Transcript: World Bank Group President David Malpass and Handelsblatt's Torsten Riecke.
Torsten Riecke: So one concern here in regards to the distribution of vaccinations, especially [now with the Omicron variant]?
David Malpass: Thank you, Torsten. Vaccine access remains very important for the poorest countries. That's true also with Omicron. So it's even more important that the donation pledges that have been made by the wealthier countries be fulfilled as quickly as possible. And also that the near-term supply be swapped in order to allow for near-term delivery for the poorest, for developing countries.
Torsten Riecke: Do you think we still need the patent waiver here because the discussions about this are still ongoing?
David Malpass: There has been a very rapid increase in the production of doses and so the critical step is to connect those doses with people in developing countries who need that particular type of dose. I've been pleased to see the licensing of technology for use in production in developing countries, including the recent licensing to Aspen Pharmaceuticals. The private sector of the World Bank, the IFC, has been very engaged in increasing the supply of vaccine production in developing countries, including in South Africa.
Torsten Riecke: What does the new situation, Omicron, mean for the global economic recovery?
David Malpass: The data is still being assessed as far as the severity of the Omicron variant. It will have a global impact. Already we have seen a reduction in air travel related to Omicron, but the global GDP impact will need to be assessed once the severity of Omicron is better understood.
Torsten Riecke: There are fears that inflation is getting worse because of the new situation. We probably have a long, long time before the bottlenecks are easing up here. So which team are you on: transitory or permanent team?
David Malpass: Clearly the rising inflation is hurting the poor the most. They are least able to protect themselves from inflation. So it's an added concern in the global outlook. That outlook was already unequal because of the slow growth rates in developing countries and the shortages of vaccines. So, inflation is adding to that problem. There are both the macro-economic roots of inflation--which is the huge amount of bond buying by the major central banks and the huge amount of expansion of their balance sheets. And then there's also the supply chain aspect of inflation, which is the shortages of labor in the United States,and the shortfalls in the logistics systems worldwide, including container ships and natural gas supplies. All of those add to inflation and look to be as if they will extend well into 2022, if not beyond.
Torsten Riecke: As far as I can see, a double whammy for the poor countries. So if we have a tighter monetary policy, that mean that probably the poor countries who have a lot of debt on their shoulders suffer most. On the other hand and as you just explained, inflation is also hitting the poor the most at the moment. So is there a way out of this bad trade off?
David Malpass: Monetary policy is not just binary. It can be tighter or looser, but it can also be less unequal in terms of the stimulus. The current monetary policies are based on purchasing of long-term assets, which is a very narrow group of assets that benefits the upper income. And so one of the challenges is to have a monetary policy that's more broadly supportive of small businesses and also of growth in developing countries. It would be a different monetary policy than the current one, and less reliant on purchases of long duration assets using bank reserves. The current policy has the central banks buying long duration assets using bank reserves which is an imbalance within the monetary system.
Torsten Riecke: Coming back to economics and inequality, IDA plays a very important role to release the pressure for the poorest country of the world. So you frontloaded IDA because of the pandemic, and now you are in the process of doing all that again in 21. So do you have enough money here, and what you need to make this work given what we just talked about, that we are probably facing a longer period of this uncertainty and economic distress?
David Malpass: IDA has been very successful in responding to COVID. It provides grants and zero interest rate loans to the poorest countries, 75 poorest countries in the world. And based on its three-year structure, it has flexibility which was used extensively in 2020 and 2021--a process we call frontloading, where the commitments were able to be made very quickly from IDA, for COVID health purposes and including for vaccines. We are now accelerating or bringing forward the next replenishment. We will have the final meeting next week to conclude IDA20, which is where we expect to reach a very ambitious financing and policy package. We’ve been pleased to have the strong support of donor countries, and also importantly, the strong support of the recipient countries. It's a two-way street in IDA that's one of the world's most powerful mechanisms for combining development assistance into usable packages for the poorest countries.
Torsten Riecke: Can you give me a number? What kind of money are we talking about when it comes to next year and relief for the poorer countries?
David Malpass: IDA19 was calculated at $82 billion. So we fully expect to have a sizable increase from IDA19 and we're in the final stages of that fundraising. So then we'll be concluding it next week. Importantly, IDA is able to leverage the contributions of donors by borrowing in international markets. So it's a very powerful form of leveraging. That means that $1 of contributions from Germany, from the United States, from China and others is multiplied times four in reaching the final amount that is made available to the poorest countries. We've welcomed Germany's strong interest in that and we welcome support from around the world. I spoke this morning on a conference call with Prime Minister Kishida of Japan, and Japan is a major contributor and we've been grateful for their support within IDA.
