Washington: Indian Finance Minister Pranab Mukherjee said the World Bank needs to find ways to improve its capital base so that it can enhance lending to developing countries, underlining that with another crisis looming, prioritisation of activities is the need of the hour.

At the top of the World Bank's list of priorities should be to address its lack of financial capacity, as well as that of the International Finance Corporation, and work toward a strong capital base as well as find creative ways to expand lending and investment in developing countries, Mukherjee said here on Saturday.

The World Bank's focus needs to be on critical areas such as poverty alleviation, food price inflation, financing for climate change and meeting the energy needs of the poor, he stressed.

"The International Development Association (IDA) needs to be put on a more sustainable footing, with donors giving priority to IDA over Trust Funds and also without weakening
the resources of the International Bank for Reconstruction and Development (IBRD) and IFC," Mukherjee said in his intervention during the World Bank's Development Committee meeting on Global Development Issues and the World Development Report 2012 on Gender.

Asking the World Bank to give priority to upliftment of the poor, wherever the poor may be, without getting diverted by peripheral goals, Mukherjee reiterated the need to address the needs of middle income countries (MICs), which were the main borrowers from the IBRD.

"They often feel disconnected from many bank activities. Efforts should be made to regenerate interest in MICs toward the bank, particularly through enhanced financing, more knowledge products and a focus on the poor in MICs," he said.

Stating that food price inflation needs to be tackled on a priority basis, he said this would require both short-term measures focusing on immediate food supply and safety nets and long-term measures to enhance agricultural productivity and output.

"The bank will have to make substantial investment in this regard," he said.

Mukherjee also evinced a need to generate additional and new finance for climate change, along with measures to encourage transfer of technology to developing countries.

"Meeting the energy access needs of the poor is going to be a severe test for the bank. While climate concerns are legitimate, providing access to energy for the poor is a
priority far more important than sustaining energy intensive lifestyles," he said.

Noting that global financial leaders are meeting at a difficult time for the global economy and there are indications that the world could be engulfed in another economic crisis, with serious repercussions for the poor and vulnerable, Mukherjee said in such circumstances, they need to be prepared to "think out-of-the-box” and deliberate over what are the important issues the World Bank should be addressing today.

"The response of the World Bank Group to the last crisis was exemplary. The record lending by IBRD was what made the crucial difference. We firmly believe that the most effective
crisis response is expanded lending to and investment in developing countries," he said.

"However, as we stand at the brink of a recession and continue to hope that we will avert it, we are worried about the lack of adequate financial capacity in the bank. Our concern is that when a new crisis unfolds, the IBRD and the IFC will be mute spectators," he said.

Mukherjee said a level of USD 15 billion of annual lending by the World Bank will be inadequate to meet even the normal needs of development finance of developing countries.

Pranab cautions on fiscal policymaking


Pranab Mukherjee asked advanced economies to "dispel policy uncertainty and dysfunctional political gridlock", warning of disastrous consequences for emerging and developing countries because of the West's dithering on decision-making.

"The immediate challenge facing advanced economies is the need to dispel policy uncertainty and dysfunctional political gridlock," Mukherjee said in his intervention at the Restricted Breakfast Session on Dialogue on Policy Challenges at International Monetary Fund headquarters here.

"The need of the hour is for decisive, preemptive action to alleviate the sovereign debt crisis. Stronger and more active financial support to the crisis-affected sovereigns
must go hand-in-hand with expediting the badly needed repair of the financial sector and reviving the housing market," he said.

Mukherjee said it is important to strike the right balance between medium-term fiscal consolidation, which has become imperative, without hurting immediate growth prospects.

"The need of the hour is to reorient the fiscal strategy to focus on job creation and to invest in the development of infrastructure. Businesses must be incentivised to invest and create employment opportunities," he said.

"Those countries that have some fiscal space available and are not facing the erosion of market confidence may consider gradual fiscal consolidation to stabilise debt and
fiscal deficits over a longer time span," he said, adding that the key issue is timing of consolidation and the amount of front-loading that the economy can bear.  

In the case of emerging and developing economies, he said although growth has generally been robust so far, overheating pressures have necessitated monetary policy tightening, which is now impacting the growth momentum.

"Meanwhile, inflation pressures from elevated commodity prices continue to persist. The ongoing food crisis in the Horn of Africa has once again focused global attention on the need for appropriate policy responses to the structural challenges affecting the developing world at large," he said.

Recurring bouts of financial volatility across the advanced economies, Mukherjee argued, could easily be transmitted to emerging and developing countries, with potentially disastrous consequences for growth and stability.

The Finance Minister stressed on the daunting challenge that confronts both advanced as well as emerging economies, namely the need to press ahead with structural reforms.

"In our view, the most critical challenge for advanced economies is to design policies that expand employment and remove imbalances in the labour market," he said.

(JPN/Agencies)