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Speeches & TranscriptsApril 5, 2023

A Fireside Chat with President David Malpass at the Atlantic Council

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MS. LISA ABRAMOWICZ:  It is a privilege to be on a stage with someone who is at the epicenter of so many of the preeminent issues of the moment.

This marks I believe your fourth anniversary at the helm of the World Bank, and we're coming up to a unique 12 months ahead.  What do you view as your major concern, the dominant one, for the next 12 months?

MR. DAVID MALPASS:  Thank you. Thanks to Atlantic Council.

I think growth is the big problem. As you think about the number of young people that need jobs, achieving that is really important.  It's a little different in the U.S. where the participation rate is lower and where there has been job growth and a low unemployment rate, but in much of the world--in fact, I'll say most of the world--there is a shortage of jobs.  How do you get back to a spot where people are moving ahead?

We've talked about the reversal of development. In many parts of the world over these last few years, it's been going backwards in terms of their median income, in terms of poverty, in terms of education, health. And climate complicates it all.

MS. ABRAMOWICZ:  One of the reasons why what you do is pretty amazing is you take these 30,000-feet views of the macro economy, and you bring them down to the details of how one person gets a job in a country that has its own challenges.

How is the challenge different now as we exit decades of zero interest rates, the idea that suddenly money costs something and that's changing the allocation of money?

MR. MALPASS:  This is a huge change, and I really think and want world leaders to focus on this. For ten years, rates were zero. And now, they're not. They're back to more normal levels and the dislocation is huge.  It is still rippling through the world.  That means, as a contract expires and you try to roll over, you're rolling over at a much, much higher interest rate than where you were at before. From the standpoint of growth strategy for countries, this is new and very stressful.

I made that point in a speech four or five days ago in Niger. It's twice as big as Texas; it's sitting in the Sahel Region of Africa.  The urging that I gave is to not wait for the world to come, that there needs to really be change in the country, and do as much as you can because the next few years are going to be stressful.

As Fred was saying, we do not want it to be a lost decade for growth.

MS. ABRAMOWICZ:  Can you talk about the World Bank in terms of its role when you are lobbying for certain changes and offering money to attach to it, how it's changed over the past four years, as people talk more about splintering globalization, fragmentation.

Has the role of the World Bank changed?

MR. MALPASS: What we've tried to do is focus on what's going to be a good outcome for the people of the country. Four years ago, it was pre-COVID and interest rates were zero. You could really think in terms of how the country could attract Euro bond offerings. Quite a few of even the poorest countries in the world were borrowing through London in the euro bond market. That has all closed.

In fact, London is not only basically closed for these countries, but their regional markets are closing and bank lending—governments borrowing from their own banks—has been stretched to the limit. That means there needs to be a new system that they're thinking about in terms of where's the growth going to come from.

One of the challenges is that people look at it and say, we used to grow 4 percent, so we'll probably grow 4 percent.  It's a revert-to-mean kind of concept that people think about.  But why would that be possible if interest rates have gone to zero, which was abnormal?  Historically, that was a unique period, unlikely to return.  We shouldn't think of the world in terms of a business cycle or a revert-to-mean. It has got to be an inflection point into some new growth model.

MS. ABRAMOWICZ: And we'll get into what that looks like and what the consequences are. Is it harder to raise money right now from the World Bank constituents than it was when you started at the World Bank?

MR. MALPASS:  It is the same, which is part of the problem.

If you look back over the past 30 years or so, the actual cash contributions from shareholders and from donors has been relatively flat, even in nominal terms.  We talk about IDA growing--and I've gone through two giant IDA fundraisings. In 2019, we concluded IDA19. The numbers get mixed up because we've got a three-year cycle going on a calendar cycle.  But in 2019, we concluded IDA19 at some $82 billion. And then, because of COVID, we accelerated the next fundraising and made it a two-year cycle rather than three, the first time in history that has been done.  It was done very successfully.  It was $93 billion for IDA20, which we are now disbursing in terms of grants and loans to the poorest countries.  That was a giant success.

But, underneath that, how did you get from $82 billion to $93 billion? There were no more donations from the advanced economies.  We leveraged the existing balance sheet more, in order to make that expansion.

