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.