World Bank appeals for funds

October 06, 2009 04:02:04 PM

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The World Bank appealed Monday for more funds as it sees a second straight year of record lending amid the global economic crisis, warning it may have to ration aid to only the poorest countries.

World Bank president Robert Zoellick said that rising aid demand was set to strain the lender's resources by mid-2010, forcing it to slash lending.

"As we start to get towards the middle of next year, we are going to start to face some serious constraints, and we would have to ration and obviously focus on the lowest-income countries," Zoellick said at a news conference in Istanbul.

Zoellick said the bank had entered the global financial and economic crisis solidly capitalised but that strong demand exceeded the 100 billion dollars it was prepared to provide over three years.

The bank forecast another record year of lending to middle-income and creditworthy poor countries this year, of at least 40 billion dollars, after 33 billion dollars in 2008.

"These are difficult times for governments, and all their budgets are stretched," he said.

Zoellick spoke after a committee representing all 186 members of the World Bank and sibling institution the International Monetary Fund tentatively approved the first general capital increase for the World Bank in 20 years.

The Development Committee, which mainly sets strategy for the anti-poverty lender, said the World Bank should be given sufficient resources to deal with the crisis as 90 million more people risk being forced into poverty by 2010.

Zoellick said that although the global economy may be pulling out of the worst recession in six decades, risks remain high, including from government plans to withdraw economic stimulus and debt rollovers that could be combined with a rise in interest rates.

"We have no guarantee that the private sector, the main producer of jobs, will kick in. It is still not clear who will replace the US consumer as a source of demand," the former US trade representative said.

The member states of the Washington-based institutions asked the bank to provide an updated review, including on its general capital increase needs, to be completed by the next twice-yearly meetings in April 2010.

IMF managing director Dominique Strauss-Kahn, speaking as the world's finance ministers and central bank governors gathered for the World Bank and IMF annual meetings that begin Tuesday, also called for more resources for the World Bank as unemployment continues to surge.

"What the World Bank, and for a much more limited part, the IMF can provide to these countries will be absolutely critical and that's why the question of resources is so important," he said.

Strauss-Kahn said it would take at least eight to 12 months before unemployment will decrease globally, and in advanced countries the peak could occur in 10 to 12 months.

"The problem we are going to face in the coming year may be much more important, much more difficult to solve in low-income countries and some emerging countries than in advanced economies," he said.

Compared with advanced countries, where the recession has meant a couple of percentage point changes in purchasing power or unemployment, in low-income countries "it goes to a question of life and death, or starvation," he said.

The IMF on Thursday raised its projections for world economic growth for next year but warned that the recovery would be sluggish in most regions and employment would continue to rise.

According to its semiannual World Economic Outlook report, IMF economists estimated growth of 3.1 percent in 2010, hiking its July forecast of 2.5 percent.