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ECONOMY: ‘Too Early To Declare Success’

ISTANBUL, Oct 2 2009 (IPS) - The official opening of the annual meetings of the World Bank and the International Monetary Fund (IMF) is scheduled for Oct. 6, but political activities and tension have already taken control of the daily life of Istanbul.

Turkey’s largest city, with 12 million inhabitants, is under police siege. The area surrounding the brand new Congress Centre at Harbiye, inaugurated two weeks ago in view of this event, is barricaded, while over a thousand security staff stand by in side streets.

Several rallies of anti-globalisation groups have been held since Wednesday, and their number and intensity is bound to increase once international officials start flowing into the city. Large corporations and institutions have issued internal communications warning their personnel of possible violence and of the sites and times to avoid in their movements.

But Istanbul is not Pittsburgh. The Turkish government wants to maintain order without disrupting the event, on whose prestige it counts to reinforce the country’s image. So it is rather unlikely that Taksim square will be turned into an anti-tank training field, as the venue for the last G20 did.

More invasive than the forces of order are the hertz waves. Local radio and TV stations broadcast in loop interviews with the two institutions’ top officials, Turkish ministers, academics, and commentators. “I am getting depressed,” says Mitthat, a middle-aged taxi driver. “We know the economy is no good, why do they keep repeating it to us?”

Keeping public opinion aware of the potential longevity of the crisis was what Robert Zoellick, president of the World Bank, had in mind when he spoke to the media Friday morning.

At a pre-opening press conference, he admonished the Bank’s member states to use caution while they rebuild their economies. “It is too early,” he said, “to declare success in ending the crisis.”

Zoellick’s main concern seems to be premature optimism by certain governments, which could lead to lowering regulatory vigilance, ending in a crisis relapse. According to the World Bank, such recidivism could be fatal.

Rich countries, in Zoellick’s rationale, must maintain and even increase their commitment to bail poorer countries out of the financial crisis by making available additional funds. But sceptics ask whether they could do so were the United States to exercise its veto against such plans.

Zoellick counts on the International Bank for Reconstruction and Development (IBRD) to move smoothly towards the achievement of such aims. Since its inception in 1944, IBRD’s role is to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services.

It is structured like a cooperative that is owned and operated for the benefit of its 186 member states – “the G186”, as Zoellick put it to the journalists.

IBRD raises most of its funds on the world’s financial markets, and has become one of the most established borrowers since issuing its first bond in 1947. The income that IBRD has generated over the years has allowed it to fund development activities and to ensure its financial strength, which enables it to borrow at low cost and offer clients good borrowing terms.

“The IBRD is very well capitalised,” confirmed the Bank’s chief. “It had at its disposal 33 billion dollars for the fiscal year 2008-2009 and is projecting to use 40 billion dollars in 2009-2010.

“We anticipate that in some countries there will be debate over the use of these resources, as at the U.S. Congress, which expects to see reforms on our part,” he added. “The World Bank will have to make its case. The Bank’s institutions will have to change.”

Referring to the concerns of low-income African countries, whose food supplies have dropped following decline in exports, Robert Zoellick confirmed that the World Bank increased its aid to poorer nations in the continent, such as Liberia, by 25 percent this year.

He admitted, however, that there is stil rigidity in using funds to address urgent issues, because of existing covenants regulating country-specific aid. “The Bank, as well as the G20, will have to find ways to reallocate funds more rapidly and flexibly,” said Zoellick.

Speaking of the major challenges the economy will face in 2010, the head of the World Bank cautioned governments against slipping back to recession. This could result from slow recovery, large and uncontrolled unemployment, and imbalance in the nature of recovery – such as different speeds in different sectors, and large discrepancies among countries.

In response to the concerns on growing unemployment, Zoellick believes that helping private companies restructure their debt, and the creation of a safety net to support the parts of the population most vulnerable to the downturn, should minimise the risk of facing social unrest and misery. The World Bank allocated 4.9 billion dollars in 2008-2009 toward these efforts, which aimed at stimulating internal markets to develop.

Speaking Friday afternoon in a televised debate, Robert Zoellick expressed the belief that the dollar will remain the refuge currency for the foreseeable future. Although the euro should gain trust in the short term, the Chinese yuan will eventually attract investments for reserve creation. “Countries will have to adapt in order to constitute balanced reserve portfolios,” he suggested.