Wolfensohn: Address to the John Quincy Adams Society (24/07/2002)

24th July 2002

Luncheon Address to the John Quincy Adams Society by James D. Wolfensohn, President The World Bank Group,  Washington D.C. - July 24, 2002

Introduction by Mr. Matthew McHugh, Counselor to Mr. Wolfensohn: Let me introduce Jim Wolfensohn, the World Bank Group's ninth President. He established his career as an international investment banker with parallel involvement in development issues in the global environment. Since becoming President on June 1, 1995, he has traveled to more than 100 countries to gain firsthand experience of the challenges facing the World Bank and its 181 member countries. He is the third President in the World Bank's history to serve a second term. In 1996, together with the International Monetary Fund, Mr. Wolfensohn initiated the Heavily Indebted Poor Countries HIPC initiative as the first comprehensive debt reduction program to address the needs of the world's poorest, most heavily indebted countries. Two years later, he led a global review of the initiative. This review and proposal by donor countries culminated in September 1999 with an official endorsement at the World Bank/IMF Annual Meetings to double the amount of relief, which makes more countries eligible for assistance and has sped up the process. In January 1999, Mr. Wolfensohn introduced the Comprehensive Development Framework CDF, drawing on the lessons of development experience and putting into action the key concepts laid out in his Annual Meeting speeches. Together, with the Bank's partners, the CDF is now being piloted in 13 countries and is an approach that places the country front and center, focusing on building stronger partnerships to reduce poverty.

Prior to joining the Bank, Mr. Wolfensohn was an international investment banker and held a series of senior positions in finance. Throughout his career, Jim has also involved himself in a wide range of cultural and voluntary activities, especially in the performing arts. He has received numerous awards for his efforts, including the first David Rockefeller Prize of the Museum of Modern Art in New York and an honorary knighthood by Queen Elizabeth II. Jim was born in Australia. He is a naturalized U.S. citizen and holds a BA and LLB degree from the University of Sydney, and an MBA from Harvard Graduate School of Business. He and his wife, Elaine, have three children. Please give a warm welcome to Jim Wolfensohn.

Mr. Wolfensohn: Thank you very much, and thank you for the invitation to address this luncheon, at a period of time which is certainly complicated for anyone heading the World Bank, but is certainly complicated for all of you, ladies and gentlemen. Let me try and speak for 10 or 15 minutes, as suggested, on some of the issues that I am facing, and then perhaps we can open it up for discussion because I would welcome a sense of what is on your minds. Let me start by telling you that I think the Bank has never been more active or more needed than it is today.

I think you know that the dynamics of our institution are that we have some 6 billion people in the world, of whom 5 billion live in developing countries, and we are directed to the 5 billion. Of the 5 billion that live in the developing countries, they have about 20 percent of the world's income, the 1 billion having 80 percent of the world's income. I think you know that roughly 3 billion of the 6 billion people in the world live under two dollars a day, and roughly a 1.2 billion live under one dollar a day.

That is the situation in which we are operating, with one addition which I think is relevant for you to understand. As you think of the future, in the next 25 years, our planet will grow from 6 billion to 8 billion people, and all but 50 million of those people will go to the developing countries. By the year 2025/2030, we'll have a planet of 8 billion, of whom 7 billion live in developing countries.

The reason I am saying this to you is that - when I grew up, and I'm sure this is true for many of you - the issues of development and the issues of what is happening in the poorer countries have typically been one of the last things you think about. When I was growing up, the notion was that if I wanted to, I could go and do some work in the developing countries, but then I would come back behind this wall of Australia or the United States or England, and you were safe, and all of those things would happen out there. Clearly I grew up in a period when we were thinking of two worlds.

I think that the important thing which is yet not fully understood is that, with globalization, we have become one world, and that the issues that go on with those 5 billion or 7 billion people are no longer fringe issues that you can deal with expeditiously when you are dealing with the Foreign Relations Subcommittee's attribution of whatever is left in the budget after domestic programs. On September 11th, we got a full sense that what happens in those worlds really impacts us domestically.

When I grew up, the notion of thinking that Afghanistan would ever be an issue on Wall Street or in Pennsylvania was fictitious. Whereas, today, whether it be issues of health or environment or trade or finance or crime or drugs or terror or poverty - these issues now become really one issue, and it becomes one world. Poverty and terror some place really affects us here.

