World Bank President, Jim Yong Kim joined Bloomberg Television’s Stephanie Ruhle and Erik Schatzker today on “Market Makers” and said the World Bank could begin moving “fairly quickly” in providing Ukraine with about $3 billion in aid aimed largely at basic needs such as health care. Kim also said:
– World Bank could move forward ‘Fairly quickly’ but needs to see commitment to a reform agenda.
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– “Implementation will be difficult,” because reforms will include removing fuel subsidies
– World Bank can ‘carefully follow’ Ukraine aid flow.
– ‘Reform’ in China likely to lead to slower growth.
– World Bank supports economic ‘reforms in China.
– Sees ‘signals’ Yellen will make stimulus exit ‘smooth’
– “Inequality is a drag on growth.”
– “Science is clear” on Climate Change, “we will do best we can.”
STEPHANIE RUHLE, BLOOMBERG HOST: Lucky us, lucky you, we have a very special guest with us this morning to talk about the crisis in the Ukraine and a whole lot more. Jim Yong Kim is here. He’s the president of the World Bank which this week officially pledged more than $3 billion in aid to the new Ukrainian government.
President Kim, tell us – welcome, first of all.
JIM YONG KIM, WORLD BANK PRESIDENT: Thank you. It’s great being with you.
RUHLE: What is this money going to be used for? And what are the strings attached to it.
KIM: Well, you know, we already have about $3.7 billion worth of programs going on in Ukraine, including two programs in Crimea. But this is the next wave. So mostly what it’s going to be is to just provide basic services — sanitation, heating, health services I just met with the prime minister when he was in town in Washington, D.C. And you can imagine he’s facing a very difficult situation.
For us to move forward, we needed to see some commitment to a reform agenda, and they passed a really impressive reform agenda. Implementation will be difficult, but this is a government that said even in the midst of all these political difficulties, they’re going to do things like remove fuel subsidies. So we feel that they’re moving forward so we’re going to be able to move forward, we think, fairly quickly if they continue on that path to being committed to those reforms.
ERIK SCHATZKER, BLOOMBERG HOST: Dr. Kim, how can you be confident that the money going to Ukraine will find its way to the right people and the right programs and won’t, as has happened in the past, be siphoned off into private accounts?
KIM: Well, we’re — in terms of the money that we provide, we have whole auditing system – probably 20 years ago my friend and predecessor Jim Wolfensohn made it a top priority to fight corruption. So we have audit mechanisms so we can follow our money fairly well. Now, what happens with a lot of the money, we often don’t know, but we have pretty good mechanisms and we think that we can follow up enough so that we know that it’ll actually get to the people who need it most.
RUHLE: Even given how opaque that part of the world is?
KIM: We work in a lot of very opaque places. And the good news for us is that we’ve over 20 years developed these systems where we follow money as closely as we possibly can. We have auditing mechanisms, we have people on the ground. So if they’re committed to the reforms, we think we can move and we’ll watch carefully. The money has to get to the poorest who need it.
SCHATZKER: I want to read a quote from a 2011 public expenditure and financial accountably assessment. This is from the World Bank, an official named Qimiao Fan. He was the country director for Ukraine, Belarus and Moldova before you were president of the World Bank.
But as you can see here, he said, “Ukraine has made important progress in public finance management reform in the past few years, including the areas of transparency, predictability, execution control of the budget and public procurement.”
This was back in 2011. Now I just wonder, quite honestly — and this is why I kind of want to hold your feet to the fire – how confident you can be in your efforts to audit what goes on in Ukraine. Because as we know now, that’s not what was happening in Ukraine in 2011. It appears as though the Yanukovych government was corrupt and that all kinds of money was finding its way into the boat that we have seen at his compound in the extraordinary palace that he built for himself.
How do you – I mean, I would imagine that, A, this is important to you, and, B, you want to make sure that nobody can say that kind of thing about your administration years later.
KIM: Right. So if you look at the overall Ukrainian economy, it’s about $350 billion a year. And so even though we’re a major donor, we’re 3.7 billion. So we have in place is mechanisms to follow really carefully the money that we provide as it goes in. That’s about the best we can do right now.
And so what we also do is when we find that there’s some corrupt activity, we follow it up and disbar the companies that were involved. We have mechanisms but this is complicated stuff. At the same time, we always have to think about the people who are the beneficiaries. There are many, many people in the Ukraine who lack for the most basic things — good health care, access to sanitation and heating. Tthose are the things we’ve been focusing on and we’ll keep focusing on.
