Speeches & Transcripts October 28, 2017

Speech at International Economics and Finance Institute Seminar - Opportunities and Challenges in International Economic Governance Reform

Vice Minister SHI Yaobin, Leaders of Government agencies, distinguished guests, Ladies and Gentlemen. Good morning.   

It is a great pleasure to be here, and I want to thank you, Vice Minister SHI and Director General ZHOU Qiangwu for the invitation. 

Thank you, YANG Yanqing, for the kind introduction.  I would also like to express my appreciation to the International Economics and Finance Institute for organizing this seminar on such a relevant and timely topic.

I will start with some of the achievements and challenges of the international economic governance system, then touch on how we can continue to strengthen this system including actions at both international and domestic levels.

Achievements and challenges

In this post-war period, our international economic governance system has been shaped largely by globalization and the multilateral system which has delivered major benefits in terms of economic development, social progress, and peace.

Globalization ushered in an unprecedented era of growth, lifting millions of people out of poverty.  Since 1990, nearly 1.1 billion people have moved out of extreme poverty. Countries like China have made enormous strides toward ending extreme poverty.

Openness and partnership between countries played a critical part in this success. Countries working together, and especially trading together, have delivered lasting progress.

The United Nations, the World Trade Organization, and the Bretton Woods organizations have been the underpinnings of the multilateral economic system.  They became the fora in which the “rules of the game” were shaped that built this global system in which countries could thrive. 

Today’s world economy is more complex than ever and there are multiple global challenges, such as growing trade and investment interdependence, climate change, pandemics, and refugees. These complexities and challenges are putting increasing demands on the multilateral system.  

We need more cooperation, greater economic integration, and stronger partnerships than ever before if we want the world economy to return to higher rates of inclusive, sustainable growth. 

Much as we need this international cooperation to manage today’s problems, multilateralism has come under stress from various sides.

Protectionist rhetoric and sometimes actions are on the rise, and some countries are turning away from the multilateral solutions of the past. 

Some also blame the global financial crisis on excesses caused by globalization. 

And that very global financial crisis has put stress on the budgets of countries that traditionally supported multilateral organizations.

Clearly, although the gains from globalization and multilateralism have been huge, not everyone has benefited. 

Those that have lost out—even if only in relative terms, are easily swayed by politicians that blame globalization for their plight.

But there is no way back.  Earlier this year at Davos, President Xi Jinping said that the global market system is the ocean we all swim in and cannot escape from.

He said, “Any attempt to…channel the waters in the ocean back into isolated lakes and creeks is simply not possible.”

It is up to us to make sure that everybody can swim in that ocean.  Our international economic governance system will need to continue to be shaped by globalization and multilateralism, but it cannot be business as usual.   

Making multilateralism better

So, what can we do? At the international level, how can we shape a new system that is more inclusive, that is better able to manage risks, and what complementary domestic reforms do countries need to implement to contribute to this outcome.   

A better World Bank Group

First, we need stronger and better multilateral institutions.  Just as many countries are making ambitious fiscal reforms for effective public spending, MDBs must make the best use of each available dollar to demonstrate the value of the multilateral system.

Let me share with you what the WBG is doing to become a better and more effective multilateral institution.  The WBG continues to emphasize value-for-money in our business model, including our operations and policies, our strategy and organizational structure, and our use of balance sheet and financial instruments.

A couple of years back we went through a major reorganization to make us more effective, to link our global and country-specific expertise better and to enhance the cooperation between the different parts of the World Bank Group (IBRD/IDA, IFC, and MIGA).                                                                                                 

We also implemented an expenditure review, which on a sustained basis saved some 400 million dollars in administrative costs—or over 10 percent of our total administrative budget.

We adjusted pricing for our products such that we can now cover our operating costs from our revenues—and still have enough left over to transfer money from IBRD to IDA, the World Bank’s arm for our poorest members.  In total, IBRD has transferred over $17 billion dollars to IDA and HIPC, more than the $16 billion dollars our shareholders ever paid in as capital for IBRD since its inception in 1944.

More recently we have embarked on a renewed effort to help reshape multilateral finance – to ensure that we maximize financing available for development.  This refers to both using resources available in the most efficient way and making sure all available resources are being tapped. 

The motivation for this new approach is clear: the ambitious Sustainable Development Goals cannot be achieved without maximum efficiency in the use of the resources available; and the sums of money needed to meet the goals far outstrip the means that government budgets and MDBs have available.

The principle behind this is simple: to help countries meet rising challenges, we aim to pursue private sector solutions whenever they can help achieve development goals and reserve scarce public finance for where it is most needed—particularly investments in human capital.

For this to work, we must systematically crowd in the private sector finance and put it to work. And we must ensure that we make the best possible use of our own capital, for example by creating framework conditions to unlock these private investments

Investors in advanced economies have trillions of dollars sitting on the sidelines, earning little interest, or even negative interest. With guarantees and other financial tools, the World Bank Group can help de-risk investments – lowering risks, both real and perceived – to help countries crowd in private capital for development projects while yielding higher returns for investors. 

This approach is now getting broad international support and is becoming part of the “rules of the game for international development finance”.  Last July, the G20 endorsed the Joint Principles for Crowding in Private Finance, now called the Hamburg Principles. The Principles give multilateral development banks a common framework for increasing private investment in support of countries’ development objectives.

The World Bank will continue to find ways to become an even stronger multilateral institution that continues to adapt to 21st century challenges of the international economic governance system

A more inclusive international system

Second, I firmly believe that for multilateralism to prevail, the system must duly reflect its stakeholders in the best possible way.