That realization is a tough sell. It's tough for me to come to the Congress and say to you that you really should be thinking about the issues of development and the 5 billion people that the World Bank addresses. But if you don't accept it, your successors are surely going to accept it, because the population growth and the dynamics are such that these two worlds are really now one world, and those issues really confront us, and should be recognized now. Delay will only make the problem larger in later years.

As the largest power in the world, the United States is now in a particularly complex situation where we have more power than has ever been enjoyed perhaps by any country. We are faced also with responsibilities in all of these other countries with not a great deal of experience in dealing with them.

I am just back from a trip to Central Asia and to China. This last week I was in the Congo and Rwanda. I have been meeting in Europe in these last days on Palestine and Israel. I have been deeply involved in Argentina. We are deeply concerned with what's happening in Turkey. We are trying to ensure that India and Pakistan have adequate economic hope that they won't shoot each other. Not a day, not a minute goes by that we are not currently engaged in issues which, without too much difficulty, you could say are relevant and important to the United States.

Now, that is all very well, except that when I speak here or when I speak in Europe or speak to the G-7/G-8 countries, there is a nominal recognition that these are very important issues. At the G-8 Summit in Kananaskis - as I think you know - they had African leaders there for the meetings and promised additional assistance and help. But the real issues that are on everybody's mind at this moment is what is happening in the international financial markets. Indeed, I'm sure in your own congressional deliberations, one of the issues that is on everybody's mind is the 30-percent loss that has been sustained in the stock market since April - approximately an $8-trillion loss in this country; and $2.5-trillion loss in the European markets, equivalent of the size of Germany.

We have going on at the moment a precipitous loss in terms of capital values of a scale that matches the '30s and a slide which, at least at this moment, is even more precipitous. When you have an environment like that, and deep concern about trade, deep concern about the quality of institutions, a huge concern currently about the quality of the private sector, which is evident everywhere - including, by the way, in developing countries - it is pretty tough to come and say to you I'd like to talk to you about poverty in India or in Bangladesh or in one of the 47 countries in Africa, and get your attention.

So let me try, simply by saying that I think it merits your attention, because if you - and if we as a nation - don't deal with the questions of development, and of peace and of hope, we will suffer with terror, with migration, and with crime, and with global uncertainties of many, many types.

The reality is that at this moment all of the debate that is going on in the international communities, particularly in the wealthy communities, is not about development, it is about economic stability and growth within the developed world. The discussions that you have, even with the most interested people today, build around the questions of how deep is this current move on the stock market going to go and what is going to happen in terms of the sanctity of the private sector.

This morning, I had a briefing on the forthcoming Annual Meetings of the IMF and the World Bank here in Washington, and we have information that, on this occasion, civil society is going to attack the Bank. And why? Because we are friends of business, and business is dishonest, and therefore the Bank is dishonest, and therefore you should demonstrate. We are now trying to determine what it is that we can do to defend ourselves because we have invited to the Annual Meetings, as we usually do, private-sector participants, because in development today, the role of the private sector is four or five times the size of official development assistance: just to remind you of the statistics, 10 years ago, $60 billion went into development assistance from countries like the United States and the wealthy world to developing countries, and private sector investing was at $30 billion - half the size. By 1997, private sector investing reached $300 billion - six times the size of the then $50 billion that was being put into overseas development assistance.

So, not unnaturally, we, along with other institutions, directed our attention not just to getting development assistance from congressional and other bodies, but we looked to see how we could build partnerships to create jobs and create investment working with the private sector. That has grown very well, except that in the last couple of years, it started to decline, and the recent numbers for the current period show that the investments have fallen off precipitously. Certainly, investments from private banks are now running negative. There is a withdrawal of money from the developing world.

There is a linkage between the effect of the current uncertainties in the financial markets here and to our direct involvement with private sector in the developing countries. The private sector, as I said, has now become highly significant, in terms of the growth in those countries.

We are, in relation to the 5 billion poor people, in a very, very tough situation at this moment. We have had, as you know, an indication of an increase in development assistance by your administration over the next 3 years - to increase it from $10 billion a year, roughly, to a level of $15 billion. The European Union is doing approximately the same or a little bit more. But this is still getting us to a level of development assistance which is around 0.3 percent of GDP and against an earlier target that people, in better times, had said should be 0.7 percent of GDP.

But the issue is no longer the question of the amount of money. What is interesting in what is happening now