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Speeches & Transcripts September 29, 2017

Speech by Kristalina Georgieva, London School of Economics

Thank you very much, and a very good evening to all of you.  I look around the audience, it seems to me that the majority of you are younger than 30. So, a long, long time ago, before you were born, in September 1987, I came to the London School of Economics as a British Council scholar. When I came here everything was so very new, and very different from what I had experienced before, including -- I can say this with a bit of nostalgia -- being able to open my very first bank account, in the bank around the corner.  Then later I went back to Bulgaria, I wrote the first macroeconomic textbook.  I'm very proud of that, it is still a best seller; because it was written for people who know nothing about market economy, so it had to be simple.

And then I went to MIT, and then to the World Bank, and the rest is history.  I'm here as the CEO of the World Bank.  But I want to start with how I experienced getting into the World Bank the first time it happened.  

As it is here at LSE, also at MIT, dressing down is the norm.  But for going to this very big institution, the World Bank, I put my very best suit.  It was brown with flowers.  I walked into the main building of the World Bank, looked around, walked out and bought a dark blue suit, so I could fit in.  And I can tell you, I'm returning to the Bank, no dark-blue suit anymore, as I can demonstrate here in front of you.

My point here is that we live in a world that is changing quite rapidly.  The days when I grew up under Communism, the days of transition, entering the World Bank before Jim Wolfensohn became the President, a very conservative institution, practically almost no women were working there.  And there is today a huge change.  And what is very important for us to recognize is that the speed of change with time gets faster, and the impact change has, on institutions, on individuals, on societies, is more profound and more difficult to cope with.

If you look at the most positive of changes, in science and technology; yes, they generate incredible opportunities everywhere, but they also generate unintended consequences. For example, connectivity allows us all to very quickly exchange ideas, and it also allows very bad people to organize to do very bad things.  My President, the President of the World Bank here at LSE said that technology brings aspirations to a very compressed place.

In other words, aspirations converge. We all know everything about everything everywhere.  But opportunities do not converge as fast or they don't converge at all, and what we have is massive disappointment and we have an accordion type of inequality being opened.

I have a favorite story about technology, and it is the following.  When I left the World Bank to go to the European Commission, my staff at that time sent me out with a very jazzy present. They queued in the United States for 48 hours to get me an iPad.

Last year I was talking to my granddaughter, how life used to be when I was her age, five.  And I said, there was no TV, there were no computers.  She looks up at me and says, ‘So you only had iPads?’

And that actually is the first and most important message I want to convey to you, that we have to be much more adaptable, we have to face rapidly-changing circumstances, some for good, some for bad, and that presents to the 7.3 billion people on this planet an environment in which to operate that is not necessarily easy, and it is particularly not easy for people that are left behind, and not easy for those that are left the furthest behind.

I want to start from what we often take pride in, the fact that during the last few decades poverty around the world went dramatically down.

In 1981, 42 percent of the people on this planet, 4.5 billion people were poor.  What is the percentage today? It is just around 10 percent.  So, we have 7.3 billion, 3 billion more people, but the number of poor people has shrunk to 800 million, and this is really impressive.  Most of this shrinkage came from one very big country.  Anybody here from China?  From your motherland, where from 660 million people living in poverty, today we are down to 25 million.

If you are one of the 800 million still living in poverty, success somewhere else doesn’t mean much to you.  And while we have poverty going down globally, there are places on this planet where extreme poverty is rising.

My Statistics Professor here at LSE used to say about averages, that you can put your head in the refrigerator, you can put your feet in the oven, your temperature would be average, but you will be dead.  

Why is it that in 12 countries the percentage of people living in extreme poverty has gone up?  Why is it that in another 18 countries, while percentages stay stable, the absolute number of people living in poverty has gone up to more than 500,000.  And the answers are in front of us to see.  The biggest driver for extreme poverty to grow is war. In South Sudan extreme poverty has gone up to a staggering 71 percent now, meaning that 5.1 million people don't know whether they will survive the next day.

Syria, a former middle-income country, saw itself torn to pieces to a point that 60 percent of the Syrian people today live in poverty, either in Syria, or as refugees elsewhere, in Jordan, in Turkey, in Lebanon, or here in Europe.

The second big driver of poverty going up is natural disasters.  I'm sure you have watched Hurricane Irma, and, after it, Maria washing out the Caribbean Islands.  Dominica lost the equivalent of 200 percent of its GDP in just hours being swept away by Maria.  Natural disasters, unfortunately, are on the rise, in numbers and in intensity, and the most significant driver of that is of course, climate change.

These are very difficult challenges, but there is a third one that is actually easier to address, and we are still falling behind in doing this, and it is population growth.  

Are there Bulgarians in the audience?  Okay, here is a story that I was quite shocked by. In 1960 Bulgaria, and Kenya were next to each other in the populations tables, Bulgaria had 7.9 million people, Kenya had 8.1.  Today, the population of Kenya is what, around 44 million? Forty-seven, okay, well, my number is from 2012, and that on its own counts for something.  And Bulgaria has officially 7.3 million, so we have a demographic problem of our own, but this is what I told members of the Government of Niger, when I told them this story over dinner in 2012. I said to them, I just don't know how my country could function, and I'm asking here the Bulgarians, can you imagine Bulgaria with 47 million people?  I cannot.  And the Prime Minister of Niger says, ‘Oh, but you know, Niger has plenty of land, we can have many more people.  And his Minister for Social Affairs, a woman, says, ‘Oh, come on, we have land but nobody can live on this land, so we have to think about this issue’.

