Interview with Vinod Thomas, Director-General, World Bank.
With the annual Spring Meetings of the World Bank and the International Monetary Fund (IMF) happening earlier this month, both institutions sought to focus the world's attention on multiple crises affecting developed and developing nations including food price inflation, natural disasters and their links to climate and the risk of ever more people descending into poverty following the worst economic downturn in 80 years. Even as nations continue to reel under the impact of these crises Vinod Thomas, Director-General at the World Bank, talked to Narayan Lakshman about their interconnected nature and indicated what focus future policies and reforms should have if they are to steer through the volatility.
Dr. Thomas currently heads the Independent Evaluation Group (IEG) of the World Bank, a role that allows his team to critically evaluate Bank performance across all areas. He reports directly to the Board of Executive Directors.
Joining the Bank in 1976, Dr. Thomas has held numerous senior roles including Country Director for Brazil and Vice President of the World Bank, Vice President of the World Bank Institute (WBI), Chief Economist for the World Bank in the East Asia and Pacific Region, Staff Director for the 1991 World Development Report, and Chief of Trade Policy and Principal Economist for Colombia. He has a PhD in Economics from the University of Chicago and is the author of numerous books, articles, and reports.
Food price hike
Can you begin by addressing the serious nature of the food price inflation that World Bank President Robert Zoellick spoke about this week — is due to production or distribution? How serious is this crisis compared to what happened in 2008?
First of all the price level has hovered around what it was in 2008 and actually exceeded that, so the 2011 price increase is comparable to 2008, which makes it a very serious issue without a question. India in particular is vulnerable because food price inflation has been high and it affects a large number of people with roughly 50 per cent of consumer expenditure of the poor certainly going to food. So in that sense the first link is with poverty.
But there is a big factor that is truly additional to all of this, compared to anything we have seen before, and that is why the 2011 crisis is more of a concern than what we noticed in 2008 even. That factor is natural disasters and climate change. There is no doubt that the heat waves in Europe and the Russian drought and the floods in Pakistan and the combination of floods and drought all across the world have had an effect on supply side constraints.
Moving to a similar theme that came up during the Spring Meetings, Dominique Strauss-Kahn, Managing Director of the International Monetary Fund [IMF], warned of a global economic recovery “without enough jobs” and also spoke of a lost generation of youth who could struggle in the job market. How do you see this playing out in the advanced economies worst hit by the downturn?
The crisis of 2008, as we all now recognise, originated in the industrial countries and that is where the recovery is also the weakest. The crisis hit the middle-income countries and low-income countries as well, eventually, but the recovery was fastest in Brazil, India and China.
In a way, today, the global growth rate is held up by the middle-income countries and the BRICs and the recovery elsewhere is proving to be essential because at the end of the day in a globalised setting the whole global economy needs to pick up. So one question is just about the recovery of growth in Organisation of Economic Cooperation and Development [OECD] countries but the other is about the nature of the recovery, because if it does not create more jobs, every country is concerned about its impact socially.
Now, the Organisation of Economic Cooperation and Development [OECD] countries' recovery projections [their] uncertainty [and the] the inadequate corrections that have taken place following the crisis of 2008 are of concern on the financial side.
Do you think it is useful to frame it the way Prime Minister Manmohan Singh did earlier when he said that a certain percentage of Gross Domestic Product [GDP] was being lost to climate change effects?
Absolutely, we have estimates for India, China, Argentina, Brazil, and Turkey. For these countries' income levels, the estimates of the damage to the environment [and its impact on GDP] is about two or three per cent. You can think of that as the loss [of income] per year from destroying the environment and the climate. Why does that not touch us? It is because that is a public good, everyone is affected, and it is an externality.
Since Cancun, the dramatic news or change is that the Environment and Forest Ministries of two major countries have taken a view, much more clearly, that a cleaner, better environment is good for growth — and that is China and India.
So what Minister Jairam Ramesh did is good for the environment but it is also good for growth and that recognition is important for India. In the long term it will not be possible to grow at 8.5 per cent if natural disasters, agricultural disasters and pollution will reduce GDP by around 3 per cent a year. It just will not be possible.