyrm natural gas fields in the Norwegian North Sea. The EIB is loaning DONG Energy, a large energy group in northern Europe, $210 million to develop the Tyrm oil fields. The money will be for drilling and expanding underwater pipelines. The rise in natural gas prices in recent years has made it profitable to develop the fields.
Discussion:
1. Iraq is going to be a major source of natural gas for the pipeline. Was this one of the goals of the American invasion of Iraq in 2003?
2. The pipeline must pass through all of Turkey to get to Azerbaijan and Austria. How will this increase Turkey’s bargaining position in its effort to enter the E.U.?
3. Is there any credibility to Russian (or Iranian) claims that the United States and Europe are conspiring to decrease their reliance on Russian natural resources by initiating wars in Iraq and Afghanistan?
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