RUHLE: All right, I want to move on to China. What’s your take right now on sort of the slowing economy in China and the effect that’s having on some of the developing countries around?
KIM: A few years ago we wrote a report with the Chinese government, and this was the first time that the Chinese government had ever approved language that said they’ve got to move from focusing on investments and exports to focusing on consumption and services as the growth drivers of their economy. It’s also the first time they said state-owned enterprises need to face competition.
All of the reforms that you’re seeing now really were outlined in this document that we put together with the Chinese government. Any process of reform, the likes of which the Chinese government’s taking on, is going to probably lead to some slowing in growth.
And so yesterday or a few days ago, I’m not sure exactly the day, but the premier Li Keqiang did his annual press conference. And so what you see there is of course concern about slowing growth. We know that a slowing Chinese economy is going to have spill over effects on many other economies in the entire world. On the other hand, we support very strongly the reforms that they’re undergoing. And those reforms, they’re tightening credit because they’re potentially facing problems with all this credit coming out of the shadow banking industry. They’ve got to do this, and it’s hard to imagine a scenario where they could do that and growth would not slow at least a little bit.
SCHATZKER: A slowdown in the Chinese economy has the potential to exacerbate the growing gap between the rich and the poor in China. What in your opinion can the Chinese government do to prevent this income inequality – we hear lots about it here, but the truth of the matter is it’s happening there too – from spilling over and upsetting what has always been a delicate political balance, this sort of implicit idea that we’ll trade growth for stability?
KIM: When we look at something like the millennium development goals which were focused on — the first one was to reduce extreme poverty. Chinese made a greater contribution to that than any country in the history of the world, and it was because of growth. But then in the process, they faced a widening income inequality. So one of the things they’re going to do is they’re going to loosen restrictions on wages to try to increase wages for ordinary Chinese citizens who are working. And then what that will do then is, we hope, increase consumption in a direction that will fuel the growth of the economy in a different way.
So the Chinese are very much aware of the income inequality. They’re also very much aware of the difficulty of providing health care services and education to everybody. They have a system where right now it’s difficult to get health or education services other than where you were born. But people are moving into the cities, so what do we need to do? That’s the precisely the kind of thing we’re working on them with.
SCHATZKER: What if it doesn’t work? What if this effort to loosen wages doesn’t translate into higher incomes?
KIM: Well, we are in constant conversation with them. And I think one of the things about this new regime, Le Keqiang I think is probably — the premier — is one of the most significant economic thinkers that have ever been in the leadership of China. And so we think that he is completely on top of what’s going on. They understand the situation. We’re providing advice. This is a difficult transition. They’re talking about moving from 46 percent investment as a percentage of GDP — those are levels that we have hardly seen before. And to scale that back and move toward a different driver of growth is complicated. There will be these ups and downs in the growth numbers.
RUHLE: Well, you’re talking a lot about balance. How about the balancing act we’re seeing in emerging-market nations as they’re trying to digest the fed tapering exercise here? How are they going to absorb that without really having the hiccups that we saw just a couple of months ago?
KIM: The end of January hiccup, we did see that. There was some capital flight from some of the emerging-market economies. But here’s what we hope. All the signals are that Janet Yellen wants to continue Chairman Bernanke’s policies and that Chairman Yellen is going to try to make this as smooth as possible. If that happens between now and 2016, we think that capital flows as a percentage of overall GDP in emerging markets will go down slowly. It’s about 4.6 percent right now. We hope that what will happen is that it’ll go down slowly to about 4 percent over the next few years.
And the good news is that the developed economies are growing. And that should have a positive impact in terms of better exports. So the emerging markets have to balance that. Now the problem right now, if you look at Indonesia, India, Turkey and Brazil — all of them are going through elections. So again we are in constant conversation with them. They know the reforms that they have to be undertake, whether it’s in the business environment or more pro-trade policies. They know what they have to do, but it’s just difficult to pull the trigger when you’re in the middle of an election season.
They know that; they know what they’re hoping to do. We hope that as we get through the election season, the reform agenda will accelerate.
RUHLE: All right, we have to take a quick break. We’re going to cover a lot more with you. Such a treat to have you here.
SCHATZKER: Stephanie and I are having a great conversation with the president of the World Bank, Jim Yong Kim is our guest for an exclusive interview. Dr. Kim, thank you again for taking time with us.
