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Oct 17, 2016, 10.07 PM | Source: CNBC-TV18

World Bank boss: Rich countries must resist anti-trade sentiment

In an interview with CNBC-TV18's Shereen Bhan, World Bank President Jim Yong Kim talked about what countries like Bangladesh have done and should do in their bid to eradicate poverty.

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World Bank boss: Rich countries must resist anti-trade sentiment

In an interview with CNBC-TV18's Shereen Bhan, World Bank President Jim Yong Kim talked about what countries like Bangladesh have done and should do in their bid to eradicate poverty.

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Jim Yong Kim (more)

President, World Bank |

In an interview with CNBC-TV18's Shereen Bhan, World Bank President Jim Yong Kim talked about what countries like Bangladesh have done and should do in their bid to eradicate poverty.

The World Bank has chosen the country and is celebrating its efforts to eradicate poverty on End Poverty Day.

In the interview, the World Bank President also talked about the rising tide of anger against globalization, especially in developed countries, and what it means for the global economy.

Below is the transcript of Jim Yong Kim's interview to CNBC-TV18's Shereen Bhan.

Q: We are here in Bangladesh, you were in Ghana last year and you decided to choose Bangladesh to in a sense mark the milestone as far as End Poverty Day is concerned, why Bangladesh in specific?

A: Bangladesh without question has made tremendous progress, lifting 20 million people out of poverty since 1991. The rate of poverty has dropped substantially. We came here to highlight some of the ways that they did it. Bangladesh has been a real innovator in things like improving health outcomes, in involving women in the workforce, in finding ways of growing particular kinds of industries that would employ poor or low skilled people and increase their incomes pretty dramatically. So, we came here to highlight that but then also to talk about the challenges of taking the next step in poverty reduction. 

Q: You have got a very ambitious target that you set in 2013 as far as bringing down poverty rates globally are concerned, do you believe that given the kind of volatility that we are faced with, given the global slowdown, we are going to be able to get to that number?

A: There are lots of headwinds, there is no question about it. If you look at just the developing countries, there are more countries in recession now in the developing world than there have been since 2009.

The exporting countries such as commodity exporting countries are in big trouble growing at almost 0.4 percent. Commodity importers are doing a bit better at around 5.5 percent. So, there are many different challenges that are facing the world right now specially developing world, so there is no question that it makes achieving the goal much more difficult.

However we just put out a report that looked at what it would take to really make progress on poverty -- and our other goal, which is shared prosperity -- and there are things that you might imagine. Economies have to grow. So, we are now aggressively trying to find ways of taking advantage of the current moment so that we can help developing economies grow faster.

For example there is so much capital on the sidelines right now earning so little money because of low interest rates that we think there is an opportunity to bring some of that capital in off the sideline to spur growth in countries like Bangladesh. 

Q: Capital is a cow and it goes only where it feels safe. So, at this point in time people are risk averse. Do, you believe that we are going to see capital moving to developing economies like Bangladesh?

A: It won't unless we change both the perception and the reality of the risk. This is why at the World Bank Group, we are taking quite a different approach. We are trying to work across all the different pieces of World Bank Group.

As you know, there are parts of the bank that focus specifically on the private sector, another part that focuses on guarantees. So, we are trying to look at all the instruments we have including using finance and even concessional finance -- lower interest rate finance, below market finance -- to help attract investors. Like for example, taking first risk loss with our capital, providing political risk insurance, credit enhancement, guarantees, partial risk guarantees and even exchange rate risk guarantees in some of the poorest countries.

We feel that we have to do as much as we need to, to bring that risk down so that companies will invest and we are beginning to have some very interesting experiences. Insurance companies are by nature extremely risk averse and insurance companies don't as a rule invest in infrastructure projects in developing countries.

However, IFC, our private sector group, along with Swedish Sida, the development agency, have agreed to take first loss on a new portfolio of infrastructure projects. Now we are seeing the insurance companies coming into the ballgame, investing with us. So, we think that there are lots of ways to bringing those risks down and that is what we are focused on.

Q: The key risk that we are faced with today outside of the geopolitical risk are the risks of deglobalisation and this is not rhetoric anymore, this is real. If you look at what is happening in the US with the Presidential race, how concerned are you at this point in time and what will be the implications if what for instance Donald Trump is talking about, saying that NAFTA doesn't work or TPP is a bad idea. What happens then as far as global trade like as we know it today is concerned?

