The Changing Bank in a Changing World

I. Introduction

1. Thank you Mr. Chairman.

• Ladies and Gentlemen. Good Afternoon.

• It's a pleasure to be here.

2. I appreciate this opportunity to brief you on where we (in the Bank) are and where we are headed - our changing role in a changing world.

• With time so short, let me get straight to it.

• I will talk from the "inside out" - touching first on where we are internally - in terms of our capacity to meet new challenges - and second on the external challenges we face. I will close with brief observations on the outlook.

II. Internal Renewal

3. Let me start with the "inside" first. We have just completed the third review of the Strategic Contract - the internal renewal program the Bank adopted 18 months ago. The results are encouraging:

• Quality is up: our development portfolio is improving OED - the Bank's independent evaluation group -is also reporting improved outcomes, even in Africa, where previous efforts to upgrade have had little pay off. The bad news is that the quality of our East Asia portfolio has nose-dived, mirroring conditions on the ground.

• Quantity is up: last year was the highest level of lending - both IBRD and IDA - in the Bank's history: $28.6 billion in new commitments and $24.8 billion in disbursements. Lending to Africa was the highest since FY92.

• Efficiency is up: we are working faster and more cost-effectively. The service-standard indicators we track show this; even more important, our clients say this.

• Strategy is up: we are more client-focused (22 country directors in the field), more innovative (single currency loans, adaptable lending), more open (CASs now to be published), more team-spirited (including with IFC and MIGA, in part through our Bank Group CAS work), more outgoing (working with NGOs, MDBs, private sector, and other partners), and more differentiated (balancing our efforts to go global on the environment with other efforts to go local, via lending for sub-national units).

4. But there is no room for complacency.

• We clearly still have a long way to go on our internal renewal - changing management culture and behavior takes time.

• And major challenges lie ahead - getting staff and managerial incentives and accountabilities right is at the top of this year's agenda.

• Though much remains to be done, I do believe the Bank is as well positioned management-and efficiency-wise to meet the challenges it faces us at any time in its 54 year history. I believe we have turned the corner.

III. External Environment

5. Of course the big question is whether we are up to the external challenges before us.

• That's why you invited me here today.

• To talk about the implications of the global financial crisis for the Bank and its role.

• So let me now turn to the "outside."

6. As you know, the World Bank's mission is to help developing countries reduce poverty and achieve sustainable development.

• Today, our ability to carry out this mission is being stretched as never before.

• Countries are looking to the Bank for unprecedented levels of financial support.

• The Bank needs to be able to respond in these situations, while protecting its ability to help these and other countries in pursuing its core developmental mandate.

7. Globalization has had many implications for Bank clients and for Bank operations.

• During the globalization boom, which we were all celebrating as recently as two years ago, demand for Bank financial support declined in many parts of the world - countries in East Asia and Latin America quite prominently - as emerging market economies gained access to other financial sources.

• More recently, during the bust, demand has rebounded as those same countries have been shut out of global financial markets.

• Both boom and bust have had profound effects on the Bank; but the bust poses the larger challenge the Bank's mandate, which must continue to be on development.

8. With respect to crisis management, this presumption translates largely into a focus on crisis prevention, which is simply the flip side of the Bank's developmental role - with crisis response clearly reserved as an extraordinary last-resort effort.

• Crisis prevention largely means ensuring that the macroeconomic, structural, and social foundations of sustainable development are in place.

• But globalization raises the stakes on countries getting their policies and institutions right - by increasing the cost of failure.

• Hence, the urgency of focusing Bank crisis-prevention resources on the key policy and institutional drivers of sound and sustainable growth and development.

9. But for too many of our clients, the time for crisis prevention has long passed. So what about crisis response? How does that fit the Bank's mandate?

• Appropriate structural and social policy and institutional frameworks are clearly essential for sustainable growth and development.

• Such frameworks include prudential financial regulation and supervision, sound public sector management and corporate governance, and adequate social safety nets and programs are all structural areas covered by the Bank's mandate and expertise.

• In this context, the largely structural origin of recent financial crises, and their major social/poverty consequences - and the resulting windows of opportunity for structural reforms that might otherwise have remained closed - provide the main rationale for Bank participation in crisis support packages.

10. The Bank responded to the East Asia and other financial crises of the past twelve months by adapting existing instruments to clients' emerging needs.

• This response was initially seen as a one-off occurrence, but we ended up committing over $8 billion in crisis-related support over the past 12 months. Meanwhile, as we are all so painfully aware, the severity and spread of the crisis show no signs of abating.

• In the circumstances, we have submitted to our Board guidelines for ESALs - emergency structural adjustment loans.

• The guidelines are designed to codify and regulate evolving practice in emergency lending - including setting higher prices to cover ESALs' incremental risks and costs. However, they do not imply that ESALs are a regular business activity. Their purpose is not to provide liquidity financing per se. Nor do we have sufficient financial capacity to do this in the large scale that countries are seeking.

IV. Outlook

11. Looking to the future, what do we see?

• For the near term, we clearly have our work cut out for us.

• The external environment will continue to be a major preoccupation for us all.

• For the Bank, this means continuing very strong demand for adjustment finance and pressures to be part of crisis prevention and response packages. We are seeing this in spades these days in out marathon meetings with finance ministers.

12. The bottom line?

• With our lending resources so small relative to demand, we simply must ensure that we are getting the biggest policy and institutional bang for our IBRD bucks. This means:

• We must accelerate our internal focusing from individual projects to country strategies, partnerships, and results - to find ways of enhancing our developmental leverage.

• We also must look into our instruments, including contingent finance vehicles and guarantees - to find ways of enhancing our financial leverage.

13. Last but not least: we must continue to scrutinize our financial position, to ensure that we maintain both our financial standing and our capacity to address what remains our primary task - promoting development.

• Without an increase in our capital and risk-bearing capacity, we cannot do what we are being asked to do - what we are otherwise ready to do.

14. Thank you. I look forward to your questions.