World Bank refines strategy for emerging market economies

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WASHINGTON, Sept 21 (Reuters) World Bank President Robert Zoellick wants the poverty-fighting institution to be more useful to the world's maturing economies, a diverse group that includes economic powerhouses like China.

While a formal strategy for working with middle-income countries is being refined, Zoellick is pushing to simplify and reduce the pricing of World Bank loans, which were last adjusted at the height of the Asian financial crisis in 1998.

''I think a strong partnership with our middle-income clients is vital for the bank's future and the future of the multilateral economic system,'' Zoellick said in an interview this week with Reuters. ''We need to support them.'' These middle income countries have been recipients of massive private capital flows as their economies flourished. They have also increasingly moved outside the bank for funding even when commercial terms are more expensive, in part, because they want to signal to markets they are no longer aid-dependent.

As a group of roughly 80 states, these countries are growing faster than the world's industrialized nations, adding to debate that the World Bank should cease lending to them.

But Zoellick is not of the school that believes the bank should focus on Africa rather than emerging market countries.

''There are lessons we can learn from their experiences as well as things we can help with,'' he said.

Zoellick's reasons to stay engaged in middle-income states are three-fold: they are home to 70 percent of the world's poor; despite high growth reforms in those countries can be slowed by a lack of political support; and their growing global clout potentially makes middle income countries key players in other developing countries.

''I think there is a very full and rich agenda with middle-income countries, and if we were to be a global multilateral institution, part of our challenge is to connect the bottom billion with the middle-income and developed countries,'' he added.

A recent report by the bank's watchdog agency, the Independent Evaluation Group concluded that the World Bank was still relevant to middle-income countries but it could no longer be business as usual.

The IEG said the most common complaint was that the bank's procedures were rigid and time consuming and should further reduce the time it takes to process investment lending.

GOOD OPPORTUNITIES As a former Goldman Sachs investment banker, Zoellick said he recognized the World Bank was a good borrowing opportunity for many middle-income countries.

''If you look at our borrowing spreads -- and it's a world I know -- I have to ask myself why there is not more business here,'' he said.

That brings Zoellick back to the issue of pricing of loans and a complicated system of fees and waivers, which he jokes requires a PhD to understand.

''I find it odd that a financial institution changes its prices once every five years, so I am in process of working with the board and with colleagues to see if we can have a more competitive pricing policy,'' he said.

Kyle Peters, the bank's director of operations for policy and country services, said the issue was how the bank could structure its products that would be useful beyond the traditional sovereign, public-sector lending.

''Lending is a big part of that strategy but its not the only part,'' he said.

''They value our knowledge services, but there are issues about how we can deliver more customized products so they feel we can bring something to the table ether from our worldwide experience or existing expertise.'' Gloria Grandolini, director of the Bank's banking and debt management department, said the World Bank could be useful in areas where the private-sector perceives risk is too high, or as an intermediary when a country is seeking market access.

''Our role is really to bridge a gap when, for whatever reason, the private sector cannot fill it, such as risk management products and providing derivatives instruments,'' she said. ''We provide them to countries that either don't have access because of their credit-worthiness to those products or countries that don't have the systems or legal requirements.'' Grandolini said the bank was further expanding its its services in asset management, hedging services, financing in local currencies and accessing capital markets.

Some of the World Bank's new instruments for middle-income countries are already in play, including an innovative disaster insurance scheme that gives Caribbean countries immediate funds following a hurricane or earthquake of certain magnitude.

It is also working on the design of a contingent loan facility, linked specifically to natural catastrophes.


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