When you look back, one of the challenges is that there hasn't been much increase in overseas development assistance, ODA, the famous acronym for generosity from the countries. In fact, many of them have reduced it. This is a challenge for the world when countries are facing more costs than before; and yet, even in nominal terms, it has been pretty flat.

The U.S. for example is the biggest and most generous contributor to the World Bank, and we are super grateful for that, but it's a flat nominal contribution, $1.3 and then $1 billion per year, $1.2. It's staying flat in nominal terms, and that's the best of our supporters.

MS. ABRAMOWICZ: How much of that is because nations are going out and doing it on their own? And I think about China having their own strategic development program—the Belt and Road Initiative--to try to lend to developing markets on their terms.

How much is that a part of the, perhaps, flat contributions from the members?

MR. MALPASS:  It's partly that, but even on their bilateral aid, countries haven't been growing very much. And I should note, China has substantially increased its contribution to the World Bank. For example, for IDA, they've gone from $600 million to $1.2 billion in IDA19.  That was my first fundraising. And then $1.4 billion in the IDA20.  They've been expanding, which is very well received by the World Bank.

I'm sorry, I've used two apples and oranges. The U.S. contribution is, say, a billion—really, $1.2 billion per year.  That adds to $3 billion over a 3-year period, and China is putting in $1.4 billion over a 3-year period.

The U.S. is a much bigger donor, but China—and it's appreciated—has expanded its contribution to the Bank. In its bilateral aid, it's also expanding, but other countries aren't so much.  From the standpoint of developing countries, what they feel is a composition shift toward China.

MS. ABRAMOWICZ: So, you said that it's well received by the World Bank for China to get involved. Why is it good? Some people push back and say it's suspect.

MR. MALPASS: They're the third biggest shareholder of the Bank. From a pure governance standpoint, they have a seat on the Board and participate, and do it in a constructive way. They're the world's second-biggest economy. To have a multilateral institution, there needs to be some component of China's involvement and engagement.  We welcome that.

We work with them on things that they can do to have a better impact on development and on the global economy, specifically transparency. Within China's system, there has been a difference in terms of how they do contracts. That affects intellectual property, trade, and very much their lending to other countries.

As they go into developing countries, often they have been in the habit of adding nondisclosure clauses to the contract. The contract says, I'm lending to you, the Government of Country X, but this contract can never be shown to anyone.  And some of them are written so tightly, they can't be shown to the IMF or the World Bank or to other ministers within that same government.  It's a unique contracting relationship. We've asked and invited them not to put that clause in their contracts.  They also are in the habit of asking for collateral from countries. It is very hard for a government to give collateral, because it lasts longer than the life of the sitting government. I'm naming three practices that we've worked specifically to encourage them not to put into their contracts. They're also doing swap lines from central banks.

These are all complicated issues, but they're really important when we're talking about billions and billions of dollars that are flowing with insufficient transparency. That's a high priority as the world interacts with China in a global context.

MS. ABRAMOWICZ: How do you argue for them to possibly play ball at a time when they have a particular objective, to get a certain alliance of countries, and there is a different objective for the World Bank, which is trying to help generate growth in the world.  I mean, it's just directly in conflict, no?

MR. MALPASS:  I hope no, and we make that case directly to them. I went in December. Kristalina Georgieva, the Managing Director of the IMF, was there last week with Axel van Trotsenburg, the Senior Managing Director within the World Bank.

What we want China to see is that it's strongly in its interests to see the world growing. That can be done through a difference in lending practices, and also faster restructuring of debt. We make the direct case to them.

In December, when I was there, I was one of the first ones in as they lifted the quarantines and the lockdowns for COVID.  We had good meetings with the previous Premier. They've changed just last month to a new Premier. The previous Premier said, the Politburo has decided on an opening strategy to accelerate China's opening. We embraced that, asked them to put that in fruition in Sri Lanka and in various country debt situations and trade relationships. Now the new Premier has underscored that China is looking for a way to accelerate their opening to the world. The world can embrace that.  We can, at the World Bank, and we do.

MS. ABRAMOWICZ: At a time of so much transition, as we go into the next decade, and you talk about much slower growth, what are the tangible consequences of a potential global recession and substantially slower growth in the years to come?

MR. MALPASS:  Part of it is migration. People move to where the jobs are. So, if their country is in a deeper recession, people move. That creates its own set of challenges.  We have a big report coming out on that.  Of course, Europe and the U.S. and other recipient countries of migrants feel those consequences.  So, that's one.

