World Bank sees rich-poor gap as time bomb

By Vincent Lingga

HONG KONG (JP): World Bank President James D. Wolfensohn urged here yesterday global cooperation to reduce the rich and poor gap, which he sees as a time bomb.

Wolfensohn, at the opening of the annual World Bank and International Monetary Fund meeting, said that without immediate action the number of people living in acute poverty could grow from three billion to five billion within the next 30 years.

"Our goal must be to reduce these disparities across and within countries, to bring more people into the economic mainstream," he told the finance ministers and central bank governors from 181 countries.

The three-day meeting which ends Thursday is being held against a backdrop of financial turmoil in Thailand, Malaysia, Indonesia and the Philippines. This raises questions over the sustainability of capital flows and IMF surveillance capability and power.

Wolfensohn said three billion people live on less than US$2 a day, 1.3 billion others under $1 and another 100 million go hungry every day.

IMF Managing Director Michel Camdessus called at the meeting for international solidarity in maintaining international financial stability.

Referring to the financial turbulence in Southeast Asia, Camdessus said that the first tenet for an international solidarity was "to keep your house in order".

He said the financial crisis in Thailand in early July was disturbing because "early warning signs of emerging problems had been there. We in the IMF had over the past 18 months pressed for urgent measures. And yet, a crisis still struck with full force".

Camdessus said that since a country's problems also imposed high costs on others through contagion, neighboring countries should join in mutual surveillance on a regional basis.

"A healthy dose of peer pressures could be a most valuable contribution to stability," Camdessus said, citing the regional surveillance in Europe as a good example of maintaining macro- economic convergence.

He said the greatest lesson to be learned from the Thai currency crisis was the importance of pursuing sound policies that give market confidence, of respecting the signals the markets provide, and of maintaining transparent and market- friendly policies.

But Camdessus said though the damage had been done he remained bullish about economic prospects in East Asia due to the quick policy responses and adjustments taken by the countries affected.

"Indonesia, for example, has substantially strengthened its policy stance in continuous dialog with us," he said.

Wolfensohn went to great lengths to reaffirm the importance of IMF-World Bank anti-corruption efforts and good governance campaign.

"We must recognize the link between good governance and good economic performance. Irrespective of political systems, public decisions must be brought to the sunshine of public scrutiny," he said.

The World Bank chief said the recent financial crisis in Southeast Asia "has told us that without sound organization and supervision a financial system can falter".

"We have seen how corruption flourishes in the dark, how it prevents growth and social equity, and how it creates the basis for social and political instability," Wolfensohn said.

"My bottom-line on corruption is simple: If a government is unwilling to take action despite the fact that its development is undermined by corruption, then the World Bank (and its affiliates) must curtail the level of its support to that country," he said.

Prescribing a concept for reducing and eventually eliminating poverty, Wolfenshon suggested "give the people health, education, voice and justice, financial systems that work and sound economic policies, and they will save, and they will attract the investment."

Foremost on the agenda of the meeting are: A recommendation to increase IMF quotas (capital base) by 45 percent or by nearly $90 billion to $286 billion; and a proposal to amend IMF article to grant it a stronger jurisdiction over private capital flows.

"The IMF will be in a stronger position to carry out its systemic role in this increasingly demanding global economy," Camdessus said to justify the proposed capital increase.

However, most developing country members do not see any urgency now for a stronger IMF mandate over global capital flows.

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