Kim Says World Bank’s First Priority Is to Aid Growth
“We feel prepared to tackle crises” and the bank is “monitoring the situation very carefully,” Kim told reporters in Washington today. “Of course it all depends on the scale and the severity of the crisis but the World Bank is on very sound financial footing.”
The 52-year-old Kim, the former president of Dartmouth College, succeeds Robert Zoellick at the helm of a poverty- fighting institution that has less leeway to boost lending than it did four years ago. Kim, a physician by training, has little time to ease into a job that stretches beyond his expertise as global growth is threatened by the European debt crisis and a slowdown in China.
“This is about financial crisis management, macroeconomics, understanding the workings of the European monetary union and what the risks are and prioritizing countries” according to their needs, said Uri Dadush, director of international economics at the Carnegie Endowment for International Peace in Washington and a former World Bank director of economic policy.
“It’s not rocket science but it will be a new area for him, one in which he has no experience,” he said, predicting a “steep learning curve” for Kim.
The bank was created at the end of World War II to help rebuild ravaged Europe. Now focused on developing countries, it lends for everything from building roads to supporting education policies, and has expanded its scope to taking stakes in companies and guaranteeing investments.
Kim said he’s open to sharing technical expertise with developed economies, including Greece if asked. That’s in contrast to his predecessor, who said last month he had tried to keep some distance from the country, where the European debt crisis started.
“We only go into countries when we’re asked but I feel that the kind of expertise we have could be relevant in many countries in the world,” Kim said today. “My staff feel that they have relevant experience that could have value.”
Kim, a graduate of Harvard Medical School, breaks the mold of past presidents, who have been drawn from government and finance.
“I don’t bring one of the tools you might want; on the other hand no one” has all the skills, he told reporters today. “I feel very confident in our staff, in our leadership to be able to deal with all the critical problems that we’re facing.”
A HIV/AIDS specialist who co-founded a non-profit organization that has opened clinics in countries including Haiti and Peru, Kim said he has experience working with bank employees in the field.
“I feel that I share a passion for development and poverty alleviation with the World Bank staff,” he said. In a memo sent to employees yesterday, he promised to listen and learn to keep a “consistent and open engagement between the staff and the president.”
Kim SAID that he has had many conversations with top management in the past week about the bank’s finances, which he described as on “solid ground.”
Still, the bank’s lending power is now more constrained than four years ago after stepping up loans to emerging countries hit by the financial crisis.
“We went into the 2008 crisis with a big cushion of capital so we could expand in a way that we cannot just repeat today,” said Joachim von Amsberg, the bank’s vice president of operations policy and country services, in a June 26 interview. The bank’s equity-to-loans ratio for the unit that lends to governments fell last year to 29 percent from nearly 38 percent in 2008.
Commitments climbed during the crisis to a record $73 billion in the fiscal year 2010 from $38 billion just two years before, prompting the bank to seek a capital injection from member countries, which it obtained in April 2010.
The additional cash and a gradual decline in lending to about $53 billion in the year ended June 30 helped keep the bank’s equity-to-loans ratio just above its target range. Maintaining that level is important to keep its top credit rating, needed to raise money at low cost.
As a result, the bank is exploring ways to make the most of its resources, von Amsberg said. While demand for loans hasn’t yet increased, many countries are inquiring about precautionary financing, similar to the $1.3 billion Romania received last month, he said.
Kim told reporters the global economy is at a “pivotal moment” as he arrived for work today.
East Asia may grow as little as 5 percent this year if there are disorderly exits from the euro area, even as governments have room to implement fiscal stimulus to spur the economies if needed, according to the bank. The growth outlook for the European Union’s eastern member has also soured as the European turmoil undermines confidence.
Kim’s focus should go beyond the money to make sure the bank remains welcome in the countries it serves, said Simon Evenett, a professor of international trade and economic development at the University of St. Gallen, Switzerland. Kim, who was born in Korea and grew up in the U.S., has said he will serve as a bridge to the developing world.
“You have to be invited to the party first and then you can worry about how much money you want to spend on the bottle of wine,” Evenett said in an interview. “This is not an easy time for international organizations” which need leaders “who can get heads of governments and presidents that answer their phone calls and get things gone,” he said.
“This is the challenge for Dr. Kim.”
To contact the reporter on this story: Sandrine Rastello in Washington at firstname.lastname@example.org
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