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.
Q: The World Bank has put out a report on the risks of automation and what that will mean as far as job losses are concerned and this is a serious issue for countries like India, Bangladesh etc. What is the transition period that you believe that this is going to really sort f hit hard countries like India?
A: It depends on who you talk to. Many of the entrepreneurs who are building these technologies, these 3D printing technologies, they may be a little bit too optimistic about how quickly it will come. I think that without question in 10 or 15 years, you are going to see major shifts in the jobs that young people find as they leave school.
We did an informal study of graduates of Dartmouth College where I was President for few years and from 2000 to 2005 we surveyed the graduates of Dartmouth. The students who had graduated from Dartmouth College in the year 2000, by 2005, 40 percent of them were in jobs that did not exist in 2000.
So, the kinds of jobs are changing quickly. So, whether it happens in 5-15 years, what we are telling governments is if you want to be prepared for that future you have to think about the young children because the most important years in terms of developing the neural connections that will be your human capital into the future is the first 1000 days.
And we are saying to governments that if you are not doing the right things in those first 1000 days then that error is going to stay with you for 30-50 years. So, whatever the timescale of the automation changes, every single government has to switch now and prepare for having the workforce of the future.
Q: Are you seeing that responsiveness?
A: Yes. In Pakistan, in Indonesia where we went and specifically said Pakistan has 45 percent childhood stunting, Indonesia has 37 percent childhood stunting and they are literally on emergency footing trying to bring those rates of childhood stunting down.
Here in Bangladesh they have already made a lot of progress and we have just announced a USD 1 billion additional investment in childhood stunting which we will work on very aggressively with this government.
I am telling every country in the world, if you have 30-40 percent childhood stunting, you cannot expect to walk into future where the drivers of growth, the paths towards economic growth are uncertain and expect that you will be able to compete.
China has less than 10 percent childhood stunting, the other East Asian economies have close to 0 percent childhood stunting. Countries are making progress all over the world.
If you don't have top class human capital, you are not going to be ready for the uncertainties of what jobs in future will look like.
Q: What is the sense that you get about the China story itself. We have seen volatility for the currency today - quite significant. What is the sense that you get about the China story?
A: We see China making a very difficult transition with great determination. It was the China 2030 report that they did with us where they really for the first time explicitly outlined all the stages of their economic transformation.
So, it is not an easy thing to say we are going to shift the drivers of growth from investment and exports to consumption and services. However, they are actually doing it. So, you are seeing services now significantly more than 50 percent of the economy, consumption continues to grow and they continue to stay the course. So, are there weakness in the economy, is so called private sector indebtedness high? Yes.
There are many things that one could point to as potential weakness but Chinese are completely aware of what those weakness are, they are working to try to tackle them. President Xi in the G20 leaders meeting announced a major reduction in steel production, a major reduction in coal production, they are listening to what is happening in the world and they are responding.
There was this incident last August where relatively minor adjustment in the exchange rate regime led to panic around the world. If you see what happened afterwards, Premier Li Keqiang and central bank governor Zhou Xiaochuan said we need to communicate better and they have been communicating so much more clearly. It takes time to get your head around just how big an impact China has on the global economy.
So, this is their learning process. I don't right now see a hard landing for China. I think they are managing the transition very effectively. They still have plenty of reserves. So, what we are hoping is that China will continue to evolve, continue to look for new drivers of growth.
China is the one country that every year and half or so gives us the assignment of working with them to alter something very significant in their economy. You should read the report China 2030, it was a brilliant report done with the National Development and Research Council and it outlines exactly what China was going to do in the next 5-15 years to shift its path of economic growth. Then they asked us to do report on urbanisation and they are now moving to take the findings in the report and put them into practice.
We just finished our report on healthcare. China has rapidly increasing healthcare costs and they want to fundamentally shift the healthcare system. We are going to work with them on doing that. Then the next assignment that we have got from them is determining what the new drivers of economic growth for China will be. Now here is China, growing at 6 percent and because of the size of the economy, they are the ones who are asking us most aggressively to help them find the new drivers of economic growth. We wish everyone of our clients was that aggressive and that thoughtful about what it was going to do going forward.