Another is on the financial side. The government's fiscal deficits are ballooning, so debt-to-GDP ratios are going up. They were already at a high level due to COVID. So, you go to an even higher level after COVID. That's a challenge for world financial markets.  Do you really want to keep lending into governments that are expanding their debt? Those are two direct consequences.

MS. ABRAMOWICZ: Well, that's a great question. How do you get confidence and how do you convince the members of the World Bank that you're putting their money to good use and it's going to come back to them, if the countries are becoming much less creditworthy?

MR. MALPASS:  Inside the World Bank I've tried and really had the World Bank try to practice fiscal discipline. So, some lead-by-example is needed. In the countries, we're really working to beef up our public expenditure reviews.  That means helping the governments think about how they're spending money so that they can save on the edges. That's an approach to dealing with the reality of the world.

Interest rates aren't zero anymore. There's not a new flow of debt coming in. There is going to have to be a way to increase productivity.  I was in Togo three days ago.  It's a small country in the Gulf of Guinea, on the west coast of Africa--but it’s important.  It's got a large World Bank program.  And they are short on fertilizer because world markets have really been stretched by Russia's invasion of Ukraine. That still is rippling through global markets, shortages of key components, or prices that are too high for farmers in poor countries to afford. The World Bank helped them finance fertilizer imports so that farmers can meet this crop season.  It's vital, as you begin to plant crops, farmers won't plant and do the work if there's not fertilizer, because their yields will be too low.

We're helping with that. It's the very practical on-the-ground problem that the countries are facing in a slow world growth environment.

MS. ABRAMOWICZ:  How you work and try to determine whether the loans are actually going to pay dividends, and it's the relationships that you have with some of the officials, as well.?

It comes at a tricky time. You did mention Russia's invasion of Ukraine, and the fallout of that is pretty widespread, commodities in particular.  The latest is that OPEC+ is going to cut their production of oil by more than a million barrels a day.  You've seen oil prices go up. Is this a good thing or is this a bad thing for the nations that you lend to?

MR. MALPASS:  I think it's a bad thing. Some are oil exporters, so for them they reap some benefit. But from the standpoint of global growth, energy costs are a big component of that.

And there's arbitrage between oil prices, natural gas prices, coal prices. Basically, the whole energy complex goes up in price, which means it is harder for a farmer to get yields on crops. They can't afford the raw materials that they use.  As you look around the world, natural gas is a vital component for the whole agricultural cycle, because it's used to make the fertilizer and that creates the yields that farmers need.

My mind goes to the practical aspect. If oil prices go up, farmers are going to be planting less so we have to think about food prices next year. This gets to this difficult spot. The poorer people in the world--poor people are in both advanced economies, middle-income countries, and the poorest countries, wherever they are, when a price goes up, that means they can't use that product.  So, they trade down to less-useful fertilizer or to food. One of the concerning trends in the world is they are trading down in terms of the quality of the protein that they're eating. As the longer this period goes on of high prices for energy, what's happening is farmers are using less fertilizer.  So, that means next year's yields will be less.  There's a building component in soil.

And then, the same thing, even for human beings, if you're using less protein, your health is going to suffer next year and the following year, and the data is clear that's happening.

MS. ABRAMOWICZ:  And that has all sorts of effects, both human and from a macroeconomic perspective.

You talk about higher oil prices and higher food prices, and that leads people to just buy less of it, right, which has created this debate, is it disinflationary, almost, to have higher commodity prices.

Do you think that low growth will eventually mean low inflation, or could you see low growth and high inflation?  Are you expecting a stagflationary next decade?

MR. MALPASS:  I think we've been in stagflation.  That was our World Bank report a year ago that was early on that call, that we have a stagflation period, meaning stubbornly high inflation even though growth is going to be low.

Now, fortunately, the U.S. and China were able to put together some aspects of growth and have seen some rebound.  So, that's helped the world.  But there needs to be much, much more production and productivity in order to break out of stagflation.

My own view, also, is that part of inflation--and if you think about the 1970s for the hyperinflation of those decades, it's very connected to what's happening to currency values.  In the '70s, the value of the dollar collapsed.  The price of everything in dollars, denominated in dollars, went up.  People analyze it as monetary and fiscal policy, but we really ought to bring in currency policy.

