WB blames weak system for currency crisis

WB blames weak system for currency crisis

DHAKA (Reuters): World Bank President James Wolfensohn has blamed weaknesses in Southeast Asian financial and banking systems for the currency crisis hitting much of the region.

"One single major lesson (from the crisis) is the weak financial and banking system (of Southeast Asia)," Wolfensohn told a news conference at the end of a five-day visit to Bangladesh Friday.

Many Southeast Asian nations have been rocked by sliding currency and stock markets in recent months, triggered by the spillover effect from financial turmoil in Thailand.

The World Bank chief was particularly critical of the financial management of Thailand. He said problems allowed to develop included an overvalued currency, heavy dependence on short-term foreign financing and "very high" non-payments in the banking system.

But Wolfensohn was skeptical about comments made by Malaysian Prime Minister Mahathir Mohamad that the crisis had been caused by speculative currency trading.

"I certainly don't think currency trading alone is the cause, (but) we will be looking to what extent currency trading is responsible," he said.

Wolfensohn said the World Bank and the International Monetary Fund (IMF) were pooling resources to deal with the "immediate crisis" in Thailand and Indonesia.

The two organizations were also working on longer-term projects to help reform their financial systems, he said.

"We are putting US$1.5 billion in Thailand and a significant amount in Indonesia as an immediate measure."

"We are also working on long term help in reforming their financial system, strengthening the financial institutions, and regulatory and supervisory mechanism, but of course at the request of the governments," Wolfensohn said without elaborating.

Wolfensohn, who arrived in Dhaka on Monday, has reviewed the World Bank's lending operations with Prime Minister Sheikh Hasina and other government leaders.

He has also made several trips to rural areas to see implementation of bank-funded social and infrastructural projects.

Bangladesh is one of the largest beneficiaries of World Bank lending, receiving about $7.5 billion over the last two-and-half decades.

Nearly all the loans originate from the International Development Association (IDA), the bank's "soft" loan arm which offers easier terms than commercial lenders.

A World Bank statement, issued on Friday, said the bank was planning to commit over $500 million annually to Bangladesh in coming years to support macroeconomic and structural reform programs.

It said the International Finance Corporation (IFC), the bank's private sector window, was also becoming more involved in Bangladesh. IFC investment was expected to reach a level of $100 million a year from $25 million in 1995/96 (July-June).

Wolfensohn said the bank would continue to focus mainly on tackling poverty in Bangladesh, where more than 50 percent of the 120 million population live in acute poverty.

He said the World Bank would participate in a long-term education program involving health and nutrition.

"We think education, health and nutrition are key to poverty alleviation. We suggested the government to take a long-term, say 10-year program. The Bank will be pleased to contribute," the World Bank chief said.

Wolfensohn is due to leave Dhaka for Pakistan on Saturday on the second and last leg of a South Asia tour.