A: W are very concerned about this because as a rule when the global economy was growing at about 3-3.5 percent, trade was growing at 7 percent. So, trade was growing at double the rate of global economic growth. Now that we are at 2.4 percent, trade growth this past year was just 1.7 percent. So, the number of consecutive quarters during which trade has gone down is extremely long, among the longest periods in recent history.

Q: Do you see it getting worse?

A: We needed to do everything we can to make it get better, because I think there is just a fundamental misconception about the impact of trade for example on job loss. If you talk to the World Trade Organisation (WTO) Head Roberto Azevêdo and he has said to us that they have looked and looked and looked. And if you go to Organisation for Economic Co-operation and Development (OECD) countries, the most they can ever see in terms of the impact of trade on job loss is about 20 percent of job loss. The rest is innovation and efficiency, but people can be against innovation and efficiency, so they end up being against trade.

Now there is no question that there is some job loss to trade, but this is simply now how the global economy works and what every country has to do is to think, “okay what are do the jobs that are going to stay in this country, what are the jobs that are going to grow in this country, what are the jobs that we might lose and how do we prepare our workforce for that future situation."

I will say that every single country in the world can do better in looking at how to match the skills and training of their workforce with the jobs that are likely to come, it is the same warning I gave here in Bangladesh. Bangladesh is doing great in the garment industry. But what if the garment industry is taken over by 3D printing and artificial intelligence?

In that case one of the really, really important things that every country has do -- and this is our second pillar -- is to really look at what your investments in people are doing, what it is giving you. Are you being competitive in the global market today and especially are you to be competitive in the global market going forward? So we need to do everything to increase trade. More trade is the only way out of this situation of stagnation.

Q: What is the likelihood of more trade given what we are seeing happen; the Brexit vote is a classic example of people not buying the argument that trade is not costing them their jobs?

A: We are now beginning to see the impact of Brexit more and more. The thing we have to remember is that because of very swift and brilliant action taken by Mark Carney of the Bank of England (BoE) and of many of the other banks, the preparation for a potential positive Brexit vote was extremely well done. I think the full impact of Brexit has been delayed a bit, but you can see it. You are already seeing it to an extent in terms of currency.

The negotiations haven’t even started yet for what Brexit is going to look like. I think what you are going to see is uncertainty and the uncertainty is going to have a negative impact on the UK economy, in potentially the EU economy and also potentially the global economy.

The really important thing for people like me during the annual meetings of the World Bank. IMF Chief Christine Lagarde, head of WTO Roberto Azevêdo and myself -- the three of us had a session on the importance of trade and for first time we ever done something like that.

We haven’t presented the evidence on the benefits of trade clearly enough to people especially in the OECD countries. We need to do more of that going forward.

Q: But just specifically on the Brexit, because you said the full implication haven’t really been understood yet. Do you expect the hard landing?

A: I am not sure what that would mean exactly. What I hope is that the UK government, leaders in the EU, central bank governors of both the EU and the UK -- Mario Draghi and Mark Carney are amongst the two most brilliant effective people in the world in terms of understanding how to manage crisis like this. My hope is that the leaders will manage this so that there is not a hard landing, but there are difficult negotiations ahead. It is really negotiations around trade agreements haven’t been done in the UK for quite a long time. So they first have to find the people to do the negotiations.

I think that also just the uncertainty is going to have an impact. In developing countries where we know is that uncertainty in a developed country hugely leads to some bad consequences in the developing countries. There may be some periodic improvements, when interest rates are so low and returns are so low, there may be some capital going here and there to various developing countries looking for return but what we are telling the developing countries is don’t rely on that. Understand that this is going to up and down, that uncertainty is here to stay.

The bigger argument though is that I don’t think that data evidence, real experience -- we're not winning arguments with those. Anger and emotion, those are real if you look at how the lower middle class in the developed countries have done over the last 20 years, that’s the group that has probably done the worst as a result of globalisation. So I think their anxiety, their anger is real based on what really happen to them during a period of 2-3 decades.

Q: Would that make the case for Donald Trump then?

A: But now we have to come back and say that being against trade is exactly the wrong way to get out of this particular hole. The economies will begin to grow more robustly only if we have more trade.

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