World Bank And Global Economic crisis

The World Bank rapidly became an important advocate for the developing countries in overcoming the financial crisis. It was soon patent that the poorest countries, already depleted by the food and energy crisis, had few possibilities of providing the necessary responses from their own resources.

The World Bank submitted two papers42 setting out the fundamentals of its response to the crisis (Development Committee 2009, 2009a) to the development committee at the Istanbul annual meeting. Subsequently the World Bank Group raised its total lending activities in the 2009 financial year by 54% compared to the previous year, to some USD 60 billion. One-third of this went to infrastructure projects in the hope of rapidly increasing employment and generally stimulating the economy.

Some USD 33 billion of the total package of USD 60 billion passed through the International Bank for Reconstruction and Development (IBRD) via trade credits to middle-income countries. The World Bank expects a further rise in the coming years. Financing can no longer be covered by the present World Bank capital basis. On one hand, it raised the interest on loans; on the other, it took up significantly more funds on the international capital markets.

The International Development Association (IDA) raised its approvals for interest-free loans or gifts to a record USD 14 billion, an increase of one-quarter above the previous year’s figure. IDA accelerated its processes for the poorest countries to receive their funds more rapidly.

Thus, local banks in Guatemala no longer wanted to grant credits to local producers as they could (...)

The World Bank subsidiaries Multilateral Investment Guarantee Agency (MIGA) and International Finance Corporation (IFC), responsible for the direct support of the private sector, also stepped up their activities. They granted loans, participated in enterprises and put up guarantees. The latter is significant because local enterprises in developing countries had encountered increasing difficulties in obtaining trade credits or bank guarantees from the major international banks.

The World Bank channelled its activities through a specially created “Crisis Response Facility”.44 Before the World Economic Forum in Davos in January 2009 World Bank President Robert B. Zoellick had already called for a “vulnerability fund” to which all countries would contribute 0.7% of their economic programme for development policy purposes. At the time this would have raised some USD 15 billion. However, the World Bank estimated the financing shortfall of the developing countries much higher. According to this scenario, the World Bank considered the financial needs for 2009 to be between USD 350 and 635 billion (Development Committee 2009a). Zoellick repeated the appeal in a call to the leaders of the G-20 summit in Pittsburgh (World Bank 2009b). The World Bank also published numerous studies and reviews.

Non-governmental organisations recognised the distinct advocate’s role of the World Bank and its will to help as rapidly as possible. However, effective payments tended to lag behind the approvals. Further, there are doubts whether the massive investments in infrastructure would really help protect the socially weakest. They further demanded that the aid measures should not be coupled with economic policy provisos. The services should be rendered as concessionally as possible or even in the form of gifts. The slow and not far-reaching progress in the democratisation of the World Bank was deemed completely insufficient.

The World Bank was called to heel at the 2009 annual meeting in Istanbul. In the development committee, the industrialised countries bridled at an immediate raise in capital, which the World Bank considered necessary, supported by the developing countries. The World Bank is to make further clarifications before the next spring meeting.