I’d like to ask you about World Bank policy. The World Bank, as you know, is still identified very closely with a set of economic policy prescriptions, specifically ones that have endured much criticism over the years. I’d like to know is the Washington Consensus dead under Jim Yong Kim’s World Bank?
KIM: Well, you know, my first trip to Washington after I graduated from college was to be part of a movement called 50 Years is Enough. We were trying to close the World Bank.
RUHLE: Get out of town.
KIM: So I was actually on the streets –
RUHLE: You’ve got to be kidding me.
KIM: Here’s why. You know, we weren’t really arguing with most of the Washington Consensus in the sense that you have to have independent central banks, you’ve got to really have much more prudent fiscal policy, you’ve got to watch your debt to GDP. That’s all good. And the countries that listened to us in recommending those kinds of fundamental macroeconomic changes did better during the crisis years.
Now what we were complaining about, though. Was that the bank at that time did not appreciate the importance of investing in people. That’s changed. The IMF has just been coming out and talking about the importance of greater equity because inequality is a drag on growth. This was not the perspective 20 years ago.
RUHLE: Why not? What did the world look like then that made this not front and center? Why wasn’t it an issue for them?
KIM: We Didn’t have the evidence that matched with our ethical and moral values. We were saying, you know, but health care has to be important and education has to be important. But we didn’t have data on the impact on growth. So recently Larry Summers led a panel that looked at the importance of better health for growth. And so between 2000-2011, Larry Summers’ panel found that as much is 24 percent of growth was a result of better health.
Now the other thing, education — we have this thing from the OSCE called the PISA Scores. And performance in the PISA scores is directly correlated with economic growth. So now we know. The evidence matches our ethics now, so that we know that in addition to spurring growth, you have to invest in people.
RUHLE: Do you have any photographs in your office from when you are were protesting down there? Was your hair long? Did you have a headband on?
KIM: You know, no. No, but-
RUHLE: Because it would be so good in your office right now.
KIM: But I do have some pictures like that, I do.
SCHATZKER: Does that mean that Jim Yong Kim is building a new Washington Consensus where economic development is matched with health, education, rule of law, freedom of press, human rights?
KIM: Well, we’re specifically not supposed to delve into matters of politics.
SCHATZKER: But you can’t really have economic development without a political structure to support it.
KIM: Right. Well, I mean, many people are talking, especially around the new millennium development goal structure, that rule of law has to part of the picture. But we’re focused on economic growth. And because we now that investing in human beings, spurring greater equity in a society, actually is good for growth, the agenda is much broader.
So the original Washington Consensus ideas were not bad ideas. There just were not enough.
SCHATZKER: What do you call the new one then?
KIM: Well, you can’t do this just from Washington anymore. Maybe we’ll have the Ouagadougou Consensus were, you know, we go to somewhere in Africa and then bring everyone to the table. Because if the agenda — the agenda right now looks fairly uncontroversial. We need growth, but growth has to be inclusive. We know that if you ignore the bottom part of your society, you’re building instability even politically. What was the Arab Spring?
The second part is you’ve got to invest in people. Education, health, critical things. And then the third part of course is none of that will matter if we despoil the planet so much that we’ll go right back into the depths of poverty.
RUHLE: All right, you talk about the planet. Is of the role of the World Bank to take on a policy challenge like climate change?
KIM: Well, it’s more than a policy challenge. What we’re trying to say is, look, climate change in some quarter is controversial. Among scientists, it’s not. Look, 97 percent of scientists agree that man-made climate change is a reality. Now, I’m a medical doctor. There’s very few things in medicine that 97 percent of doctors agree on. So I think the science is clear.
The question for us, what are the things we’re doing right now that we can do better to battle climate change? And there are a bunch of things. We can build cleaner cities. Right now our big project with the Chinese is trying to put a plan together so they can build cleaner more livable cities. 70 percent of all CO2 emissions come from cities. And right now they’re being built, and they’re being built more helter-skelter in the developing world.
Agriculture. You know, the great news is that the way to improve productivity in agriculture is actually perfectly aligned with putting more carbon back into the ground. And the other thing is is right now there’s not enough long term financing for renewable energy. We can do something about that.
SCHATZKER: So the World Bank has, if I understand correctly, has committed itself to not financing or promoting projects that either cause environmental degradation or contribute to the problems we associate with climate change. Right?
KIM: We’re going to do the best we can. But there are countries where they’re going to have to be different kinds of solutions for different countries.