We need an economic governance system and institutions that more equitably reflect the weight of its members. And we need effective intergovernmental bodies to discuss and address global challenges.

A lot has already been done, but there is still more to do. There are various initiatives underway that go into this direction and I would like to highlight a few of them.

The World Bank Group has embarked on a Shareholding Review. Its shareholders committed at the Annual Meetings in Lima in 2016 to work toward a World Bank Group that reflects the evolution of the global economy and contributions to the World Bank Group’s mission. These principles were re-confirmed at the Spring and Annual Meetings in 2017.

Of course, these discussions are among shareholders and on the side of the Bank management we are careful to respect their leadership. However, we do have an interest in the success of these talks, because it is important for the World Bank Group as an institution that the Shareholding Review succeeds.

Emerging and developing economies have more than 80 percent of the world’s population, and today represent more than 35 percent of the world economy, up from barely 16 in the early 1990s. 

And those economies contribute more than half of global growth.  China, a developing economy, is now the largest economy in the world, if measured in purchasing power parity, and second largest in current dollars. 

During the Annual Meetings, earlier this month, the Development Committee in its communique endorsed the continuing work on the Shareholdings review and called on the World Bank Board to bring these discussions to a successful conclusion by Spring Meetings 2018.   

Meanwhile, new multilateral institutions have emerged in the past decade. 

The G20 has become an important forum for multilateral consensus building, and has become an important guide for work of multilateral organizations. 

The G20 is more inclusive than the G7, whose membership is limited to high income economies.

The G20 represent 85 percent of global GDP and 75 percent of trade. It has become a key forum for international cooperation and consensus building, which was demonstrated, for example, in its decisive response to the financial crisis in 2008.

The G20 highlights the value of multilateralism and has been supportive of the role of multilateral development banks in promoting growth and stability.

China’s G20 presidency in 2016 reinforced the emphasis on growth, and added structural reforms and innovation as engines of growth to the agenda, and made infrastructure investment and connectivity an important theme.    

Under China’s leadership, new multilateral development banks have been founded. 

We view the Asian Infrastructure Investment Bank as well as the New Development Bank as important new multilateral partners in addressing the huge infrastructure needs that are critical for ending poverty, reducing inequality, and boosting shared prosperity.

We have worked closely with AIIB since its inception and we are co-financing multiple projects in our clients countries, delivering concrete results on the ground. 

We hope to be able to do the same with the NDB soon.

With the Belt and Road Initiative China has introduced a new way of multilateral cooperation to the world.

This promising initiative aims to deepen economic integration by improving trade, infrastructure, investment, and people-to-people connectivity – not just across borders, but on a trans-continental scale.

Our Chinese partners have shown great leadership by launching this initiative at a time when international cooperation and global trade face some strong headwinds.

We at the World Bank are committed to help our client countries to maximize the benefits from the Belt and Road initiative and to help coordinating with the Chinese government and other multilateral development banks to make the Belt and Road initiative work for the people in participating countries.

Third, we need new arrangements to enable the international system to better manage major global threats and risks. 

As regards climate, the Paris Climate Agreement has been a major milestone, and the Green Climate Fund promises to provide the much-needed finance for climate action.  Meanwhile, the World Bank Group and other multilateral development banks have already mobilized tens of billions of dollars in mitigation and adaptation through the Clean Development Mechanism, the Climate Investment Fund and through our support for Carbon Market Development, including here in China.

Here in Asia, the memories of the SARS crisis are still on many people’s minds, and the Ebola outbreak in Africa is a more recent example in which swift international cooperation—with China taking a leading role—prevented the disease spreading beyond West-Africa. 

The World Bank together with bilateral partners has now set up a pandemic facility—a financial vehicle that can immediately disburse the resources needed to quell any outbreak in its early stages, before it becomes a regional or global problem. 

We need international cooperation to address the refugee crisis that has swept the Middle East, and now threatens parts of Asia. Multilateral development banks are working together to bridge the gap between rapid humanitarian assistance and long-term development in countries with large numbers of displaced people.  The World Bank has developed a Global Crisis Facility, with the aim to bring concessional money to frontier states that host most of the refugees.

The domestic agenda

Of course, stronger multilateral cooperation alone will be insufficient to bring prosperity to countries, to lift people out of poverty and to meet the Sustainable Development Goals.  

Multilateral efforts can only complement the domestic efforts of each individual country. 

Countries themselves can do much to achieve sustainable high growth, by raising resources for development domestically, investing them widely in infrastructure and in people, and by providing the tools and institutions needed for people individually and economies to become more resilient to economic shocks and structural change.

Countries can maximize the benefits of an integrated world by equipping their people with the right education that builds the human capital that makes them resilient to change;

By implementing the labor market policies that help them move from one job to the next;

And by building the social safety nets that catches people if they occasionally find themselves out of a job, or are incapacitated to work.

Closing

In closing, let me observe that multilateralism has been tested in the past, and will continue to be tested in the future. But it remains a potent force that is uniquely suited to resolve many of the world’s most pressing problems today.

I hope the examples I’ve highlighted demonstrate that a new globalization and multilateralism is possible and is indeed emerging; multilateral institutions are reforming to become better institutions; there is growing space for participation in global economic governance by a broader group of stakeholders; historic arrangements are emerging to help address global threats such as climate and other risks that have major negative impacts on countries; and the agenda for complementary reforms is getting increasing attention.  All augur well for achieving a strengthened international economic governance system.  But we are not there yet.  More needs to be done. 

It is the responsibility of all of us as an international community to continue to work to create a better, and more inclusive multilateralism that can effectively support countries in their domestic agenda for growth and inclusion.

Thank you. Xie Xie Da Jia

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