Right now, we see the dollar is pretty strong, and so there's no reason to think of it being a hyperinflation cycle, but we have to see that inflation is stubborn, while the high levels of government spending are continuing.

MS. ABRAMOWICZ:  All right.  Let's build on this currency question for a minute, especially because some people are saying you are starting to see signs that the dollar is losing sort of the U.S. exceptionalism crown that had been given to it.

Do you see that in actuality when you are lending?  Do you feel that with respect to the reserve currencies that countries are holding?

MR. MALPASS:  I would say no.  And I'm not one who's so worried about the U.S. preserving the reserve status of the dollar.  You earn that by dependability and by how fast you can trade the currency.  The efficiency of markets is critical, and the U.S. still has dominance in that.  Now, but that's certainly what's under question marks from blockchain kinds of currency.  The Chinese currency is now part of the SDR.  So, it's got the potential to grow as a reserve currency.

I lived through in the 1980s, as the euro was forming, and people were worried about the euro taking space from the dollar.  And then, I was at a hearing, Alan Greenspan explained carefully, look, competition is good for a currency.  It's okay for the euro to form and we will compete with them for value.  That turned out to be the right analysis, that the dollar stood up to the euro, and so it was maybe helping both sides.  I want to think of it that way, but then that's incumbent on the U.S. to have financial strength so that the dollar can remain the world's most important currency.

MS. ABRAMOWICZ:  Does China view it that way, that it's not a zero-sum game and that there are lots of reserve currencies and they want the renminbi to be part of that?  Or is this more of a currency war and trying to replace and immunize from potential sanctions, retaliation, et cetera, like what we've seen from Russia?

MR. MALPASS:  Time will tell some on that.  My thought is, China really likes to compete.  They are competing right now for tourism.  It's very interesting.  You know, as they've unlocked from COVID, one of their growth industries is they want people to come back and visit China and they want Chinese people to do tourism around China, recognizing that that's a pretty good growth industry.

They're competing on a range.  Think of it in big data, in telecom, in chips, and so on across the board, and they've been explicit in that: ‘We want to compete with the world and be the best in the world.’  There's some of that on the currency.

Then, I think some of the burden then comes back to the U.S.  Okay, you can try that, but we've got better systems, better ability to have turnover within our companies.  You know, one of the biggest strengths of the U.S. is the ability to fail.  As companies fail, there's a bankruptcy process and the capital is liberated and it goes to some other company that has a better idea.  The U.S. has a better system and can compete with China in that contest.

MS. ABRAMOWICZ:  When deciding who to lend to, you were talking about the needs with respect to fertilizer and making sure that residents aren't malnourished; also supporting the energy infrastructure.  Do you decide to lend more to countries that are showing signs of being run better, having less corruption, being able to implement plans with the money that you are able to deliver, or are you forced almost by your mandate to be an equal opportunity lender and to go for the weakest hands?

MR. MALPASS:  That's a great question.  You have to come inside the World Bank to think about that.  You can say, do you lend or not lend, but there's really a blend where do you lend toward projects that are long-term projects or fast-disbursing money?

Fred's opening was about the Bretton Woods system and where should it go. There is the liquidity needs of countries.  Do you need the money in the next year?  And then, there's the longer-term growth needs:  Do you need development where you're building schools and you're hiring teachers and you're improving health systems in the country?  And what's the balance between those two?  Right now, there's financial stress.  There's a lot of pressure on the World Bank to just lend the money to the country even if they're not doing well, to participate in the liquidity of the country.

So, I didn't want to answer straightaway to you.  What we are trying to do is—in those countries that are not reforming their system in a way that gives confidence about their sustainability, their growth—we still operate in the countries, but we tend to do it more with social safety nets, have direct assistance to the people of the country so that they can survive the shortages of food that are upon them.  We have big operations in East Africa, for example, where they are confronted by drought and by high prices.  That means food assistance and also assistance to the farmers so that they can be planting.

MS. ABRAMOWICZ:  The reason why I ask partly is because when I think about Bretton Woods 2.0, like Janet Yellen was talking about, I wonder, what's the objective of this new global Consortium to lend?

