Ignazio Visco: Statement - meeting of the Development Committee
Statement by Mr Ignazio Visco, Governor of the Bank of Italy and Governor of the Constituency of
Albania, Greece, Italy, Malta, Portugal, San Marino and Timor-Leste, at the 99th 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, 13
April 2019.
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Introduction
Over the past months the global macroeconomic outlook has deteriorated substantially, partly
due to temporary factors. The global slowdown has been accentuated by widespread
uncertainty, which is also linked to the risk of trade dispute escalations, hurting investor and
consumer confidence in many regions, especially in Europe and China. A range of triggers
beyond the current tensions could spark further deterioration in risk sentiment. This would result
in adverse growth implications, especially given the high levels of public and private debt.
Over the past twenty-five years, open markets have contributed to a dramatic fall in global
poverty. However, progress has been uneven, and there are indications that the picture may be
changing in some areas. In Sub-Saharan Africa, as well as in fragile and conflict-affected
situations, the total number of poor is on the rise. This on its own is of great concern and could
further amplify the risk of a mass exodus from those areas. In many countries, the bottom 40
percent of the population has been progressively left behind. It is therefore imperative to
intensify the promotion of economic growth, while at the same time ensuring that the poorest
reap the benefits.
Two measures appear crucial to eradicating extreme poverty. First, emerging economies that
need it most should adopt appropriate redistributive policies. Second, the international
community should step up the effort to ensure that resources sent to poorer countries are
invested in the most effective way, to promote investment in high quality infrastructure and to
tackle conditions of marginalization, often linked to poor health and education. Encouraging the
build-up of institutions to limit the phenomenon of exploitation - still too widespread in these
countries - would buoy economic development and make it more inclusive.
Disruptive technologies
Technological progress and globalization can provide important development opportunities for
all countries. In the short to medium term work displacement is a risk and may well exacerbate
income inequality.
In several developing economies - including in Africa - there is growing evidence that
information technologies can create jobs by raising the productivity of existing firms and
encouraging the entry of new ones. We should remain vigilant about the consequences of such
changes for the economies at large: disruptive technologies may not be socially sustainable if
the fruits of progress only
benefit the few; they may also not be economically sustainable, if worker displacement reduces
aggregate demand.
Global enterprises at the frontier of technological innovation - including the so-called "Big Tech"
- are in the best position to exploit economic integration by taking advantage of access to very
large markets. They can cut prices through investments in technology, benefitting from
economies of scale, as well as across-country differences in the cost of labor for given skills.
The ability to produce at lower prices could indeed benefit consumers, but if "dominant
positions" emerge, there is the further risk that cost reductions may not be fully translated into
prices.
Another competitive advantage of "Big Tech" companies is the huge amount of personal
information they possess. This poses delicate problems of security, management, and data
processing that go beyond the mere protection of privacy. The level of cybersecurity should be
strongly prioritized. The risk of payment service interruptions, large-scale financial fraud, and
widespread and prolonged breaks in the supply of electricity may have worse consequences
than those of the "traditional" crises that originate in the economic system. The complexity and
global nature of these issues makes any attempt at unilateral regulation bound to fail.
An answer to these challenges that would consist of slowing technological developments, or
reintroducing barriers to economic integration - a tendency that seems to be gaining ground
dramatically in recent years - would amount to a huge waste of opportunities. Goods and
services that can improve our living standards would only come with severe delays and at
much higher costs. On the contrary, we should strive to build and properly manage the
necessary institutions to govern these risks effectively and make the most of the great
opportunities offered by technological progress.
Implementing the commitments of sustainable development
We are encouraged by the advances in the implementation of the "Forward Look" and the
commitments agreed upon with the Capital Package for the IBRD and IFC. The narrative
underpinning the request for additional capital is predicated on the need to foster development
by creating markets in the world's most challenging arenas. Therefore, we look forward to the
approval of the resolutions for the IFC, so that a complete implementation of the package may
be achieved through leveraging private sector resources.
The recent focus on IBRD and IFC capital needs should not diminish the crucial role that IDA
and MIGA are expected to play in the pursuit of the Sustainable Development Goals. We
encourage IDA to take advantage of its financial capacity and build on the lessons learned from
the Private Sector Window to promote better World Bank Group solutions for the poorest
countries. We also expect that - in response to the call of the G20 Eminent Persons Group -
MIGA will take stock of the guarantee and de-risking facilities put in place by the Multilateral
Development Banks and will explore options to enhance coordination and cooperation with
these institutions.
We support the roadmap for review of the system governing IDA voting power and the aim of
presenting a paper to the Governors at the next Annual Meetings. We back the principle that the
voting rights system should ensure protection for IDA recipients, while providing adequate
incentive for new and existing donors to contribute.
We commend the World Bank Group's commitment to achieving further budget efficiencies,
after the successful implementation of the expenditure review. With the increasing costs of
doing business, further efforts will be necessary to prevent recurring to IBRD capital in order to
cover administrative expenses in excess of revenues. The financial sustainability of the IBRD's
business model is essential to ensure solid income generation which will bear future needs.
We are concerned that a large part of the projected savings may come from increased average
project size. We urge Management to ensure that this will not jeopardize the agreed-upon shift
of resources towards the poorest and most fragile contexts.
We support a more selective engagement with clients in the upper income range and expect
that intervention in these countries will be focused on strengthening policies and institutions. A
continuous engagement of the IFC in these countries will facilitate an orderly graduation process
from IBRD lending and a more systematic reliance on market mechanisms to pursue each
country's development strategy.