Q: You were talking about aggression and thoughtfulness in terms of the future. You talked about how governments need to be paranoid about the future. Speaking of paranoia what should the Indian government be paranoid about. You have just come back from India couple of months ago and you are confident about the India story, but what should the Indian government be paranoid about specifically today?
A: I think the Indian growth story is one of the great positive stories in the world today. I have said many, many times that their reforms that Prime Minister Modi has committed to - - just the very positive attitude that he is taking into making really very difficult goods and services tax (GST) is one of them. Now we know that there are complexities in the GST, it still has to be worked out, but the can do spirit that he has brought had led to tremendously positive impact.
On my last visit, I did tell Prime Minister Modi that I was very worried about stunting rates of 38.7 percent. You can make up some of it with a great educational system, but those children will never reach their full potential. I believe that India now can take advantage of the extraordinary high value that Indians place on education to really foment a revolution in the way they deal with the first 1000 days on into the future.
They are doing many of these things right now. Swachh Bharat is, in fact, one of the main drivers of studying because children are almost in a constant state of diarrhoea and his aggressive approach Swachh Bharat is really important part of that.
But we think they can even move more quickly and we are now working with them to try to accelerate that process that is one thing. I think that India can move much more quickly in fulfilling Prime Minister Modi’s dream of 300 gigawatts of solar energy and again that one of the thing we are working with them.
There are now ploys to put online a lot of call, but Prime Minister Modi and other leaders have told us that they are ready to switch if the financing for renewal energy especially solar can be made much more affordable. We wanted to do that with them, Prime Minister Modi is so ambitious when it comes to making a contribution on climate change we can’t let something like cost of capital getting in the way. Now it is going to be politically tricky to make it happen, but we are committed to working with them to do it.
Q: While speaking of politically tricky, one issue that of course is sensitive at this point of time is the Indus Water Treaty, there has been a lot of talk around the possible reworking, even abrogation. Of course, none of that has happened so far. Have you had any conversation with either the Indian government or the Pakistan government on the Indus Water Treaty?
A: We have a very limited role in the Indus Water Treaty. It is more of an administrative role, so our great hope is that over time that we will find a solution to the current discussions and the current disagreements that will work for both parties.
It is in everybody’s interest not only Pakistan and India, but it is in the world’s interest that we move toward a resolution whatever the differences that exist right now. Again we have a very, very limited role. We just do a few things that are just based on the contract and we will do everything we can to have the two parties come together and find a solution that works for both.
Q: But what would your key concern be if there were to be either a unilateral redrawing of the treaty?
A: We want to do everything we can to ensure that the two parties come to an agreement that they can both agree on.
Q: We talked about some of the risks and challenges that the world is faced with, but in terms of key opportunity that you believe that specifically emerging markets like India, developing countries and economies like Bangladesh have focussed on, as we look towards this 2030 goal that the World Bank has outlined, what would those opportunities be?
A: Again it goes back to the three things that we are focussing on; there is a tremendous opportunity to crowded private capital. Capital is looking for return, return exists in infrastructure projects that will be a win-win. There are not many win-win in a global economy today, so we can provide both better returns for capital and also build the infrastructure that desperately needed.
The other opportunity is to invest now especially in your people, but improve your education system, improve your healthcare systems because you don’t want to be ready just for the next two years, you want to be ready for the next 15-20 years, those are the countries that are going to do well over time.
Invest in your people aggressively effectively now and finally countries like India can take advantage of concerns over things like forced displacement, climate change even pandemics.
There are funds out there now saying these are major global risks and in order to protect the world from these major global risks we have to invest more and I think we will find that investing more in India to mitigate climate change through reducing carbon, working on things like making sure that whatever funds that are available around even pandemics will be utilised in India. This is another opportunity for developing countries.
Developing countries that show that they are committed to helping the world, build resilience against these major risks will do better in the future.