Is it to basically have a humanitarian focus, to bring up some of the weaker links?  Is it to say to a country that could potentially be part of a supply chain for the developed world, ‘hey, we want to support your infrastructure and make sure you guys have good business so that you can profit and also so that we can profit?’  How do you parse out the different motivations of nations that are legitimate, for their own good, while also preserving this humanitarian focus which was at the foundation of the organization?

MR. MALPASS:  The original Bretton Woods was mostly about rebuilding from World War II.  The original World Bank was IBRD, the International Bank for Reconstruction and Development, and the first loans were to France and to Luxembourg and then in a diversification to Chile.  Countries that we think of as middle- or higher-income now.

That's a core issue of, what is your purpose?  And I think there's a clear enough purpose, IMF trying to stabilize the international financial system and liquidity kinds of challenges; World Bank trying to push forward with development, which includes sustainable development, so bringing in the climate costs that are so immense.  I was, as I said, in Niger, which is in the Sahel Zone, and a very difficult environment from the costs of climate changes going on in the Sahel.   

Our Board just has gone through really a three-month--encouraged by the U.S., which we welcome--we have done a three-, four-, five-month dive through our Board of Directors and their capitals.  This is the broad membership of the Bank thinking about what are the primary purposes, and reinforcing the idea that poverty reduction and poverty alleviation, including in middle-income countries, is an important, high priority of the Bank; and also, boosting prosperity, shared income, in the context of sustainability.

I think there's a clear mission and role.  The hard part is the world's not a welcoming place for developing countries right now, and the people.  Importantly, a woman in a poor, developing country, think of the difficulties she's facing.  Her children don't have schools to go to.  There may not be a road.  There is not electricity or water.  In Niger, where I was, a big problem is they are still using wood to burn for charcoal to make the food on a daily basis.  You can strip the land of a lot of wood.  The kids are needed, and don't go to school. They stay home because they have to hunt for wood around the greater community area.  These are really challenging times.  How do you help a country break out of that into cooking that's cleaner from the environment standpoint and uses less hours, particularly, of women.

MS. ABRAMOWICZ:  Do you think that we've moved forward in the past five years or stayed the same, or moved backwards?

MR. MALPASS:  I'm afraid our data shows the reversal in development.  That means poverty is higher maybe than five years ago, that education and literacy problems are worse than they were five years ago.  That's a combination of COVID and now of the high prices coming out of Russia's invasion of Ukraine.  You end up with a double whammy.  We've tried to meet that from the World Bank side by a big expansion of our lending both in IBRD, but also in IDA.  As I've described, this faster cycle that we have done for IDA has allowed a 30-percent expansion by the World Bank, record levels of commitments that we're doing in the world, but it's a fraction of what's needed.

MS. ABRAMOWICZ:  Given that, what's your optimism level that we're going to try to make inroads over the next ten years?  Do you think that it looks likely, or do you think that we're going to keep going backwards?

MR. MALPASS: The report is out: if you look at things today, the challenge is that there may not be progress, and we need to avoid that lost decade.  That means, push hard on debt restructuring, which we are doing.  I am working daily to try to break the stalemate that's gone in the highly indebted countries so that they have a path forward.

We want to push on more resources from the World Bank.  We're doing, within our evolution process, this expanded—the Board's reached agreement to allow an increase in the leverage of IBRD, the one part of the World Bank.  We'll be going into a new IDA cycle for fundraising.  The World Bank can do some parts of this.  But then, I think a lot of it has to do with the global growth environment.  That gets straight into deposit insurance, into fiscal and monetary stimulus, and also regulatory policies across the advanced economies.

We have to see that we're in a world where we can worry about people in developing countries, which I do, but the giant challenge is almost all the capital in the world is staying in the advanced economies and is used to pay the national debt and is used to pay the corporate bond payments as they come due.  And it's not at a spot where it's creating new opportunities for the world.  And so, that's a challenge for the world over the next five years.  As interest rates have gone to a more normal level, how many more years are you going to go through an adjustment in asset prices and in capital allocation before you can get back to a broad-based growth model for the world.

MS. ABRAMOWICZ:  How does deposit insurance fit into that?

MR. MALPASS:  Well, banks are critical to growth.  They lend to small businesses.  One of the underpinnings of a successful banking system is people are comfortable putting their deposits in banks.

