Mario Draghi: The financial crisis - impact and responses
Statement by Mr Mario Draghi, Governor of the Bank of Italy and Chairman of the Financial
Stability Board, on behalf of Albania, Greece, Italy, Malta, Portugal, San Marino and Timor
Leste, at the Seventy-Ninth Meeting of the Development Committee (Joint Ministerial
Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real
Resources to Developing Countries), Washington DC, 26 April 2009.
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1. A crisis of growing proportions
Since we last convened in Washington for the Bank and the Fund Annual Meetings, six
months ago, the crisis has taken a new turn. What was then a crisis affecting most advanced
economies is now having severe impact on Developing and Transition Countries (DTC).
Several transmission mechanisms have acted adversely over the last semester: financial
intermediaries overly exposed to maturity/currency risks have curtailed lending; heightened
risk aversion has massively reduced capital flows into emerging economies; export revenues
have fallen as a result of declining trade volumes and commodity prices; remittances -
normally a countercyclical factor in poor countries - seem to show a reversal in their
multiyear upward trend.
2. The Bank response to the crisis
The World Bank Group (WBG) has promptly responded to the growing financial needs of its
client countries by scaling-up its development assistance and leveraging its own resources
with those from other public and private donors. President Zoellick has pledged to bring new
IBRD loans from $13bn to $35bn in the current fiscal year and up to $100bn over the period
spanning fiscal years 2009 to 2011. Over the same period, IFC plans to fully leverage its
capital base by raising its loans to $12bn per year.
The WBG response to the financial crisis has also led to the development of the Vulnerability
Framework (VF), a well-conceived platform intended to provide donors with an ample choice
of multilateral development institutions and facilities to channel development funds. The
support to trade finance, as envisaged in the VF, will help timely counteract the sharp
contraction in trade volumes that emerged in recent months. The VF is well positioned to
play an important countercyclical role, backing countries currently cut off from capital markets
with additional finance.
At the same time it is important that all new resources falling under the VF umbrella meet
standards of accountability, oversight and evaluation as rigorous as those governing the use
of WBG funds. More broadly, short-term public budget relief (through fast-disbursing
Development Policy Operations) must be strictly and verifiably targeted to restoring fiscal
space for essential social needs (Health, Education, Nutrition); a sharp focus on long-term
development goals, above all the need to support food security, social safety nets and
infrastructure, especially in African countries, must be maintained.
We support the envisaged surge in the deployment of IBRD and IFC resources. Lending
growth over time under persistent uncertainty on economic and financial conditions warrants
continued budgetary discipline and a thorough review of both institutions' financial
sustainability and overall risk exposure.
The front-loading of IDA resources and fast implementation procedures such as the
Vulnerability Financing Facility, are appropriate measures at this time of crisis. We believe
that IDA is well positioned to accelerate its support to low income countries, thanks to the
substantial increase of its commitment authority for the next three years under the IDA 15
replenishment.
3. Crisis and climate change: two intertwined challenges
The complexity of dealing with climate change reflects the intricacy of development
challenges in an increasingly interdependent world. Climate change encompasses, and
amplifies, concerns related to natural resource scarcity, food supply and security. It entails
substantial financial requirements and distributional tradeoffs that, in turn, pose daunting
political economy challenges.
However, neither these challenges nor emergencies related to crisis management should
undermine the WBG's commitment to the climate change agenda. Scientists have
documented that the window of opportunity to tackle climate change is shrinking fast and that
urgent and unprecedented levels of multilateral collaboration are needed.
Moreover, the UN Climate Change Conference in Copenhagen in December will shape a
new global financial regime providing the World Bank with a unique opportunity to liaise with
lead negotiators emphasizing the WBG role in the international debate on climate change. In
particular, we expect the WBG to help develop currently existing or proposed financial
schemes to support less carbon intensive technologies and to adapt rural and urban
environments to the adverse impacts of climate change.
4. Voice
We welcome the progress made in implementing the first stage of the reform aimed at
enhancing the representation of DTC in the World Bank Group. As agreed at the last Annual
Meetings, the shareholding review should consider the evolving weight of all members in the
world economy and other Bank-specific criteria consistent with the development mandate of
the institution.
We invite Management, in close interaction with the Board, to prepare concrete criteria and
options for shareholding realignment to be submitted for Governors' future consideration,
with a view to reaching a broad consensus on realignment by the 2010 Spring Meetings.