Torsten Riecke: You also warned multiple times about the debt crisis which could come upon us and you pointed out two very important aspects here. One is transparency—so we don't know what happens? The other one is debt relief. So what's the transparency problem and why is it so hard to achieve a debt relief at the moment?
David Malpass: We did the report on transparency about two weeks ago or so. And it noted that the actual amounts of debt that the low-income countries are carrying, the burden, may be 30% more than what has been documented. That is due to a lack of transparency in those debts. The lack of transparency means that it's hard to know how much debt there is. But then it also means that it's very hard to restructure the debt. For example, on Chad, we've been working with the IMF and with the international community, with the Paris Club and with the private sector creditors for over a year. And one of the time-consuming parts was reconciling the amount of debt so that the various creditors could agree on the amounts of debt that they had provided to the country. So we want to push strongly on reconciliation of the amounts of debt, and it's important to move away from the practice of non-disclosure clauses in contracts, and also of collateral that's required in the contracts and escrow accounts. Those practices make it difficult to restructure the debt and to provide debt relief, which is the goal.
David Malpass: I wanted to come back to the debt issue and make sure that you took note of my mention yesterday of the importance of a standstill in the debt payments. So one of the things we're trying to do on the debt of the poorest countries is have a process where there will be debt relief that's based on a reduction in payments. The DSSI expires at the end of this year. And so we're looking for mechanisms to allow a standstill in payments into 2022 for developing countries for of the debtor countries that are making improvements within their economies that will make the debt more sustainable.
Torsten Riecke: Talking about debt: are you worried about China, because everybody talks about China at the moment and the real estate sector over there?
David Malpass: China's growth forecasts for 2022 has been coming down. We are looking for roughly 5% growth in 2022. So even with the latest slowdown, it still has had a strong recovery from COVID. So that is welcome. They announced yesterday a reduction in the reserve requirement ratio. China operates a traditional monetary policy that's based on reserve requirements. It's a contrast with the other major central banks, which operate on--as I described before--a system where they use excess bank reserves to buy long term assets. In contrast, China runs a traditional monetary policy based on a reserve requirement, which they lowered yesterday. And they've also announced credit support mechanisms. So yes, I'm worried about the areas of China's economy that are non-transparent in terms of the amounts of debt. But I'm also encouraged by the strength of the recovery they had from COVID.
Torsten Riecke: China joined the WTO 20 years ago, almost to the day. This caused a lot of growth, so we have a middle class in China; on the other hand, we have trade wars and other things. Overall, is the membership of China in the WTO positive or negative?
David Malpass: China's entry into the global economy was very successful in the 1980s and 1990s. It was based on a stabilization of the currency which was underscored in the central bank's announcement yesterday. The stability of currencies and prices was a cornerstone of their growth in the 1990s, as well as the liberalisation of prices within the economy. I met yesterday virtually with Premier Li Keqiang and he reiterated the importance China places on market-based systems based on price stability, and price liberalization. That of course is also very important in global trade. So I think there was substantial forward movement in China's trade with the world. That was welcome. But there became an overdependence by the world on supply chains from China. So that's a process that's now in evolution. I think that's an important step, for the world to diversify supply chains as global growth resumes after COVID.
Torsten Riecke: I got that, thank you very much for underlining that [referring to DM making the point again on debt]. So one final question. Climate. So there's a lot of talk about carbon border taxes. So even climate clubs are debated at the moment. So what would that mean for poor countries who are not able to join those clubs, and how would they deal with carbon border taxes for richer countries? Is this a problem?
David Malpass: Yes. Our Climate Change Action Plan is focused on integrating climate and development, and that was also underscored at the Glasgow Summit. That's an important concept for the developing countries. In our Climate Change Action Plan, we're working with the countries to reduce their subsidies for fossil fuels and also to improve their incentive structures so that they reduce the carbon intensity. I was pleased with the Glasgow Summit with regard to both the recognition that there needs to be a full integration of climate and development working together. And also, there was a discussion of projects that would reduce greenhouse gas emissions. This is the hard step to prioritize the projects that will have a transformative impact on greenhouse gas emissions. Some developing countries need to be part of that because they have substantial greenhouse gas emissions and much of the work is in the advanced economies to reduce carbon intensity.
Torsten Riecke: Carbon border tax is a sensible means for greener growth or is it a bad idea?
David Malpass: It's important for the world to move toward reduction in greenhouse gas emissions and different countries and groups of countries will use different effects to achieve that. One, as I mentioned, is the importance of reducing subsidies for fossil fuels. Another is to apply taxes for high carbon intensive activities as a way to guide industries away from carbon intensity. And there will be other techniques that countries explore, including the carbon clubs.
Torsten Riecke: Thank you so much for taking the time to speak