And if you shake that so deposits move into a narrower group at the top, bigger banks, money market funds, who is going to lend to small businesses?  This is a giant problem for Europe and has been for ten years.  There's just not dynamism at the small business level.

MS. ABRAMOWICZ:  Do you think—and this is something that is being heatedly debated, hotly debated in the markets—that the collapse of Silicon Valley Bank and a couple of other smaller banks in the U.S., regional banks—does have a systemic effect that will essentially restrict lending not just to small businesses in the U.S., but exacerbate what you're seeing in the developing world as well?

MR. MALPASS: I want to parse the word "systemic effect."  Is it a systemic risk for the system?  Maybe the regulators have been able to address that.  Are there follow-on effects?  I think, clearly, yes.  Each person with deposits in banks examines that, checks the safety, and there's a migration toward the bigger banks.  I would argue the U.S.—but it's also true in all the advanced economies—that there's this huge value in regional banks and even community banks because of the relationship with their customers.  Small businesses need an inventory loan, an accounts receivable loan, auto loans, truck loans—the lifeblood of small commerce is the ability to finance a truck through a finance company or a lease.  That has to be maintained and there needs to be explicit policies to do that.

MS. ABRAMOWICZ:  All things being equal, do you think that the risk of a global recession has gone up over the past three weeks?

MR. MALPASS:  Yes. But, you know, there's always some risk of a recession.  The change on the margin is what we're seeing.  You've seen short-term two-year Treasury yields came down quite a bit as people worried about the fragility of the system.  On the one hand, that's good because we want lower interest rates.  But of course, don't we want it in the context of fast growth?  I mean, that's explicit.  You've got to replace stagflation with lots more production at a lower interest rate.  That gives you the growth of the future.

MS. ABRAMOWICZ:  You're coming up to the end of your tenure at the World Bank as the President.  What advice would you give the next President of the World Bank?

MR. MALPASS:  Be very engaged in the countries that are the borrowers or the recipients of grants from the Bank.  One could use one's time 100 percent in conferences in the advanced economies, but that's not really where the action is.  The action is how do you convince countries to make the changes that they need?

One that's related to climate change is adaptation.  We are doing a series of reports that are specific, country-by-country about what they can do to protect for the future.  One thing is, move people: don't have the population growth on the flood plain.  It sounds obvious but very difficult for the countries to do that, because the people want to move to where there is land available, often on a flood plain.  So, how do you set up policies to really guide in a better direction?  Those are all real challenges for the daily operation of the Bank.

MS. ABRAMOWICZ:  What are you most proud of over the past four years?

MR. MALPASS:  It was very nice in Fred's introduction to mention multiple crises.  And I think the Bank had good leadership.  I've been really proud of the senior people in the Bank.  For example, as COVID hit, we needed a faster process of getting loans through. The Bank puts each loan through the Board.  Think how cumbersome that was.  We arranged or got authority from the Bank, from the Board, to put similar loans through without as much intervention.  That way we could a hundred countries.  How can you do a hundred loans through the Board of Directors?  And we did it very quickly, a lot of money put out; so, that helped.  And same with others.

We tried to respond fast to crises and have people around the Bank working.  Think of what the Bank's doing: we have people in countries all over the world that—some of whom are in lockdowns, others who are not.  How do you have enough variation within your policies internally that people are getting the job done, meaning the paperwork—it's not paperwork.  It's not really a bureaucracy situation.  It's  how do you interact with government ministers when everybody is in lockdown?  Well, we managed to continue that, and successfully.

MS. ABRAMOWICZ:  Do you have any regrets?

MR. MALPASS:  No regrets other than what we've just been talking about.  You know, I've worked for so long on development. So, it's challenging to me personally to see any backward movement.

I started with the U.S. Government in 1984 on the same development issues we've been discussing and have done that throughout.  I really envision a world where people get ahead, where median incomes—that means you've got to have people at the bottom being pulled up rapidly, or themselves—opportunities for them to go upward, and that's been stalled right now. I really think we ought to all be working on how do we break through that logjam, stalemate.

MS. ABRAMOWICZ:  I see there are a lot of questions from the audience.  Before we get to them, do you want to give us a sneak peek to where you're going next?

MR. MALPASS:  Well, I'm exploring opportunities.   I've been in the U.S. government—public posts for 15 years, but private sector much more.  So, I'm eager to get back to the private sector.  That's where I'm very comfortable so I'm looking forward to that, and just exploring various ways to do that.