SCHATZKER: Like, for example?
KIM: Well, for example, there are countries today that, try as we might, we can’t see options other than fossil fuels and even coal in a very rare circumstances.
SCHATZKER: Like Kosovo for example?
KIM: Yes, in very rare circumstances. We’ve been looking and we’re still looking. We’re trying to find any option other than coal. But people deserve access to energy. We have to balance, on the one hand, our very aggressive approach to doing everything we can do to battle climate change with, on the other hand, people’s right to energy.
RUHLE: When you look at companies, you deal with them all the time, are there those that you can point to who you believe are doing it right? Making the right moves in terms of climate change, carbon footprint?
KIM: I mean there are a lot of countries — companies that you wouldn’t suspect who are having a huge impact. You know, The Coca-Cola Company (NYSE:KO) — we work with Coca-Cola on water issues. Because this is a fundamental problem for them. And Muhtar Kent has been a real leader in looking at how we can improve our water supply. Even Wal-Mart is doing things on reducing their carbon footprint in transporting food. And a lot of the food companies are working with us on this climate smart agriculture because they’re going to need a steady supply of food going into the future. In many ways, the private sector is ahead of government in trying to respond to what’s happening.
SCHATZKER: What’s your view on monoculture? You know, crops that we now rely on. We were talking about this other day — wheat, soybeans, corn — acres and acres and acres all fueled, if you will, by fertilizers, hydrocarbon fertilizers. Clearly it’s done a tremendous amount for — to contribute to a decline in the price of food. But it appears to come with some serious risks. How do you balance that out?
KIM: There’s a lot of exciting things that we’re watching right now. So for example, just give you one example — we’re going to need to plant wheat. But it turns out there are really older varieties of wheat that had roots that were much, much longer than the ones that we’re using today. And the great news about that is that they’re hardier, they can withstand changes in climate, and also because of the root system, they actually put more carbon back into the ground.
So there are all kinds of really interesting innovations. Our job is to capture those innovations and help every country in the world scale them up. We’re the people who should be most focused on taking great ideas and helping countries scale them up.
RUHLE: You are doing extraordinary work. When we reached out to viewers and said that you were joining, they wanted to know more about you. You said you love looking at exciting things, there’s something exciting that I got to see that maybe our viewers forgot. Jim Yong Kim performed, when he was the president of Dartmouth, will.i.am’s “I Had the (inaudible).” If you forgot, here it is just as a quick reminder.
(BEGIN VIDEO CLIP)
KIM (singing): It’s the truth and I owe it all to you.
(END VIDEO CLIP)
SCHATZER: It’s clearly a prerequisite to being president.
RUHLE: For being president of the World Bank. But we do, we want to put you in the hot seat. There are a few burning questions we have so we can understand the man you are. Who would play you in a movie ?
KIM: On my best day, Daniel Day-Lewis.
RUHLE: Wow. That’s a good one. That’s a very, very good one.
SCHATZKER: What’s your favorite show to binge watch?
KIM: Oh my goodness. I’ve been binge-watching things that I should not be binge-watching.
RUHLE: Like “Real Housewives”?
KIM: No, no. “The Good Wife.” I’m a fan of “The Good Wife”.
RUHLE: All right, what’s your guilty pleasure?
KIM: Golf. And I play with one of your bosses, Michael Bloomberg.
KIM: Diana Taylor was on my board at Dartmouth, and so I got to play golf with Mike. And he’s an avid, avid golfer.
RUHLE: All right, well, that’s a pretty nice guilty pleasure. Of all the places you have ever been in the world, you’ve traveled the world, what’s your favorite?
KIM: You know, I learned the most in Haiti. Haiti is a tough, tough place to go, because the poverty there just makes no sense. It’s a 45 minute flight from Miami and all of a sudden — deforestation has just destroyed everything. But I have learned more from illiterate peasants in Haiti than from anyone else I can recall.
RUHLE: Two weeks ago, we had almost the identical conversation with supermodel featured in the “Sports Illustrated” swimsuit addition, Petra Nemcova. She moved there after visiting Haiti and said almost the identical thing. So what an extraordinary country it is, and again a 45 minute flight from Miami. You’re in good company.
KIM: I have a lot in common with supermodels.
RUHLE: You know why? Because you’re pretty super. All right, thank you so much for joining us.
KIM: Thanks to both of you.
RUHLE: What a treat. From the World Bank with us for an exclusive.