And on a very serious note, we have to not only think but act decisively on this issue.  Why?  Because if a country like Niger’s population grows at 3.1 percent, when is poverty going to disappear?  We need to concentrate on the factors that would lead to population growth being slowed down, such as getting girls in school and making sure they stay there and learn. Addressing the tremendous injustice of young girls getting married against their will. On this day 41,000 girls under 18 got married, many of them against their will, and of course when you marry early, you have kids early, then you have more kids and the kids are not that healthy, you are not that healthy, you are not productive.  The Bank calculated that the 15 million annual early marriages wipe out about $2 billion of wealth from the developing world.  We know that when women are able to contribute to society, the number of children goes down.

I have one daughter, a professional woman.  I should have had more, but actually I do have an excuse.  Between my brother and me, we have an average of three children, he has five I have one. But on a very serious note, we know that when women are employed they contribute to their societies and also population growth shrinks quite rapidly.

There are all kinds of assessments; overall the analysis tells us that women being fully empowered would bring some 12- to $28 trillion.  In other words, if women are equal everywhere the world economy would be between 12- and $28 trillion bigger. Even if it is not $12 trillion and we overshot and it's $10 trillion, we know that to meet the sustainable development goals we need $5 to $7 trillion a year more, so gender equality can resolve a big problem.  And it is certainly hugely important for countries where people are destitute and their number is going up because of population growth.

And the fourth reason, one that is incredibly important not to overlook, is bad governance.  Zimbabwe has no reason to be a poor country.  Haiti has no reason to be very different from the Dominican Republic.  If you look at why that is happening it boils down to, in Haiti, government problems that they have been carrying for years.  It is governance where we as an institution have a particularly significant responsibility to carry.

So, what can we do about it?  Well, let me start by recognizing that it is our moral duty and it is our duty as an institution working on development to concentrate much more attention and financing where it matters the most.  I am proud to say that the World Bank got an incredibly strong vote of confidence with the replenishment of the International Development Association funding this year of $75 billion.  This is 50 percent more than last time around.  We are really blessed to have more money but to make use of this money we ought to put our people where the problems are.

The majority of people we now recruit to work in fragile countries actually do work and live in very often dangerous conditions.  They connect to communities, they make sure that every step we can take to provide development opportunities to people we do take.  

But that is not good enough.  Our $75 billion, as good as it is, is not good enough.  What we are concentrating on a lot these days are two other things.  One, how to the get the private sector to overcome fears of risks and be more present and active in more vulnerable countries; how to give the certainty that they can invest, reap the benefits of investment and, by doing so, improve the lives of people.  

We now are working everywhere, in middle income countries -- where 50 percent of poor people still live -- but especially in higher-risk economies to make sure that jobs can be created.

The second thing we can do is to look at innovation financing that can be key to more prosperity in countries vulnerable both to conflicts but also in particular to natural disasters. We started green bonds in 2007 and today the green bond market is way over $120 billion.

Much more interesting is trying to make insurance work for poor people.  We in the rich world for years have been using insurance to bring down the risk of shocks.  Why not make that available to poor countries and to poor people?  So, we started some seven, eight years ago to issue catastrophic bonds. We bring together a group of countries - in the Caribbean 16 countries.  By being together the risk goes down.  And then they buy insurance and when a terrible thing happens, as it happened this year, they immediately receive funding that can help in the relief effort.  The Caribbean islands got $50 million from their insurance right now, immediately.  You cannot imagine how valuable speedy financing is after disasters.

Then what we want is to turn this instrument into an incentive for people to do the right thing.  So, if a country has lend-management policy for forestry to be protected, not to be chopped down, then the insurance premium ought to have a discount.  As a donor, as a finance community, we are funding this discount.  

The jazziest thing we have done this year is a pandemics bond. When Ebola hit one of the most tragic things was that until donors mobilized enough funding the scale of the disaster became huge.  So we were running after a problem and in the end it cost a couple of billions of dollars.

So we issued the first ever pandemics bond.  It provides donor money to pay for a coupon on the bond against the buyer of the bond taking the risk that pandemics may happen.  So, if you buy $100 of this bond because the risk of pandemics is well, not negligible, you would be getting $0.11 on your dollar as income, high yield.  But if there is a pandemic you lose your money.  And we get $550 million to invest in immediate action.

These kinds of innovations allow us to speed up action and support countries but also send signals and be able to measure the risk, because once the insurance industry becomes part of it, guess what? They're incredibly useful for us to understand the risk profile of different countries and then manage development investments accordingly.  

Let me finish with what I believe at the end of the day is going to be most important as financing.  It will be investing in people; investing in education and health and jobs in countries that are vulnerable.  Investing day after day and year after year.  We just published a report on education.  The bottom line of the report is that we have a crisis.  Schooling is not learning and learning is not employability.  In the developing world we have kids who reach the age of 10 and who don't know how to read.  We have teachers who don't know how to teach and who don't go to work.  In some countries absenteeism among teachers is 50-60 percent.  That has to change.  

And why does it have to change?  Because, going back to my granddaughter who is iPad proficient, the jobs of today and tomorrow, especially of tomorrow, will require different skills than those in which we have been trained.  But more than anything else they would require to learn, to be able to turn learning into a lifelong experience.  It is not going to happen in the developing world without determination and investments in people.  

I am keen to tell you that you guys have a chance to do what is necessary for the world to be more stable.  You can turn around threats like climate change, and you can also, by the way you invest, create more equality. The World Bank is thinking of moving significantly in the impact investing area. We want to be able to show results.  

I very much hope that you, with your brains, your smarts, (otherwise you're not going to be at LSE) your hearts, your sense of common purpose, that you can bring to scale the innovations that I’ve talked about and you can make it possible for investing to turn into a social good for the world as a whole.  But we can only do that if we continue to be global citizens, if we continue to be thinking of ourselves as belonging to one humanity, to one community.