MS. ABRAMOWICZ:  Are you going to stay in the same kind of realm of work, in the same developing market?

MR. MALPASS:  Well, you see what I'm interested—I'm interested in interest rates and in bond issuance, the Federal Reserve, all the government borrowing.

MS. ABRAMOWICZ:  I think I know where you're going.  I think I've got a good sense.

All right.  There are a bunch of questions.  All right, this is a good one.  We've gotten a few questions on the role of cryptocurrency and central bank digital currency, which is an area of focus at The Atlantic Council.

What are the challenges and risks you see from these emerging financial technologies?

MR. MALPASS:  I've been in now G7 meetings and G20 meetings with world leaders since 2017, and every meeting talks about this.

And the competing needs are, if you have cryptocurrency that is anonymous, you lose track of terrorism finance and some of the core issues that the international financial system has settled on.  There's clearly some downsides to that.  It's not clear what the value-add proposition is of currencies like bitcoin other than speed of trading.  How does it create a store of value?  How does it really create a borrowing—are there users of that?  That still has to be proven and explored.

On the other hand—and I'll be critical—central banks are dominated by inertia, and that means slow settlement. We, the World Bank, have taken two positions on this.  One: how can central banks speed up their settlement process so that they are competitive with cryptocurrencies?  I think it should be viewed as head-on competition between two different concepts of the world.

And the other thing we want from the World Bank standpoint is if the regulatory structure—to be accessible by countries that don't have much capacity.  If you have a very complicated regulatory structure on international tax or on international financial regulation, the poor countries lose out.  They just cannot afford the compliance costs of the systems that are being set up.  That's a very real problem facing the countries.

MS. ABRAMOWICZ:  How do you reduce settlement plans?  I mean, is it basically having crypto coins for each of the central banks—like, central bank-issued crypto assets?

MR. MALPASS:  They talk about central bank digital currency.

MS. ABRAMOWICZ:  All right, digital currencies.

MR. MALPASS:  That's a buzzword. Some may do that and then there will be competition to see who's got the best one and the one that settles or clears, has the most dynamic markets underpinning it.  I think that's more the desired direction of the world and we'll see if any of the central banks really pull it off.

MS. ABRAMOWICZ:  Just real quick, before I move on, do you think that we're going to get a Fed coin in the next couple of years?

MR. MALPASS: I don't know the answer to that.  They'll try to push on it.

MS. ABRAMOWICZ:  Very diplomatic.

MR. MALPASS:  Yeah, right.

MS. BROMOWITZ:  Next question is, you've been outspoken about China's responsibilities in addressing the restructuring of its loans to developing countries.  We were talking about transparency recently.  Beijing has complained that public criticism of its efforts have slowed the restructuring process.

How do you respond?

MR. MALPASS:  I want to say it the other way:  China sees the opportunity here and it doesn't take very much of a change.  For example, one of the big sticking points right now is Zambia. What is needed is a memorandum of understanding, an MOU, that just writes down what the restructuring agreement is that the various creditors have come to.  That's not a hard lift and it's a country that China has been supportive of, really, for 40 years in various ways.  That's the step that's needed.  It's not just China; it's also the private sector creditors.  They've stood aside from this transparency process, debt reconciliation, and signing of MOUs.

Chad had an MOU—they needed the private sector to sign the MOU and it went on for months and months and months waiting for the private sector creditors, just put your name on this MOU.

MS. ABRAMOWICZ:  Well, there was a Wall Street Journal article a couple of weeks ago, or perhaps in the past week or two, about how China was actually relieving a bunch of debt, just simply eliminating it off the balance sheets of some of the Belt and Road Initiative countries, and that they actually were losing a lot of money.

Can you confirm that?  I mean, is that what you're hearing, as well, that they're actually moving away from trying to seize collateral and just sort of saying, okay, we'll forgive this debt?

MR. MALPASS:  I want to be cautious on the word "forgive."  One question has been, is China taking collateral very often, and the answer is, not very often.  There are many different ways to do a debt relief for a country.  You can reschedule way out into the future, which provides a lot of breathing space for the country.  My impression is that's more where the direction has been, but a challenge for the countries is you need light at the end of the tunnel.  You need to have a long period of years where new investors can come in without feeling they're going to have to pay the overhang of the old debt.  So, that's the restructurings that we're looking for.

You know, China has been constructive.  We've had a lot of relationships on this, so I don't agree with that point that was made in the question, that China wants people to lay off.  Basically, they're looking for a way to have a constructive restructuring dialogue with the world, and they've been pretty clear about, they would like to have more clarity on what the data is underneath the debt restructurings.  Well, fair enough, and the world can come to them also with a proposed way of doing business.

They're the new entry, big new entry that's been engaged in the countries.  So, there's a little bit of burden on the world to say, look, we can do it differently.  Let's find a way to make this work.

MS. ABRAMOWICZ:  And you think that things have gotten less opaque with China?

MR. MALPASS:  So, we're still working on the transparency concepts.

MS. ABRAMOWICZ:  Okay.  Here's another question:  How has the World Bank managed its relationship with regional development banks?  How do you ensure cohesion of purpose between the regional development banks and the World Bank?

MR. MALPASS:  So, regional development banks are the Asian Development Bank, Inter-American Development Bank, AIIB, which is in Beijing, the Asian Infrastructure and Investment Bank.  And so, we meet twice a year.  I meet with the heads of those organizations.

And we all were founded—each one has different governance structures.  So, they're quite different institutions.  I didn't mention the African Development Bank, the Islamic Development Bank.  There's a large group, so I apologize for those that I didn't yet name—European Bank for Reconstruction and Development—

MS. ABRAMOWICZ:  They're all complaining.  Don't worry.  They already feel like you've lost them.

MR. MALPASS:  Each one has a different board and some nuance in what their mission statement is.

And so, we're different institutions but all with, at some spot, a development purpose.  We want people to do better in developing countries.  That gives us things to talk about in terms of how we can do it.

We are leveraged differently.  The World Bank is the most leveraged of those institutions, which we are happy to do, and that means that we can lend more because we are leveraged substantially.

Can I take an aside on that?  You know, the world has a tendency to put money into individual trust funds and fragment their development assistance.  The World Bank alone—pretty much alone—is the one that can actually issue bonds against assistance that's going to the poorest countries.  So, where in the world is there a process where you can have people donate some money for the poorest countries, and then who can then make it times three in terms of grants and loans to the poorest countries?  Well, the World Bank is doing that every day.  We are issuing billions and billions of bonds from IDA, from the arm of the World Bank that is a trust fund for the poorest countries.  We're in the market almost every week with large-scale borrowings for sustainable development into the poorest countries, which is a unique part of the world financial system.

MS. ABRAMOWICZ:  We have time for one more question, and I think it is fitting to end on this one, which is, how do you see the World Bank working with Ukraine as it begins reconstructing its nation, whenever that happens?

MR. MALPASS:  Yeah, it is fitting that we end on Ukraine. There has been a war for over a year, since Russia invaded. I met with President Zelensky in February of 2022, just days before the Russian invasion.

We committed as a World Bank we will be there to support because Ukraine had been a big client of the World Bank.  We've continued that.  We've done it in multiple ways.  We lend directly; we have grants that go directly; and we also have been the major conduit by quickly setting up trust funds in March and April of 2022 that were utilized by the U.S., which has been a heavy contributor to the non-military support of Ukraine.  Think of, how are all the government workers, the hospital workers, the pensioners of Ukraine being sustained?

So, we've disbursed some $21 billion to Ukrainian Government for nonmilitary assistance over this period of time.  We have also then helped chair the committees with the European Union, with the U.S., with other donors, on the reconstruction effort.  So, that takes, what are you going to do on the electric grid, on generators, on the roads and bridges that have been bombed purposefully by Russia.  The world is still working on where those large amounts can come from.

The World Bank does kind of the most noteworthy damage assessment.  We recently came out with that, and we're talking about hundreds of billions of dollars needed just to get it back to where it was.  And then, as you think about it going forward.  My sense is that, as Ukraine works to become part of the European Union, that will be an important part of the guiding effort of, how do you interlink with the European Union from a markets and logistics standpoint.

So, we have large teams of World Bank people working on that but working closely with U.S. and European.

MS. ABRAMOWICZ:  David Malpass, thank you so much for a tremendous discussion and for your four years of service at the World Bank.  I look forward to finding out what your next endeavor is. 


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